Comment on Option buying: The riskiest trade out there

Aditya commented on 24 Jul 2021, 11:27 AM

I think the intentions may not be all that altruistic. Let’s say a newbie option buyer finds OTM options “cheap” and feels the market will go up and he can triple his money. He has 1L in his account and buys the OTM options with that money in a single trade. Now the price did not go up as much as he expected in Weekly options and therefore he carries it the next day and – Guess what? He losses 20K just because of theta decay. As with newbies instead of getting out to protect capital, he stays in the trade. And eventually takes across the weekend and now loses 40K at the open. He still stays in because he believes can go from 60K to 180K and he can still come out on top if the market moves in his direction – after all, we are in a bull run and eventually loses all the money and stops trading.

One would think Zerodha is trying to protect such guys. Given that I am a skeptic by nature, I would also look at it from this point of view. Which scenario would Zerodha make more brokerage when he loses 100K in one trade or 100K in 10 trades at 10K per trade?

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