What is options trading in the stock market?
An option contract involves the payment or receipt or a premium for the right to buy or sell the underlying assets at a particular price within a specified period. Stocks and the future of linear products where the downside could be as much as the upside. the huge benefit of options on the other hand is that they are nonlinear products with only limited downside but unlimited offside for the buyers. The option for sellers conversely has limited outside but unlimited downside risks.
A trader needs to take many other kinds of risks.
The risk of sideways movement of the market.
The rates of adverse movement of the market.
The risk of time to expiry.
Hedging with options
I would like to focus on stocks for a future position. Hedging is a position in conjunction with a stock or a futures position to reduce the risk of adverse movement.
buying option for purpose of hedging reduces return and actually increased risk except maybe in the case of very long-term investing. I would rather the same than buy an option any day since the money put can be priced up to 5% of the underlying contract. In extraordinary circumstances where the portfolio needs to be Pro texted out the money put can be bought. Sometimes when the next month's futures contract Bitcoin is active in the middle of the current month's scan age for at most one and half months by selling individual stocks for Nifty future. another good way of hedging is to kept selling calls and guests of portfolio and over a period of time or in a premium to casino any fall in the market. For kids, the best way to protect profit is to bring them home. Positions can always be reinstalled letters after correction.
The option can thus reduce the downside during adverse market movement and also offer study return in a sideways or trading.
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