Part4 Institutional Trading

Why Traders Use Options
Options aren’t just for speculation — they have multiple uses:

Speculation – Betting on price moves.

Hedging – Protecting an existing investment from loss.

Income Generation – Selling options for premium income.

Risk Management – Limiting losses through defined-risk trades.

Basic Options Strategies (Beginner Level)
Buying Calls
When to Use: You expect the price to go up.

How It Works: You buy a call option to lock in a lower purchase price.

Risk: Limited to the premium paid.

Reward: Unlimited upside.

Example: Stock at ₹100, buy a call at ₹105 strike for ₹3 premium. If stock rises to ₹120, your profit = ₹12 – ₹3 = ₹9 per share.

Buying Puts
When to Use: You expect the price to go down.

How It Works: You buy a put option to sell at a higher price later.

Risk: Limited to the premium.

Reward: Significant (but capped at the strike price minus premium).

Example: Stock at ₹100, buy a put at ₹95 for ₹2 premium. If stock drops to ₹80, profit = ₹15 – ₹2 = ₹13.