Phase 1

Introduction to STOCK MARKET

• What is stock market ?

Stock market is a place were the share of PUBLICLY LISTED COMPANIES are
traded.

• PUBLICLY LISTED COMPANY

Companies are listed to stock market to expand their business .

For example : Jio company is working successfully and they want to expand
their business, for that they need large amount of money to start.

So they publicly list their company in stock market through IPO.

• INITIAL PUBLIC OFFERING (IPO)

IPO refers to the process where private companies sell their shares to public
to raise equity capital from the public investors.

The process of IPO transforms a privately held company into a public

company.

This process also creates an opportunity for smart investors to earn a good
return on their investments. Investing in IPO can be a smart move if you have
a good fundamental analysis about the company.

But not every IPO is a great opportunity.

THERE ARE TWO TYPES OF IPO

• Fixed price offering

• Book building offering

FIXED PRICE OFFERING

Under fixed price , the company going public determines a fixed price at
which it’s shares are offered to investors.
The investors know the share price before the company goes public.

Demand from the market is only known once the issue is closed .
To partake in this IPO , investors must pay the full share price when
making the Application.

BOOK BUILDING OFFERING

Under Book Building Offering , the company going public offers a 20%
price band on shares to investors .
Investors then bid on the shares before the final price is settled once the
bidding has closed .

There is no fixed price per shares. The lowest share price is known as
the floor price , while the highest share price is known as the cap price .
The final share price is determined using investor bid.

• After the company got listed in stock market, the public can buy / sell
that company’s share . When the investors buy their shares , companies
get money to expand their business.

IPO is very difficult to get access for companies. There are so criteria to
be followed .SEBI and government decides that. SEBI ( SECURITIES AND
EXCHANGE BOARD OF INDIA )

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TYPES OF STOCK MARKET
• NSE ( NATIONAL STOCK EXCHANGE )
• BSE ( BOMBAY STOCK EXCHANGE )

NSE ( NATIONAL STOCK EXCHANGE)

• NSE formed in 1992

• NSE introduced electronic trading in India for the 1 st time.
• 2000+ companies are listed .
• Nifty50 is the index of NSE .

BSE ( BOMBAY STOCK EXCHANGE )

• BSE is the oldest stock exchange in Asia , established in 1875.

• The 1st stock exchange in india.
• Asia’s largest stock exchange .
• 5000 + companies were listed .
• Sensex is the index of BSE.

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WHO ALL PARTICIPATES IN STOCK MARKET ?

Participants in the stock market range from small individual stock investor to
larger investors, who can be based anywhere in the world .

This includes banks , insurance companies, pension funds , and hedge funds.

WHO IS INVESTOR ?

Investors are public .

Investors are the people who are interested in buy/sell shares from the stock
market .

There are so many types of investors.

- Retailers which are we .

- Institutional investors, mutual funds , foreign investors etc .

HOW INVESTORS SELECT STOCKS ?

There are two method to select stocks for investing .

• FUNDAMENTAL ANALYSIS
• TECHNICALLY ANALYSIS

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 FUNDAMENTAL ANALYSIS

Fundamental analysis is a method applied to determining the value

of a stock or security. It involves an analysis of a company’s
management , business model , financial ratios , financial statements.

Normally fundamental analysis is used as a tool for long term investing.

TECHNICAL ANALYSIS

Technical analysis is a method used in the stock market to understand

the future price movements based on historical data.
Here we use charts to spot trends and patterns in price.
There are so many tools to do technical analysis

• HOW PRICE MOVE IN STOCK MARKET

Completely depend on the demand . When the stock is on demand, large

amount of investors buy it.

When the buyer increase , the demand of the stock increase as the price
increase.

Suppose if the company’s performance is not so good ,or any bad news
comes out . The price of that company’s stock decrease , because the
investors sell off.

5
 • HOW DO WE TRADE SHARES IN STOCK MARKET.

We can’t buy / sell direct from the stock market.

We use brokers to buy / sell the shares.

