Options trading-Advanced Options Trading Tool

Example

A portfolio manager holding stocks might buy put options to protect against potential losses in a market downturn.

Scenario

In March 2020, as markets became volatile due to the COVID-19 pandemic, many portfolio managers used put options to hedge their stock positions against drastic declines.

Example

Traders often use call options to leverage their position in an asset, expecting the asset’s price to increase, with a smaller initial investment compared to buying the asset outright.

Scenario

A trader anticipates that Company XYZ’s stock, currently at $100, will rise following an earnings report. Instead of purchasing the stock, the trader buys call options with a strike price of $105, thus controlling the same amount of shares for a fraction of the cost.

Example

Investors can sell call options against stocks they own to generate additional income from the premiums received, a strategy known as a covered call.

Scenario

An investor owns 100 shares of a technology company and decides to sell call options with a strike price slightly above the current market price, collecting premium income, and possibly having to sell the shares if the stock price exceeds the strike price.

Example

Traders might exploit price discrepancies between similar options contracts or between an option and its underlying asset for risk-free profits.

Scenario

A trader notices a pricing inefficiency between an option’s market price and its theoretical value based on the Black-Scholes model, buying the undervalued option and selling the overvalued option to capitalize on the temporary arbitrage opportunity.