Part 2 Trading Master Class

Advantages of Option Trading

Leverage – Small capital controls large positions.

Flexibility – Strategies for any market condition.

Defined Risk (for buyers) – Maximum loss = premium.

Hedging Tool – Protects portfolios from crashes.

Income Generation – Through selling options (covered calls, spreads).

Risks in Option Trading

Time Decay – Value erodes quickly near expiry.

Unlimited Loss for Sellers – Naked option selling is very risky.

Volatility Crush – After events like results, volatility falls and option premiums collapse.

Liquidity Risk – Some contracts are illiquid, making exit difficult.

Psychological Stress – Options move very fast; requires discipline.