INVESTORS BROKERS STOCKMARKET

• TYPES OF ACCOUNTS

(a) TRADING ACCOUNT

(b) DEMAT ACCOUNT

TRADING ACCOUNT

Trading account is a account were we buy / sell shares from stock market. And
it’s the account we’re we add our money to trade.

DEMAT ACCOUNT

Demat account is a account were all our transactions and details store
digitally.

STOCK MARKET

↕️
BROKER

SAVING ACCOUNT(BANK) ↔️ ↕️ ↔️ DEMAT ACCOUNT

TRADING ACCOUNT (BROKER)

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 • WHAT IS SEBI ?

SEBI – THE SECURITIES AND EXCHANGE BOARD OF INDIA

SEBI’s responsibility is to ensure that the security market in India

function in an manner.
It is made to protect the interest of investors and trades in the Indian
market by providing a healthy environment in securities and to promote
the development and regulating the equity market.

SEBI is established in 1992 , mainly to protect investor’s from

Scams and securities of market.

PHASE 2
INDEX

• WHAT IS INDEX ?

It is a tool used to track the performance of a group of assets in a standard

way.

Index typically measures the performance of a basket of securities intended to

replicate a certain area of the market .

Index are formed to understand the current market status .

• FOR EXAMPLE

NIFTY 50 & SENSEX

• NIFTY 50 is the index which used to understand the current market

status of NSE .
• SENSEX is the index of BSE.

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SECTORAL INDEX

Sectoral indices provide concise summaries and comparative data for specific
sector or industries.

It enables investors to monitor a stock’s performance against specific sectors.

There are lot of sectors like ,- energy, health, consumer products, financial etc.

These are few major sectors in NSE.

• NIFTY AUTO – automobile sector

• NIFTY BANK – bank sector
• NIFTY FINANCIAL SERVICE – financial industries
• NIFTY FMCG – Fast moving consumer goods
• NIFTY HEALTHCARE – Healthcare companies
• NIFTY IT – Indian IT companies
• NIFTY MEDIA – Media
• NIFTY PHARMA – Pharmaceutical ETC…

WHY DO PEOPLE TRADE NSE THAN BSE ?

NSE have higher trading volume than BSE.

This means there is more liquidity , making easier to buy / sell shares quickly
at desired prices.

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 TYPES OF TRADING

DAY TRADING / INTRADAY TRADING

Intraday trading is one of the most common types of trading in the

stock market . People tend to do intraday to make higher profits than
average average , it is also the riskiest.

POSITIONAL TRADING

A positional trader identifies the trends in the market or the economy

and invests in the stocks of those companies accordingly.

Holding a position for an extended period , weeks or even months to

achieve profits .

SWING TRADING

Swing trading is a style of trading that attempts to capture short to

medium term gains in a stock over a period of few days to several
weeks.

LONG TERM TRADING

It is a style of holding investments for more than a full year . Safe

trade style than others.

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 TYPES OF TRENDS

UPTREND , DOWNTREND AND SIDEWAYS TREND.

WHAT IS TRENDS ?

Direction of a market / direction of price movements.

UPTREND

• The price movements of a financial asset when the overall

direction is upward.
• Uptrend occurs when the prices are making higher highs and
higher lows.
• Don’t short during uptrend .

DOWNTREND

• Downtrend is a gradual decrease in the value or price of a

financial investment.
• Downtrend occurs when price is making lower lows and lower
highs .

SIDEWAYS

• A sideways trend is the horizontal price movements that occur

when the forces of supply and demand are nearly equal .
CONSOLIDATION

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 WHAT IS CANDLESTICK CHART ?

A candlestick is a types of price chart used in technical analysis

that displays the High , low , open and closing prices of a
security for a specific period .

It is originated from the Japanese rise merchants and traders to

track market prices and daily momentum hundreds of years
before.

WHAT IS CANDLE ?

A candle represents price activity in stock in a particular time

frame.

