Stock market trading is an excellent career if supported with practical knowledge. The study associated with stock market trading has been constantly evolving. Earlier, people used the conventional pattern as the breakout strategy to predict future movements. But, as time has passed, conventional patterns have started trapping traders by giving false signals. With new and advanced technology, the technical analysis of stock market trading has seen many advancements. At the moment, traders have started relying on practical approaches like demand and supply, price action, and gap theory. 

Learning stock market trading is not an overnight task. Instead, it requires years of dedication, perseverance, and extensive practice sessions. It is easy to grasp the concepts associated with trading, but the tricky part lies in applying those concepts in the real market. In this blog, we’ll explore how one can learn stock market grading along with its core concepts.

Learn Stock Market Trading:

Stock trading is a very favored form of investment that can initiate individuals to hold the right to own a portion of a company in order to gather great profits from its success. Stock trading requires knowledge that includes stock market and investment strategies, one needs to understand risk management factors. One needs to open a brokerage account and develop a strong investment strategy.

If you are willing to learn stock market trading in India, there are several courses that can help you get started and help in achieving the goals. These courses vary in length and depth and also can range from basic introductions to advanced trading strategies in stock trading.

What is Stock Trading?

Stock trading is the giving and taking of shares of publicly traded companies on the stock market. It is a very popular form of investment that allows an individual to own a strong portion of a company and profit from its success. Stock trading can be done with various methods, be it a stockbroker or online trading platform, and it requires immense knowledge of the stock market and investment goal strategies.

There are two significant types of stock trading:

long-term investing and short-term trading.

Get Started with Stock Market Trading

Stock market trading has fascinated many people out there. But, not all of them are capable of doing trading. Stock market trading requires a sense of stability and emotional intelligence. With these, you should be perfectly equipped with the technical trading strategies to track stock prices with the help of candlestick charts. If you want to learn trading from scratch, here’s what you need to do:

Open a Trading Account 

The first and foremost step in learning stock market trading is to open a trading account. It is provided by an online brokerage firm. A trading account gives you access to real-time stock market data with accurate price fluctuations in all the listed stocks, derivatives, and indices. Alongside, it allows you to place orders on stock exchanges directly via your phone or laptop. 

Currently, there are a number of online trading platforms, but not all of them are reliable enough. You should check whether the broker offering discount brokerage, gives accurate data and gives you access to technical tools along with the candlestick charts. Having all these features in your trading account will surely ease your learning journey. 

Learn to Read: A Market Crash Course

In the era of the internet, a lot of free educational material is easily available. You need to make a habit of learning. Be it reading the article, watching videos, attending webinars, or reading books. Learn to read and learn by yourself. It is not an obligation to learn stock market trading by purchasing any course. You can start your journey at your own pace without any expenditure. 

Firstly, learn the basics of the stock market that are easily available on the internet. Further, learn the trends that are currently being followed, get acquainted with new ones, and follow the sectors that are flourishing. Start to learn how to buy and sell stocks. After learning these basics and knowing how the market functions you can opt for a technical trading course that can equip you with hands-on knowledge of stock market trading. 

Learn to Analyse

One truth you need to learn about stock prices is they work on the concept of demand and supply. If the buying of the stock increases, it creates a huge demand, resulting in a shoot-up of price. Whereas, when the selling of stock increases, it creates a huge supply, resulting in a fall in price. You need to analyze the price movements of the stock closely to improve your accuracy in stock market trading. 

Analyze the stocks in all time frames, with the help of different indicators, with the help of trend lines. Try finding the reason behind every price movement, and learn to emotionally connect with the chart. All this requires countless sleepless nights and enormous joys of getting your studies right. 

With time your analysis will improve your intuition about the price movements. As time passes, it will get easier for you to forecast the future price movements of stocks. With this you can easily know whether you need to go for a long position in trade or a short position. Also, in-depth analysis helps in knowing which stocks are worth betting on for long-term purposes. 

Practice Trading 

Learning will only equip you with concepts, but practicing molds your learning into real-time experience. Once you have learned how the market functions and how to observe the candlestick charts, start practicing on your own. 

Pick a sector and analyze its stocks in every way you can. Once done with the analysis, start observing the daily movement of those stocks. This process will help you in knowing how the market functions in certain circumstances and how trends are followed and broken. Further, you’ll get to know how the stock market is unpredictable, yet predictable with apt knowledge. 

Other Ways to Learn and Practice Trading

Your own learnings and experience will be the greatest teacher you’ll ever get. But, don’t let this thinking stop you from learning something useful and advanced. There are a lot of people out there who have cracked the codes of the stock market that people thought didn’t exist in the first place. 

To catalyze your learning process, you can learn stock market trading with experts in the market. A lot of people share their studies and analysis in the form of online and offline courses. You can enroll in the technical trading course and improve your trading. By enrolling in these courses you will get to know how the market can be observed with a different yet easy perspective. Further, you’ll know how to get out of adverse market conditions with profits. 

Ask an Expert 

Coaches make sure that you don’t repeat the mistake they made. Choose your coach or mentor wisely in the field of trading. Having them by your side not only boosts your learning process but also gives you confidence at each step. To learn stock market trading you need someone by your side always to clear the minute doubts and prevent you from making blunders. There are many common mistakes that amateur traders make like risking all their money, not doing multi-timeframe analysis or most common one is choosing the wrong broker. To stand apart from the crowd that makes these common mistakes, you need to have an expert mentor by your side. 

You can enroll in the GTF-Trading In The Zone course and learn how demand and supply factors regulate the market further, GTF offers you lifetime mentorship support. We make sure that none of your doubts go unanswered. 

