InvestorQ : What are the applications of stock and index options?
Mahima Roy made post

What are the applications of stock and index options?

Aditi Sharma answered.
3 years ago

An option is a right to buy or sell an asset without the obligation. Therefore when you buy the option you get this right without the obligation. That will not come for free and for that you need to pay a price which is called the option premium. When you read options prices in the trading terminal or the newspaper options page, you are actually reading about the premiums on these options. Options have different strikes and that makes them an extremely flexible product. Unlike futures that are linear (losses and profits are unlimited), options are not linear. The pay-off for the buyer of the option and seller of the option are very different. A buyer of an option has limited risk and unlimited return potential. The seller of the option has limited return potential but unlimited risk. That is what makes options unique and also interesting.

Options can not only be used in isolation they can also be used in combinations with futures and options. Such combinations are called hybrids. Let us try and understand about the use of options strategies for bullish markets; meaning markets that are trending upwards. Trading options in bull markets call for a unique set of strategies to be applied to make the best of the situation. Let us look at 4 such bull market options strategies…