Why People Trade Options

Key Components of Options

Strike Price: The pre-agreed price at which the option can be exercised.

Premium: The price you pay to buy the option contract.

Expiration Date: The date until which the option is valid.

Why People Trade Options

Leverage: Small investment, potential for large returns.

Hedging: Protects portfolio from losses.

Speculation: Betting on price movements.

Example

If a stock is currently priced at ₹500, you can buy a call option with a strike price of ₹550, expiring in one month, by paying a premium of ₹5. If the stock price rises to ₹600, you can buy at ₹550 and immediately sell at ₹600, making a profit.