Start with Safer Stocks 

In the initial days of trading, when you are learning to apply your concept in the real market, always go with the safer stocks. Never trade in penny stocks or take positions in stocks that have high volatility and are not liquid. 

Choose the stocks of blue chip companies or the stocks that have been consistently performing. This will keep your money safe. It doesn’t matter in the initial days if you make mere profits, what matters is how much accuracy you’re getting. As time passes, the accuracy will allow you to trade flexibly. 

Long-term investment

When we talk about long-term investment we consider long-term goals. Long-term investing is for people who want to hold investments for long-term-like years. People who are investing for a long term, focuses on capital growth only. They do not get affected during a small downfall because their vision is longer.

Short-term trading

Short-term trading, on the other hand, involves buying and selling stocks over a shorter period of time, maybe days or weeks. This type of trading is generally used by people who are looking for short-term goals and profits. Although short-term trading is involved with risk and one needs to have proper knowledge about it.

If one needs to learn stock market trading, traders need to get activated with a demat account with the help of a stockbroker or online trading platforms. These online platforms offer a different range of services and also include customer support that can help you anytime, also they will guide you in your investing journey.

They will guide you for all stock market-related products including stocks, bonds, mutual funds, and exchange-traded funds.

Whenever any investor sells or buys stocks, there are certain factors that need to keep in mind:

1.  Check the company’s background and past performance
2.  Check market conditions before investing
3.  Always plan out how you are going to invest

Also, there are certain strategies that people generally follow:

Value Investing

Growth Investing

Dividend Investing

Here are some key points to consider when exploring stock trading courses in India.

Understanding the basics

Whenever one starts investing in stocks, it is very important to have a deep and thorough knowledge of trading. All the basics including the market, analyzing stock charts and financial statements. Always choose a course that can guide you from the basics and help you learn stock market trading in an efficient manner.

Choose a reputable course provider

There are many course providers offering stock trading courses in India, so it is important to choose one that is reputable and has a good track record. Look for providers that have been in business for a while and have positive reviews from past students.

Decide on the level of course you need

Depending on your level of experience and knowledge, you may need a basic course that covers the fundamentals and technical, or a more advanced course that deals with specific trading strategies. Consider your goals and objectives when you choose to learn stock market trading.

Look for practical training

While the theory is important, it is also crucial to get your hands-on experience for trading stocks. Look for courses that offer practical training and allow you to practice trading in a simulated environment, this will help you learn stock market trading way faster.

Consider the cost

Stock trading courses in India can vary in price, so it is important to consider your budget when choosing a course. Keep in mind that the cheapest course may not necessarily be the best option and that investing in a quality course can pay off in the long run.

Overall, To learn stock market trading in India requires a combination of theoretical knowledge and practical experience. By choosing a reputable course provider and focusing on the fundamentals, you can gain the skills and confidence needed to succeed in the stock market.

Stock Market Courses for Beginners in India

There are many courses available in India which can make you learn stock market trading but here are some best options out of them:-

Trading in the Zone -Elementary:

It is an initiative by GTF so that every trader can invest and trade like a pro in the market. In Trading in the Zone Elementary, they provide 10 sessions of trading concepts, particularly teaching technical analysis, which is completely free of cost and the main agenda of this course includes making one understand the basic concepts of technical analysis and to make people learn stock market trading so they can be financially free.

Trading in the zone:

This course is an extended version of Trading in the Zone elementary which consists of some deeper concepts of technical analysis including , advanced trend analysis, gap theory, EMA, sector analysis, price action and some more which can help everyone to learn stock market trading like never before.

NSE’s Certification in Financial Markets (NCFM):

This is specifically the series of online tests on different securities-related topics including capital markets, derivatives markets, and mutual funds.

ICICI Directs Certified Capital Market Professional (CCMP) program:

This is an extensive course that will teach you Indian market securities including fundamental and technical analysis, derivatives market, and also the portfolio management.

NISM’s Securities Markets Foundation Certification (SMFC):

This is a certification program that will include market securities and will teach you about different market players and their work.

BSE Institute Ltd. Postgraduate Program in Global Financial Markets (PGP-GFM):

This is a course that will require your full attendance and will cover various factors of global financial markets including the Indian securities market. Which will help you gather all the information from the basics and to help you learn stock market trading in global financial markets.

Conclusion

When you begin to learn stock market trading in India it can be a difficult task but yes it can be profitable too once you get professionalized in it. With the help of an appropriate course, you can start smoothly and focus on the basic and most challenging fundamentals. The course you choose can provide you with skills and knowledge which are much needed in the trading sector. The stock market is a game once you know how to play it you can play on your own.

These courses are not only for beginners, they starts for beginners and go up to the advanced level of learning

Whenever one is choosing a course the following factors need to be focused is the reputation of the course, whether the knowledge they are given is from basics or not, pricing of the course is also a major factor but learning must be the priority.

In addition to taking a course, it is also important to continue learning and staying up-to-date on market trends and developments. This can include reading financial news, following industry experts on social media, and attending seminars and conferences.

Ultimately, To learn stock market trading in India requires dedication, hard work, and a willingness to learn. By taking the time to invest in your education and stay informed about the market, you can increase your chances of success and achieve your financial goals.

Frequently Asked Questions

what is stock trading?

Nowadays, half of the population is aware of the word stock trading. Be it intentionally or unintentionally, most of us have done trade in our day to day life. To portray it in a simple way, everything you sell and buy is trading. In terms of stock market it is called stock trading that usually refers to buying and selling of stocks in the stock market. The stock traders sell or buy stocks for the profit. Isn’t it a great idea to earn money?

