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HomeUncategorizedOptions trading Analysis: Unpacking the Top Three Reasons for Option Trader Losses.

Options trading Analysis: Unpacking the Top Three Reasons for Option Trader Losses.

Options trading offers significant profits with minimal losses for buyers and consistent success rates for sellers. However, recent research indicates that most traders lose money due to neglect of crucial aspects of options trading.

Understanding your enemy in options trading is crucial as errors and losses often arise due to the mathematical nature of pricing options. Many traders initially rely on indices like Nifty, Bank Nifty, and Sensex options, but as they become more experienced, they also explore Stock Options.

Tailoring Option Strategies to Different Underlying Assets

• The difference between elephant and cheetah trading is due to their different movements.
• Index options are easier to use, but stock options require a different approach.
• A 5% move in an index can halt trading, but a double-digit move in a stock could disrupt business.
Solution: Treat stocks and indexes differently. Stocks have high volatility and premium, so buying a higher call or lower put can help avoid accidents and limit losses.

Cheaper is not always good choice

• Options premiums are based on a scientific methodology.
• Most options that increase ten or twenty times are those that were a Rupee at some point.
• Traders often buy higher calls and lower strike puts due to their affordability.
• If the stock moves significantly in a day, profits can be made.
• This has discouraged many from Options Trading.
Solution: Buy options 2-3 strikes away from the closest market price.

Buying into Illiquidity in Options


• Options or stocks lack liquidity, making entry and exit difficult.
• No quotes after big moves can hinder profit booking.
Solution: Trade options with over 50 Lots of Volume and Open Interest.

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