How to Create Best Options Strategies for Free: A Handy Guide for F&O Traders

How to Create Best Options Strategies for Free: A Handy Guide for F&O Traders

The options market in India is abuzz with rising retail investor participation. While this may be an optimistic sign indicating vast amounts of liquid capital among India’s retail F&O trader population, it also hides a grim reality: not all options traders are successful in the markets.

Data from a recent study by the Securities and Exchange Board of India (SEBI) reveals the truth. In FY22 alone, 9 out of 10 F&O traders suffered losses in the derivatives segment. These were not small-scale losses either; the average loss amounted to ₹1.1 lakhs!

These losses are possibly driven by a wide range of factors — from poor awareness and a gambling mindset to overtrading and the unavailability of the required tools. Whatever the reasons may be, there is one solution that can potentially help F&O traders tune down the losses and improve profitability — and that solution involves implementing effective options trading strategies.

Strategic vs Speculative Trading: The Thin Line Between Profits and Losses

Samco Securities recently conducted an extensive analysis of the trading behaviours among nearly 30,000 users of the Samco trading app. The results, which were nothing short of enlightening, reiterate the importance of options trading strategies for F&O traders.

Here’s what the analysis — which was conducted over more than 13 months — tells us about trading outcomes in strategic and speculative trading.

•        97.8% of the traders engaged in naked options trading, without any sufficient hedging strategy in place. These traders incurred losses amounting to ₹66,768 on average.
•        Only the remaining 2.2% of traders used options trading strategies to hedge their positions. Interestingly, the average profit among this small group of traders amounted to ₹196,300.

These insights indicate that with the right options trading strategies, it is certainly possible to experience success in the F&O segment consistently. However, most traders only have a gambling mindset, which fuels them to use option contracts as lottery tickets to earn quick, disproportionate gains with minimal capital. They overlook the mathematics behind options trading, ignore the importance of options trading strategies and consequently, lose a significant portion of their trading capital.

To help traders break out of this vicious trap and improve their trading performance, Samco Securities has introduced Options BRO — the newest flagship feature in the Samco trading app. This revolutionary tool helps traders build, research and optimise options trading strategies within seconds, so they can take advantage of market opportunities as and when they arise.

The Importance of Options Trading Strategies for F&O Traders

To truly appreciate the game-changing tool that Options BRO is, it’s essential to understand why options trading strategies are a must-have for F&O trading. Here are 5 reasons options trading strategies are crucial for traders in this market segment.

1.      Effective Risk Management

Options trading strategies help traders manage risk effectively. By their very nature, options offer a range of outcomes based on different market scenarios. A well-defined strategy allows traders to limit potential losses by setting precise parameters for entering and exiting trades.

For instance, a trader may use stop-loss orders to automatically sell options at a predetermined price. This kind of careful planning and execution prevents emotional decisions during market downturns. It also helps safeguard the trader’s capital against volatile market movements and ensures they can continue trading even after facing setbacks.

2.      Efficient Allocation of Capital

A good options trading strategy ensures that traders allocate their capital efficiently across different trades. By doing so, they can diversify their portfolio and spread out the risk rather than putting all their eggs in one basket. This strategic allocation of resources prevents overexposure to a single asset or market event, thereby minimising the impact of a bad trade.

For example, a trader might allocate only a portion of their portfolio to high-risk options, while the rest is invested in more stable, low-risk options. This approach positions traders to take advantage of multiple trading opportunities by optimising the potential return on investment and directing funds to opportunities with the best risk-reward ratio.

3.      Quick Decision-Making

In the fast-paced options market, speed is of the essence and the ability to make quick decisions is invaluable. Having a predefined options trading strategy allows traders to act swiftly when the market meets their criteria, without second-guessing or falling prey to emotional trading.

This promptness can be the difference between capitalising on a fleeting opportunity and missing out on it by seconds. Having a winning options trading strategy ready to be executed minimises hesitation and ensures that traders can exploit market movements efficiently.

4.      Continuous Improvement

A structured options trading strategy offers a blueprint for continuous evaluation and improvement. By documenting a strategy and the outcomes of their trades, options traders can analyse their performance over time. This makes it possible to identify what works and what doesn’t. Without this framework, traders might repeat unprofitable behaviours without understanding how to correct them.

For example, a trader might review a month’s trades to identify patterns in losses. Thereafter, they can make adjustments in their strategies to avoid these pitfalls in the future. This process of reflection and adaptation is crucial for staying aligned with market changes and enhancing profitability.

5.      Hedging Against Downside Risk

One of the most rewarding benefits of utilising an options trading strategy is the hedging it can offer against unexpected market movements and downside risks. By strategically using options, traders can insure their investment portfolio against potential downturns.

For instance, say an investor holds a substantial position in a tech stock that’s expected to experience volatility due to an upcoming product launch. By purchasing put options, the investor can set a floor on the potential losses and ensure that even if the stock price plummets, the losses on the stock are offset by gains on the put options. This strategy protects the investor’s portfolio and allows for more measured and confident decision-making in the face of uncertainty.

This is why hedging not only reduces risk but also empowers traders to make bold moves with a well-defined safety net. Ultimately, this maximises their potential for success even in volatile markets.

Create Winning Options Trading Strategies for Free with Samco’s Options BRO

The reasons outlined above emphasise the importance of options trading strategies for F&O traders. Unfortunately, few trading platforms in the market offer comprehensive insights and strategy-building capabilities required to keep pace with the dynamic F&O segment. Even the few that do come at a steep premium, making them inaccessible to the average retail options trader.

Here is where Options BRO in the Samco trading app is a game-changer for F&O traders. With this tool, traders only need to offer three inputs: the options contract they want to trade in, its expiry and their market outlook. Based on these crucial inputs, Options BRO analyses over 2,000 options contracts, evaluates over 1,000 options trading strategies and performs over 1.5 lakh computations — all within a matter of a few seconds.

The options strategy builder then suggests three winning options trading strategies for different risk profiles (aggressive, moderate and conservative). But that’s not all. Traders can also explore hundreds of other strategies that align with their risk profile, market views and preferred securities. With filters based on risk levels, maximum profits and losses, probability of profit and risk-reward ratios, traders can also research and analyse the different options trading strategies suggested by Options BRO — and pick the winning strategy that could offer them the best possible outcomes.

While these are all industry-first features that have never before been available to options traders, there’s one more advantage that truly sets Options BRO apart. Traders using the Samco trading app can access this options strategy builder and leverage its benefits free of cost. Samco Securities does not levy any additional charges to offer access to this one-of-a-kind strategy builder.

A trader only requires a Samco demat and trading account to log into the Samco trading app and access Options BRO as well as a whole range of revolutionary features for free!