Have you ever looked at the share market and felt unsure about what to do when prices move unpredictably? Many experience this confusion, especially when headlines and markets seem to change overnight. In these moments, options trading can offer more control and flexibility.
Rather than simply buying or selling shares, options trading involves contracts that let you choose to buy or sell at a specific price for a limited time. This can help you manage risk or try new strategies. Typically, there exist two main types of options contracts: call and put options. Call options give you the right to buy an asset at a set price. Put options give you the right to sell an asset at a set price.
Now, take a look at the most common options trading strategies and how each one works in real market situations.
Long call
A long call is a popular options strategy for those who expect a stock to rise. When you buy a call option, you pay a premium for the right (but not the obligation) to purchase a stock at a set price within a specific period. Your risk stays limited to the amount you pay for the option, but your potential profit has no upper limit.
Long put
A long put is a strategy used when you expect a stock’s price to fall. Buying a put option gives you the right to sell the stock at a set price within a certain time. If the market takes a hit, your put gains value. This is a simple way to profit from falling prices or to hedge against losses in your existing stocks, all with a cap on potential loss.
Covered call
If you already own shares, you can generate extra income by selling a call option on those shares. You collect a premium from the buyer. If the share price remains below the strike price, you keep both your shares and the premium. If the price rises above the strike, your shares may be sold, but you still benefit from the premium and get the strike price for your shares.
This strategy is easy to manage using a reliable mobile trading app and is especially popular for building a steady cash flow.
Protective put (married put)
A married put is your insurance policy for the stock market. You buy a stock and, at the same time, you buy a put option for the same number of shares. If the share price falls, your put increases in value and offsets the losses in your portfolio. This strategy is perfect if you are bullish on a stock in the long term but want to protect yourself from any sharp, short-term drops.
Suppose you buy a stock at ₹200 through your F&O trading app and, at the same time, purchase a put option with a ₹200 strike price for a ₹10 premium.
- If the stock falls to ₹150, you can exercise your put and sell at ₹200. Your net loss is only the ₹10 premium, not ₹50.
- If the stock rises to ₹250, you enjoy the full gain minus the small premium paid. This way, you cap your losses but keep all the upside, making your portfolio safer.
To sum up
Options trading offers a toolkit for every market scenario, be it bullish, bearish, or neutral. Whether you are looking to generate income, hedge your portfolio, or speculate on price movements, there is a strategy that fits your outlook and risk appetite. Just make sure you choose the best share trading app to get the edge you need to implement these strategies efficiently and confidently.
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