What is a Call Option (CE)?

Right to BUY an asset at a fixed price (Strike) before expiry. You buy CE if you are Bullish.

What is a Put Option (PE)?

Right to SELL an asset at a fixed price before expiry. You buy PE if you are Bearish.

What is Strike Price?

The pre-agreed price at which the option can be exercised.

The last day the contract is valid. In India, usually last Thursday of the month (Monthly) or every Thursday (Weekly).

The price you pay to buy an option.

What is In The Money (ITM)?

Option has intrinsic value. Call: Spot > Strike. Put: Spot < Strike. Most expensive premiums.

What is At The Money (ATM)?

Strike is closest to Spot price. High liquidity.

What is Out of The Money (OTM)?

Strike is far from Spot. Only Time value. Cheapest. Zero at expiry.

Minimum quantity you must trade. Nifty lot is 25 (varies).

What is Open Interest (OI)?

Total number of outstanding contracts. High OI = High activity/interest level.

Number of contracts traded today.

What is Put-Call Ratio (PCR)?

PCR = Put OI / Call OI. PCR > 1 means Bullish (More puts sold -> Support). PCR < 0.7 means Bearish (More calls sold -> Resistance). <em>*Contrarian indicator*</em>.

What is Short Covering?

Bears exiting their short positions (buying back), causing a sharp rally.

What is Long Unwinding?

Bulls exiting their long positions (selling), causing a fall.

What is Implied Volatility (IV)?

Market's expectation of future volatility. High IV = Expensive Options.

Delta, Gamma, Theta, Vega, Rho. Measures of option price sensitivity.

How much option price moves for 1 point move in underlying. ATM Delta ≈ 0.5.

Time Decay. How much value option loses per day. Theta hurts Buyers, helps Sellers.

What is Option Selling (Writing)?

Selling an option to collect premium. Win probability ~67%. Unlimited risk, limited profit. Requires high margin.

What is Option Buying?

Paying premium to bet on direction. Win probability ~33%. Limited risk, unlimited profit. Requires low margin.

Taking a position to reduce risk of existing portfolio. e.g. Buying Puts to protect Stock portfolio from crash.

Risk-free profit from price difference. e.g. Buy Spot, Sell Future.

Money required to take a trade.

Mark to Market. Calculating daily profit/loss.

What is Stop Loss (SL)?

Order to close trade if loss reaches a limit. Essential for survival.

What is Trailing Stop Loss?

Moving SL up as price moves in favor to lock profits.

What is Market Order?

Buy/Sell immediately at best available price.

What is Technical Analysis?

Predicting price based on charts, patterns, and history.

What is Fundamental Analysis?

Predicting price based on balance sheet, earnings, economy.

Price level where demand is strong (Floor).

Price level where supply is strong (Ceiling).

Price crossing resistance with volume. Bullish.

Price falling below support. Bearish.

What is Candlestick Chart?

Chart showing Open, High, Low, Close (OHLC) for a period.

Candle with same Open and Close. Sign of indecision.

Bullish reversal candle (Long lower wick).

What is Shooting Star?

Bearish reversal candle (Long upper wick).

What is Moving Average (MA)?

Average price over last N periods. Smooths noise.

Exponential Moving Average. Gives more weight to recent prices.

What is Golden Cross?

50 MA crossing above 200 MA. Bullish long term signal.

50 MA crossing below 200 MA. Bearish signal.

Relative Strength Index. Momentum indicator (0-100). >70 Overbought, <30 Oversold.

Moving Average Convergence Divergence. Trend following momentum indicator.

What is Bollinger Bands?

Volatility indicator. Price usually stays within bands. Squeeze predicts explosion.

What is Fibonacci Retracement?

Key levels (38.2%, 50%, 61.8%) where price often reverses during trend correction.

What is Pivot Points?

Calculated support/resistance levels based on previous day OHLC.

What is Price Action?

Trading based purely on price movement without indicators.

Very short term trading (seconds/minutes) to catch small moves.

People Often Ask

Q: What is a Derivative?

A financial contract deriving its value from an underlying asset (Stock, Index, Commodity).

Q: What is In The Money (ITM)?

Option has intrinsic value. Call: Spot &gt; Strike. Put: Spot &lt; Strike. Most expensive premiums.

Q: What is At The Money (ATM)?

Strike is closest to Spot price. High liquidity.

Q: What is Out of The Money (OTM)?

Strike is far from Spot. Only Time value. Cheapest. Zero at expiry.

Q: What is Lot Size?

Minimum quantity you must trade. Nifty lot is 25 (varies).

Real questions from real users. No financial jargon, just straight answers.

A financial contract deriving its value from an underlying asset (Stock, Index, Commodity).

Trading

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