Worldwide hedge funds and HNIS’ make huge profit in option trading. But
small investors’ do not understand the pros and cons of option trading.
Sometimes their bad experiences with options trading make them think
against this.
• Generally a small investor buys a option suppose at 5 ,when it
becomes 6 or 7 he immediately sells it, but never sells when it becomes
3, even wait for last minutes on the expiry day hoping some miracle to
happen, thereby losing his entire investment.
• Use trailing stop-loss and target, keep very close watch on F&O build-up.
• More money can be made not buying, but in selling option, but for
that you have to master yourself first with some basic principles
• Normal stop-loss theory will not work in case of option. It depends on the value of underlying and the days left in expiry.
• Buying and selling options at right price is very important as there
is no much liquidity in most of time, so premiums are arbitrary,
generally fixed to take small investors for a ride. Never buy options
when a News broke by so called BREAKING NEWS on television, as premiums
are jacked up much before releasing the news.
• Never invest your whole investible fund in one option call hoping to multiply your capital overnight, as risk is equally high.
• Make disciplined investment in options at regular intervals with a little diversification.
Hence the moral of the story big money can be made with small capital in safest way of option trading
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