Part 9 Trading Masterclass With Experts

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.