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.
How Options Work in Practice
Let’s take a step-by-step breakdown using a Nifty Call Option Example:
Nifty Spot: 20,000
You buy a Call Option with Strike = 20,000, Premium = 150, Expiry = 1 month.
Scenario A: Nifty goes to 20,500
Option intrinsic value = 500 (20,500 - 20,000)
Profit = 500 - 150 = 350 per unit × Lot size (say 50) = ₹17,500 profit.
Scenario B: Nifty falls to 19,800
Option expires worthless.
Loss = Premium × Lot size = ₹150 × 50 = ₹7,500 loss.
This shows both the leverage and limited risk nature of options.
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.
How Options Work in Practice
Let’s take a step-by-step breakdown using a Nifty Call Option Example:
Nifty Spot: 20,000
You buy a Call Option with Strike = 20,000, Premium = 150, Expiry = 1 month.
Scenario A: Nifty goes to 20,500
Option intrinsic value = 500 (20,500 - 20,000)
Profit = 500 - 150 = 350 per unit × Lot size (say 50) = ₹17,500 profit.
Scenario B: Nifty falls to 19,800
Option expires worthless.
Loss = Premium × Lot size = ₹150 × 50 = ₹7,500 loss.
This shows both the leverage and limited risk nature of options.
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Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Related publications
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.
Hello Everyone! 👋
Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Feel free to ask any questions. I'm here to help!
Details:
Contact : +91 7678446896
Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
Related publications
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.