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There are two types of candles ,n

BULLISH AND BEARISH CANDLE

• Real body — the rectangle showing the movements of the

price from open to close. Typically green is used to represent
an upward movement of price (bullish) and red is used to
represent a downward movement in price (bearish).

• Wicks — the sticks above and below the open and close
prices. These sticks represent the high and low prices of the
stock during the particular trading day. The lengths of the
sticks are called upper shadow and lower shadow.

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TYPES OF CANDLES

• MORUBOZU (Bullish and Bearish )

• SPINNING TOP
• DOJI
• PAPER UMBRELLA (HAMMER AND HANGING MAN)
• SHOOTING STAR

MORUBOZU

Marubozu is a Japanese word that translates to “Bald”.

As a candlestick without an upper or lower shadow,. A Marubozu

candlestick has a large, lengthy body and hardly any shadows, making
it difficult to miss. This sturdy body denotes a powerful movement in
either an upward or downward direction. When a bullish (green/white)
Marubozu forms, it means that the price rose steadily from the time it
opened until it closed, trying to rise even higher.

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SPINNING TOP

It indicates indecision and consolidation in stock and also higher

chances for trend reversal.

The candles have small real body. The upper and lower shadow are
almost equal .

Colour of the body really doesn’t matter as it is small. This candle

also tells us that the buyers and sellers are getting tired .

DOJI

The doji is very similar to the spinning top, except that it doesn’t
have a real body. This means the open and close prices are equal .

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It indicates deep indecision in the market also indicates for trend
reversal.

PAPER UMBRELLA

The paper umbrella is a single candlestick pattern which helps

traders in setting up directional trades. The interpretation of the
paper umbrella changes based on where it appears on the chart. A
paper umbrella consists of two trend reversal patterns, namely the
hanging man and the hammer.

If the paper umbrella appears at the bottom end of a downward rally,

it is called the‘Hammer’.
If the paper umbrella appears at the top end of an uptrend rally, it is
called the ‘Hanging Man’.

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SHOOTING STAR

A shooting star is a bearish candlestick with a long upper shadow,

little or no lower shadow, and a small real body near the low of the
day. It appears after an uptrend.

MULTIPLE CANDLESTICK PATTERN

1. ENGULFING PATTERNS

• It is a 2 candle pattern indicating trend reversal

• 2nd candle should completely engulf the 1st candle.

There are two types of engulfing pattern

• Bullish engulfing pattern

• Bearish engulfing p

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BULLISH ENGULFING

The bullish engulfing candle appears at the bottom of a downtrend and

indicates a surge in buying pressure. The bullish engulfing pattern often
triggers a reversal in trend as more buyers enter the market to
drive prices up further. The pattern involves two candles with the second
candle completely engulfing the body of the previous red candle.

BEARISH ENGULFING

Bearish Engulfing Candlestick Pattern is formed generally at the end of a uptrend , or near a
potential resistance . Bearish Candlestick pattern is a reliable reversal pattern and since it
is formed at the top of a uptrend it is also known as top reversal or bearish reversal
pattern.

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 2. HARAMI PATTERNS

• It indicates a trend pause and a possibility for trend reversal.

• “ HARAMI “ is the Japanese word for pregnant.

Bullish Harami

Appears at the bottom of a downtrend. Bullish candle opening

higher than the bearish candle .

Bearish Harami

Appears at the top of uptrend . Bearish candle opening lower than

the Bullish candle.

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 3. GAP BASED PATTERNS

GAPUP & GAPDOWN openings occur in the market overnight .

GAPUP OPENING (BULLISH )

It indicates buyers are very strong and confident to buy at

higher prices than yesterday’s close.

GAPDOWN OPENING (BEARISH )

It indicates sellers are very eager and confident to sell at even

lower price than yesterday’s close.

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 4. MORNING STAR PATTERN

Appears at the bottom of downtrend.

o Bullish Trend Reversal Pattern.

o 3 Candle Pattern.
o The first candle is red (bearish).
o The second candle can be any colour, but it should be a 'Doji or
'Spinning Top which suggests indecision.
o The third candle is green (bullish).It's more effective when backed with
higher volume.

