Options Trading का पहला कदम। Options Trading-1 #Learn2Trade-33
Welcoming you to the Learn2Trade Session Number 33 I am Vivek Bajaj and I’m in the market since a long time. And teaching you all trading alongside Annapurna. – Hello sir How are you? – All good sir. Fantastic.
Same shirt, everything is the same because we are recording 2 videos the same day. So Annapurna, do you like Options in life? Getting various Options! -Yes. I get to choose Everyone loves choosing especially when we go to shop, we always want to select Make a choice whether I want this or that. -Right. If I give you an option that, if possible, in the future take reliance, Not needed right now. In future if you want you can take it. So, will you like it?
-Yes Sir, why not? Of course, if price will rise you would take it? -Definitely Sir. And If price would fall, you won’t take it? -So, this too is an option? Wow. Why not? It’s a Lottery. If the price rises, take it and if it doesn’t then don’t. -Okay. Okay. You are intelligent only? But for every option we have to pay a price. -Okay. Whenever we go to a shopping mall, we pay to see the options. What are they? -Travelling Cost, Petrol, Efforts that are made Time? -Time! - Time is the strongest.
Have you watched the Mahabharat serial? You might be too young that time. When we were kids, Mahabharat or Ramayana? Mahabharat! Where he would come and say “I am time.” And there he had narrated the whole serial. So, time is the most important resource in our life. Do you believe that? -Yes Sir. So, when you are selecting options, seeing them that what you have to take? Visit multiple sites and see what to choose and from that reduce and select.
It’s just waste of time. And time is precious. The person who will give you option, suppose I have done all the efforts And after searching the whole mall, I brought you 2 clothes wear to select from. So, for that you would give me some fees. Right? Because I saved time for you. -True. So that is the cost I will be expecting from you because of the convenience which you are getting.
So, if you want the convenience of buying reliance at any price in future… …Then there is a cost of convenience that you have to pay to the? -Exchange? To the seller. Because you are buying the convenience from the person who is selling it. -Okay. Let’s take another example, a casual one. Is your life insurance done? -Yes Sir. Very Good. We all have done it. At least you have learnt this that LIC should be done. -Right Sir.
LIC meaning Life Insurance is not true. Life Insurance Company is something different. But LIC has become so symbolic to Life Insurance. It’s a very big model. Have you ever thought? I generally think whatever happen. So LIC is insuring your life against the premium. -Right. So annually we are paying them a premium and what guarantee is it giving you? It is saying that if something happens to you, then LIC will give some money to your family. -Right. Have you ever thought how is it done by LIC? Is this an obligation by the govt? This is a not a social security measure that govt. has said that if anything happens to citizen you have to give money.
No. Although it’s an entity of govt of INDIA. But there is no such saying by the govt. So, have you ever thought that why does LIC does this that for such a small premium they secure such a big life? Why? -Sir but aren’t they are accumulating the premium over a period of time? How much? If you total it up and the sum that it ensures has a huge difference. It takes very little premium. Why? Because it has so many people from which it collects premium. Not everyone will go? Because it has a time period of ensuring the money it returns. -True.
Not all will go. Some will go. So LIC makes money in net. It’s a win-win for everyone That I would get premium and the one insuring is insuring the uncertainty. Insuring the Risk. -Right. So, if I give you an Instrument in the stock market that ensure the risk price of your stock And nothing could be better than it gives you an option to choose when the price is high or low. -Right. So, this is called OPTIONS. -Okay. So, when we discussed about derivatives, we had discussed about future. Futures meaning?
Future is a contract of taking a stock at a particular price later on. It’s a straightforward contract. -And I have to buy that? -And you have to buy because that’s an obligation. -Right Sir. Where as in options you have options whether you want to buy it or not. -Okay. And the counter party which is giving you the option has an obligation that if you say you have to take it….
…Then he/she is bind to sell you. -So, for that they don’t have to pay premium? Why will they pay premium? They will charge the premium from you. Because what hedge it is providing you at the uncertainty will charge a premium for it. LIC charges a premium from us. -Right sir. Got it. You are an option buyer because you have protected a risk by buying the option that if Reliance increases... …Then the price at which my seller decided. I can sell at that price. Sorry. I can buy. -Okay. Got it.
This is only our example. You are an option buyer. You are a buyer of call option. I introduced you a new word - Call Option. Meaning, Call. I’m calling meaning give me. -Buying!? -Buying. -Okay. -You are calling anyone like this... that means you are buying. So, if you are a buyer of call option it means you are buying from someone YOUR right to buy reliance at certain price. -Right. So, if the price goes up you will buy at the certain price and if the price goes down… …You won’t buy, because the price is already down. -Right. -So why would I buy? We will only pay the premium that has been applied. -Correct. So, what is the role of an option buyer? A call option buyer?
