What investors need to know before getting lured into options trading

Rs 1.05 trillion!! Rs 1.05 lakh crore was the amount individual traders lost in the equities options segment in FY25, and the losses are expected to be similar or higher in FY26. A Sebi study found that 91% of individual derivatives traders lost an average of Rs 1.1 lakh per person between December 2024 and May 2025, more than a month’s salary for most Indians.

This is despite measures by the regulator, which included tripling the minimum contract size, restricting weekly options expiries to one per exchange, revising the methodology for calculating open interest to better capture market risk and imposing a gross daily exposure limit of Rs 10,000 crore for equity derivatives segment participants.

The lure of making quick money, sometimes in minutes, continues to draw many investors into high-risk trading. What often begins with small bets can gradually turn into a habit, encouraging investors to take increasingly larger risks in the hope of recovering losses or earning bigger gains. Easy access to loans and even money borrowed from friends and family can further fuel this cycle.

Many participants acknowledge that they are speculating rather than investing, with some likening their behaviour to gambling. Unfortunately, the pursuit of quick gains often results in substantial losses, leaving some investors with debts that far exceed their ability to repay.

The reason is that options are significantly riskier than investing directly in equities. Options are derivative instruments, whose value is linked to a stock. They allow investors to speculate on the direction in which a stock’s price will move over a specified period.

Since buying an option requires only a small upfront investment, traders can take positions that are much larger than the capital they actually have, thanks to leverage. While this leverage can generate substantial gains if the market moves in their favour, it also magnifies losses. If the stock fails to reach the option’s strike price before expiry, the option can become worthless, resulting in the loss of the entire premium paid.

The rapid growth of DIY investing platforms and lower options trading costs have made derivatives trading accessible to millions of retail investors. At the same time, the proliferation of stock market content on social media and sensational claims by finfluencers has fuelled the popularity of options trading among retail investors. Stories of individuals making spectacular gains through a single options trade often create a fear of missing out.

Many new investors are drawn in by the belief that they too can become wealthy in a short span of time, leading them to trade without fully understanding the risks involved. Investors tend to significantly overestimate their chances of making consistent profits from F&O trading.

Traders also do not follow any defined trading strategy and neglect basic risk-management practices such as using stop-loss orders. Without a structured approach to managing risk, even a few adverse trades can lead to significant financial losses.

Basically, investors do not truly understand how much risk they’re taking with options trades. It’s extremely difficult to call the direction of the market or specific stock, and to call the direction right in a specific timeframe is even more difficult.

For those who still choose to trade in F&O, it is essential to set a clear limit on how much they are willing and able to lose before placing a trade. Never risk money that you cannot afford to lose. As legendary investor Charlie Munger famously said, “The big money is not in the buying and selling, but in the waiting.” Retail investors would do well to treat the latest findings as a wake-up call.

(Mrin Agarwal Financial Educator & Founder Director of Finsafe India Pvt Ltd)