Hi, I am back with some new random information which you might find useful if you are new to trading. I am sure this point will help you to grasp the market fast and avoid unexpected losses.
Before knowing how to trade options first we need to know about the terminologies used in stock market options:
CE = Call Options
PE = Put Options
Call or Long or Buy signifies upside.
Put or Short or Sell signifies downside.
in case of Buy order:-
Nifty May 15500 CE = Nifty Staying above 15500.(you are betting that Nifty will stay above 15500 at the end of the trading session of last Thursday of May)
Nifty May 14800 PE = Nifty Staying below 14800.(you are betting that Nifty will stay below 14800 at the end of the trading session of last Thursday of May)
In case you are selling instead of buying then the meanings become opposite of above lines. If a date is present with them then it represents the last day of that options.
Predicting NIFTY & NIFTY BANK that they will stay in a x and y range tomorrow or not is comparatively easy than predicting it will stay in that range at the time of expiry as there will be a dozen of movements & factors before that.
Suppose if someone else bet on the same thing you do after few days; his chance of winning is always higher than yours and hence to re-balance this options value decreases with respect to time towards their expiry. This is called Theta.
"The higher the time to expiry, the higher the uncertainty. The higher the uncertainty, the higher the premium of the options."
Q. When to trade?
A. Always try to trade on either Tuesday or Friday. Do not trade on Monday, Wednesday and Thursday. Trading on Saturday, Sunday happens only because of Muharat or Budget day special else its a no trading day. On Wednesday & Thursday there is a high chance that your long straddle might give you loss so we avoid it. Always try to observe the market on these days.
I have seen many new traders to win there first trade in a fluke then due to that fluke they blow there account to 0 as at first you just buy the stocks/options for testing but when you get a profit without any hard work it corrupts you and a greed is formed so try to trade with discipline.
Do not over-trade always set a limit to trade in a day/week/month so that you don't give out brokerage more than your earned profit after taking so much risks.
3 important rules:-
- Buy Strength, Sell Weakness
- Be flexible with patterns
- Always Look for prior trends
Do-Not
- Trade to large(Only invest extra capital)
- Over-Trading
- Stay in the game, Quit when necessary
Do not trade too large as if you incur a loss then you might get hurt so bad that you can't bounce back.
Always trade with a stop loss to how much you can afford to lose.
Don't take extra risk for extra profit. You will be blown by market.
Don't think you can over-smart market. Market is managing million of peoples like us every second so it has more power and intelligence than us. So always try to place orders in the market directions rather than thinking that market will go with your thought process. It may come true once but it might be a trap of market to blow your account so trade safely & smartly.
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