5. EVENING STAR

Appears at the top of an uptrend

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 An evening star candlestick pattern is a three-candle formation used in
technical analysis to identify bearish reversals. It consists of a large
green candle, a second small-bodied candle, and a third large red candle.

PHASE 3

MOVING AVERAGE
• A moving average (MA) is a stock indicator commonly used in technical
analysis.
• The moving average helps to level the price data over a specified period
by creating a constantly updated average price.

THERE ARE TWO TYPES OF MOVING AVERAGE

• SIMPLE MOVING AVERAGE

• EXPONENTIAL MOVING AVERAGE

SIMPLE MOVING AVERAGE

A simple moving average (SMA) is a calculation that takes the arithmetic

mean of a given set of prices over a specific number of days in the past.

EXPONENTIAL MOVING AVERAGE

An exponential moving average (EMA) is a weighted average that gives greater

importance to the price of a stock in more recent days, making it an indicator
that is more responsive to new information.

• Moving average is a trend following and lagging indicators, because it is

based on past prices.

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 • We used moving average to identify them trend direction . Also to
determine the support and resistance levels.

LONG TERM APPLICATION

200 SMA BASE

50 SMA , 200 SMA cross over strategy

- If the price is above 200 SMA , it is uptrend . Downtrend below 200SMA

- This won’t work when the market is in sideways.

INTRADAY APPLICATION

20 SMA base

5 SMA , 20 SMA, cross over strategy

Time frame : 5mins

• If the 5 sma cross 20 sma to upside , then look for buy.

• If the 5 sma cross 20 sma to downsides, then look for sell .

SUPPORT AND RESISTANCE

The support level is where the price regularly stops falling and bounces back
up, while the resistance level is where the price normally stops rising and dips
back down.

• Support occurs where a downtrend is expected to pause due to a

concentration of demand .

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 • Resistance occur where an uptrend is expected to pause temporarily,
due to a concentration of supply.

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 • WHAT IS PRICE ACTION TRADING

Price action trading is a technique that allows a trader to read the market
and make subjective trading decisions based on recent and actual price
movements.
It ignores the fundamental analysis factors and focus more on recent and
past price movements , price action trading strategy depends on
technical analysis tools.

There are traders who only use price action to trade .

• HOW PRICE ACTION IDENTIFIED ?

By identifying price patterns .

Chart patterns and candlestick patterns.

• CHART PATTERNS

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 • TRIANGLE PATTERNS

25
 • HEAD AND SHOULDERS

26
 • FLAG PATTERN

• WHAT IS FIBONACCI RETRACEMENT ?

Fibonacci retracement is a method of technical analysis for

determining support and resistance levels. It is named after
the Fibonacci sequence of numbers, whose ratios provide price
levels to which markets tend to retrace a portion of a move,
before a trend continues in the original direction.

Fibonacci retracement is a short term price correction during an

uptrend or downtrend.

GOLDEN LEVEL 50 % - 60 %

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 • WHAT IS SGX NIFTY?

SINGAPORE STOCK EXCHANGE (full form)

SGX Nifty is a derivative of the Nifty index, which is traded in the

Singapore stock exchange platform.

• WHY NIFTY FUTURES IS TRADED IN SINGAPORE ?

Because , it represents the best 50 Indian company’s movement.

This allow all kind of foreign investors to trade nifty .

SGX NIFTY is used as a tool for premarket analysis. As it’s underlying

asset is nifty , both have similar movements.

• VOLUME

The number of shares bought and sold over a given period of time ,
that’s volume . It also indicates the interest on the stock.

THINGS TO KNOW ABOUT VOLUME

• Colour doesn’t matter , only the size of volume candle bar matters .
• If you see a huge red volume bar , that doesn’t mean sellers are
activated or selling is going to happen . That just shows the sellers
are strong than buyers .
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 • WHY WE USE VOLUME?