Earning passive income is not an easy task but wouldn’t it be a great idea to earn money while you sleep. As per our analysis approximately half of the population wants to make money in stocks irrespective of any experience. No wonder, it’s easy to fall for this temptation but one needs to keep an eye on the stock market. Passive investing requires good strategy, research, patience, passion and sound understanding of the market.

In order to master each skill perfectly you will require various tips/tricks that can help you gather immense knowledge in the field of the share market. Trading in the zone technical analysis is one such course in the market that is particularly designed for all those who want to become full time traders and earn money by regular online trading in the stock market.

So the question is can stock trading help you generate passive income? What are the ideas and experiences that can actually get the money ball rolling in your place? Here are few broad guidelines, which if followed prudently can increase your chances of making a decent profit.

• Know your trader type: To earn well in the market one should know about investing and online stock trading. From the beginners to experts stock market courses can help both the stock traders and stock investors earn a wonderful income. There are two types of traders, one includes those who follow fundamental investing and the other who follow technical research based on the chart pattern. There’s no doubt in it that traders and investors both have different goals in mind. Fundamental analysis helps identify long term opportunities in order to gain profit for the investors whereas technical analysis helps identify many short, medium and long term opportunities to yield fruitful results for both the traders and investors.
• Avoid following the crowd blindly: For many traders, to invest in the share market is mostly dependent on their acquaintances. That means if their near or dear ones are investing money in any stock they too tend to take advice in the share market investment or the particular shares to buy. Avoid these practices to earn profit in the long run. Share market education can definitely help and identify you to move forward in the share businesses with a great ease.
• Avoid uninformed decisions: A proper research should be the best practice in order to invest in stocks. As it can be seen that investors are easily tempered by the name of the companies and try to put in their hard earned money to buy the shares. This needs to be avoided rather a careful watch for investing in delivery is necessary.
• Avoid emotional judgements: In a bull’s market, the lure to make quick bucks is difficult to resist. There have been many investors who tend to lose invested money in stock markets due to their inability to control their greed and emotions. It’s commonly seen that when the stock prices drop down the investors panic and sell their shares at the rock bottom prices. So instead of creating wealth they lose their control and take wrong decisions that may hinder their path to earn money. Fear and greed are two of the worst emotions that need to be taken care of while moving forward in the online stock trading.
• Invest on excessive funds: To stay at the top in the share market you need to take risk. The careful research and risk handling can be two of the best things that can be learned perfectly by choosing stock education institutes and the stock education courses they are providing. It’s always recommended to have an eye on your surplus funds if in case you want to invest money. It’s not always necessary that you will lose money, your investment can gain huge profits as well. But always invest if you are flooded with surplus funds.

The above mentioned points can help you achieve passive income but keep in mind the initial step to stock trading is to open a demat account and then proceed further. Taking admission in stock marketing courses can also waive off your worries to a particular extent and give beneficial results in the coming future.

Are Mutual funds Risky?

Do not let this sentence scare you. “Mutual fund investment are subject to market risk. Please read the offer documents carefully before investing”.
Most people avoid investing in mutual funds just because of this one warning. Yes, there is a market risk, but look at the history and growth of mutual funds.

Professionally Managed
It is very difficult for many individuals to manage their own money, Mutual Funds are managed by professional, who are skilled when it comes to making investment decisions based on robust research and expertise.

Best way to invest in Mutual Fund

Systematic Investment Plan
Many individual it is a very difficult to buy number of share of different companies when their monthly investment is very low, SIP is the best way to invest in Mutual Fund.
SIPs are like drops of water, the more collected, the larger the pool it creates. So, create your pool of wealth by starting your SIP in best mutual funds with as low as Rs.500/month

Benefits of investing in Mutual Fund through SIP

Compounding is the 8th wonder
Do you know the 15 X 15 X 15 rule of mutual funds?

Well, it simply says, 15,000 rupees SIP per month for 15 years with 15% compounded annual returns, value will be 1 CRORE (against total saving of only 27 lakhs).

Now, read this one. The 15 X 15 X 30 rule of mutual funds? 15,000 Rupees SIP per month for 30 years (instead of 15 years as earlier) @ 15% compounded annual return, Value will be 10 crores (against 1 crore for 15 years).

Pv=Fv(1+r)^N.
N means time, it’s more powerful in compound interested magic of wealth creation. Discipline saving for long term.

Adjust market volatility
With rupee cost averaging you can adjust your units by pumping more money during market slag. This would give you superior returns.

Diversification
Mutual funds help you diversify your investments. There is always a risk if the market crashes and specially if you have invested in single securities. These problem can be avoid by investing in different asset classes and by portfolio diversification. If you were investing in stocks and had to diversify, you would have to select at least 10 stocks carefully from different sectors. This can be time consuming and lengthy process. For instance, if you invest in a mutual fund that tracks the NSE Nifty you would get access to as many as 50 stocks across sectors in a single fund. This will help you to reduce risk to a large extent

Apart from these there are lots of more benefits of investment in Mutual Funds like tax benefits, easy to buy and sell, transparency, liquidity, ease of monitoring, goal planning, wide range of funds etc.

“Time is money” we all know this adage.
If we have sufficient time to perform any task, whether it is competitive exam, whether we have to reach at any destination or any other then there is higher chance that we can do that.
Before we come to theta let’s take an example.

Suppose you are driving a car and you have to complete your journey of 100 km. if you have 24 hours to complete this task, then there is high probability that you will easily complete this task. But you have 5 hours then the probability will be moderate and if you have only 1 hour then probability will be very low, only one thing which can help you is your speed, otherwise one small tea break will take you in the trouble.

Now simply we are going to take it with option premium suppose we are choosing a strike price of 500 when stock is trading at 450 and we have complete 1 month. Probability of reaching at 500 will be very high because we have enough time. But if we have only 15 days then probability will be moderate and if have only 5 days then probability will be very low.