That I have the right to buy a stock at a particular price. What is the role of a call option seller? That the person is obliged to sell you if you exercise your right. Okay. But he does not have the right to call of the contract? -No one can call of the contract. The contract is there. In this contract you have a right. It is upon you whether you may will to exercise that right or not. Okay. So, this was the role of a call option buyer and a seller. Now let’s turn it around And let me say that if you want the right to sell reliance at a particular price and if the price rises, you won’t sell it.
And if the price decreases, then at that price I would sell. -So short selling. That means you want to short sell reliance. -Okay. -That means you are a buyer of PUT. -I am buyer of short selling. – Yes. -Okay. So, call meaning I want to buy share & Put meaning I want to sell.
So, selling share meaning, you buy the right to buy option put that you have the right you can sell the share to him/her. -Okay. Got it. So, call option and put option. Got the difference between the two? Now you tell. Call option is when I’m buyer of a call option then I buy the right of the share whether I can buy it or not. -At a certain price! -Yes. -Now what will be that price? We will discuss it later on. And when I’m buyer of a put option then I’m buying the right to sell that stock at any price. -Perfect.
So, if you want to become a buyer of both Call & Put then it means you are buying the right. Need the right. And if you are becoming seller that means you are under an obligation that… …I am obliged to give you the share at this price at a later period of time. Or I might take this share from you later on. -Okay. So, the seller has the earning from premium and the buyer has to give premium. Like under the case of LIC, we are buyer of option and LIC is the seller of option. -Right. What are we buying? -We are buying securities. Doing risk hedge.
Doing risk of your life and the money that will be going to your family which they would be needing for the future. So buyer of a call option is buying the right to buy a stock at a particular price in future. Seller of a call option is obligated. -Okay. Buyer of a put option is buying a right to put or sell a stock at a certain price in future. And the seller of put option has the obligation to? -To buy. -Exactly Fantastic. To buy the same. Now let’s study deeply, It’s very simple, Its just that the initial part. If you listen to the video 2-3 times…
…the concept will be clear. And focus on the hand movement. Call. Put. Call. Put. – Got it. Now let’s go to a website, very lovely website made by us. The website’s name is elearnoptions.com, a free website. -Okay. - Here you get A, B, C, D of options in English and the same we will study now in Hindi. Plus, we will discuss about some strategies too. But to know about the basics of option, I have already explained you what is call option & put option.
Call option meaning there is an obligation to buy from the seller’s perspective. Let’s not go back again and discuss conceptually that when we discuss about call option, then let’s restrict to call option. When we discuss about call option, when we buy option, we are paying a premium, To buy a stock at a particular price. What is that price?
That price is called the strike price. -Okay. You have multiple strike price and you can select at which strike price you want to buy it. -Okay. Like Reliance is of value 2100, Then the strike price is either 2100, 2150, 2200, 2250 or 2300. It is upon you at what strike price you want to buy. -Okay. But why are there so many options sir?
You have. It’s a good thing only. Options. Now tell me whether the value the strike price of call option is 2300, then what will be the premium value? And the premium of that of 2100 will be same? -No. No. -Why? Because if we are taking at a higher price then premium should even be adjusted accordingly.
Okay. Now today’s price of reliance is 2100 and the premium value of the strike price of 2100, And premium value of strike price of 2300. Whose might be higher? Current price is 2100. If the price now is 2100 that we are call... buying, then 2100’s must be higher. That of 2100 should be higher. Why? -Because anyway it has a longer position that will rise above.
So, if it rises more than 2100 then the risk is more. -Correct. And premium of 2300 must be less. Because 2300 is away. So, the seller of the option will say that to reach 2300 it will take time. So, then you would say why would I give so much premium? Because 2300 is too far. -Right. It is like if you want to calculate premium/year of Life Insurance then the premium of that 30 years and that of 60 years’ premium. Options is all about probability. So, life expectancy of living 30 years is more and that of 60 years is less. So premium value of that of 60 years should be always higher. Because risk is more there. LIC has more risk there. -Right.
And in here’s case the stock of 2100, strike price of 2300. Exercise of share having worth 2100 is more than compared to 2300. Because 2300 is far. And the premium value of that would be less. -Okay. -So, you are absolutely correct! What concepts have been discussed as of now? Call buyer, call seller, put buyer, put seller and strike price.
Sir just to confirm the major difference between a buyer of the call and the seller of the put, Is that the buyer of call has to pay premium and the seller of the put doesn’t have to pay premium. He receives premium at home. -Yes. -Because he is a seller. And the second most difference is that the buyer has the right and the seller has the obligation… …That he has to do only if the buyer exercise, then. Buyer can decide whether he doesn’t want to exercise. For example, if I buy 2100’s call option, then the stock price becomes 2000. Then will I exercise stock option of 2100? No because when I am getting at 2000 from the market… …Then why would I exercise it 2100? So, the seller got a lottery.