- It indicates the interest on stock.

- Volume will help us to confirm the breakouts .
For example – if the breakout is happened without volume , then
there will be higher probability for fakeout .

• USING VOLUME FOR TREND CONFIRMATION

STOCK PRICE VOLUME CHANGE EXPECTATION

• INCREASE INCREASE BULLISH

• INCREASE DECREASE WEAK BUYERS ,

CHANCE FOR
FAKEOUT

• DECREASE INCREASE BEARISH

• DECREASE INCREASE WE SELLERS ,

CHANCES FOR
FAKEOUT .
•

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PHASE 4

FUTURES AND OPTIONS

DERIVATIVES

• DERIVATIVES is a financial instrument that derives its value

from on underlying assets.

FUTURES

• Futures are a type of derivative contract agreement to buy or

sell a specific commodity asset or security at a set future date
for a set price.

• It’s a contract between buyers and sellers.

• The value of futures is derives its value from underlying asset.

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 • We can buy/sell futures same as stocks .
• Stock can be hold till we want , but futures will be expired on
month end .
• Stocks can’t be short for long time period. But futures can be
short for long time period.

- WHAT IS SHORT SELLING OR SHORT POSITION?

A short position, is created when a trader sells a security first

with the intention of repurchasing it or covering it later at a
lower price .
A trader may decide to short a security when they believes that
price of that security is likely to decrease in the near future.

FOR EXAMPLE
Suppose a stock price is 450 (spot)
And we place a sell order at 450. This order is not executed on
that time , it is executed after the market hours.

So when we place a sell order , broker will find a buyer at our

sell price at 450. And stock price decrease to 400 as we planned
and we square off our position .
Now we have profit of 50 points , as we already got a buyer at
our sell price 450.

FUTURES CAN BE TRADE AS INTRADAY TOO.

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 • THINGS TO KNOW BEFORE WE TRADE FUTURES –

1. LOT SIZE
2. SPOT PRICE
3. FUTURES PRICE
4. EXPIRY DAY
5. CONTRACT VALUE = FUTURE PRICE X LOT SIZE
6. MARGIN = % OF CONTRACT VALUE

MARGIN = Advance amount to be paid.

If the contract value is 5 lakhs , we only need to pay
advance like 1 – 2 lakhs .

• TYPES OF FUTURE CONTRACTS AVAILABLE

1. NEAR MONTH – We buy this , if we have a plan to sell off

in that month itself .
2. MID MONTH
3. FAR MONTH

• WHY FUTURES IS BETTER THAN STOCK BUYING

- We can short delivery trades

- Lesser margin money
- Even we can trade index futures

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 OPTION TRADING

BASIC TERMINOLOGIES WE USE IN OPTION TRADING

1. LOT SIZE
2. SPOT PRICE
3. STRIKE PRICE
4. OPTION EXPIRY
5. OPTION BUYER
6. OPTION SELLER

TYPES OF OPTION

CALL OPTION AND PUT OPTION

1. CALL OPTION – We buy it , when we have a bullish view or

bullish market .
2. PUT OPTION – We buy it , when we have bearish view or
bearish market .

OPTION TRADING IS HIGH RISK HIGH REWARD .

• CALL OPTION

When you buy a call option , you’re buying the right to purchase
from the seller of that option contract .

Buy call option , if you are bullish about the stock .

Sell call option , if you are bearish or neutral about the stocks .

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 • THINGS TO KNOW BEFORE YOU BUY A CALL OPTION

- If the underlying price remains flat or goes down ,then the

option buyer lose money .
- You make money only if the price move upside , above the
breakeven.
- Unlimited profits
- Maximum loss we get is the option premium we paid . Loss is
limited .

PUT OPTION

When you buy a put option , you’re buying the right to sell a contract
to the option seller .

Buy put option ,if you are bearish about stock .

Sell put option , if you are bullish or neutral about the stock.

