Zerodha founder has chances to make money trading options
The stock market can be the hardest place in the world to make easy money, especially in options trading strategies. On the question of whether selling options is likely to generate higher profits, Zerodha Founder and CEO Nithin Kamath said in a tweet that it is possible, but only when the risk is compared to buying options.
“Since maximum profits are limited and losses are unlimited, if risk is not managed properly, writing options can be eat like an ant and poop like an elephant,” Kamath explained in a tweet.
For most naked options sellers, losses in a volatile month can equal profits over a long period. If selling naked options, the risk should be capped either in terms of allocated capital or in terms of a fixed stop loss of 1-5% of capital, whichever is lower, the better. Kamath advised.
“Writing naked puts, especially on stocks, is by far the riskiest type of trade. Every day there are millions of things that could go wrong for a business—Macro & Micro. Given the limited rewards and unlimited losses, writing puts doesn’t add up in the long run,” he explained.
The only way to significantly improve the odds of making money trading options is to trade options strategies with maximum loss. The chances of profiting and surviving are higher. And the longer the survival, the experience gained can help to become a better trader, added Kamath who is known for educating investors on social media platforms.
Zerodha, the Bengaluru-based brokerage firm started operations in August 2010. The startup was started by brothers Nithin and Nikhil Kamath with their own funds and has no debt. The retail brokerage company has over 8 million customers who trade stocks, currencies, commodities, mutual funds and bonds through the Zerodha app. Meanwhile, Varsity is Zerodha’s in-depth collection of stock and financial lessons.
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