Option gives buyers or sellers a right to buy any stock at certain future date and at certain future price. It is not any obligation. Buyer or seller may or may not exercise the right. The certain date is called expiry date and certain price is called Strike price.

Some terms related to option are premium, in the Money , at the money, out of the money. Premium is the price at which the option buyer or option seller buys or sells the future contract at certain price at certain date. The buy option is called call option and sell option is called put option. Again both the call and put option can be sold , who agrees to buy call or put option at certain future date at the strike price is called option writer.

In the money in case of call option is the price below the current market  price, at the money is at the current market price and out of the money is the price beyond the current market price.  In put option In the money is the price above the current market price and out of the money is prices below the current market price. Refer the videos below and follow this article.(in the video there is a mistake in explaining out of money in put side)

Intrinsic Value (Call) = Current market Price – Strike Price

Intrinsic Value (Put) = Strike Price – Current market  Price

In-the-Money (Call) = Strike Price

In-the-Money (Put) = Strike Price > Current Price

Time Value = Premium – Intrinsic Value

As the expiry approaches, the premium will fall naturally because at the expiry date , strike price will be excersised. It is call time decay. It is denoted by the option greek theta. There are other option greeks like delta(change in premium/change in price), vega , the acceleration , gamma the speed and  Rho.

In stock trading , the option is basically a risk minimization tool that is hedging.  There are various strategies like straddle, strangle, butterfly etc. It is a vast subject, one can get it in good books or blogs. I will not discuss here.

In this blog, main purpose is to explain the option  chain analysis and option trading strategy. See below certain thumbrules.

In case of Long Build up or short covering in call side , the stock will move up and in case of short build up or long liquidation in call side the stock will go down. Reverse is the case of put option. The strike price at which there is highest open interest in call side serve as resistance and at the strike price at which there is highest open interest serves as support.

The side at which there is highest open interest and also there is highest change in open interest the stock is likely to move in that direction.

See these two part videos to understand the option chain analysis and simple option trading strategy. Must read the video description.