Hello friends. I hope you all are doing well. Today we are going to discuss why most of the time an Option Buyers end up losing their entire capital?
When we look at the data, We find that most of the option buyers are end up after losing their entire capital. Here I’m sharing some of the possible reasons behind this.
Why Option Buyers are losing?
There are so many reasons but here we are talking about the three most important reasons like education, high return expectations, and emotional trading. Let us discuss these reasons one by one.
We saw most of the option buyers have a lack of knowledge about the options. They don’t know how option premium calculates, how option Greeks play their roles, which strategy you should use on a particular time, how to read the option data and many more…
So it’s better we should give enough time to educate you first before putting out hard-earned money on risk. Today we are living in a world of technology so we have many more options to gain knowledge so use them and try to learn the first very basic things about options trading.
High return expectations
We saw daily people are expecting 40-50% returns from their option position. Is it possible? First, try to ask why options came in the picture?
The option came in the picture for hedging our positions. It’s a hedging product, not a money multiplier product. That is the difference between professional Option Traders and immature Traders. Professional trade calculates every possibility in each trade. You can only make a constant income if you use them with hedging strategies. There are so many strategies you can use based on time frame and Events. So do it in a proper way if you want to make a consistent income from options.
Hope and Greed
There is no place of emotions in this market. You have to learn and fix it in your mind. We saw many people holding their naked positions till expiry in Hope that it will give them profit. But every day pass Greeks play their roles very perfectly and the option price was going down and down and on expiry, it became zero. So don’t trade with the hope that maybe it will give us a move.
The option is very calculative products. As option buyers, We need to do every calculation before taking any trade in it. So try to learn first, then only you can make the profit from options. Options are a very good product if you are doing it in a proper way.
I hope you like my post. For any query or suggestions please leave in the comment section.
Thank you so much. Have profitable trading.
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8+ Years working as a derivative trader, Option Writer, Blogger, Trader by passion, Keen Follower of Indian share market