InvestorQ : I have seen traders losing money in selling options big way. Why is that ?
Tisha Malhotra made post
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I have seen traders losing money in selling options big way. Why is that ?

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4 years ago
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Selling options is not only tricky but also quite a sensitive task. Normally those who sell options get beaten by two factors. First is their inability to appreciate and manage overnight risk. Today global markets operate on a 24X7 basis. Indian markets are not only impacted by what happens in India but also by what happens in Europe in the evening, America in the night and Asia early morning. You need to keep a tab on all these overnight risks. If crude oil prices went up sharply late at night then you may end up with big losses on your short puts on oil companies. Second, of course, is their inability to handle volatility. At the end of the day, your primary goal in the equities business is to conserve your capital value. You surely do not want a bad option selling decision to wipe you out. Selling calls and puts is not for the casual investor. Think about it thoroughly, before selling a call or put option next time. A right decision can be relatively profitable; but a wrong decision can be disastrous. Most traders lose money in selling options because they do not keep the risk return trade off in the right perspective.

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