Part 3 Institutional Trading Option Styles and Formats
Options come in various forms to suit different strategies:
Vanilla Options: Standard call and put options traded on exchanges.
Exotic Options: Options with complex structures, including barrier, digital, and Asian options.
LEAPS: Long-term options with expiration dates up to three years.
Participants in Option Trading
Option markets attract a range of participants:
Hedgers: Protect existing positions from adverse price movements.
Speculators: Seek to profit from directional price changes or volatility.
Arbitrageurs: Exploit price differences between markets or instruments.
Market Makers: Provide liquidity by quoting buy and sell prices for options.
Advantages of Option Trading
Option trading offers several benefits over traditional trading:
Leverage: Control large positions with smaller capital.
Flexibility: Wide range of strategies for bullish, bearish, and neutral markets.
Risk Management: Ability to hedge stock portfolios and limit losses.
Income Generation: Selling options (writing) generates premium income.
Speculation Opportunities: Capitalize on volatility without owning the underlying asset.
