Market Structure and Derivatives

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Market Structure &

Derivative Future Options
Market Structure
Support and Resistance & Demand Supply zones

Prices move because of supply and demand. When
demand is greater than supply, prices rise. When supply
is greater than demand, prices fall. Sometimes, prices
will move sideways as both supply and demand are in
equilibrium.
Supply zones =Active selling = Resistances
Demand zones = Active buyers = Support
Patterns and candlesticks
Candlestick patterns are a financial technical analysis tool

that depicts daily price movement information that
is shown graphically on a candlestick chart. A candlestick
chart is a type of financial chart that shows the price
movement of derivatives, securities, and currencies,
presenting them as patterns.
UPPER SHADOW
LOWER SHADOW
Breakout and Rejection
A breakout refers to when the price of an asset moves above a
resistance area, or moves below a support area.
Breakouts indicate the potential for the price to start trending in
the breakout direction.
A price rejection to identify levels at which a price trend – either
upward or downwards – will reverse as a result of the market's
support price or resistance price above or below that level.
Rejection
Breakout
DERIVATIVES- FUTURES & OPTIONS
• A derivative is a financial contract that gets its value, risk, and basic
term structure from an underlying asset. Options are one category of
derivatives and give the holder the right, but not the obligation to buy
or sell the underlying asset. Options are available for many
investments including equities, currencies, and commodities.
Derivatives are contracts between two or more parties in which the
contract value is based on an agreed-upon underlying security or set
of assets such as the Nifty 50 index. Typical underlying securities for
derivatives include bonds, interest rates, commodities, market indexes,
currencies, and stocks.
• Derivatives have a price and expiration date or settlement date that can
be in the future. As a result, derivatives,
including options, are often used as hedging vehicles to offset the risk
associated with an asset or portfolio.
Simple explanation of options: it’s a contract to hedge the risk.
Types of Option
• Call Option - CE = when the underlying asset price rise up, call option
will go up (+ve correlation)
• Put Option - PE = when the underlying asset price down, put option will
go up (-ve correlation)
Benefits of Option Trading
• Earn Big profits with small Capital.
• Earn when even market falling (Buying PE).
• Can be used for hedging in stocks.
Components of Options
Strike Price
The strike price is the price at which the buyer of a call option has
the right to purchase the futures contract, or the buyer of a put
option has the right to sell a futures contract. The strike price is
one of the biggest factors in determining both the extrinsic and
intrinsic value of an option.
Types of Option Strikes
• AT THE MONEY – ATM
• IN THE MONEY – ITM
• OUT OF THE MONEY – OTM
Examples:
BANKNIFTY (Underlying Asset) at 40,123
So,
AT THE MONEY OPTIONS = 40100 CE & 40100 PE
IN THE MONEY OPTIONS = 40000 CE, 39900 CE, 39800 CE & 40100 PE,
40200 PE, 40,300 PE
OUT OF THE MONEY OPTIONS = 40100 CE, 40200 CE, 40,300 CE &
40000 PE, 39900 PE, 39800 PE
Option Price= Intrinsic Value + Extrinsic Value
Intrinsic value:
The intrinsic value of an option is the amount that
the market price is higher than the strike price for a
call and lower than the strike for a put. In other
words, the intrinsic value is the amount of money
that the option would be worth if it expired today.
For the option to have intrinsic value, the option
must be in-the-money.
Extrinsic value:
• Time value, Option Price will decrease when time increases.
Time value works against the buyer of an option, but works for the seller.
This is because the time value portion of the option is constantly eroding
until reaching zero at the time of expiration.
• Volatility, when volatility increase option prices increases.

Volatility can be a double edged sword. It can be lucrative if you are in a
favorable position, but losses may be substantial if you happen to be on the
opposite side
Expiry of Options
• Index Options Expiry on every Thursday (Weekly Expiry)
• Stock Options Expiry on Monthly
Type of Option Traders

Option buyers – buying the option strikes at a
price depends on the trend movements of
underlying asset. (limited loss) maximum loss =
paid premium
Option Sellers – selling the option strikes at a price
opposite on the trend movement and consolidation faces
and gaining the decay benefits too. (unlimited loss) also
need a huge margin.
Option Hedging – selling a ranged position up and
down and adjusting the position as per market
movements, they deploying hedging strategy only on
consolidating range bound markets, and gaining the
benefit of time decay differences. (lot of adjustments)
huge margin for position making, small profits only.
What is India VIX?
India VIX is a short form for India Volatility Index. It is the volatility index
that measures the market’s expectation of volatility over the near term. In
other words, it explains the volatility that the traders expect over the next 30
days in the Nifty50 Index.
Why is India VIX so important?
• A lower VIX level usually implies that the market is confident about the
movement and is expecting lower volatility
and a stable range.
• A higher VIX level usually signals high volatility and lower trader confidence
about the current range of the market. A major directional move can be
expected in the market and a quick broadening of range can be expected.
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Market Structure and Derivatives

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“Learn with us, Trade with us, Grow with us

Market Structure &

Support and Resistance & Demand Supply zones

Candlestick patterns are a financial technical analysis tool

• Volatility, when volatility increase option prices increases.

Type of Option Traders

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