# 46 Options Trading Key Terms

Option Trading Key, Trading Tick, Option Trading View must be know Options trading Terms for Beginners!

46 OPTIONS TRADING KEY TERMSBLOG

# 46 **Options Trading Key Terms**

**Must Know Options trading Terms for Beginners!**

**Options Trading Definitions:**

Option: A financial contract that gives the holder the right, but not the obligation, to buy (call option) or sell (put option) the underlying asset at a specified price over a specified period.

**American V/s European Option Trading:**

American option trading: - It can be exercise at any time. You can buy of sell option before expiry day.

European option trading: - It can be exercise only day of expiry. We can trade only expiry day.

American Option v/s European Option Terminology

CA - Call American

CE – Call European

PA - Put American

PE – Put European

Expiry: - Last Thursday day of every month.

In India we see only European style option

options trading in India: In this article we use option trading pictures Indian option trading bank nifty so that we easily explain all term and conditions.

**Table of Contents**

· What is Options Trading definition?

·

· **46 Key term of Options Trading That Every Beginner Should Know**

·

· **13) ****Exercise**

· **14) ****Function**

· **15) ****Covered Cal**

· **16)**** Naked option**

· **17) ****Spread**

· **18) ****Hedge position**

· **19) ****Greek**

· **21) ****Options Exchange**

· **22) Strangle**

· **27) Straddle**

· **28) Iron Condor**

· **29) Covered Put**

· **30) underlying asset**

· **31) Pin Risk**

· **32) Spread Trading**

· **33) Best Bide**

· **34) Ask Bide**

· **35) LTP**

· **36) Chart**

· **37) Scalping Trade**

· **38) Support and Resistance Level**

· **39)**** Emotion Control**

· **40) Over Trading**

· **41) Put Call Ratio**

· **42) Theta**

· **43) Delta**

· **44)Gamma**

· **45) Vega**

· **46) RHO**

**What is Options Trading?**

Option trading is a monetary derivative approach that involves the buying and selling of options contracts. A choice is a settlement that offers the holder the proper, however now not the duty, to shop for or sell an underlying asset (inclusive of shares, commodities, or currencies) at a predetermined price inside a specific period of time.

Options Trading for Beginners must know below mentioned all key terms so that easily done his trade

**1 Call option:**

Call option: A type of option contract that gives the holder the right to purchase the underlying asset at a fixed price (strike price) for a specified period. When you think that option premium price go high than option buyer buy option call.

**2 Put Option:**

Put option: A type of option contract that gives the holder the right to sell the underlying asset at a fixed price (strike price) for a specified period of time. Put option if your premium price go down than option buyer buy put option.

**3 Strike Price:**

Strike Price: To buy or sell an underlying asset at a fixed price when exercising an option. We round red colour of option strike price.

**4 Expiration Date:**

Expiration Date: The date on which an option contract expires and becomes invalid. The option cannot be exercised after this date. At the end of the day your option premium must be Zero.

**5 Premium:**

Premium: The price paid by the buyer of an option to the seller (underwriter) in exchange for the rights granted by the option contract. We underline red colour for primum price.

**6 In-the-Money (ITM):**

In-the-Money (ITM): In the case of a call option, refers to a situation where the current price of the underlying asset is higher than the strike price. In the case of a put option, this refers to a situation where the current value of the underlying asset is less than the strike price. Which price option premium price and strike price same that is called In-the- Money.

**7 Out of the Money (OTM):**

For call options, this refers to a situation where the current price of the underlying asset is lower than the strike price for put options this refers to a situation where the current price of the underlying asset is higher than the strike price the price of the. Out of the Money option price primum raised slowly.

**8 At-the-Money (ATM):**

At-the-Money (ATM): Refers to a situation where the current price of the underlying asset is equal to the price of the option.

**9 Option Chain:**

Source: NSE INDIA

Option Chain: A list of all available option contracts for a specific underlying asset, including their strike prices and expiration dates

**10 Open Interest:**

Source: NSE INDIA

Open Interest: The general range of alternative contracts amazing in the market with recognize to a exact strike price and expiration date. This refers to the quantity of cash that can be traded and popularized in a specific alternative contract. We see first OI for both side that after make a trade.

**11 Intrinsic costs: **

The portion of the choice's fee that outcomes from the distinction between the cutting-edge rate of the underlying asset and the option's strike price Intrinsic price is available only for in-the-cash options.

**12 Time Value:**

Time Value: Also called extrinsic fee, represents the part of an alternative’s cost that isn't always attributed to its intrinsic cost. Time price is laid low with factors along with time ultimate until final touch, variable conversion quotes and interest fees. If we buy any option and show loss than you exist with stop loss because you hold trade for long time than your premium go near to Zero.

**13 Exercise**:

The act of exercise the proper granted by an option agreement to buy (within the case of a call alternative) or promote (inside the case of a positioned option) the underlying asset at a detailed strike charge.

**14 Function:**

The procedure through which the vendor (subscriber) has an option to follow the terms of the contract when the client physical activities his rights. In a call alternative, the seller is offered to sell the underlying asset, even as in a put choice, the seller is obtainable to shop for the underlying asset.

**15 Covered Call:**

Covered Call: A strategy wherein an investor sells a call choice and at the equal time holds a long function inside the underlying asset. This provision is taken into consideration due to the fact the investor owns the underlying belongings in an effort to be distributed if the option is exercised.

