Options Trading - How do I select the right strike price

General
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Being new to the Indian stock market, I’ve heard a lot about options trading, specifically within the NSE and BSE. Can someone elucidate the steps involved in starting options trading, and what are some unique terminologies that I need to know? Also, how do I select the right strike price?

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It’s fantastic to see your interest in options trading in India. Here’s an insightful breakdown to help you embark on your options trading journey:
Understand the Basics:
Options: These are derivatives contracts that give you the right, but not the obligation, to buy/sell an underlying asset at a predetermined price (strike price) before a specific expiration date.
Call Option: Right to buy.
Put Option: Right to sell.
Selecting a Broker:
Opt for a broker registered with SEBI, like Zerodha, Upstox, or Sharekhan.
Make sure they have user-friendly platforms and adequate educational materials.
Opening a Demat & Trading Account:
Necessary for buying and selling securities.
Requires KYC documents (PAN, Aadhaar, etc.)
Understanding Unique Terminologies:
Strike Price: Price at which you can buy/sell the underlying asset.
Expiry Date: The last date to exercise the option.
In-the-Money (ITM): Options with intrinsic value.
Out-of-the-Money (OTM): Options with no intrinsic value.
Selecting the Right Strike Price:
Consider Underlying Asset Movement: Study past trends and volatility.
Assess Risk Tolerance: Opt for ITM or OTM options based on your risk profile.
Time to Expiry: More time usually equals higher premiums.
Examples:
ITM Call Option: If Reliance is trading at ₹2000, a call option with a strike price of ₹1950 is ITM.
OTM Put Option: If TCS is trading at ₹2200, a put option with a strike price of ₹2300 is OTM.

Some Important Tips:
Start with a virtual trading platform to practice.
Keep up with market news and trends.
Never invest more than you can afford to lose.
Options trading offers vast opportunities but comes with significant risks. It’s advisable to start with a comprehensive education, either through online courses or books specifically tailored for the Indian market, like “Option Trading in Your Spare Time” by Virginia McCullough.
Hope this helps, and happy trading!

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