Options trading allows traders to speculate on the future price of an asset without being obligated to purchase the underlying asset, which can help manage or reduce risk.
Options contracts can have various expiry timeframes. Some are short-term, expiring within a week , while others have monthly expiry dates on the third Friday of the month. On the other hand, a put option grants the holder the right to sell the underlying asset at the strike price on or before the expiry date, again irrespective of the market conditions. Traders usually opt for put options when they predict that the market price will be lower than the strike price at or before the expiry date.Options trading offers a unique risk/reward ratio. The maximum loss is limited to the premium paid for the option, while the potential profits can be substantial.