Options Trading

Options trading involves buying or selling contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price before or on a certain expiry date. Call options give the right to buy, while put options give the right to sell. Options are used for speculation, income generation, and hedging purposes.

A trader expecting a sharp move in a stock following an earnings announcement might buy a call option to gain upside exposure without committing the full capital required to own the shares. If the stock rises significantly, the option's value increases, delivering a leveraged return. In a prop trading context, options can also be used to hedge directional positions — for example, buying put options on an index to protect against a sudden market downturn while maintaining long positions in individual stocks.