Suppose we have reached at 460 and 15 days passed, then it will a challenge to reach another 40 point in just 15 days. Like our car speed our underlying speed will also matter.

UNIVERSAL TRUTH:-Time value will be zero at the time of expiry and Theta is time value component.

Theta is not constant nor linear

As we can see in graph amount of decay indicated by theta tends to be gradual at first and accelerates as expiration approaches.
If stock does not have tendency to move very fast then we have to keep in mind that stock should have enough time to reach at the desired level.

IS THERE ANY WAY TO REDUCE THETA EFFECT?:-

Yes there are certain things through which we can reduce time decay effect.
Theta is responsible for time passing
Theta is enemy for buyer of option so GO FAR AS MUCH AS POSSIBLE
Theta is friend when selling an option.

THETA CORRELATION

Options (Calls and Puts) are always negatively correlated to the passage of time. They will decay

SUMMARY:-

The longer an options has until it expire, the less its price is affected by time passing. (that is why we buy only 90+days option & we sell only -60 days)
Theta only affects the time value portion of an option (that is why in order to lessen the exposure of time decay we use ITM option when buying them or in order to maximize the exposure of time decay we use OTM option when selling them)
OTM OPTION -> SELL OPTION
ITM OPTION -> BUY OPTION

Problem with our Indian market, we don’t have enough liquidity in 90+ days expiry, except nifty & banknifty

FNO MARKET DOUBLING EVERY YEAR. SO THERE WILL BE HIGH LIQUIDITY IN COMING YEAR & THAT WILL BE AMAZING

If I say “Change in implied volatility can have a greater impact on an option’s premium than the effects of delta, gamma, theta and rho combined” Sounds surprising?
But it’s true.

Have you noticed some time we pay too much premium for an options and sometime we get the same option with same strike considering same time left in expiry but still option’s premium is low, this is just because of volatility.

You may hear financial talking heads say, “Volatility is high, so the market is going to bounce or the volatility is low, hence the market is due for a sell-off”. Many might say that volatility sets where the market is going and bends its direction. However, volatility doesn’t change the direction of the market, rather helps a trader opt the suitable and perfect trading strategy. There is also a saying that “change “in IV can have a more significant impact on option’s premium than options “Greeks”. But how?

Lost in the financial textbooks for years, the term “Volatility” has always been a crucial tool when it comes to trading, especially for options trading. There are several secrets of trading hidden within this crazy, old concept of IV that can change the way you see the options trading. Let’s dive deeper in this concept:

What is Volatility

Volatility is often referred to as the heartbeat of the financial world. It helps measure how quickly share prices fluctuate. Some people interpret a bearish trend as the “volatility” of the market, but in reality, it isn’t just about falling; it represents constant ups and downs in the market.

• When stocks quickly go up and down a lot, people call them high-volatility stocks. 
• On the other hand, if stock prices don’t change much or stay pretty steady, they’re known as low-volatility stocks.

There are typically two types of volatility in the finance world i.e.;

• Historical Volatility: Study past price movements of an asset to assess its historical risk and behavior. Simply put – it’s how much the price has fluctuated on a regular basis over one year. 

Implied Volatility: Implied volatility isn’t basically about historical pricing data on the stock. Despite what the stock market “implies” the volatility of the stock will be in the future, as per the change in option price.

What is Implied Volatility (IV)?

Often abbreviated as IV, implied volatility, is a finance concept used in the world of options and stocks. It is like a mood indicator for the market, showing if traders are calm or in panic mode. When panic rises, IV goes up, making options more expensive. In calm times, IV drops, and options become more affordable.

Implied Volatility (IV) isn’t a guaranteed thing, but it’s useful for traders to decode statistical ranges, aiding in risk management and buying power considerations.

Some traders mistakenly assume that volatility is based on the stock price’s directions. Not really! It simply considers the amount of stock price fluctuations, based on the market sentiment, without regards for direction. 

• High IV = Expensive option premiums, due to increased panic. Traders expect big price movements.
• Low IV = Cheaper option premiums, as the market remains calm, hence no significant change in option price. 

One thing to keep in mind: implied volatility is all about market sentiment and predictions – it doesn’t care about the nitty-gritty details of a company. 

Key Takeaways: 

• Implied Volatility helps traders read market moods, guiding them on whether it’s a good time to buy stocks.
• IV responds to news and events, shaking up market sentiments and impacting options prices.
• IV doesn’t steer stock price direction, but it’s your buddy in assessing how risky or cool trading in the market might be.

How Implied Volatility (IV) Works

Derived from the option contract prices, Implied Volatility (IV) is a measure, which is mostly used for options. It helps calculate the potential price fluctuation in the future.

Based on different truths and lies in the marketplace, options prices will begin to change. If there is a budget announcement or a major court decision coming up, a shift in the trading patterns of options traders can be observed.

For an example, let’s say you’re considering two options on the same stock that have the same strike price and expiration date. Option A has a higher IV, while Option B has a lower IV.

Option A (High IV): When IV is high, the market expects big price swings due to more panic caused by major events. This results in a pricier Option A. More active traders are in the game, leading to significant price moves. 

Although it doesn’t control the stock value or direction, traders foresee larger price shifts in either direction. Trading during high IV is often not recommended due to the increased uncertainty.

Option B (Low IV): In low IV, the market anticipates minimal price swings due to a more calm scenario. This is often a result of reduced panic caused by fewer major events. It results in a lower premium for Option B. Trading during low IV is generally considered more favorable. 

