Part 1 Support and Resistance

The Role of Options in Financial Markets

Options exist because they provide flexibility and risk management tools. Their role includes:

Hedging: Protecting portfolios from adverse price movements (insurance against loss).

Speculation: Betting on price direction with limited capital.

Leverage: Controlling large positions with small investment.

Income Generation: Selling options to earn premium income.

Arbitrage: Exploiting price differences between markets or instruments.

Why Traders Use Options

Options serve different purposes:

Investors: Hedge portfolios (e.g., protective puts).

Traders: Speculate on price moves (buying calls/puts).

Institutions: Manage risk exposure across assets.

Market Makers: Provide liquidity and earn spreads.

Psychology of an Options Trader

Trading is not just numbers, it’s emotions.

Fear and greed drive bad decisions.

Over-leverage leads to blowing up accounts.

Patience and discipline are more important than intelligence.

A successful trader has a trading plan, risk management, and psychological control.