HOW PUT OPTION WORKS

EXAMPLE : Reliance spot price is 2400 and you got a view that
reliance is going to fall to 2300.

So we buy a 2400 put option and the broker will find a buyer who is
ready to buy our contract at 2400.

When reliance hits 2300 as we planned , we got 100 points profit and
we can sell off to the buyer who was agreed to buy our contract at
2400.

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WHAT IS STRIKE PRICE ?

HOW TO CHOOSE THE RIGHT STRIKE PRICE ?

• The strike price is the future set price at which the derivatives
contract is to be traded on a pre-decided date .
• For call option , the strike price is the price at which an
underlying stock can be bought.
• For put option , the strike price is the price at which shares can
be sold .

- THESE ARE THE 3 TERMS IN STRIKE PRICE

1. OUT OF THE MONEY ( OTM )

2. IN THE MONEY ( ITM )
3. AT THE MONEY ( ATM )

STRIKE PRICE IN OPTION CHAIN

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 • In CALL OPTION , all the strike prices that are higher than the
ATM strikes are considered as OTM.
All the strikes prices that are below the ATM strikes are
considered as ITM , Indicates in yellow coloured box .

• In PUT OPTION , all the strike prices higher than ATM strikes
are considered as ITM . It indicates in yellow coloured box .
All the strikes below ATM strikes are considered as OTM.

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 • WHAT IS OPEN INTEREST ( OI )

- Open interest defines the total number of open contracts

presently hold by market .
- OI increase only when new contracts are added.
- OI decrease when contracts are squared off.
- OI indicates interest and liquidity
- Also indicates support and resistance
High OI change in call option , then resistance .
High OI change in put option , the support .

OPTION GREEKS
There are 4 types of GREEKS

1. DELTA
Measures impact of change in the price of underlying.
2. GAMMA
Measures the ratio of change of delta .
3. VEGA
Measures of change in volatility.
4. THETA
Measures impact of change in time remaining for expiry.

The OPTION GREEKS control the change of rate in premium.

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 1. DELTA
• The delta measures how an option value changes with respect
to the change in the underlying.

For example

• If the nifty is expected to move from 20,000 to 20,200.

How much a specific option premium supposed to move ?

- We can calculate that by knowing the delta of specific option.

- Each strike prices have specific delta .

• DELTA VALUE

- Delta value for call option is between 0 and 1 .

- Delta value for put option is between 0 and -1 .

Put option have negative delta , because when the underlying

asset moves up , the put values goes down .

• FOR EXAMPLE

1. Delta value in call option

Nifty spot price = 20,200

Option strike = 20,100 CE

Premium = 140

Delta value = + 0.5

38
we are expecting the nifty to move to 20,300 .

The movement in premium = 100 points X 0.5 Delta = 50 points move.

The total premium will be 190.

2. Delta value in put option

Nifty spot price = 20,200

Option strike = 20,300 PE

We are expecting Nifty to move to 20,300.

( it’s a bull move , so it will affect the put option )

The movement of the premium will be

= 100 points X – 0.5 delta value = - 50 points .

The total value of premium will be 140 – 50 = 90.

• HOW DELTA HELPS YOU FOR SELECTING THE BEST MOVING

OPTION STRIKE PRICE TO TRADE ?

For example

1. If the delta value is 0.1 and the underlying asset moved 100
points. But we will be only able to gain 10 points profit in
option premium.

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 2. If the delta value is 0.6 and underlying asset moved 100
points. We will be getting 60 points profit in option
premium as the delta value was higher than the ( option 1) .

- APPROX DELTA VALUE

OPTION TYPE APPROX DELTA APPROX DELTA

VALUE IN CE VALUE IN PE

DEEP ITM B/W + 0.8 to + 1 B/W – 0.8 to – 1

ITM B/W + 0.6 to + 1 B/W – 0.6 to - 1
ATM B/W + 0.45 to 0.55 B/W – 0.45 to - 0.55
OTM B/W + 0.45 to 0.3 B/W – 0.45 to - 0.3
DEEP OTM B/W + 0.45 to 0.3 B/W – 0.3 to - 0
ITM HAVE DECENT MOVEMENTS.

