Learn Institutional Trading

Introduction to Options Trading

Options trading is one of the most flexible and powerful tools in the financial markets. Unlike stocks, where you simply buy and sell ownership of a company, options are derivative contracts that give you the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time frame.

The beauty of options lies in their strategic possibilities — they allow traders to make money in rising, falling, or even sideways markets, often with less capital than buying stocks outright. But with that flexibility comes complexity, so understanding strategies is crucial.

Key Terms in Options Trading

Before we jump into strategies, let’s understand the key terms:

Call Option – Gives the right to buy the underlying asset at a fixed price (strike price) before expiry.

Put Option – Gives the right to sell the underlying asset at a fixed price before expiry.

Strike Price – The price at which you can buy/sell the asset.

Premium – The price you pay to buy an option.

Expiry Date – The date the option contract ends.

ITM (In-the-Money) – When exercising the option would be profitable.

ATM (At-the-Money) – Strike price is close to the current market price.

OTM (Out-of-the-Money) – Option has no intrinsic value yet.

Lot Size – Minimum number of shares/contracts per option.

Intrinsic Value – The real value if exercised now.

Time Value – Extra premium based on time left to expiry.