CLOSE X

Blogs

Option Buying: Most High-Risk Trade in the Market

Oct-12-2021Blog by – Mr. Dhruv AjmeraRead Time: 3 Min.Word Count: 523
253Option Buying: Most High-Risk Trade in the Market

Options trading has been gaining popularity among equity trading investors in recent years. However, options trading is considered complex and risky, especially for amateurs and beginners.

Here is your helpful guide to options trading for you.

What is Options Trading?

Options trading is the trading of instruments like stocks, commodities, index, forex, and exchange-traded funds (ETFs) at a specific price within a particular date. It gives you a right to buy or sell at that price before the expiry of the options contract. However, there is no obligation to buy or sell – it is just the right you hold or exercise

You can do options trading in the Indian as well as US stock market. There are four standard terms you should know in options trading for clarity:

  • Option Buyers: These are people who buy the right to exercise their rights on the seller (also called a writer). They have to pay a premium to avail of the rights. This premium acts like insurance.


  • Option Sellers/Writers: These are people who receive the premium from option buyers. They have to sell their instruments if the option buyers decide to exercise their rights.


  • Call Option:  This is an option where the holder has a right but not an obligation to buy an instrument at a given price before the expiry date.


  • Put Option: This is an option where the holder has a right but not an obligation to sell an instrument at a given price before the expiry date.

The buyer of the option has Limited Risk and Unlimited Profit.

The seller of the option has Limited Profit and Unlimited Risk.

Investing in stocks is now super simple

  • Free Demat account
  • SIP starts at Rs. 500/-
  • Relevant report managemnet features
OPEN DEMAT ACCOUNT

Why is Options Trading Risky?

The option trading is high on the risk meter for the following reasons:

  • A majority of options traders rely on speculation. They fail to understand the difference between protecting and speculating. If speculation goes wrong, they can incur huge losses.


  • The market is usually more vulnerable to volatility near the expiry date. So, you may not get an accurate picture of the prices. Volatility can be detrimental for both buyer and seller, depending on the direction in which the trade market is moving.


  • Some stocks have a low volume of options trading which should be considered a red flag. It means that there is a liquidity issue brewing up behind the scenes. You might have difficulty selling your options.

Options trading requires a deeper understanding and experience of the stock market. Usually, it is preferred by investors who have deep pockets and financial margins to bear the losses. You should do options trading only for leverage and hedging instead of speculation. It allows you to get control over the shares without buying or selling them outright. You can also use them to safeguard against price fluctuations.

If you are looking to do options trading, investment in bonds, or any other stock market instrument trading, it is advisable to avail the services of a professional investment and portfolio management company. Such a company will guide you on making suitable investments and help you strike the right balance between risk-return trade-offs.

Also read: 5 Best Investment Options For Youngsters


Rate & Review:GoodOkNot Good

Leave Your Comments

Your Comments
Name
Email
Comments
No comments found

Open Demat Account

ATTENTION INVESTORS KYC IPO

Escalation Matrix

Details of Contact Person Address Contact No. Email Id Working Hours
Client Servicing / Customer care Suresh Munge 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628913 suresh_munge@ajmera.co.in 10:00 am to 6:00 pm
Head of Client Servicing Mr. Dhanesh Bendre's 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628915 dhanesh_bendre@ajmera.co.in 10:00 am to 6:00 pm
Compliance Officer Ashish Ajmera 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628888 ashish@ajmera.co.in 10:00 am to 6:00 pm
CEO / Whole Time Director Ashish Ajmera 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628880 ashish@ajmera.co.in 10:00 am to 6:00 pm

In absence of response/ complaint not addressed to your satisfaction, you may lodge a complaint with CDSL at https://www.cdslindia.com/Footer/grievances.aspx or SEBI at https://scores.sebi.gov.in/. Please quote your Complaint Ref No. while raising your complaint at SEBI SCORES/ Depository portal.

Group Companies Members of BSE, NSE, MCX, MSEIL, CDSL, Broking Services, Depository Services
BSE Clearing No.: 911 | NSE Clearing No.: 11858 | MCX Clearing No.: 10665 | MSEIL Clearing No.: 11400 | CDSL DP ID: 30300 | SEBI Regn. No.: IN-DP-715-2022 | SEBI Reg No.: INZ000177531 (Cash/F&O/CDs/MCX)

Attention Investors
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
3. Pay 20% upfront margin of the transaction value to trade in cash market segment.
4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 and BSE vide notice no. 20200731-7 dated July 31, 2020 and 20200831-45 dated August 31, 2020 dated August 31, 2020 and other guidelines issued from time to time in this regard
5. Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.
.......... Issued in the interest of Investors

© Copyright 2022 Ajmera Associates Ltd
Designed, Developed & Content Powered by  Accord Fintech Pvt. Ltd.