Implied Volatility and Options

Majorly there are three factors used to set the options pricing. Implied volatility is one of them. Think of implied volatility as a flexible number that changes as the options market gets busier. 

Generally, when IV goes up, the price of options also goes up, assuming everything else stays the same. Hence, if implied volatility rises after you’ve made a trade, it’s a good sign if you own the option. But if there is panic, there is an increased number of active traders, then the market will re-settle itself too.

On the flip side, if IV goes down after your trade, the market stays constant with surreal value, hence option prices usually drop. This is good news if you sell the option, but not if you just bought it. 

Remember, IV is like an educated guess made based on probability. It’s not an exact prediction of where prices will go, but helps traders understand the mood swings of the market. Investors use it to make decisions, but it doesn’t guarantee that option prices will follow the expected pattern.

Options Pricing Models

Implied volatility (IV) is a very crucial element in option pricing, yet it’s the one factor you can’t simply observe in the market. 

To set the fair value of options, the pricing models are used by traders/investors. It helps them understand how much an option should cost based on several factors. Firstly, let’s discuss some of the popular and commonly used option pricing models including:

• Black-Scholes Model
• Binomial Model
• Cox-Ross-Rubinstein Model
• Trinomial Model
• Bjerksund-Stensland Model
• Barone-Adesi and Whaley Model
• Merton Model
• Jump-Diffusion Models

Theoretical parts are hard to learn and complex to understand. There is another pricing model technique, used by experts and is way to practical. As this is evident that options are priced because of the scrip price and crowd expectations. 

There are two values of options pricing, to be added together for the total pricing value of options:

Premium = Intrinsic value + Time Value

Or

Time Value = Premium – Intrinsic value

Let’s take an example to understand this:

• Stock Price: ₹580
• Strike Price:  ₹550
• Call Premium :  ₹22

Calculate Intrinsic Value: 

Intrinsic Value = Stock Price – Strike Price

Intrinsic Value = ₹580−₹550=₹30

Calculate Time Value: 

Time Value = Call Premium−Intrinsic Value

Time Value = ₹ 22 − ₹ 30 = − ₹ 8

In the above example, intrinsic value depicts the actual value of options based on the stock price and strike price i.e. ₹30. However, the time value is negative (-8), showing that the premium of options is mainly affected by intrinsic value, with a potential time decay factor. The whole thing impacts its overall value, setting the options pricing standards. 

These option pricing models are the magnifying glass that helps us uncover the elusive IV, essential for making informed decisions in the world of options trading. 

VOLATILITY IMPACT

If Implied Volatility (IV) is low as compared to Historical Volatility (HV) then option are deflated.
As IV changes with dynamic crowd expectations (CALM-PANIC), the time value portion of the option premium inflates or deflates.

Let’s differentiate IV AND HV

IV increases during News, Event, Quarterly Results, Corporate Action etc.

Pros and Cons of Using Implied Volatility (IV)

IV helps calculate the market sentiments to know the market movement size, but surely doesn’t tell the direction stories. Used by option writers to price options contracts, various investors consider it before investing in any asset. In case of higher IV, they prefer to go with more safer products or sectors. 

Here major advantages and disadvantages of implied volatility:

Implied Volatility Vs Realized Volatility

Implied volatility where anticipate potential market mood to interpret potential price movement of a stock in future, often used for options. Whereas realized volatility assess actual price fluctuations that happened in the past, scaling from historical price movement over a specific time. But wait! We have simplified the key distinction between implied volatility and realized volatility in the below table:

The Traders Challenge:

Determining what is inflated and what is deflated?
Let’s take an example of balloon, suppose balloon is completely diffuse then we can say it is deflated and if start filling air in this it will start inflated, but at a certain point when the balloon completely filled with air and there are no more room for air then we can say it is super inflated and still if are we are trying to fill air, balloon will burst and start deflated.

Same with options, when people are in calm mode the volatility is deflated but when they come in panic mode volatility start increasing and may go to super inflated level. But at certain point it will start dropping when people will come again in calm mode after news or event then it will revert to the mean.
BUY -> DEFLATED OPTIONS
SELL -> INFLATED OPTIONS

How to Use Implied Volatility (IV)

Implied volatility helps investors figure out how risky a stock option is. Imagine two stock options: one with high implied volatility (IV) and another with low IV. The high IV options are like a roller coaster, more likely to surprise you, so you might invest less if you’re not a fan of big surprises. Expert traders recommend not buying options during the time of high IV. For options traders, a spike in IV could be a chance to sell options, like selling tickets when demand is high. If IV drops, it’s like a sale, so buying options might be a good idea. 

IV is also optimized to hedge a cash position. For instance, if the current IV of your stock is relatively lower than IV of the whole year, you can buy those options at a low premium and watch it grow. When the IV goes up, the premium value increases, pushing the overall option value upward. 

You can plan an option trade using IV. For example, if the option is trading with high volatility, you should avoid buying securities or sell securities as the market is fluctuating based on marketplace panic. As IV goes up, the option premium becomes more expensive, hence it is not a good buying choice and you can plan to sell. Implied volatility helps you determine which options’ value is more likely to go up so a trader can plan their entry/exit by calculating IV charts. 

Vice versa, if the IV goes down, that’s a good sign that the market has gone to its constant. You can buy your options and watch it rise and flourish with time. These are ideal conditions to sell options and enjoy benefits with minimal risk of losing your money.

Factors Affecting Implied Volatility

The significant factors that affect the implied volatility are the market sentiments, news, corporate actions, fear, time of expiration, economic events, market liquidity, etc.

Implied volatility can change suddenly and is mainly influenced by the number of active traders or major events happening or affecting the stock marketplace.

