Options trading is a popular form of trading that involves the buying and selling of options contracts. Options can be used for various purposes, such as heading and speculating. The value of an option is derived from its underlying asset. There are a few key concepts to understand about options before you start looking into them:
Types of options:
There are two types of option contracts: call options and put options. If your view of the market for the underlying asset is positive, you can buy a call option. If your view of the market for the underlying asset is favorable, you can buy and sell options.
A strike price is a predetermined price level. To understand this simple term, let’s look at an example. The share price of Reliance is 2,000; for every 20 points, we have a strike price such as 2020, 2040, 2060, 2080, 2000, and 80. Same as that, for every different underlying asset, it has a different level of strike price.
An option premium has an intrinsic value and time value based on the strike price, expiry date, and volatility of the underlying asset.