Gold Futures
Edukasi

Part11 Trading Masterclass

62
How Options Work
Let’s break this down with an example.

Call Option Example:
You buy a call option on Stock A with a strike price of ₹100, paying a premium of ₹5. If the stock price rises to ₹120, you can buy it for ₹100 and sell it for ₹120—earning a ₹20 profit per share, minus the ₹5 premium, netting ₹15.

If the stock stays below ₹100, you simply let the option expire. Your loss is limited to the ₹5 premium.

Put Option Example:
You buy a put option on Stock A with a strike price of ₹100, paying a ₹5 premium. If the stock falls to ₹80, you can sell it for ₹100—earning ₹20, minus ₹5 premium = ₹15 profit.

If the stock stays above ₹100, the option expires worthless. Again, your loss is limited to ₹5.

Why Trade Options?
A. Leverage
Options require a smaller initial investment compared to buying stocks, but they can offer significant returns.

B. Risk Management (Hedging)
Options can hedge against downside risk. For example, if you own shares, buying a put option can protect you against losses if the price falls.

C. Income Generation
Writing (selling) options like covered calls can generate consistent income.

D. Strategic Flexibility
You can profit in bullish, bearish, or neutral markets using different strategies.

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