Nifty Bank Index
Formación

Premium Trading

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2. Option Premium Trading

In derivatives, premium trading refers to trading options contracts, where:

The premium = price paid to buy an option
You either buy options (pay premium) or sell options (collect premium)

Example:

Buy Call → pay premium → profit if price rises
Sell Call/Put → earn premium → profit if price stays within range

This is widely used in strategies like:

Covered calls
Iron condors
Straddles

👉 Important: Selling premium can look easy but carries significant risk if the market moves sharply.

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