Trading in Options has a lot of myths. If done professionally, Option trading offers traders the following advantages:
1) Can manage risk much better than by trading in Futures
2) Limits downside risk with unlimited upside potential
For example say someone is Long Nifty Futures and we have a gap down of 500 points like on 17 October 2007...this is a huge drawdown to the portfolio. But if one were to be holding a long call having paid a premium of 40 points then one would hardly blink an eye.
So by trading in options one can ride the trend and also limit downside risk. Because of this limit to risk one can leverage 3x-5x comfortably and still sleep like a baby at night!!
Nifty options are extremely liquid...this is critical to Options trading....not all stock specific counters are liquid...so if starting off new in this try to stick to Nifty.
Monday, January 26, 2009
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment