Part 2 Intraday Master Class

Traders use options for three main purposes:

Hedging: Investors use options to protect their portfolios from adverse price movements. For example, owning a put option can protect a stock investor from a market downturn.

Speculation: Traders buy or sell options to profit from expected movements in asset prices. Since options require a smaller initial investment compared to buying stocks directly, they offer higher potential returns—but also higher risk.

Income Generation: Many investors sell (write) options to earn premiums regularly. For example, covered call writing is a popular income strategy where investors sell call options on stocks they already own.

While options offer leverage and flexibility, they also carry risks—especially for sellers. The maximum loss for an option buyer is limited to the premium paid, but an option seller’s potential loss can be unlimited if the market moves sharply against them.