| by Admin
what are Options?
Options are part of the derivative segment of the share market, And today we'll be talking about trading in options without adequate knowledge and without any strategies.
I'll be sharing what I have learned about the mistakes ever new trader makes or things that made our hundreds of students confused the mosts, over the time period I have been working as a Head Analyst at IFM Trading Academy.
So what exactly is options trading?
options is basically a speculative trading platform where you predict where the share price will go from the point of Current Market price.
In it you can trade in two ways, one is CALL nd second is PUT.
Call is what u buy when u think the price will go up, and Put is what you buy when the price is going down. So when you are confident enough on your prediction, You pay A small premium of the strike price u think the share price will go.
Now why it is so risky and difficult to understand?
1st:- In options, you have to buy a whole lot. You can't just ask or place a bid for a single share. So the quantity of your buying is increased by a great no.
2nd:- Options are highly volatile. so the premium is always changing very quickly. Which is a very risky thing for a trader! As the whole price going up or down is determined by the no. of buying or selling going on. In options even if your prediction is right bt due to lack of buyers or sellers, you still lose money.
3rd:- Options are of a very time-sensitive nature. Meaning that an option's premium loses its value over time as the expiry comes closer. So If you are choosing A Strike Price of rs.100 of a particular share which is currently on 90 rs. So unless the current price comes to your strike price, which is 100, Your premium will keep on depreciating on a daily bases. And if on the day of expiry the current price gets to even rs.99, Still then also your premium will become 0.
So these were some of the main reasons Why trading in options is risky. But why do you think so many people are lured by options because where there are big risks there are big rewards too.
Let me put it like this,
First, the premium u are paying for a whole lot is comparatively much cheaper than the lot of equity segment, And even much cheaper than the futures too. So you can make as much as you are going to make in futures just by investing a quarter of the future margin.
Second is due to high volatility the targets are very easy to achieve and can be achieved in a very short period of time.
Options are also helpful in predicting the share price with fairly very good accuracy.
The bottom line is that do not start trading options without getting a full prior knowledge, which you can learn at IFM TRADING ACADEMY, with such an ease that you will become an expert in trading in options from a mere beginner in a matter of days.
Rajatdeep Singh
Head Analyst,
IFM Trading Academy.