Part 1 Trading Masterclass

Risks & Rewards in Option Trading

Option trading can be thrilling, but it’s not without risks.

For Buyers:

Maximum loss = premium paid.

Maximum profit = potentially unlimited (for calls) or huge (for puts).

For Sellers:

Maximum gain = premium received.

Maximum loss = unlimited (for calls) or very large (for puts).

Risks also come from:

Time decay (options lose value daily).

Volatility crush (sudden drop in implied volatility can reduce premiums).

Liquidity issues (wide bid-ask spreads can hurt execution).

That’s why risk management (stop-losses, proper sizing, hedging) is crucial.

Option Trading vs Stock Trading

Stocks = Ownership, long-term growth, dividends.

Options = Contracts, leverage, flexible strategies.

Stocks = Simpler, but capital-intensive.

Options = Complex, but require less capital and offer hedging.

For example:

Buying 100 shares of Reliance at ₹2500 = ₹2,50,000.

Buying 1 call option of Reliance at ₹100 premium with lot size 250 = only ₹25,000.
This leverage makes options attractive—but also riskier.