A trailing stop is a smart risk-management tool in stock trading. It helps protect your profits by automatically adjusting the stop-loss level as the stock price moves in your favor. This means you can lock in gains while still allowing the stock to rise further.
Blog by PriyaSahu
When placing a trade in the stock market, you have two main options: a limit order or a market order. Understanding the difference between these two can help you execute trades effectively and get the best possible price for your investments.
1. What is a Limit Order?
A...
Trading stock options for income involves using strategies that generate steady cash flow, such as selling covered calls, cash-secured puts, or credit spreads. These strategies help traders earn premium income while managing risk effectively.
1. Selling Covered Calls
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Calculating profit or loss in options trading depends on whether you are buying or selling options. For buyers, profit is made when the option’s selling price is higher than the purchase price (premium). For sellers, profit comes from collecting the premium if the option expires worthless.
A naked call is a high-risk options trading strategy where a trader sells a call option without owning the underlying stock. This exposes the trader to unlimited potential losses if the stock price rises significantly.
1. What is a Naked Call in Options Trading?
A naked call is w...
A covered call strategy is a popular options trading technique used to generate income from stocks you already own. It involves selling a call option on a stock while holding the same stock, allowing you to collect premium income while limiting potential gains.
1. How...
Dividend payments can significantly impact options trading strategies, especially for call and put options. Traders must consider dividend-related price adjustments and early exercise risks when trading options on dividend-paying stocks.
1. How Do Dividends Affect Sto...
A synthetic stock position in options trading mimics the profit and loss behavior of owning an actual stock by using options. Traders create synthetic long or short positions using calls and puts to gain stock-like exposure without directly owning the stock.
1. What i...
Implied volatility (IV) is a measure of how much the market expects a stock’s price to fluctuate in the future. It directly affects option pricing—higher IV increases option premiums, while lower IV reduces them.
1. What is Implied Volatility?
Implied volatility (IV) ...
A rolling option strategy is a technique used by traders to extend or adjust their option positions by closing an existing contract and opening a new one with a later expiration date or different strike price. This helps traders manage risk, lock in profits, or adapt to market conditions witho...
In options trading, the Greeks (Delta, Gamma, Theta, and Vega) are essential risk metrics that help traders understand how an option’s price changes in response to different factors. These metrics assist in making informed trading decisions and managing risk effectively.
In options trading, a spread is a strategy that involves buying and selling two or more options contracts simultaneously to limit risk and enhance profit potential. Spreads help traders manage market volatility and control their exposure.
1. What Are the Differen...
Short selling stocks can have significant tax implications, including capital gains taxes on profits, potential deductibility of losses, and tax treatment of dividend payments on borrowed shares. Understanding these rules can help traders manage their tax liabilities effectively.
A call option is a financial contract that gives the buyer the right, but not the obligation, to buy a stock at a predetermined price before the option expires. Traders use call options to profit from rising stock prices or hedge against market movements.
1. What Is a ...
A put option is a contract that gives the buyer the right, but not the obligation, to sell a stock at a predetermined price before the option expires. Traders use put options to hedge against potential losses or to profit from declining stock prices.
1. What Is a Put O...
Beta is a measure of a stock’s volatility in relation to the overall market. A beta greater than 1 means the stock is more volatile than the market, while a beta less than 1 indicates lower volatility. Investors use beta to assess risk and decide whether a stock aligns with their risk tolerance ...
Leveraged ETFs are exchange-traded funds that use financial derivatives and debt to amplify the returns of an underlying index. They aim to provide 2x or 3x the daily returns of the index they track. While they offer the potential for high profits, they also come with significant risks due to ...
An index fund is a mutual fund or ETF that tracks a market index, such as the NIFTY 50 or SENSEX. Unlike investing in individual stocks, index funds offer diversification, lower risk, and stable returns. They are best suited for passive investors who prefer long-term growth without active stock pick...
Investing in commodity-based stocks or ETFs allows you to gain exposure to valuable resources like gold, oil, and agricultural products without physically owning them. You can invest in commodity-producing companies, commodity-backed exchange-traded funds (ETFs), or futures-based funds. These invest...
An Exchange-Traded Fund (ETF) is a type of investment fund that trades on the stock exchange, just like individual stocks. ETFs contain a mix of assets like stocks, bonds, or commodities, offering investors diversification at a lower cost. They are an easy and efficient way to invest in various...
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