The Danger of Buying Options
- Zero Sum Game: If the underlying asset (e.g., Nifty or BankNifty) does not cross your Break-Even point by the expiry date, your option expires worthless. You will lose 100% of the premium you paid.
- Time Decay (Theta): As an option buyer, time is your enemy. Every day that passes without a significant move in the underlying asset causes the value of your option premium to drop.
- Break-Even Explanation: For a Call Option, Break-Even = Strike + Premium. If you buy a 22,000 Call for ₹150, the market must go above 22,150 just for you to make a ₹1 profit at expiry. Any expiry below 22,000 results in a total loss.