Business & Investment

Market Options Strategy: How to Profit Using Options on Both Sides of Equity Fluctuations

Stock futures Introduced to hedge market position, Unpredictable results.. However, the cost of creating a futures position is very high and requires a margin, which is determined by the volatility of the underlying asset.

Therefore, another tool called an option is available on the market and can be considered as insurance against such unpredictable results.

An option is a contract that gives you the right to buy or sell an asset but no obligation. Investors typically use derivatives for three reasons: to hedge positions, to increase leverage, or to infer asset movements.

Position hedging is typically done to protect against asset risk or to guarantee asset risk. For example, stock owners buy put options if they want to protect their portfolio from declines. Shareholders make money when stocks go up, but they make less money or lose less when stocks go down because put options are rewarded.

There are many option strategies, but they are all based on two basic options. call And put it. From these basics, investors can create different strategies that can maximize payments from stock price movements.

The most common strategies used are:

Covered call

To create a covered call, traders sell call options for their underlying stock. In this case, investors expect the stock to be relatively flat and the call to expire worthlessly. This allows traders to pocket their premiums without having to sell their stock at. Exercise price..

Let’s understand with an example. Suppose you have an ITC in your portfolio and the current market price is 180 rupees. ITC stocks are not widespread, so you can sell your call and receive a premium at an exercise price of Rs 195. In this case, the biggest reward for covered calls is the premium you receive.

This allows option sellers to maintain a premium without selling the underlying stock or losing money on it. However, if the stock price exceeds the exercise price, the investor would have been able to realize those profits, but at the cost of losing the rise in the stock price.

The· Married put

This is usually a strategy that follows before the event. It’s called a married put, which means you can buy puts to prevent stocks from falling. Investors believe that stock prices could fall in the short term, but they could rise significantly and would like to continue holding. In this case, the married put provides downside protection.

Let’s understand with an example. Suppose you own a stake in ITC and the current market price is 180 rupees. I don’t want to sell my stock, so I want to protect the downside anyway. In this case, you can buy puts at the exercise price Rs 180. This allows investors to profit from the decline without selling their shares.

There are many more optional strategies such as butterflies, condors, ladders, strips, straps and more. It depends entirely on the risk profile and personal requirements. Investors looking to protect or take on portfolio risk can adopt long, short, or neutral derivative strategies that can hedge, speculate, or increase leverage.

(DK Aggarwal is a CMD for SMC Investment and Advisors)



Market Options Strategy: How to Profit Using Options on Both Sides of Equity Fluctuations

https://economictimes.indiatimes.com/markets/stocks/news/how-they-use-options-to-gain-on-both-sides-of-a-stock-movement/articleshow/80418682.cms Market Options Strategy: How to Profit Using Options on Both Sides of Equity Fluctuations

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