Why 90% people lose money in options? Ever traded options? Must Watch.

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Option buying is a hope that NEVER realizes into profits. Its like sm HVall profits and big losses. This happens month after month until the trader realizes his losses have run into lakhs.

What happens is we start with buying options, when someone tells about its unlimited profit potential, driven by greed. For some strange reason our first trade is profitable. Then the losing game starts – and never ends. Then the trader buys more in huge quantity to take revenge of his previous losses, this time driven by ego that “nothing wrong can happen to me”. And he loses even more.

Real reason of losses is this: Predicting direction has huge problems especially with options. If you don’t know, a lot depends on VIX (volatility). When you buy option you are not only predicting direction of the stock but you are also going long volatility. It means you have to be correct on the direction and on top of that the volatility will also have to increase.

Which means if VIX drops, then even if the direction is right you end up losing money.

On top of that options have an expiry – a time limit of their life called THETA. So even if the direction is right and volatility increases, but if the timing is not correct (the stock takes too much time to reach the destination) – the option buyer loses again.

So, to make profit an option buyer has to correct on:

1) Direction, AND,
2) VIX (Volatility), AND,
3) Timing (Theta).

Tell me now what is the probability of getting all the three right? Very low – therefore option buyers lose money.

If you buy both call and put, you have the same problem:

1. If Nifty is range bound you lose money on both call and put,
2. If Nifty moves in one direction but volatility drops the total premium will still be less than what you paid and you lose money,
3. And if Nifty moves but the movement is slow and Nifty is exactly at strike of the option bought, your option will still expire worthless – so you lose everything you paid for.

As you can see 9 out of 10 times you will lose money buying options. Its very frustrating to see your money going down the drains slowly until expiry. Eventually when it comes you have to pay money to close the trade.

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Comments

Vijay Rane says:

You are absolutely right sir. I am the sufferer. Friends keep away from Options. You will always repent.

Venk tesh says:

poor explanation…. poor logical criterions..

MT Risner says:

How about a shorter presentation next time without the headache music? This could have been easily presented in a PowerPoint. A+ for artistic creativity but come on… Is this a display of your artistic abilities or an educational video on options?

Dionel Vecchini says:

If you sell an option arent you benfeit from 23 possible moves.? Here you are only referring to buy single options. Please specify

rohit mahajan says:

how about intraday for options in index only. in small investment we can expect better returns…..?

Rajan Oza says:

Nicely Explained

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