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Most of us must have observed that trading in the Options Market will help us to generate a far greater profit for making a good fortune with the rise and fall of the stock exchange.
Major traders use options to hedge their positions in the equity market. They are constantly trying to reduce their loss and protect their profits. What if either their options strategy does not go right, They may well incur a huge quantity of losses? So below are the nine myths about Bank Nifty option trading that you need to avoid,
1.Options Buying is risky
Since similar investments including bonds, stocks or common funds, options take no promise in Options Market, people tend to feel that Options Buying is risky. There is a possibility of losing the whole invested bundle of money, but if one has proper knowledge, knack & experience, then it is often a good risk management tool.
2.Must check OI data or OI data is most important in option buying
Open Interest (OI) data is useful for analyzing the market trends. OI data gives us the idea about buying & selling of the positions in contract. Though it is one of the tools to identify the trends, it is not the most important entity in option buying since the frequency of updates with respect to OI data is not very high.
3.Buying Naked Options is risky
It is a myth that Naked Options Buyers do not make money. What happens if there are only sellers in the market and no buyers, do you think the market could even survive? One can’t just keep on selling the product if there are no buyers. Though the selling has an upper edge, the buying can’t be avoided straightly, since both buyers and sellers have equal opportunities.
4.Options sellers make money
An Options Seller is an individual who sells his/ her options deal and after sometime buys them back at a low sum to earn a profit by causing good fortune. Options are bought and sold based upon an obligation to acquire and sell the underlying property at a later date, for a particular price. Options price ranges move as per the actual asset. If the price goes in the opposite direction, then the option seller has very huge losses.
5.Options are difficult to understand
Options are often seen as risky because traders often "guess" the direction of the industry and purchase CALL or PUT accordingly. Usually, the traders use these kinds of options as short- term, rather than long-term and estimate the short supported term options which results in a quicker loss of capital.
6.Easy to make profit in Options Buying
A Put Options Buyer would make a profit in case the price comes below the strike price just before the expiration. The precise sum of profit depends upon the difference between the stock value and the Options Strike value at expiration or when the Options position is closed.
7.Double your investment in each trade
Seeking for a great investment the fact that makes you to Double your investment is mainly impossible and will certainly involve taking greater Risks and bigger Losses. There are still various purchases that might not double the money, but do offer the potential for Big Returns.
Buyer purchases some stock with which they are dealing a long position in. Potentially, they may lose the premium they paid out to buy the put in the event the option expires. They may also lose out on benefit gains if they practice to sell out the stock.
9.Trading options is a Zero-sum game
Derivatives is your Zero-sum game but the truth is that options may possibly be used as coverage policies. It could be used as a risk management tool, for your recovery and not simply as trading vehicles.
We hope these myth-busters have now opened your eyes towards Banknifty Options Trading. Join our course “Ultimate BankNifty Training” to learn & understand in depth about the core concepts, the risks, the gains & the mentality behind the Banknifty Trading. It comprises Basics to Advance level “Price Action” strategies with Live Training, Live Chart, Live Trading with Profit & Real-time Analysis.
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Michael Owens serves as the marketing advisor of Head45 in Cardiff Bay. He is a specialist in customer experience and an expert brand strategist who is keen to take on challenges that will help the business expand. Michael puts his creative energy into penning posts that are both interesting and useful for the most popular blogging sites.