Is options trading better than buying and selling stocks?
Yes. And I am writing with experience. Trading Options is my primary business. I manage a hedge fund.
In Option Trading we deal with probabilities of being right or wrong. Same thing happens when you trade in stocks. Only difference is in stocks or futures, as soon as you enter a trade, your profit/loss starts.
This week I was dead wrong with my predictions in Options Trading.
On Friday, we started week with a bullish note and I took some bullish positions.
Markets closed and news of drone attack on Aramco started coming in. I was not worried as positions were hedged.
On Monday, I booked a stop-loss and turned bearish. Sell off was not intense on Monday as it would have been after crude oil shot 10%. I was expecting a resume of bull run and turned my positions.
And then came an intense sell off. I had sold 10900 Puts, 10700 Puts, 27300 Puts, 27100 puts. Obviously the positions were hedged, but after a certain point hedge starts to fail. Sell off was intense and I thought how bad it can get.
My mark to mark losses at one point touched negative ₹200,000/-. I could book a loss or let it keep bleeding.
And this is where the beauty of Options Trading comes in. Hedging and Adjustments.
I got into action and started managing my positions. It was purely money and risk management. After 2 days, not only was I able to stop bleeding of portfolio, but manage to breakeven. Some of my clients were even profitable.
Point is that I was dead wrong. And by dead wrong I mean 300 point wrong on Nifty and 1200 point wrong on Bank Nifty and still I was able to come out profitable or Breakeven. Had it been stocks, I would have been wiped off all of my capital without a stop-loss.
My first task is to protect capital and second is profits. And that's why I prefer options trading.