Part 4 Learn Institutional Trading

Participants in Options Market

Hedgers: Farmers, companies, or investors protecting against risk. Example: An airline hedging fuel cost with options.

Speculators: Traders betting on market moves with limited capital.

Arbitrageurs: Exploit mispricing between options and underlying.

Why Trade Options?
✅ Advantages:

Leverage: Small premium can control large value.

Flexibility: Can profit in any market condition.

Defined Risk: Buyer’s maximum loss = premium paid.

Income Strategies: Writing options to earn premium.

❌ Risks:

Time Decay: Options lose value daily.

Complexity: Many moving factors (Greeks, volatility).

Unlimited Losses (for Sellers): If selling naked options.