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Options Trading

  • Writer: Lara Hanyaloglu
    Lara Hanyaloglu
  • Feb 19
  • 2 min read

Options trading is a derivative trading strategy that gives traders the right, but not the obligation, to buy or sell an asset at a specific price before a certain expiration date. Options allow traders to hedge risks, speculate on price movements, and leverage positions.


✅ What Are Options?

Options are financial contracts that let traders bet on future price movements without owning the actual asset. There are two main types of options:

  1. Call Options – Gives the right to buy an asset at a set price (bullish strategy).

  2. Put Options – Gives the right to sell an asset at a set price (bearish strategy).


Each option contract consists of:

  • Strike Price: The price at which the asset can be bought or sold.

  • Expiration Date: The deadline for exercising the option.

  • Premium: The cost of buying the option.


🔹 Call Options (Bullish Strategy)

A call option is used when a trader believes an asset’s price will increase.

Example of a Call Option:

  • You buy a Bitcoin (BTC) call option with a strike price of $50,000 and an expiration in one month.

  • The premium (cost) of the option is $500.

  • If BTC rises to $55,000, you can buy BTC at $50,000 and sell it at the market price, making a profit.

  • If BTC stays below $50,000, you lose only the $500 premium.

Best for: Traders who expect an asset’s price to rise but want limited risk.


🔻 Put Options (Bearish Strategy)

A put option is used when a trader expects the price of an asset to decrease.

Example of a Put Option:

  • You buy a Tesla (TSLA) put option with a strike price of $300 and an expiration in two weeks.

  • The premium (cost) is $10 per share.

  • If TSLA drops to $280, you can sell at $300, profiting from the price difference.

  • If TSLA stays above $300, you lose only the $10 premium per share.

Best for: Traders looking to profit from falling prices without short selling.


Feature

Call Option (Bullish)

Put Option (Bearish)

Buyer’s Right

To buy an asset

To sell an asset

Used When

Expecting price to rise

Expecting price to fall

Risk

Limited to premium paid

Limited to premium paid

Potential Profit

Unlimited (if price keeps rising)

Limited (asset can't drop below zero)

Why Trade Options?

🔹 Leverage: Control larger positions with less capital.

🔹 Limited Risk: Losses are limited to the option premium.

🔹 Hedging: Protect portfolios from downside risk.

🔹 Flexibility: Profit from bullish, bearish, or neutral markets.


Advanced Options Strategies

Traders use different combinations of options to manage risk and maximize returns:

  • Covered Calls: Selling call options against owned stock to generate income.

  • Protective Puts: Buying put options to hedge against falling prices.

  • Straddles & Strangles: Strategies that profit from high volatility, regardless of direction.

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