Part 1 Master Candlestick Pattern

How Options Work (Premiums, Strike Price, Expiry, Moneyness)

Every option has certain key components:

Premium: The price you pay to buy the option. This is determined by demand, supply, volatility, and time to expiry.

Strike Price: The fixed price at which the option holder can buy/sell the asset.

Expiry Date: Options are valid only for a certain period. In India, index options have weekly and monthly expiries, while stock options usually expire monthly.

Moneyness: This defines whether an option has intrinsic value.

In the Money (ITM): Already profitable if exercised.

At the Money (ATM): Strike price equals the current market price.

Out of the Money (OTM): Not profitable if exercised immediately.

Why Trade Options?

Options trading is popular because it serves multiple purposes:

Hedging: Protecting investments from adverse price movements. Example: A farmer uses commodity options to protect against falling crop prices.

Speculation: Traders can bet on market direction with limited capital.

Income Generation: Selling (writing) options like covered calls can generate steady income.

Leverage: With a small premium, traders can control large positions.