Part 4 Institutional Trading

Simple Option Strategies

Options allow creativity. Instead of just buying/selling, traders create strategies by combining calls & puts.

a) Protective Put

Buy stock + Buy Put option = Insurance against downside.

b) Covered Call

Own stock + Sell Call option = Earn income if stock stays flat.

c) Straddle

Buy Call + Buy Put (same strike, same expiry) = Profit from big moves either way.

d) Strangle

Buy OTM Call + OTM Put = Cheaper than straddle but requires bigger move.

e) Iron Condor

Sell OTM Call + OTM Put, while buying further OTM options = Profit if market stays in range.

These are just a few. Professional traders use dozens of strategies depending on market condition.

Risks in Options Trading

Options are attractive, but risky too.

Time Decay (Theta) → Every day, options lose value as expiry approaches.

Wrong Direction → If your view is wrong, you lose the premium.

Liquidity Risk → Some strikes may have no buyers/sellers.

Over-Leverage → Small premium tempts traders to overtrade, leading to big losses.