Because the premium he got at 2100 will be kept by him at home. -Got it. Once let’s go to exchange site. -Okay. -Because I think that will give you clear understanding. NSE INDIA. Let’s consider any stock, as we are discussing Reliance let’s take that. When you come under Reliance, go to derivatives below. Under derivative there is an option chain.
Option chain basically tells you the price of call option strike-wise and price of put options. Because at every strike it would have a different price. -Right. So, if you would see under Option chain, everything is a strike price. Price of reliance is almost 2100 So, call option and put option of 2100… 2120, 2140, 2160 2180, Meaning at a gap of 20 there is strike price. Exchange has some rules, That if there is a certain value of stock, then the strike price would give interval. Known at strike price interval. Some having higher value strike price might be having 50
And some having more higher will have a strike price of 100 which is defined in exchange. Here, Reliance having 2100 strike price, -Sir a little bit zoom-in. In strike piece of 2100 in which there is bid quantity, bid price, ask quantity, ask price. You know what Bidding a stock means. Bidding is at what price the buyer buying a stock and at what price the seller is selling. So, if we see that at a strike price of 2100 the buyer wants to take at 38.75 rupees and seller at 38.95. Considering LTP as base, 38.80 is the value of premium at strike price 2100. -Okay.
Meaning if someone to buy at call of 2100 then they have to pay almost 39 rupees. And if he wants to buy put then he has to give 43 rupees. -Okay. So, sir can we work with single share? There is a minimum lot size to it that I had discussed while derivatives that too has minimum lot size like this. So, under reliance there is a minimum lot size of 250 shares. So, if you take call the investment would be 250 multiplied by 39.
And if you take put then your investment is 250 multiplied by 2100. Alright? 2100 is strike price. Now let’s see what is the price of reliance currently, its 2100 in fact 2090 is Reliance’s price. So, at a price of 2090, the call price of 2100 is 40 rupees. Suppose it expires today, NOW, the contract expires today.
When will it expire? This contract is of 29th July which is after almost 15 days. So, let’s assume it is expiring today. Then what will happen to the 39 rupees if it’s expiring today? Sir, the person having right must have to pay 39 rupees. I have taken at a call price of 2100 whose price is 39 rupees and current price of reliance is 2090. Then what will be the price of the premium of the strike price 2100? -This will increase more.
Why? -Because there would be more risk. -No. I have moved a bit forward in the concept, let me come back. To explain you option premium I must explain you 2 concepts. One is bare a minimum value that option will always have. Other is time value. Works according to time reduces. I had said Time is strongest. So, as day starts to pass the price of the option will decrease because the probably of getting that price will decrease too.
In today’s date, the probability of become 2200 is less than that of 2100. From 2090 to 2100, the probability is more. To become 2200, it will take time. Therefore, the value of premium is even less. –Right. One is bare minimum option’s value which will remain because it has a minimum price of option. And the other is time value which decides how time is left for the option to expire. -Okay. If you look at the strike price of 2100, and if the price now is 2090, Then the bear minimum value at strike price of 2100 that should be zero. -Right.
Because you have given a call at strike price of 2100 then you would exercise or what? No sir because that is more. -That is more as you are getting at 2090 then why would you take at 2100? No, I will not buy. -So, you won’t exercise! -No. -Then its bear minimum value becomes zero. It’s called intrinsic value. Exercising on any strike price…
…you get some money at home from current market price minus current strike price then it becomes intrinsic value. The value it has to be. Let’s look at the example, strike price of 2000 has premium value 103 rupees. And stock price is 2090. So, will you exercise at 2000? -Yes sir. -Why? Because it’s a good thing if I am getting at 2000. -True.
But the one selling it is not fool. He won’t give you a premium at a cheaper price. -No. He would say that if you want to buy at 2000 and stock price is 2090. The bear minimum value for him is 90. Which has to be there and is the intrinsic value.
And alongside that the additional comfort you are getting for few days for which I would charge more premium, Which is known as time value. -Okay. So, option has two components. Intrinsic Value, Time Value. Intrinsic value is the bear minimum value which is the difference between current market price and strike price. -Okay. If the current market price is 2090 then at strike price of 2000 the 90 rupees is the intrinsic value. And the rest is time value which is 13 rupees. Now as time will pass this time value will finish.
Because risk is getting finished. So, the person charging the premium is risking his asses and charging, Thus, risk has 2-4 components. 1. Time 2. Stock volatility is even a component which we will discuss slowly. -Got it. Conceptually, if you see now then you will understand the whole chain of option. That this is the stock and this is the strike price. Value of premium of call option and that of put option’s premium value. As we will go above, the value increases and as we go down the value of call decreases. -Okay. Because above the intrinsic value will rise as the current market price is 2090… …Then the strike of the below one’s intrinsic value will rise as it will have the bare minimum value.
