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Understanding Options biography for error-free trading

The most crucial thing to learn in this understanding Biography of Options is to gauge whether or not we will make money with the option trade given the longevity of my view.

May 25, 2019 / 12:20 PM IST

Options have evolved from being just instruments of risk containment to fancy vehicles for trading. Well, at least we can say that about equity options.

In this attempt of creating a trading utility out of a pure hedging instrument, there is a tiny yet crucial detail that one must understand, which is the biography of an Options or in other words what happens during the life of the options.

Typically, when one buys a Call Option, the driving force is that there is a sunk cost a.k.a. premium which is the maximum loss and the profits are unlimited.

The first instance of error here is that while we do affirm the availability of the profit potential, we hardly sync it with the longevity of our own view.