The Difference between option buying and selling:
In trading option buying is safer than option selling. I.e. option buying has the chance of creating limited loss unlimited profit this is considered as the best choice. Option selling has the chance of creating a limited profit unlimited loss and so this is the risky one. In option trading option sellers gain more profit than the option buyers. So this does not mean traders have to trade by selling the option. Only a good technical analyst can make a profit in the option trading. Most of the small traders will prefer option buying as it has the chance of making limited loss unlimited profit. This is the reason they will not able to make profit. For option short trades the traders require margin money and also it has the chance of creating minimum profit and huge loss and most of the traders will not prefer option short.
In option trading we cannot say this is the best way, but with minimum investment, there is a chance of making more profit and this is available only in option buying. If a trader knows all the technical things and experience in option trading he will be able to make the profit. At the same time the traders who pay margin money for a small profit in option short trade are more in number than the traders who pays a premium for buying an option for more profit and the mostly option seller wins the race. The option trading will depends on the trend of a stock or index. There are many ways to know the trends of the stock or index. This has been said in many of our previous posts.
Very easy method option success trading
There are many techniques we need to follow in option trading. For instance, we are saying a technique here. In future and option the essential thing we need to look is the open interest (volume of outstanding position). If options open interest increases along with the price of the stock or index, then the price of the stock or index will go up. Also, if options open interest increases and the price of the stock or index decreases, then the option will go down continuously. Here the open interest has to be noted clearly. For example, we can take the nifty. Suppose if nifty options open interest exceeds 70 lakhs then that option is nearing towards zero. I.e. 70% the option will be moving towards zero. At the same time an option which has an open interest of 70 lakhs reaches new high, then short covering will happen and there is a chance for that option to go up high double the times from that new high.
Option trading is an instrument used for hedging. It is difficult to trade in option without hedging. For trading without hedging a trader should know many technical things. In option a trader should know the time value, open interest, put call ratio, volume.
For example nifty march 26 (expiry day) 8350 put option ltp (last trading price) is 1 rupee. The Nifty close price is 8342.15. That is nifty 8350 put option settlement price is 7.85. But nifty 8350 put option has been trading at 1 rupee. A trader should know why it has been traded like that. There are a lot more things that has been involved in option trading. Every trader should know all these things to become successful in the market.