≡ Menu

Option Trading Advanced Terms

Option Trading Advanced Terms – Today we will discuss some advanced option trading terms like what is an option buyer and an option seller and how they make profit and losses.

Any business can be done only when there is a seller and a buyer. Otherwise a business cannot be done. Same is the case with stock trading.

Option is a derivative contract on which business is done. So someone is a seller and some buyers.

In other business sellers make money while buyers get a product but will lose money. However in option trading both sellers and buyers can make money. But logic of the way business is done is applied here too. It is mostly the option sellers who make money not the option buyers. And if you properly hedge your traders the sellers can keep making money for life. My course 100+ testimonials is a proof that it is option sellers who keep making money. Since 2014 all my course subscribers are making money.

Option Buyer:

Any trader who buys an option to sell. Currently the At The Money Nifty option of 27-Oct-16 8600 CE is trading at 75.05. Suppose an option buyer wants to buy one lot. Since the lot size of Nifty option is 75 he will have to pay 75*75.05 = Rs.5628.75 + brokerage charges. Once the trade is completed he owns one lot of Nifty 27-Oct-16 8600 CE option for Rs.5628.75.

How Option Buyer Makes a Profit?

If anytime after he buys till expiry he sells the option at let say 85. He will make the profit of the difference between the buy price and the sell price.

His Profit = Sell price (85) – Buy price (75.05) = 9.95 * 75 (one lot) = Rs.746.25/- minus brokerages and taxes.

How Option Buyer Makes a Loss?

If anytime after he buys till expiry he sells the option at any price less than 75.05 he will make a loss. His loss will be the difference between the buy price and the sell price. Let say after two days Nifty falls and the option is traded at 50. He panics and sells it at 50.

His Loss = Sell price (50) – Buy price (75.05) = -25.05 * 75 (one lot) = Rs.-1875.75/-plus the brokerages and taxes.

Note: If you are paying too much for brokerages you are losing money which can be saved. Please fill the form here and I will help you to open an account with the best discount broker in India (best broker declared 3 years in a row in India). Their charges are just Rs.20/- per order not per lot like many other brokers charge. Which means even if you buy 10 lots you still pay only Rs.20/- for the order even if it takes half an hour to complete to order. You will save thousands just in brokerages.

Option Seller:

Any trader who sells an option to buy it back later some day. Currently the At The Money Nifty option of 27-Oct-16 8600 CE is trading at 75.05. Suppose an option seller wants to sell one lot he can place a sell order.

Here the broker blocks more margin. Why? Because on paper selling an option is unlimited loss. Those who have done my course know very well that if we hedge the sell trade the losses are going to be limited and we can keep making money for life. Anyways your broker does not want to take a risk so they block more money.

How much is blocked to sell an option?

If I go for proper explanation than this will take a long time to explain. So I will write some other day. In your trading platform you can try pacing the sell order for an option and see how much margin money your broker is asking. If you have that much money you can sell the option, if not your order will be cancelled due to lack of funds.

Since it is very hard to calculate how much margin will be blocked for an option since it differs from stock to stock it is best to put a sell order in the trading platform to see how much money will be blocked. This will help you to know how much money will be blocked.

To sell an option in Nifty most brokers block anywhere from Rs.35,000/- to Rs.40,000/-.

How an Option Seller Makes a Profit?

Going by the above example assuming the seller was able to sell the option for 74.50. Now after that next day Nifty falls and his option is trading at 50.

He sells it and books a profit.

His profit is the difference between sell and buy.

His profit: Sell at 74.50 – Buy at 50 = 74.50-50 = 24.50*75 = Rs.1837.50 minus the brokerages and taxes.

How an Option Seller Makes a Loss?

Remember that option was sold at 74.50. Assuming Nifty goes up the next day and the same option is traded at 80.
The seller panics and sells the option at 80.

His loss is the difference between sell price and the buy price.

His loss: Sell at 74.50 – Buy at 80 = 74.50-80 = -5.50*75 = Rs.-412.50 plus the brokerages and taxes.

In the next chapter we will learn what are Option Open Interest and how we can benefit from it.

Please like & share my blog with your friends:

Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.

My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:

What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020 to 2023
What People Say Just After Reading My Course
Emotional Testimonial by a Young Woman Trader and Her Mother
One Of My Client Is Making Rs.25k Per Week
Difference Between Other Courses And Mine
What Others Charge for Courses

You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.

This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.

This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.

What You Get?

Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.

You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.

Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).

Directional strategy makes money fast. It does not matter which side the stock moves. In fact you make more when you are wrong in the Future trade. 🙂 Some amazing profits possible here.

The stock option trade makes 30,000 in one trade and if SL is hit there is a way to recover losses plus make 30k in that trade.

Technical knowledge is NOT required. No need to monitor trades every second.

In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.

Since trades are properly hedged there is no stress in trading my strategies.

I am very confident that you will make money trading my strategies. To help you succeed I offer few months support for FREE.

11 Reasons Why You Should Do The Course:
1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
5. Do Course From Your Home
6. 100% Hedged
7. Stress-Free Trading
8. Not too much money needed to trade
9. Scaling Possible
10. One Time Fee
11. FREE Support For Months
To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.

Read the details of the course here.

If you want to enroll for the course you can do so here.

P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.

Privacy Policy | Disclaimer

WhatsApp or Call me: 9051143004

If you have any question you can contact me.

You can read about me here and my trading mistakes here.

TheOptionCourse.com Copyright @ All Rights Reserved
Dilip Shaw, Founder

Copyright Infringement: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.

DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. In other words I am a sub-broker. I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other forms of social media. I strictly adhere to laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles in this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given in this website. I am not responsible for any investment decision you take after reading any article in this website. Click here to read the disclaimer in full.

What is Open Interest in Option Trading
Option Trading Basic Terms

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 1 comment… add one }
  • Sunil October 17, 2016, 11:58 am

    Dilip bhai
    Keep updating
    By Sunil

Leave a Comment

Social Share Buttons and Icons powered by Ultimatelysocial