Active trading can be a winner-takes-all game. Zerodha co-founder Nithin Kamath, in a post on X, calls it the toughest way to make easy money, given the sudden spikes, especially on expiry days.
"The trick to being a successful trader is to survive the bad days," he writes.
So how does one stay put without losing his shirt? "One way to ensure you don't lose money due to volatility is to trade fully hedged options strategies, such as spreads," says Kamath.
"Of course, this alone won't help. You also need to ensure that you have you have a strategies to manage risk, size your positions appropriately," he adds. Kamath shared a post by Sensibull on how to use fully hedged options strategies such as spreads.
The post details strategies such as Bull Call Spread, Bear Put Spread, Iron Condors that offer less trading heartburn.
"The loss is limited, if you trade a spread, such as a bull call spread or a bear put spread, no matter what the market does, your losses will not exceed a fixed number," the post claims. Retail traders, however, must understand and be educated that an algorithm or a specific strategy does not always convert into results.
Retail investors account for about 35% of option trades in India.
According to a study by Sebi in the financial year 2021-22 (FY22), about 90 per cent of active traders faced losses — the average being Rs 125,000.
The average net loss of these 90 per cent individuals was over 15 times the earnings of the 10 per cent who made profit.
Despite the risks, the allure of India’s market potential remains strong for both domestic and foreign market makers.
“The driving force is the liquidity that is now available in India,” Vaibhav Sanghavi, a hedge fund manager at ASK Investment Managers in Mumbai told Bloomberg. “It has become one of the only markets besides the US that can offer the kind of opportunity.”