**16 Naked Option:**

A manner in which an investor sells a choice contract without proudly owning the underlying asset. Naked options deliver high threat because the investor can face unlimited potential losses. Extension: Who buys and sells two or more alternative contracts simultaneously a good way to take advantage of mispricing or to restrict chance

**17 Spread:**

Buying and selling two or more options contracts simultaneously to take advantage of price anomalies or limited exposure Common spread techniques include vertical spreads (bullish or bearish), calendar spreads, and butterfly spreads.

**18 ****Hedge Position****:**

A Hedge in which an investor simultaneously purchases a call option and a put option with the same strike price and expiration date. Hedge position benefits from higher price volatility, albeit in the direction of the underlying asset.

**19 Greek:**

Mathematical measures of the risks and characteristics of options. The basic Greeks are Delta, Gamma, Theta, Vega, and Rho, which provide insight into the sensitivity of an option to changes in the value of the underlying asset, volatility, decay and interest rates

**20 Liquidity:**

Refers to the еasе with which option contracts can be bought or sold in the market without significantly affecting their price. Higher currencies ensure that there are more buyers and sellers, reducing bid-ask spreads and facilitating efficient trading.

**21 Options Exchange:**

A regulated marketplace where fixed option contracts are traded. Examples include the Chicago Board Options Exchange (CBOE) and the International Securities Exchange (ISE).

**22 Strangle:**

A technique similar to a straddle, in which an investor purchases both a call option and a put option, but at different strike prices. A throttle benefits from greater price volatility, but allows for a wide price range compared to a throttle.

**23 Synthetic Option:**

A combination of various options and/or underlying positions that replicate the behavioral and risks of a particular option structure. According to The, new products can be designed to suit the situation

**24 Long Option:**

Refers to the possession of an options agreement. Being long on a name alternative gives the holder the right to buy the underlying asset, whilst being lengthy on a put alternative gives the holder the proper to promote the underlying asset.

**25 Short Option:**

Refers to the sale of an alternatives settlement. Being short on a call alternative obligates the vendor to potentially promote the underlying asset, while being brief on a put alternative obligates the vendor to probably purchase the underlying asset.

**26 Market Depth:**

A method wherein an investor can see buys or sells total number of qty trade. Buyer and seller can see and plan to trade accordingly.

**27Straddle:**

A method in which an investor concurrently buys or sells both a call option and a put alternative with the identical strike price and expiration date. This approach is used when there's an expectation of full-size rate volatility, no matter the direction of the price motion.

**28 Iron Condor:**

A complicated options strategy that involves combining a undergo call spread and a bull put spread. This approach is hired while the underlying asset is predicted to have low volatility and trade inside a specific price variety.

**29 Covered Put:**

A strategy wherein an investor sells a placed alternative at the same time as simultaneously conserving a quick role within the underlying asset. This approach presents drawback protection for the investor's current role in the

**30 underlying assets.**

Collar: A method that combines owning the underlying asset, shopping for a put option to restrict drawback risk, and promoting a name option to generate income. The collar approach is regularly used to protect an existing function in opposition to potential losses.

**31 Pin Risk:**

The chance associated with the price of the underlying asset settling close to the strike charge of alternatives contracts at expiration. Pin risk can result in sudden undertaking or workout of options, which may also result in unfavorable economic outcomes.

**32 Spread Trading:**

A strategy that includes concurrently shopping for and selling options contracts with special strike fees or expiration dates. The aim is to profit from the rate distinction among the alternatives whilst dealing with hazard. Covered Combination: A approach where an investor concurrently holds a long position in the underlying asset, sells a name choice, and sells a placed choice.

**33 Best Bid:**

In this term we can see buying side order volume price according to we can take over trade.

**34 ASK Bid:**

In this term we can see selling side order volume price according to we can take over trade.

**35 LTP:**

LTP means last traded price. How much amount premium paid.

**36 Chart:**

Before buy or sale any option you see chart first and regularly see chart.:

**37 Scalping Trade:**

In this trade we book small profit like 20 to 40 points.

**38. Support & Resistance Level:**

If you want to make any trade first check option support and resistance level than after trade.

**39 Emotion Control:**

If your stop loss hit and you book loss than fixed your daily loss and if you achieve loss target that after never trade lot of trade because your loss is bigger than your daily limit.

**40. Over Trading:**

If you book profit in morning than after use only 20% of total profit at next trade.

**41. Put Call Ratio:**

This term short name is PCR. Put side OI (open interest) and call side OI (Open Interest) value equal to and greater than 1.5 so option price premium goes higher. Put side OI (open interest) and call side OI (Open Interest) value equal to and less than 1 so option price premium goes lesser.

P/C = 1.5 and high than 1 option premium price go higher

P/C= 1 and less than 1 option premium price go less.

**OPTION Greeks Explained: Theta, Delta, Gamma, Rho**

**42. Theta:**

Theta is favorable to option seller because of time decay. If expiry is nearby than premium price lower because of time decay if premium price same at the time of purchase.

**43 Delta:**

if under line asset price is higher than how much premium increase this is called delta. Delta depends of option price higher an lesser.

**44. Gamma:**

If we purchase out of the money call option and primum raise because of premium near by your out of the money premium strike price. The rate of change delta called Gamma.

**45. Vega:**

Vega depends of volatility. Volatility depends on news and political decision, budget, In this Vega in favour of option buyer if they long option.

**46. RHO:**

RHO depends on Interest rate. If any intuition increases interest rate than call options rise in price. If any intuition decreases interest rate than put options decrease in price.

Call Options have positive RHO

Put Options have Negative RHO

**Key Takeaways:**

In this article, we discussed a few of the frequently used options trading key and terms must be learn every beginner who want to make decision to trade option.

When a option trader want to trade in option trading in intraday than monitor trading tick for price up or down side than make trading view and use stop loss and target.

**Summing up**

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