Institutional Objectives in Options Trading

1. Hedging and Risk Management
Institutions often use options to hedge exposure in their portfolios. For example:

Buying puts to protect long stock positions from downside risk.

Covered calls to generate income while holding a stock.

Protective collars to limit both downside and upside.

This ensures capital preservation during volatile or bearish markets, a top priority for funds managing large client assets.

2. Income Generation
Institutions frequently deploy income-generating strategies using options:

Selling options (premium collection): They write puts or calls to collect premiums consistently.

Cash-secured puts: To potentially acquire stock at a lower price while earning a premium.

These strategies are popular with insurance firms, pension funds, and conservative funds aiming for steady cash flow.