Part 2 Support and Resistance

Advantages of Options Trading

Leverage: Control a large position with limited capital.

Hedging: Protect stock holdings from adverse movements.

Flexibility: Multiple strategies for different market conditions.

Income Generation: Sell options for premium income.

Speculation: Profit from both rising and falling markets.

Market Dynamics and Participants

Options markets involve diverse participants:

Retail Traders – Individual investors trading for speculation or hedging.

Institutional Traders – Hedge funds, mutual funds, and banks use options for portfolio strategies.

Market Makers – Ensure liquidity by continuously quoting bid-ask prices.

Regulators – SEBI in India, SEC in the US, maintain fair and transparent trading practices.

Options trading occurs in exchanges like NSE, BSE, CBOE, offering standardized contracts. Indian markets primarily trade in equity options and index options.

Practical Tips for Options Trading

Start Small – Begin with limited capital while learning strategies.

Understand Greeks – They help manage risk and strategy adjustments.

Focus on Liquid Options – Avoid thinly traded contracts for better execution.

Use Stop Loss and Risk Management – Limit losses in volatile markets.

Monitor Time Decay – Be aware of how options lose value as expiration nears.

Combine Strategies – Mix calls, puts, and spreads for hedging or speculation.

Stay Updated on Market News – Earnings, policy changes, and global events impact volatility.