- DELTA CHANGES ACCORDINGLY

For example : If we buy nifty 20200 CE ( ATM ) , when the spot

price was 20,250.

And the nifty moved to 20300 , then the ATM strike price changes
to ITM . So delta value increase.

DELTA VALUE CAN BE CHECK THROUGH OPTION CHAIN.

40
 2. GAMMA
Gamma measures how much the delta value changes as the
underlying assets value changes.

For example :

If the underlying asset moves 20 points and gamma shows how

much a delta value can move .

- Gamma value is also between 0 and 1 .

- Maximum gamma near ATM .
- Decrease towards ITM SND OTM .

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 - HOW TO CALCULATE DELTA VALUE WITH THE HELP OF
GAMMA ?

For example :

Nifty spot price = 20,200

And Nifty moved to = 20,300

100 points move .

Strike price = 20200 CE (ATM)

Delta value = 0.5

Gamma value = 0.003

New delta value = gamma value X underlying asset move + old delta

= 0.003 x 100 = 0.3 .

New delta value = 0.5 + 0.3 = 0.8 .

ALSO CHANGES ATM INTO ITM .

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3. THETA

- Theta represents for time decay .

- Option premium derives value from time left to expiry as well.

The more day left for expiry , less theta .

The less day left for expiry , high theta .

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 • Suppose the theta value is – 18 , then there will be a reduction
of 18 points from the premium on next day .

For example

If the nifty 20200 CE premium is = 140

Theta value = - 20
Then the next day premium will be = 140 – 20 = 120.

- But if the next day opening is above than the last day closing ,
Theta will be covered .

For example :

Theta value = - 10
Delta valve = 0.30

Next day market gap up opened to 50 points.

50 points x delta (0.30) = 15 points
So theta value of – 10 is covered with 15.

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 4. VEGA

• Measures the rate of change of option’s premium with every

percentage change in volatility.

• Change in option premium with change in implied volatility (IV).

• VOLATILITY means sudden up and down side movements in

market .

• IMPLIED VOLATILITY is a metric used to predict fluctuations in

the price of securities. It is a typical indicator of risk associated
with security and expressed in the form of percentages.

- If the IV is high , we can expect a good movement in the

market .

- If the IV is low , we can expect a low volatility.

- If there is no volatility, option premium won’t move .

When the IV increase , option price goes up.

When the IV decrease, option price goes down .

• IV comes up when there is a quick / sudden movement in

market.

IV easy definition : if the IV is 20% on a selected strike price ,

then we can expect a 20% move of up/down on that strike price .

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RISK MANAGEMENT

- The key to surviving the risks involved in trading is to minimise

losses . Risk management in trading begins with developing a
trading strategy that accounts for the win – loss percentage and
average of the wins and loss.

• RPT (RISK PER TRADE)

1% - 3% RPT
If 10,000 account , then can’t loss more than 300.
If 1,00,000 account , then can’t loss more than 3000.

• R2R – RISK TO REWARD

RISK – 2RS , TARGET – 2 RS , THEN 1 : 1 RATIO

RISK – 2RS , TARGET – 4 RS , THEN 1 : 2 RATIO

MOST IMPORTANT RISK MANAGEMENT

Position sizing will help us to manage a lot of risk.

Qty = RPT / SL IN RS

- For example = 1 LAKH ACCOUNT

QTY = 3000 / 2
QTY = 1500.

• 3% of our account / SL = QTY.

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 • 8 RULES OF RISK MANAGEMENT

1. Never risk more than you can afford to lose.

2. Never forget rule no : 1.
3. Stick to your trading plan.
4. Consider the costs like brokerage/ tax.
5. Always use Take profit and Stoploss .
6. Never leave open position .
7. Avoid high volatility periods like news.
8. Avoid making emotional decisions when trading.

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