Option trading is a part of the financial market where you trade contracts called options instead of directly buying or selling shares. An option gives you the right, but not the obligation, to buy or sell an asset (like stocks, indices, or commodities) at a fixed price within a specific time. This makes option trading more flexible compared to normal share trading.
Options are widely used by traders and investors to earn profits, reduce risks, or protect their investments. Since the cost of entering a trade is usually lower than buying the asset itself, options provide leverage, but also come with risks.
Key Features of Option Trading
- Call Option – Right to buy the asset at a fixed price.
- Put Option – Right to sell the asset at a fixed price.
- Premium – The price paid to buy the option.
- Expiry Date – The date on which the option contract ends.
- Buyer vs Seller – Buyer has the right, seller has the obligation.
Why Trade Options?
- Profit from Market Movements – Earn in rising, falling, or even sideways markets.
- Hedging Tool – Protect your shares or portfolio from losses.
- Leverage – Small investment can control larger positions.
- Income Generation – Sell options to collect premium income.