InvestorQ : Are there are any uses of options other than trading on the buy side and sell side?
Maniish Lofar made post

Are there are any uses of options other than trading on the buy side and sell side?

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Nisha Chandani answered.
3 years ago
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In fact, the biggest merit of options is the benefit of creating hybrid strategies by combining calls and puts of different strikes so as to create minimum risk products for the market. Options are flexible and dynamic products and hence can be used for a variety of purposes. If you expect the stock of RIL to go up then you can speculate on the stock with a call option. Similarly, if you expect the stock of SBI to go down then you can speculate by buying put options. You can also hedge your risk in the market. If you have a portfolio of equity holdings, you can hedge the risk by buying put options on the Nifty. The non-linear nature of options gives a lot of flexibility from a buyer’s point of view.

More importantly, options can be combined to cater to a whole range of market situations. For example, if you expect the market to be volatile you can buy a combination Straddle or a Strangle. Conversely, if you expect the market to remain range-bound, you can play the market by selling a Strangle or Straddle. You also have specific spreads strategies known as butterflies and covered calls where you can play for a moderate bullishness or moderate bearishness in the market. The choice is entirely yours. Remember that, profiting from buying options require a sharp understanding of the interplay of factors like volatility, time value and pricing. The better informed you are, the more our prospects of profiting from buying options.

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