Many traders trade in option segment. In option segment,
trader has less risk and can earn maximum profit. Traders have to invest fewer
amounts and can earn maximum profit some times. Suppose trader has invested
only 2000 rupees, he or she can earn unlimited profit, but at the same time,
here risk is of only 2000 rupees.

I can show you one method that can help you traders to
minimize your risk during trading in option segment. Trader can follow some
simple steps to apply this method.

First of all trader have to find intrinsic value for
particular stock. We can find intrinsic value by subtracting strike price from
current price.

**Intrinsic value = Current LTP – Strike Price.**

Now trader has to calculate interest rate of current LTP
using following formula.

**Interest Rate = (Current LTP *X/N) %**

Here, X is difference of days between current date and expiry
date.

For e.g. if current
date is 5/5/2014 and you expiry date is 29/5/2014 (dd/mm/yyyy) then you
difference will be X= (29-5) = 24.

Here, N is total days of current month as well as moth of expiry
date. Suppose your current date is 5/5/2014 and you expiry date is 29/5/2014 (dd/mm/yyyy)
then your N will be 31 days.

Because you current moth and expiry month both are same and
total days in that month are 31. So your total numbers of days (N) are 31.

Generally trader can calculate interest rate at 3%. If trader
is trading in indices then he or she can use 5% of interest rate.

Once trader get the intrinsic value then trader have to
calculate actual premium price for scrip. For that check if the intrinsic price
is greater than zero or less than zero. If intrinsic value is greater than zero
then sum up that intrinsic value with interest rate.

And if the intrinsic value is less than zero (negative) then
use zero as intrinsic value and sum up that zero with interest rate. This is
how trader can find actual premium price for particular scrip.

Keep in mind if actual premium price is greater than given
premium price then you are trading at risk. Means trader is paying higher
premium value and if some how he or she makes loss he or she will lose more
money.

And if actual premium price is less than given premium price
then trader is trading with less risk. Because trader is investing with less
premium value and that’s why if he or she is makes any kind of loss he or she
will lose less amount. And this is how trader can find out risk during trading
in option segment.