Can I do option selling with 1 lakh? If you want to enter the world of option selling with a maximum capital of 1 lakh, then you are in the right place. In this article, we will explore the basics of option selling, why hedging is important, share my personal experience, and provide valuable lessons to you so that you can start your trading journey with ease and don’t face the complexity and struggle that I have faced in my starting journey. This article will give you the right direction for where to move. How do I move? And where should you reach? In my option trading journey,.
Can I do option selling with 1 lakh in India?
Absolutely! Anyone can start option selling with 1 lakh by using a simple strategy called hedging, which, when executed properly, can generate good returns.
Hedging: Your Safety Net
One key aspect of option selling is hedging. Imagine you are selling an at-the-money (ATM) call option. To protect yourself from potential losses, you can simultaneously buy a far-out-of-money (OTM) call option. This clever move is called hedging. This will reduce your margin requirement drastically.
- Example:
Let’s assume you decide to sell a call option for XYZ stock with a strike price of $100 (ATM). Simultaneously, you buy a call option for the same stock with a strike price of $20 (Far OTM). If the stock price increases, the gain on the bought call offsets your loss on the sold call.[Can I do option selling with 1 lakh]
My Journey: Start small
I started my journey into option selling without hedging, thinking I had it all figured out. But I didn’t. I faced losses that could have been avoided. With a naked option, the selling margin requirements are higher, as are the losses. As soon as I learned to hedge, some magic happened.
So I always advise starting with a small amount of capital. First, go into the options market with a fraction of your capital. Get comfortable with the mechanics, the market, and, most importantly, the emotions.
Let’s Break It Down: Option Selling
Now, let us understand the key aspects of option selling:
The Basics:
- Option Selling: When you sell an option, you are essentially entering into a contract where you agree to buy or sell an asset at a predetermined price (strike price) before a specified expiration date.
- Premiums: As the option seller, you receive a premium (payment) from the buyer. This is your reward for taking on the associated risks while selling the option.
The Risk:
- Unlimited Risk: Unlike buying options, where your risk is limited to the premium paid, selling options exposes you to potentially unlimited losses. This is why hedging is crucial.
The Reward:
- Time Decay: Option prices decay over time, and as an option seller, you benefit from this decay. If the option expires worthless, you keep the premium.
The Importance of Hedging
Hedging is like wearing a seatbelt while driving—you hope you will not need it, but it is there for your protection. In the options world, hedging reduces the risk of substantial losses.[Can I do option selling with 1 lakh]
- Why Hedge: Hedging helps you manage risk by offsetting potential losses in one position with gains in another. It is a strategic move to safeguard your capital.
- Types of Hedging: Apart from the basic strategy mentioned earlier (buying a Far OTM option), there are various other hedging techniques, such as using options on different underlying assets or employing more complex spread strategies.
Personal Experience: Learning the Hard Way
In the initial stages, I neglected the importance of hedging, thinking it was an unnecessary complication in option trading. In fact, I started with big capital and wished to make big profits, which is my biggest mistake in my option trading journey.
Sometimes, when I face big losses, I have sleepless nights. Those losses haunt me, and I was very afraid to take trades the next day because the fear of losses is so over me that it’s affected my trading strategies and my discipline, especially my emotions during trading. But I was wrong, and I paid the price.
So as soon as I learned about hedging, I started applying it immediately, and I have reduced my capital a lot because hedging allows us to do option selling with a low margin, so the risk associated with my capital reduces, and I can trade without getting trapped in my emotions.
This also helps me reduce my risk per trade and my risk capacity on my capital. It also helps us stick with the trade because the volatility of the price movement of losses and profits is bearable within my psychology. Losses are adverse, and I felt bad, but they also serve as valuable lessons. I soon realized that a small, controlled start was the key to becoming a profitable trader.[Can I do option selling with 1 lakh]
The Turning Point: Embracing Hedging
After a few not-so-good experiences, I decided to take a step back. That is when I learned about the concept of hedging. It was a game-changer.
- Starting small: I began with a fraction of my capital. This helped me get a feel for the market without risking too much too soon.
- Educating myself: I started searching for more resources, attended webinars, and read lots of articles on option selling, like you are reading, and hedging strategies. Trust me, friend, knowledge is the power, and losses are the lessons.
Conclusion: Can I do option selling with 1 lakh?
So option selling with 1 lakh is not only possible but can also be rewarding when approached carefully and with the right strategies. Hedging is your best friend on this journey, protecting you from unforeseen market movements.
So, my trading friend, as you move on your option selling journey, remember to start small, use hedging, and stay informed. The market is full of opportunities, and with the right mindset, you can absorb its twists and turns successfully.
FAQ’s
How much money is needed for option selling?
How much you need to sell an option depends on the underlying asset and the brokerage’s rules. It’s usually a good idea to have enough money to cover possible losses and margin calls. This can be anywhere from a few thousand rupees to several lakh rupees, depending on the size of the contract and how volatile the market is.
How much money do I need in my account to sell options?
When you want to sell options through a brokerage firm, you usually need to have at least 50,000 rupees in your account. You’ll also need enough money to cover the margin requirements for each trade. These requirements change depending on things like the size and volatility of the asset.
Can I do option selling with 1000 rupees?
You can’t sell options with just 1000 rupees, that’s not possible. To cover possible losses and meet margin requirements when selling options, you need a lot of money. When you try to trade options without having enough money on hand, you could get a margin call and lose a lot of money.
Can I earn 1 lakh per day from option trading?
Option trading could theoretically make you 1 lakh a day, but it’s very unlikely and comes with a lot of risk. There is a lot of risk in option trading, and making consistent profits of this size requires a lot of knowledge, money, and risk management skills.
Why is option selling costly?
Selling options can be pricey because you could lose as much as you want. Sellers get paid more up front, but they could lose a lot of money if the market moves against them. The total cost of selling options also includes the need for margin and transaction costs.
Do you need 100 shares to sell options?
You don’t have to own 100 shares to sell options. You have to write contracts to bind yourself to buy or sell the underlying asset at a certain price in order to sell options. You must, however, have enough money or margin to cover any possible obligations.
Happy Trading!
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I’m a seasoned trader with over 3 years of experience in financial markets. Throughout my journey, I’ve navigated various market conditions and developed my skills in trading strategies, risk management, and market analysis. Now I am also developing myself as a good digital marketer.