Option Selling For Beginners | Low Capital Option Selling Strategies | With Live Trading Demo

Hello friends, welcome to the next lecture of our free options trading course. In this lecture, I am going to teach you how to do option selling. If you are active in the market, then you must have heard that option selling is basically done by big institutions and big traders. And if we talk about the probability, then 67% traders earn money in option selling, while only 33% traders can earn money in option buying. Now see, to do option selling, you need more than 1 lakh rupees. But in this video, I am going to tell you a strategy with which you can do option selling within 25-30 thousand rupees. Very few people know this trick. And after this video, you will also be among those people who know this trick. So let's start this video. But remember that this video is only for educational purposes. So if you do trading, then do it at your own risk. And never do trading with a loan because you can get into a big trouble. So let's first understand what is option selling and how you can earn profit from option selling. So if you have seen our previous lectures, then you must have known that there are two types of options in every option. One is call option and the other is put option. If you are an option buyer and you think that the market will increase, then you buy the call option. And if you think that the market will fall, then you buy the put option. But the thing to understand here is that if you are buying the call option or put option, then there must be some person who is selling that option because you are buying it only when someone is selling it. So the person who sells the option is called the option seller. But from the perspective of the option seller, the meaning of call selling and put selling is different. Option seller sells the call option when he thinks that the market will fall and option seller sells the put option when he thinks that the market will increase. Now the biggest advantage of option selling is that here time works in your favor. Whereas in option buying, time works against you. That is, the more time increases, the value of your premium decreases. But in option selling, the more time increases, the more premium option buyer spends That is, the more time increases, the more profit you will get. If you want to learn the basic to advanced stock market, then you can buy our stock market mastery course from our app Neeraj Joshi. The link is given in the description. Now what is option selling? Let's understand this with an example. Suppose you are the owner of a bike showroom. You have a customer who wants to buy a particular bike but the bike is not yet available in the market. In this case, you ask the buyer to give you Rs 10,000 and after a month this bike will come to you and the price of the bike is Rs 2,00,000 and after a month I will give you the bike for Rs 2,00,000 no matter what the price is at that time. In this way, you take only Rs 10,000 and contract to sell the bike for Rs 2,00,000 Now after a month when the bike comes to the market then the price of the bike decreases to Rs 1,60,000 In this case, will the buyer buy the bike from you for Rs 2,00,000? No, he will not buy the bike because it will be a big loss for him. In this case, he will forget the Rs 10,000 advance and he will buy the bike from the market for Rs 1,60,000 no matter where he buys the bike. So here, the option seller who has contracted to sell the bike will get a profit of Rs 10,000 because he has given you the advance and you did not have to give the bike. So in this way, the option seller gets a profit but if the price of the bike increases to Rs 2,20,000 then because you have contracted to sell the bike for Rs 2,00,000 then the buyer will come to buy the bike from you and you will have to sell the bike for Rs 2,20,000 for Rs 2,00,000 and in this way you will have a loss of Rs 20,000. So from this example, we understand that the profit that the option seller gets is from the premium of the option buyer i.e. the premium that the option buyer has given to buy that particular contract the option seller will only get that much profit i.e. the option seller will only get the profit when the option buyer's contract will expire in the money i.e. assume that the option buyer had bought the call option for Rs 45,000 and the option seller had sold the call option for Rs 45,000 so in this way, the option buyer thought that the market will close above Rs 45,000 so if this happens and the market closes above Rs 45,000 then the option buyer will get a profit but if the market closes below Rs 45,000 then the premium that the option buyer had paid will be given to the option seller so in this way, the option seller gets a profit If you are liking this video, then do like it and if this video gets 10,000 likes then we will upload the next part of this video Now this premium can be given to the option seller in 3 scenarios In the first scenario, the option seller has a bullish view i.e. the option seller thinks that the market will increase so in this scenario, which option will he sell? Will he sell the put option or the call option? So pause the video and