Part5 Institutional Trading

Why Traders Use Options
Options are not just for speculation—they serve many purposes:

🎯 Speculation
Traders can take directional bets with limited capital.

🛡️ Hedging
Protect your portfolio or a specific stock against adverse movements.

💰 Income Generation
By selling options (covered calls or puts), you can earn premium income.

🎯 Leverage
Control larger exposure with less capital, but with higher risk.

Real-World Example: Call Option
Imagine Reliance stock is at ₹2500.

You buy a Call Option with strike ₹2600, premium ₹50, expiry in 2 weeks.

Scenario A – Price goes to ₹2700:

Profit = (2700 – 2600 – 50) = ₹50 profit per share

ROI = ₹50 / ₹50 = 100%

Scenario B – Price remains ₹2500:

Loss = Full premium = ₹50 (option expires worthless)