When many people want an option, its price rises, and so does the implied volatility. This makes the option more expensive due to the added risk.

Conversely, if there are plenty of available options but few buyers, implied volatility decreases, and the option becomes cheaper.

The time remaining until the option’s expiration also plays a role. Short-term options typically have lower implied volatility, while long-term ones tend to have higher implied volatility. This difference is related to the amount of time available for the price to potentially move in a favorable direction compared to the strike price. 

INFLATED OPTIONS VS. DEFLATED OPTIONS

Options are priced based on the probability and expectations of price movement, therefore:
The higher the Implied Volatility, the higher the option’s premium for the same participation -> the higher the IV, the more inflated options: Options are expensive…And we love to sell them…
The lower the Implied Volatility, the lower the option’s premium for the same participation -> the lower the IV, the less inflated options: Options are cheap… And we love to buy them….

SUMMARY:-

1 STD = ONE STANDARD DEVIATION (68% OF THE CASES)

As we all know this formula let’s take an example to understand this

Suppose Current Market Price of the Stock is 1450

HV IS 20.86 % AND IV IS 35.41% (in terms of %)
first of all need to convert it into terms of RS.

Based on the current HV the scrip has potential to move up or down Rs. 18.90 in a day, in 68 % of the cases (That would be a normal things to happen)

Based on the current Implied Volatility the scrip is expected to move up or down Rs. 32.09 in 1 day, in 68% of the cases (That would be a normal things to happen)

Implied Volatility Determines Strategy

IS IMPLIED VOLATILTY HIGH OR LOW?
The answer will determine which options strategy to use

FAQ

We can easily trade when we know the direction of a particular stock and when we are familiar with some best options strategy.

Suppose if the underlying is in uptrend we can buy call or short put and if underlying is in downtrend we can buy put or sell calls.

But when we come to the sideways market its tough challenge to make money from options and a there is a high degree of risk especially in debit strategy (long call/long put).

Best Options strategy in sideways market

Here are the few strategies though which we can get a decent output.

Short strangle (credit/non-directional)

Iron condor (credit/non-directional)

Short straddle (credit/non-directional)

Iron butterfly (credit/non-directional)

All of these are called as non-directional strategies which are used in sideways market.

Now a question comes in mind why 4?

All of them have different characteristics based on the market conditions.

Short Strangle and Iron Condor can be used when we know the upper and lower range in which underlying is going to be range bound based on demand and supply or support and resistance or through another technical analysis.

Short Strangle is used when the market is sideways and we are expecting the price to be remains range bound in upcoming days. The strategy can be initiate by selling a call and a selling a put

(Both Anchor Units). The call strike which we select to sell should be at or above the upper range, similarly the put strike should be at or below the lower range.

As we can see Iron Condor is slightly different from Short Strangle.

Adding two offset units into short strange will give us Iron Condor.
The major benefit for Iron Condor is now our risk is also limited.
The Offset Units strike price of long call (+CE) should be above the short call (Deep OTM), similarly strike price of long put (+PE) should be below short put (Deep OTM).

Short Straddle and Iron Butterfly can be used when we are pretty much confident that underlying is going to be remain at around current market price only, that can be analyze through the our Trading in the Zone course or through any other technical analysis.

Short Straddle is used when the market is sideways and we are expecting the price to be remains around current market price only in upcoming days. The strategy can be initiate by selling a call and a selling a put (Both Anchor Units).

Both call and put should be of same strike price and same expiry

As long as price remains around current market price and as long as days pass, the strategy will count money for us.

Please not there is an unlimited risk characteristics in Short Straddle

Iron Butterfly is the modified version of the Short Straddle, in which two offset units are added to prevent from unlimited risk, one is long call and one is long put.

Long call strike price should be deep OUT-THE-MONEY above the upper range, similarly long put should be deep OUT-THE-MONEY below the lower range.

Anchor unit will be same like Short Straddle (same strike and same expiry).

Which strategy is safer:-

Obviously the strategy which prevent from unlimited risk is more safe.

Iron Condor and Iron Butterfly are the safe strategy, which will prevent us not only from unexpected gap up and gap down but also prevent us from a sudden hike in implied volatility.

Best Option Trading Strategies You Need to Know

You might have come here after reading how risky options trading is and it has full potential to empty your accounts. But, take a reality check here, options trading is risky, but risk is surely manageable with a good approach and advanced knowledge. After this risk is managed, the sky is the limit in options trading. Options trading is way more advanced and exciting than just buying and selling stocks. Different options trading strategies come with the opportunity to make money in every market condition. Indeed, the one who has mastered technical analysis related to options trading has the capability to accumulate good wealth over time. There are two types of market, bullish, bearish, and sideways, and so the type of options trading strategies. 

Bullish Option Strategies 

These are strategies used by a trader when they anticipate an up move in the market. It mandates the trader to thoroughly study the expected upmove and timeframe going to come. The art of catching quick-up moves brings a lot of opportunities here. Here are some different bullish options strategies that professional traders use: 

Bull Call Spread

It is an excellent hedging technique used by a lot of traders out there. Here, a trader buys in-the-money(strike price lower than the current price of the underlying asset) call option and sells the out-the-money (strike price higher than the current price of the underlying asset) call option. This is done for the same underlying asset and for the same expiry date. This gives a win to the trader from both sides. But, this strategy should only be implemented when the trader is sure about the upmove in the market. 

Bull Put Spread

This is used when a moderately bullish market is anticipated. Here, the trader sells an in-the-money put option and buys an out-the-money put option. The theta decay benefits highly in selling of put option. This strategy is implemented when the market has seen a good downfall a little bullish vision can be expected lately. 

