Option Trading An Opportunity

Option markets are considered ‘most profitable’ and, at the same time, ‘most difficult’ to profit from. Karan Bhojwani and Yogesh Supekar discuss at length how best to capitalise on volatility by trading in options.

- Karan Bhojwani And Yogesh Supekar

Options market is gaining more popularity amongst the market participants as markets become more volatile and unpredictable ahead of a major national event, such as national elections. Not that options trading was unpopular before—it is just that with the advent of a national event of immense importance, speculators are finding it lucrative to trade in options in order to tackle the volatility.

While it is a known fact that option prices rise and fall sharply with increased volatility in the markets, the two most important questions that any trader or investor needs to ask himself/ herself are — (1) do I need to trade in options? and (2) what should be my strategy if at all I have to trade in options?

Indeed, several traders enter the options market without actually assessing the need to do so. Option markets are not for faint-hearted and, definitely not for someone who is not research (data) oriented. Says Yagnesh Patel, who is a Gujarat-based options trader and trainer, “I find that people indulge in option markets without ascertaining the end goal and without having any strategy in place for different market conditions. Traders buy mostly OTM (out-of-money) call options because they are cheaper. The beginner’s luck at times allows them to make three to four-fold profits in no time. Later on, the reality sinks in and the need for an appropriate, relevant strategy is felt— which most traders do not have. I can say from experience that those traders without a strategy fail almost 100 percent of the times, while those with a predefined strategy and know-how on options market find it easy to make decent returns consistently.”