I have recently started option trading. I started with small amounts but now I'm increasing. How much profit can I make? Is there any time frame after which I will earn more or maybe get better returns? Does anyone know?

- Asked By
- Updated On:02-Apr-2024
- Replies:1

Option Selling can be considered as a full-time business for traders. Similar to a business, you cannot expect extraordinary returns in options selling. You, as an options seller have an edge over option buyers and the chances of making money are higher. Know how much money can be made by selling Options.

An Options Seller is someone who sells an options contract and later buys it back at a lower price to earn a profit. Options are traded based on an obligation to buy and sell the underlying asset at a later date, at a particular price. Options prices move as per the underlying asset. Therefore, if the view of the option seller is right, the decrease in the premium of the options contract is a profit for the option seller and a loss for the buyer of an option.

Options trading is a game of skills and probability. There are many factors involved in an options price known as the Options Greeks. Some of the important Option Greeks are Delta, Theta, Gamma, etc.

The chances of making money in options not only depends on the view of the trader but also the options greeks. “Theta” always works against the option buyer whereas theta is the main gaining factor for an options seller. Theta means the Time decay in options due to which an OTM (Out of The Money) Option expires worthless (0) on the date of expiry.

Due to this, an option seller generates some profits even if their view goes wrong. This is because of the time value in an option contract. The overall gaining probability for an options seller is more than **66%**.

Now to address the burning question, There is no formula or specified rate that can define exactly how much an option seller can make. Although the probability of profit is more than double that of an option buyer. Still, the maximum profit that you, as an option seller can get is capped at the total premium received.

Options Selling requires much more margin money as compared to option buying. On the other hand, option sellers can get the margin benefit if they hedge their positions. In this way, you secure your position from any unforeseen circumstances that can lead to massive losses.

Hedging a position reduces the overall profits but more importantly reduced the downside risk in options selling.

What happens in the long run? Who earns more? There is a certain probability that both buyer and seller will earn the same. Because both are dependent on each other. If the buyer keeps on making money then the seller will not sell and vice-versa.

Sellers make profits almost every day but the margin is little. Buyers don’t win more often but when they do the money made is quite hefty. Here is what it means. Sellers might make **100/- each on 5 trades executed**. But the buyers will make **500/- in a single trade**.

Let's take an example of a hedged option selling strategy known as **'Iron Condor'** to get an idea of the ROI (Return On Investment)

In an Iron Condor strategy, which is a multi-leg options strategy, 2 call options and Put options are bought and sold.

Here is an example. At the current market price of Nifty, to implement an Iron Condor, the total margin money required is Rs 36,500. The maximum expected profit of this strategy is Rs 3500. Hence the ROI on this strategy turns out to be more than **9.5% in a time span of 2 weeks**. The maximum loss is capped at Rs 1500.

In this way, it is clear that you can make anywhere between **7 to 12%** ROI easily in Option selling with a hedged position. Here, both the profits and losses are capped to a certain extent.

Option Selling should be considered as a business and you should not expect unrealistic returns out of option selling. Although the probability of success is 66%, the maximum loss in the case of an option seller is ‘unlimited’. For this, it is necessary to hedge your positions and get the margin benefit in option selling.

Tagged With: Options TradingOptions SellingReturn On InvestmentDerivativesStock Market

Categories: Option Trading

Still got Doubts?

Related FAQs

Is it possible to make 5000 to 50000 rupees in a single day of trading in a stock market? Can I also suffer a loss instead of a profit

Generating 1000 times returns in the stock market is highly unlikely but not impossible. However, through aggressive trading, scalping techniques, trading in penny stocks, strategies for trading, technical analysis and trading with the market trend, you could get the relevant returns you’re looking for, provided everything favors your decision-making in the desired investment opportunities.

As a beginner, Which is better platform Sensibull or Opstra for Option Traders? I want to start option trading but have no idea which is best?

If you're looking for a straightforward and comprehensive take on options trading, then Sensibull should do the job perfectly. However, if you're and expert and want more complex trading tools, then Opstra is the one to choose.

What to not do when trading Options?

Options trading offers many options to traders, investors as well as hedgers. There are some common mistakes that option traders commit. Five of the most common mistakes are, taking too much leverage, not having a pre-defined stop loss and target, acting on tips on social media, adhering to buying options, and taking unhedged trades.

How much money do I need to begin Options Selling?My friend said option selling is profitable but how much money is required?

Option Selling requires large capital. Due to this many small retail traders resort to option buying where the margin money required is very less. Although with various strategies you can reduce your overall risk and margin required in Options selling. Know more about how much money is required to start option selling. The difference in the margin money required for selling a naked Option vs Selling a Hedged Option here.

How do stock brokers make money?

Stock Market is always at risk and involves around a lot of aspects. A daily news viewer also needs time to understand what is exactly going on. To actually dive into the world of stocks, it is important to read about the companies and their strategies and that is what stockbrokers do. They understand the company, do their research and expect the price of stocks by studying the company's ways of dealing with stock market strategies and also about the market forces. Let us now go through the actual topic and understand things better.

Which is a better platform Sensibull or Opstra for Options trading?

In this current day and age, options trading has become the new cool thing that everyone wants to try. There are many option trading platforms out there that provide various Option trading tools. Sensibull and Opstra Definege are 2 of the most prominent names in the industry.

Both of them provide all the necessary tools like OI (Open Interest) Charts, PCR (Put-call Ratio), IV (Implied Volatility) chart, etc. But the main question lies, which one of them is a better platform for Options trading. Let's find the answer to that question.

What is Open Interest in Options Trading in Stock markets? Examples

Open Interest is a parameter used by technical analysts and options traders to judge the mood of the market. Open Interest is the total number of outstanding option contracts in a particular strike price of an underlying asset. The OI is an important factor as it defines liquidity and the total number of contracts that are traded at a particular point in time.

How much money is required for options trading? As a new trader how much money do I need to start?

Options trading involves two aspects. One is options buying and the other is options selling. To buy an ATM option you will require around Rs 10,000 to Rs 25,000 per lot for an Index or stock option. On the other hand, you will require close to Rs 95,000 to Rs 1,50,000 for selling 1 lot of index option. These amounts change with respect to the time remaining to expiry and other market conditions.

What are basket orders in stock market?

Basket orders means a customized bunch of shares which can be traded by investors at once. It is one of the best ways as it also helps in diversification of portfolio and helps you the handle the stocks in the best way possible.

How to become a profitable Options Trader in India?

With the increasing exposure of the stock markets, more and more people are trying a hand in options trading. Options trading have become a lucrative place for individuals to earn money. The reality is certainly different. More than 95% of individuals lose money in Options trading, There are various reasons behind this. Find out the reasons for losses and the steps by which you can be a profitable options trader here.