Why Option Trading seems Difficult

Dharam Chand Sethia Blog Leave a Comment

I meet a lot of Market Participants regularly from time to time. And in our talks we discuss Derivatives trading also. Many of them are comfortable trading Futures than Options and have various stories of how they lost money trading options.

Options (buying) inherently is among least risky product in markets. Let us compare 2 least risky products Equity .vs.- Options (buying).

Leverage  —  Equity faces no risk arising out of leverage; which is same in option buying (You know your losses)

 Time  —  Equity can be transferred to your grand grand children (you can hold it forever, if you wish to); Options however are perishable item like daily vegetable in markets (5 din baad to kharab hona hi hai). So it is important to exit the trade timely because the contract would ultimately cease to exist.

Let me tell you a short story —  I bought 1 Bank Nifty Call Option @ 60, it went to 100 and by the time my lunch was done it was at 35. (ye sabke saath hua hoga)

In the above example you could make/lose money both ways.What i understood is — its not that difficult to trade options, if you know how to get out timely (but that is the difficult part).

In futures/equity trading cutting losses are important, in Options trading taking profits is equally or more important.

When you trade Options — Remember you are BETTING and not INVESTING & Betting on DIRECTION as well as TIME.

So if you are a businessman or a high flying executive (Aapke paas time nahi hai), who likes to bet on markets & love trading options — USE sophisticated Brokers / Sub-brokers who specialize in Derivatives (Options).

Outsource the work to an expert that you want to learn & keep watching / reading his moves is the best way to learn / participate.This method might teach you a little about the temperament needed to trade the product.

Happy Trading!

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