comment below what option will he sell here? If you have commented, then I will tell you that the option seller here will sell the put option and there will be a buyer who thinks that the market will fall and he will buy the put option and in this way, a contract will be created so if the market increases, then the option buyer who bought the put option and who thought that the market will fall he will start losing, so he will not complete his contract and in this way, the option seller will get a profit After this, there is a second scenario where the seller has a bearish view i.e. he thinks that the market will fall so if the seller thinks that the market will fall then will he sell the call option or the put option? You have to comment below and tell me If you have commented, then I will tell you that he will sell the call option and on the other hand, there will be a buyer who thinks that the market will increase and he will buy the call option and in this way, the market will fall and he will start losing, so he will not complete his contract and in this way, the option seller will get the premium that the option buyer has paid But apart from this, there is a third scenario where the option seller will get a profit and here the probability of the option seller getting a profit is the highest and that is if the market stays sideways i.e. neither the market increases nor the market falls and the reason behind the profit of the option seller is Theta i.e. Time Decay We have told you that in option selling, the Theta i.e. Time Decay works in the favor of the option seller i.e. as the time increases the profit of the option seller increases So, suppose an option buyer bought the call option for Rs 45,000 and the other option seller sold the call option for Rs 45,000 then the option buyer had to pay the time value of the call option i.e. the time value of the call option has to be given to the seller Now, suppose the option buyer bought the call option for Rs 45,000 and the price of the option is the same as the range of the call option So, suppose an option buyer bought the call option and the price of the call option increases and the market comes back to the range where the call option was bought then automatically the price of the call option will decrease due to the Theta Decay and the option buyer will lose and the option seller will profit and this is the reason why the option seller has more chances of profit By the way, since we are providing you this paid course content for free then you can at least like this video and also share this video in your Instagram and WhatsApp status and if you share it on Instagram then you can also tag me So, now let's understand the fundamental of option selling, due to which most of the traders prefer to buy options and that fundamental is Margin Requirement Margin Requirement means the amount which is necessary to trade If you buy an option then you get 1 lot for Rs 5,000-10,000 which means the Margin Requirement is less but if you sell an option then you get Rs 1-1.5 Lakh Now you must be thinking that if you need Rs 5,000-10,000 to buy an option then why do you need Rs 1-1.5 Lakh to sell the option and why is such a high Margin Requirement necessary in option selling As you can see on the screen, the call option of Nifty is Rs 153 and if you buy an option then you get Rs 7,625 but if I want to sell a call option then I have to pay Rs 1,14,955 so why is there such a high Margin Requirement so why is there such a high Margin Requirement So, to understand this, look at the chart on the screen If you are buying an option then the loss you can incur here is limited whereas the profit you can incur here is unlimited. But if we talk about option selling, then the profit you can earn here is limited. And how much is it? You can earn the same amount of profit as the option buyer has paid the premium. But here, the loss to the option seller can be unlimited. That is, the loss in option buying is limited but the profit can be unlimited. Whereas in option selling, your profit is limited as much as the premium the option buyer has paid. Whereas your loss can be unlimited. That is why the broker, to be on the safe side, has a higher margin requirement than the option seller. So that if the option seller has a loss, then the premium he has paid, can be deducted from it. So now you have understood why there is such a high margin requirement in option selling. Now let me tell you how you can reduce your margin requirement and you can do option selling by paying only Rs 25,000 to Rs 30,000. So first let me tell you how to do option selling. After that, I will show you practically. So here you can see an article in which it is written that according to the new framework of NSE, from 1st June 2020, the margin requirement for the hedged position has been reduced to 70%. This means that if you do hedging, then you don't have to pay much margin. And we are going to take advantage of this rule. So now you have understood which rule we are going to use. So now let me show you practically. After that, I will also show you trading in my Demat account. So here I have come to the Sensible website. Let me clear that it is not