There is an saying in the stock market that the big money attracts the small money towards itself, similar thing happens many times with the retail investor too. Also there is a saying that the rich becomes richer and poor becomes more poor in the capitalist world.
But the world do not runs on the sayings, people do says things and people do believe things but the practical situation is always different for each of us.
When it comes to trading the option trading can really be a amazing tool that can help you not only in protecting but appreciating your portfolio with time.
Option trading is a riskier game
Calling it game will not be right, option trading is a hedging tool which is used by the big players to hedge their portfolio. In simple term we can say it works as a insurance for the people with the big portfolio.
Who are retail investors
I believe that the retail investor are the people who are individual investor who invest for by themself for themself. Often they have lower amount by which they trade or invest in the stock market. People like me and you , we are retail investors.
Should retail investor trade in options
Option trading is basically a hedging technique it is used to hedge the portfolio. In India options can be traded in the lots and if you will look closely you will find that the cost of 1 lot of any stock that is trading in the future and option category will be somewhat around 6 Lakhs rupees.
If you are buying 1 lot of a put for any stock , that will be insurance for your portfolio of around 6 Lakhs.
Now think of a situation , you have less amount of money and you are buying the insurance each month in order to protect that money , how will that be beneficiary for you. You will be paying each month a premium amount and that may be a burden for your portfolio. But if you have a large sum of money invested than that premium amount may proved to be negligible.
Hope this answer this question.
Still got no clue
Ok if you are a trader and looking for the trading opportunity you can choose the options to trade as it looks a little cheap to buy than buying the complete shares.For example with the small amount of ten thousand you can get the 1 lot of shares of any stocks and if you are looking for the trading in it that is a good deal but it has its own risks too.
What are the risks
For the option buyer the premium amount could depreciate faster near the expiry and it may turn to 0 if the option expire out of the money and hence loosing the entire amount. For seller there is the unlimited risk as the stock could rise to unlimited value (theoretically) and even fall to a much value and may cause huge losses.
So what is the best way
There is not best or the worst way, what I believe is one should focus on learning first. Once you are aware of the functionality of each technique you should try them with the small quantity. Further if you become confident even then it will be a good idea to build a portfolio rather than going for the naked positions.
Do I trade in option trading , what is my budget
I have tried option selling , I am retail investor. I had good experience about it. But I learned about it from the starting and gave most of my time in learning. further I built a portfolio and now I am trying different strategies to protect my portfolio and appreciate it in value. I have a budget of around 3.5 Lakhs and I try to invest a small amount each month on it.
Will I share my strategies in here
I am already doing it and I will be sharing my more of the trading and investing experiences in here.
No comments:
Post a Comment