Bull Call Ratio Backspread

This is indeed a risky but highly rewarding options strategy. Here, the trader sells an in-the-money/at-the-money (itm / atm) call option and buys two or more call options of a specific strike price. This is all done for the same expiration date. It should be practiced when you are sure about the good upward rally in the underlying asset. As the price of the underlying asset will reach the strike price of out-the-money calls, the premium will give unwavering returns. Further, the premium of the sold call option will fall near zero, giving you double gains.

Synthetic Call

Here, the trader first purchases the stock in bulk and aims for an up move. But, to protect their invested money, they buy a put option of the same strike price as the current price of the stock. It works as an excellent insurance to the purchased stock. Even if, the stock goes in an unfavorable direction for a while, the put option compensates for the losses of stocks.

Bearish Option Trading Strategies

Bearish Option Trading Strategies are used by traders who anticipate a decline in the market. They aim to make money by taking short positions in the market, the more the market falls, the more their gains increase. Here are different types of bearish option strategies used by technical traders: 

Bear Call Spread

Here the trader sells an in-the-money call option and buys an out-the-money call option for a higher strike price. It gives the seller a limited gain or reward opportunity due to theta or time decay. The gains are guaranteed here if the stock declines or even remains steady. Both the call options are of the same underlying asset and of expiry date.

Bear Put Spread

In a bear put spread, the trader again benefits from a decline in the market. Here the the trader buys out-the-money put options and sells in-the-money put options. The gain here is also limited, but the gains are guaranteed if you have forecasted a decline in the market. 

Strip

This is the market-neutral strategy that involves holding long positions of both call and put for the same strike (at-the-money) price at the same expiry date. The profits are made when the market moves either side. But the profits are doubled when the market moves to the downside rather than to the upside. Hence, it is a bearish option strategy. 

Synthetic Put

Similar to synthetic call, it is used to protect the short position the trader has taken in the stock. But, to protect their invested money, they buy a call option at an at-the-money price. It works as an excellent insurance to the short position. Even if, the stock goes in an unfavorable direction for a while, the call option compensates for the losses of stocks.

Neutral Option Trading Strategies

Neutral option trading strategies are employed by investors who anticipate little to no significant price movement in the underlying asset. These strategies aim to profit from low volatility and can be implemented when the investor expects the price of the underlying security to remain within a specific range.

Long Straddles and Short Straddles 

• Long Straddle:
  • Definition: A long straddle is an options trading strategy where an investor simultaneously purchases a call option and a put option with the same strike price and expiration date for the same underlying asset.
  • Objective: The goal of a long straddle is to profit from significant price movement in the underlying asset. This strategy is used when the investor expects a substantial move in either direction but is uncertain about the direction.
  • Risk and Reward: The risk is limited to the total premium paid for both options. The potential reward is theoretically unlimited if the underlying asset makes a significant move in either direction, covering the combined premiums paid for the call and put options.
• Short Straddle:
  • Definition: A short straddle is an options trading strategy where an investor sells both a call option and a put option with the same strike price and expiration date for the same underlying asset.
  • Objective: The goal of a short straddle is to profit from low volatility, with the expectation that the underlying asset will remain relatively stable and not experience significant price movement.
  • Risk and Reward: The risk in a short straddle is theoretically unlimited if the underlying asset experiences a substantial price movement in either direction. The potential reward is limited to the combined premiums received for selling the call and put options.

Long Strangle and Short Strangle 

• Long Strangle:
  • Definition: A long strangle is an options trading strategy where an investor simultaneously purchases an out-of-the-money (OTM) call option and an out-of-the-money put option for the same underlying asset. Both options have the same expiration date, but their strike prices are different.
  • Objective: The goal of a long strangle is to profit from a significant price movement in the underlying asset, regardless of the direction. This strategy is employed when the investor anticipates a substantial move but is uncertain about whether it will be upward or downward.
  • Risk and Reward: The risk is limited to the total premium paid for both options. The potential reward is theoretically unlimited if the underlying asset experiences a significant price movement in either direction, surpassing the combined premiums paid for the call and put options.
• Short Strangle:
  • Definition: A short strangle is an options trading strategy where an investor sells an out-of-the-money (OTM) call option and an out-of-the-money put option for the same underlying asset, with both options sharing the same expiration date.
  • Objective: The goal of a short strangle is to profit from low volatility, with the expectation that the underlying asset will remain within a certain price range until the options expire.
  • Risk and Reward: The risk is theoretically unlimited if the underlying asset experiences a substantial price movement in either direction. The potential reward is limited to the combined premiums received for selling the call and put options. However, it’s important to note that the risk in a short strangle is typically considered higher than the potential reward.

Summary:-

Since all are the credit strategy. As long as market will remain sideways, these strategies are going to count money for us. But the implementation of these strategies should be based on Implied Volatility.
If implied Volatility is extremely high Short Strangle and Short Straddle are the best strategy.
If implied volatility is high but not super inflated then Iron Condor is the best strategy. If implied volatility is neither high nor low means it is mid-point (68 % time according to 1 STD) then Iron Butterfly is the best strategy.
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Frequently Asked Questions

There are lots of blue-chip stocks whose fundamentals are very good and one who has invested in these companies might be he/she is getting a decent return. But what is going to happen tomorrow can be measured by technical analysis perfectly.
If all fundamental factors like income statement, balance sheet, and cash flow statement are good doesn’t mean stock is going to rocket every day, there might be some correction in its journey.
To identify these entry and exit points technical analysis will help a lot than fundamental analysis.

Technical analysis works on the past price movement of a security and uses this data to predict future price movements. While Fundamental analysis looks at economic and financial factors that influence the growth of a company

What is Fundamental Analysis?

