InvestorQ : Is option buying profitable for a retail investor consistently?
Krishna made post

Is option buying profitable for a retail investor consistently?

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K V RAO answered.
1 year ago

Trading in options is very tricky. Knowledge alone does not help. Experience counts. Day trading in options should be avoided. The beauty of options is it seeks less margin. I can suggest certain strategies:

(1)A strict stop loss. Here the rule is: Interestingly, investors are willing to accept a small profit percent but go for a big stop loss. This is incorrect. If you keep big stop loss margin, what does it suggest? You yourself are not sure of the rate at which you bought or shorted an option.

(2) Hedging is strongly recommended. When you hedge, your profit volume comes down but at the same time loss is minimised. Mere blank hedging is not a strategy. Hedging should be persued keeping in view of the market. For example if you are positive of the market, higher trade in call options and lower put option is the strategy. If you are skeptical, vice versa.

(3)When you buy call options, in the beginning, go for less number and increase it in stages. Similarly for put options.

(4)Stop loss should be revised upwards in a call option when the trade is profitable so that you are blocking the profit even if there is a fall. Ditto for put options.

(5)It is very important to to stop trading once you make reasonable profits (what's reasonable depends on each case). It has been observed that traders tend to loose if they continue to trade to augment profit. In other words have a strict discipline in trading. This rule applies to losses. If there has been some losses, don't try to recover losses. It may appear philosophical but it is true.

(6)Go through your previous profitable/loss trades and learn. Do not repeat the trading errors of loss trades. Have a strict monthly profit target/loss target.