Similarly, under put, as we go above the put value will increase and as we go down the put value will decrease. Why? Because the strike price above 2090 have intrinsic value. For example, if I say you that I’m giving you the right to sell Reliance at 2200 and the current value is 2090. So, will you excise the right? -Yes sir. -Obviously you will do it because it has intrinsic value.
Then the intrinsic value will reflect in the premium because the person selling you right is not dumb. As the price is 2090 and you are saying to purchase at 2200, Then 110 is its intrinsic value. Which will be a part of my premium. Plus, time value as I too have time… …and as I’m giving you the risk hedge you have to pay for the time too. -Got it. So, this strike of 2100 is called “at the money”. The strike price at the current price is known as “at the money”. And, in case of call, the strike below the current market price is called “in the money” because money is still coming in it.
-Okay. -This is because the intrinsic value is more than zero. And the strike price which is above in the case of call where the intrinsic value is zero… …whether the price is 2300 or 2400, intrinsic value becomes zero is known as “Out of the money”. And in case of put it’s the reverse, the strike price which is above the current market price is called “In the money” Because their money is already coming. The seller is already getting the money.
The one at strike price is known as the “at the money” and the below one is called “out the money”. -Right. So, I have explained you the basic terminologies of the option. Option Premium, Intrinsic Value, Time Value. Strike price, in the money, at the money, out the money.
What decides the premium value? Intrinsic Value + Time value. Time value is dependent upon Time which is the strongest. But there are more components that influence the time value which we will understand slowly. Now when we think about options trading, either we can be buyer or seller.
What risk does buyer have? The premium he is paying is the only risk. Worst case possible is that the whole will go. What’s the sellers risk? The risk of the seller would be whole loss of the shares that he had to sell. If suppose reliance, for example, the call option of 2100 that he is selling at 43. What’s the risk? The risk of buyer is quite simple that he would buy at 43 and if the price goes then then would exercise it. If the price becomes 1000, then he would earn 1100 by giving 43. -He has a limited risk.
Very limited risk. And look at the risk of seller, the stock price would technically won’t be zero. But suppose it becomes zero, the seller would only get 43 rupees but investment would be whole 2100. So literally the risk of the seller is unlimited. So, the buyer will always have a limited risk. And the seller would technically would have unlimited risk which is generally not unlimited. Because while trading we have the values in front of us. And we can square up anytime we want. -Right.
Now, come to this question that “Sir, if I had bought the option, then how will I square it up?” It’s simple that if you have bought the strike sell that itself then it gets net off. It’s not necessary that you have to excise every option. You but it and sell it next time then it gets squared up. If I bought put and sell off put only. -At whatever strike price you buy the put and sell that only And whatever strike price you buy for the call you sell that only. So, option premium, intrinsic value, time value, strike price and at the money, in the money, out the money.
Now tell me what you have to do. See, options seem to be complicated but it is not so. You just have to work hard initially. Now, you just have to see the stocks that are in the NSE which are F&O listed. How will we understand that? I had already told you in a video that you can take out the list that are F&O listed. And if you don’t know then simply google because searching in NSE site would be time consuming.
Google NSE DERIVATIVES STOCKS. Look we have all the stocks in derivatives. Because I had already told you that not all come under it. There is a criterion. So, these are the only stocks where you can trade under options or trade in future. My opinion is that of some stocks look at the option chain visiting the NSE site. You have upcoming 4-5 days. You look at option chain and absorb the concept… …That strike price, call option premium, put option premium, strike price, at the money.
Look how well NSE has shown in its website that here is the call option in the money, put option in the money. So, it would be in front of you and just look at the premiums. You will get an understanding that what are the pricing of the options. This is the basic introduction.
If you want to look this in Stock Edge then you can do it at stock edge as well. Go to stock edge > go to stocks where you will find the option chain. So, in stock edge too we have given the option chain but I would always say that NSE site is always preferable when you are starting off. And gradually I would say about every concept of NSE and for the first class I think so this is more than efficient.
Do you have any question? -No sir. One more thing can be done, go under elearnoption and there is a video about the basics that I said you. Just have a look at those videos for more explanation on the concept that I have taught. And from next time we will start discussing what to do with these options? And we will discuss the time value which is the most important option strategy, What is it and the basics of that will be discussed. -Okay.
So, my friends this was the first, first video a basic childish video on options where… …I am trying to introduce the whole environment of options. So, you might have seen that I started at the basic level. Hope that you got an understanding about the basics and if you have come under options for the first time, Then by this video, visiting the NSE site look at the strike price available. At what price premium is evaluated and by that you would definitely get a kickstart on Options. Rest the journey has started now so hopefully I would teach you options in a much better manner. Thankyou and keep sharing my work and keep motivating me. Bye.
2021-07-25 20:31
