How do traders use options for hedging?

Traders use options to protect themselves from losses in case the market moves against them, this strategy is called hedging.

Examples of Hedging with Options:

1. Protecting Stocks (Protective Put):

• Suppose you own Reliance shares at ₹2,500.
• You fear the price might fall.
• You buy a Put Option at ₹2,500.
• If Reliance falls to ₹2,300, your shares lose value, but the Put Option gains — reducing your loss.

2. Protecting Short Position (Covered Call):

• Suppose you sold a stock (short) expecting it to fall.
• To protect if price rises, you buy a Call Option.
• If the stock rises your Call Option gains, which reduces your loss from the short position.

👉 In short: Options act like insurance — you pay a premium (small cost) to protect yourself from big losses.