Institutional Option Trading

Institutional Option Trading

Institutional option trading involves using options as part of sophisticated strategies to hedge risk, enhance returns, or speculate.

Objectives of Institutional Option Trading

Hedging: Protecting large portfolios against market downturns.

Income Generation: Selling options to collect premiums.

Speculation: Taking directional bets with options.

Arbitrage: Exploiting price inefficiencies across markets.

Common Institutional Option Strategies

Covered Call Writing: Selling call options against stock holdings to generate income.

Protective Puts: Buying puts to insure portfolios against downside risk.

Spreads (Vertical, Horizontal, Diagonal): Limiting risk while aiming for a defined profit range.

Straddles and Strangles: Betting on volatility, regardless of market direction.

Iron Condors: Selling out-of-the-money calls and puts to profit from low volatility.