Part 2 Ride The Big Moves

Risks & Rewards in Options Trading

Unlike stock trading, options have asymmetric risk-reward structures:

Option Buyers: Risk limited to premium paid, but potential profit can be unlimited (for calls) or large (for puts).

Option Sellers (Writers): Profit limited to premium received, but risk can be very high if the market moves sharply.

Hence, option writing is generally done by professional traders with high capital and hedging systems.

Option Trading in India

In India, options trading is regulated by SEBI and conducted on exchanges like NSE and BSE.

Lot Sizes: Options are traded in lots (e.g., Nifty = 50 units, Bank Nifty = 15 units).

Margins: Sellers must deposit margin with brokers to cover risk.

Expiry Cycle: Weekly (indices) and monthly (stocks).

Liquidity: Index options are most liquid (Nifty & Bank Nifty).