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F&O Classroom: Improve options strategy pay-off by removing unproductivity

More often than not, option traders would treat the premium paid as sunk cost and write it off.

September 12, 2020 / 03:13 PM IST

Shubham Agarwal

Options have their genesis into the principle of risk transfer. As fantastic as they are in moving the risk element of directional trading from the ones who have it and wants to avoid it to the ones who would want take that risk for some consideration.

Nonetheless, the productivity of this additional risk for risk takers or of the consideration for the risk transferrers is a critical factor to keep evaluating. This is one exercise which is seldom done. Result of this can be seen in instant dislikes that many option traders create in first few trades.

Let us evaluate the same and see the corrective actions that can be taken to eradicate this unproductivity element and improve the pay-off. Two individual transactions of Buy Option and Sell Option can be evaluated individually for their productivity and edits can be made.