Part 10 Trading Master Class With Experts

Options in Hedging

Options are not only for speculation. Big institutions use them for hedging.

Portfolio Hedge: A fund holding ₹100 crore worth of Nifty stocks may buy Nifty puts. If the market crashes, puts rise in value, cushioning losses.

Corporate Hedge: A company expecting payment in USD may buy currency options to protect against rupee appreciation.

Commodity Hedge: A farmer may use options to lock in selling prices for crops.

Hedging reduces uncertainty and stabilizes income.

Options in Speculation

Speculators love options because:

Small premium = big exposure.

High leverage = high potential returns.

Flexibility to bet on direction, volatility, or time.

But speculation is risky. Most retail traders lose because they treat options as lottery tickets.

Options for Income Generation

Option sellers (writers) earn premium by providing liquidity to buyers.

Covered Call Writing: Regularly selling calls on owned stock generates income.

Cash-Secured Puts: Selling puts on stocks you’re willing to buy at lower prices.

Range-Bound Strategies (Iron Condors, Butterflies): Earn premium if stock stays within range.

Many professionals and institutions rely on option selling for consistent income.