sponsored. I use it myself. Now see here, if I go and sell the call option of Rs 20,200. If I click on sell, then you can see that I will need Rs 1,13,000 to sell. That is, if I sell the option directly, then I need Rs 1,13,000 for that. But with this, if I buy a call option, then you can see how much my requirement has decreased. So you can see here that my margin requirement has decreased to Rs 42,400. Whereas today when I am recording this video, it is Friday and generally at such times the margins are high. So that means in this strategy, if you want to sell the call option of Rs 20,200, then before that you will have to buy a far call option. Like we are buying the call option of Rs 19,700 here, which will make the broker feel that we want to do hedging and this will reduce our margin requirement. Now I am just showing you an example. You can see that if we want to sell the call option of Rs 19,800 and if we also buy the call option of Rs 19,700, then our margin requirement has decreased to Rs 24,000. That is, you can sell the option under Rs 24,000. And again keep in mind that today I am trading on Friday. If I trade on a Tuesday or Wednesday, then my margin requirement will be even lower. So now you have understood how we can trade in a low margin. So now let's see it practically in a Demat account. And the example I am showing you I am going to show you in FinNifty. But before that, if you want to open the best Demat account for trading, then I have given you the link of some good Demat accounts in the description. So now you can see that the ATM is running at Rs 20,500. So if I want to sell its put option, then to sell one of its put option, the margin requirement I am seeing is Rs 1,04,000. But in my Demat account, there is only Rs 30,000. That is, if I want normally, then I cannot sell this option. Even I will show you by taking a trade. See, I put a trade and here I can clearly see that your order has been rejected because there is only Rs 30,000 in my account. And to sell one of its options, I will need Rs 1,04,000. But as I have told you that if I buy a put option along with this, then my margin requirement will be reduced. So let's try that now. And for this, I buy a put option from a distance. So here I am going to buy a put option of Rs 20,300. And I am getting a lot of Rs 396. And I will buy it at the market price. So I have bought a put option of Rs 20,300 by giving Rs 300. And you can see that I have Rs 29,582. Now if I want to sell a put option of Rs 20,500, then you can see that I can sell a lot of Rs 22,977. And as soon as I have placed the order, then you can see that I have sold one of my options. And you can see that I am making some profit. So here I have bought a put option of Rs 20,300 by giving Rs 300. And because I have bought a put option, now when I want to sell a put option, then I get a margin of around 70%. You know that I had only Rs 30,000. And you can see that I still have Rs 6,500. That means I have sold one option for only Rs 23,500. Now you can see that I can see profit in this trade. Remember that I have taken this trade to explain you. So I have not seen many factors here. And that's why you don't have to focus on profit. You have to focus on learning. You can see that I am making a profit of Rs 160. In which we are losing the put option that we bought. But we are making a profit in the put option that we sold. Now I have exited both the trades together. And you can see that I have got back Rs 29,920. I had taken this example only to teach you. And when this profit comes in my account, then I will get no loss, no profit. You can do option selling within Rs 25,000. So till now you have understood what option selling is. And how to do option selling. So now I will tell you some points. So that if you do option selling, you have less chances of loss. So the first point is that even though in option selling, the chances of profit are more in comparison to option buying. But in option selling, the profit that you can get can be limited. So whenever you do option selling, you have to do it with a proper strategy. And along with that, you have to apply stop loss. Second, because you know that the profit in option selling can be limited. So in this case, if you are an option buyer and you are going to do option selling for the first time, then your expectations will be high. And if you trade with that expectation, then there will be more chances of loss. Third, always remember that the profit in option selling will be less but there will be more chances of loss. And third, always remember that the time in option selling is working in your favor, so you don't have to worry about the time. The trade that you have taken should be right. So take the trade with a proper analysis. After that, if the market is in your favor, then you will get profit. But if the market is sideways, then also you will get profit. And finally, if you ever do trading, then always remember that trading is a risky business. And there are chances of loss. So never trade with a loan. I hope you liked this video. If you liked this video, then please like it. And to watch more videos like this, please subscribe to our channel. Thank you!