Nifty Bank Index
Education

Part 9 Trading Masterclass With Experts

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Why Trade Options?

Beginners often ask: “Why not just buy stocks directly?”

Here’s why many traders prefer options:

Leverage: With a small premium, you can control a large quantity of shares.

Limited Risk (for Buyers): Your maximum loss is the premium paid.

Profit from Any Direction: Options let you benefit from rising, falling, or even stagnant markets.

Hedging: Protect your portfolio from adverse price moves. For example, buying puts on Nifty can protect your stock portfolio during market crashes.

Income Generation: By selling options, traders collect premiums regularly (popular among professionals).

Risks of Options Trading

Options can be powerful but come with risks:

Time Decay (Theta): Options lose value as expiry nears.

High Volatility: Premiums can fluctuate wildly.

Leverage Trap: While leverage amplifies profits, it also magnifies losses.

Unlimited Risk (for Sellers): If you sell options, your risk can be theoretically unlimited.

Complex Strategies: Advanced option strategies require deep knowledge.

Factors Affecting Option Prices

Option premiums are influenced by multiple factors:

Underlying Price: Moves directly impact intrinsic value.

Time to Expiry: Longer duration = higher premium (more time value).

Volatility: Higher volatility = higher premium (more uncertainty).

Interest Rates & Dividends: Minor factors but can influence pricing.

The famous Black-Scholes Model is often used to calculate theoretical option prices.

Disclaimer

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.