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Options are the most versatile trading tool today. No other investment vehicle seems to have a unique set of characteristics and flexibility that options provide to a trader.
It gives investors and traders a lot of efficient ways to strategise their trades efficiently achieving better risk rewards to their trades. Options can help the traders in volatile and unpredictable markets by enabling them to profit in numerous ways.
One of the reasons why traders are lured to option trading is they can generate returns exceeding 100% and sometimes even 1000% in a short time frame.
On the contrary, trading options without proper knowledge is a bad idea! They can expire worthless after a set time frame at which, their entire value is worthless. Correct application of when to hold options, when to allow them expire or when to exercise is important for every trader to know before they trade. But why should anyone trade in options? Let us understand in the next unit.