Fundamental analysis is like checking the health of a company before deciding to invest in its stocks. It involves reviewing a company’s financial statements, cash flow statements, earnings, and other important factors to analyze its real value. The concept helps investors make smart decisions based on how well the company is doing against its own value, rather than studying what others are doing in the market. It is akin to conducting an in-depth health checkup for a company before making the choice of investment in its stocks. 

The Main Tools of Fundamental Analysis

Fundamental analysis is like checking the engine of a jet before deciding to fly. It helps investors  take a closer look at a company’s performance and vitals. Here are few financial tools, often opted to predict the company’s future:

• Financial Statements: Earnings, expenses, and overall health. For instance, cash flow statement, Price-to-Earnings ratio (P/E), Price-to-Sales ratio (P/S), Return on Equity, etc.

• Economic Indicators: Economical factors including GDP, employment rates, and consumer spending, etc.

• Interest Rates: Review the impact of interest rates on how companies borrow money, influencing their profitability.

• Media & Global Events: Whispers of market; news and events can sway investor sentiment and impact stock prices.

What is Technical Analysis?

Technical analysis is like studying the patterns and movements of a stock’s price chart to predict its future direction. Investors look at technical data such as historical price trends and trading volumes to understand where the stock might be heading. It’s like reading the signs of the stock market to make informed decisions on when to buy or sell. Technical analysis is a bit like predicting a stock’s future movement by reviewing its past behavior in the market.

The Main Tools of Technical Analysis

The key tools of technical analysis are like maps for stock prices. They use charts and patterns to analyze the historical movements of stock prices. It’s like looking at the footprints of the market to predict where it might go next. These tools include moving averages, trendlines, and chart patterns.  Let’s take a look:

• Charts: Visualize price movements over time using line charts, bar charts, and candlestick charts.

• Trends and Patterns: Includes spotting trends and chart patterns to make predictions such as demand-supply approach.

• Indicators: Technical indicators like Moving Averages, Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD) for insights.

• Volume: To assess trading volumes and figure market strength as well as confirm price trends.

• Support and Resistance Levels: To find levels where a stock might face hurdles (resistance) or find support.

Fibonacci Retracement: Investors use Fibonacci Retracement to identify potential reversal levels after a significant price movement.

The Pros and Cons of Fundamental and Technical Analysis

A key difference between a technical analyst and a fundamental analyst:-

Technical analysts typically begin their analysis with charts on multiple time frame while fundamental analysis with a company’s financial statements.

Technical analysts believe that there is no reason to analyse a company’s financial statements because the stock price already includes all relevant information.

Human can lie but chart can’t

let’s take an example suppose we live in a society and we want to sell our flat, might we circulate the news to all society members that we want to sell our flat while maybe our far relative will get to know this news later.
Similarly what is internally going on a company, board of directors, promoters, etc. already knows and they have planned their position according to that while we get any positive or negative news later. That’s the main reason we noticed during results sometimes bad results and still stock move up like a rocket while on other hand dragged down in positive result.

Which one is good for traders and investors?

Traders and investors both have different goals in mind.
Fundamental analysis helps to identify long-term opportunities so it’s good for investors. Technical analysis helps to identify many short-term, medium-term, and long-term opportunities so it is good for both traders and investors.

SUMMARY:-

Now we know both technical analysis and fundamental analysis have opposing approaches to analysing securities, but the combination of both can give us a good success.
For example, if we use fundamental analysis to identify an undervalued stock and use technical analysis to find a specific entry and exit point for the position.
We can look at fundamentals to support our trade. For example, suppose a stock is looking technically good and if we are looking at a breakout near an earnings report then we can look at the fundamentals to get an idea of whether the stock is likely to beat earnings.

FAQ

anchor units and offset units:

Versatility is the unique qualities of an options. And a great benefit of this is we can combine multiple options into a position to create a strategy based on our purpose.

Still getting confused, let’s have a look on below example.

We know that,

Sodium + Chlorine:- Pass the Salt, Please

Like in chemistry combining of a two elements to get the third one,

Similar thing we can do with options also, we can add one leg of an options with another which is different from the first one to create a strategy.

For that let’s understand Anchor Unit first:-

An anchor unit is that which drive our profit in the trade.

A large number of novice traders use only anchor unit,

Example for the anchor units are

Long call or short puts in case if we are bullish

Or long put or short call if are bearish

Or short call and short put if we are sideways

Anchor units have some undesirable characteristics, based on the market situation (volatility, direction, time decay etc)

In such cases we have to add another units which can prevent our trade from such undesirable characteristics and this will be called as an Offset Unit.

Let’s take an example to understand offset in a much better way.

Suppose if we are bullish and we are writing a put options (OTM), now selling only put is the anchor unit which have some undesirable characteristics like volatility can be shoot up or may be gap down risk in next day, so to prevent it from all of these we will add another strike long put as well, which will be more out of the money strike than our anchor unit.

Suppose stock is trading at 1000 and we are bullish and writing a put of 980 (-PE) then this is anchor and adding another unit into this like 940 (+PE) is called as offset unit

So the formula will be like this

Short Put (OTM) + Long Put (Deep OTM) -> Bull Put Spread

Note:-

We have added offset unit just for our protection and this is not going to pay us. Only Anchor Unit will count money for us but our offset will prevent us from unexpected gap down or a hike in Implied Volatility.

Adding another leg in strategy doesn’t always means its offset unit, like Short Strangle Strategy in which we sell both call and put and both are the anchor unit because both of them are going to pay us. But to prevent from unexpected gap and gap down we will add another unit long call and long put (Both deep OTM), these two units are not going to pay but going to prevent us hence these are Offset Units.

Or we can say Offset units act as an insurance.

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