Options Trading: There is an old saying that patience is sweet. Patience in every aspect of life gives good results except stock market option trading. We are saying this because, in this type of trading, the investor loses money as time passes. Although there is a benefit in buying shares for a long period, but in option trading, time is an important clause, due to which the investor's loss increases if there is too much delay in closing the deal. Let us tell you what is option trading in the stock market and how the loss increases with time.

What is the call and put option?

In futures and options trading in the stock market, options are used to protect cash positions. Call and put options represent bullish and bearish respectively. If you think that a particular stock will rise, then you can buy its call option, while for bearishness you can take a put option. However, these options have a fixed period, after which their value becomes zero if your guess does not go in the right direction.

The value of the option decreases over time.

Suppose the price of ABX share is Rs 100 and you bought a call option of its strike price of Rs 100, which was available at Rs 10. If the lot size of the share is 1000 then you will have to pay a premium of ten thousand rupees (1000×100). In such a situation, if the price of the share increases, then the premium of the option will also increase, but if the price of the share does not increase or the current price remains the same, then the value of your call option can become zero. In such a situation, your 10000 rupees can be wiped out. The same theory applies to the put option, in which you bet on the fall of the share.

Since, an option is a contract between the seller and the buyer and it has a period. The game of profit and loss happens within this option contract only. The premium of the option keeps decreasing with time, so it is important to book profit or loss at the right time. Therefore, the fruit of patience in option trading is bitter. Most investors keep waiting for the rise and fall in the stock and suffer huge losses. Because, as the contract expiry comes closer, the value of the premium keeps decreasing rapidly. Sometimes it also happens that your profitable position goes into loss.

Time Decay is a big factor in option premium.

In options trading, the value of the premium decreases due to 'Time Decay'. Time Decay is an important component in option trading. This is the reason for investors' losses.