Why To Use Options To Manage Risks

Options were initially introduced as a risk management tool, not for trading, but within a few years, they became the most popular trading tool worldwide.

SEBI (Securities and Exchange Board of India) data indicates the number of option traders has significantly increased, with figures reaching 85.7 lakh (8.57 million) in FY24, up from 42.2 lakh (4.22 million) in FY22. However, it’s also important to note that a large percentage of these traders experience losses.
Source: Google AI 

Options can be used for four main purposes:

• Hedging/Risk Management
• Leverage
• Income
• Speculation

How options help in hedging

Assuming you have a lot of SBI stocks and fear that the bad results may cause them to drop. You can buy Put Options to hedge SBI stocks. If the stock drops, the put option will increase in value and cover part of your losses. Please note that due to the theta decay of options, not all losses will be covered by the drop, but you will at least get some money by buying the Put to offset he loss in the stock.

This will help you to be patient with holding the stock for a longer time. You can do my Conservative Options Course to learn how to trade this hedging technique in a better way to make a monthly income.

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