Option Trading / How risky is option trading, this person lost 55 lakhs, this is how the game works

Option Trading: The story of a young man from Pilibhit district of Uttar Pradesh has become a sad example of greed and risk in the stock market. This married young man belonging to a middle-class family lost Rs 55 lakh through option trading in the stock market. This young man, who started with small investments, got so caught in the trap of greed that he even took a loan of Rs 45 lakh from the bank and relatives for trading. In a few months, he lost all his capital, due to which his family got trapped in a serious financial crisis. The situation worsened so much that the children's studies were left and there was a shortage of food in the house. Now this young man has written a letter to Prime Minister Narendra Modi and appealed for help.

Let us understand what option trading is, by getting trapped in which this young man put his family in trouble.

What is option trading?

Option trading is a complex and risky way of investing in the stock market. In this, the investor does not buy shares directly, but buys the right to buy or sell shares at a fixed price in the future. In exchange for this right, the investor has to pay a small amount, called premium. Option trading is mainly of two types: call option and put option.

What is a call option?

A call option gives the investor the right to buy a share at a fixed price within a fixed time. For example, suppose the current price of a share is Rs 100. You took a call option that you can buy this share for Rs 100 for a month. If the price of the share increases to Rs 150 after a month, then you can buy it for Rs 100 and make a profit of Rs 50 per share. But if the price remains below Rs 100, you will not exercise the option and your premium will be lost.

What is a put option?

A put option gives the investor the right to sell the share at a fixed price within a fixed time. For example, if you took a put option that you can sell shares for Rs 100 and later the share price becomes Rs 60, then you can make a profit by selling it for Rs 100. But if the price remains more than Rs 100, you will not exercise the option and there will be a loss of premium.

How is loss made in option trading?

The risk in option trading is very high, because it is difficult to predict the movement of the stock market. If the market goes against your estimate, then the possibility of loss increases. Loss can occur due to some major reasons:

Loss of premium: The premium paid while buying the option can be lost, if the share price does not move as per your estimate.

Unlimited loss: If you sell an option, you have to promise to buy or sell shares to someone else at a fixed price. If the market price moves too much in the opposite direction, then the loss can be unlimited.

Greed and haste: Many investors, in the greed of getting rich quickly, make big bets without research, which leads to huge losses.

Borrowed money: Trading on loan is the most dangerous, because in case of loss, it becomes difficult to repay the loan.

Investors should keep these things in mind

• Investing in the stock market can be profitable, but it also has risks associated with it. Keep the following things in mind for safe investment:
• Do research: Study the financial position, business model and future prospects of a company before investing in its shares.
• Avoid greed: Do not take big risks in the desire to get rich quickly. Invest according to your financial capacity.
• Bring diversity: Do not invest all the money in a single stock or option. Divide your investment in different areas.
• Avoid borrowing: Never invest by taking money or borrowing money as per your need. Invest only that money, which will not affect your life in case of losing it.
• Trustworthy sources: Always get information from reliable sources. Avoid false claims and fake tips on social media.
• Long term perspective: Long term investment in the stock market reduces the risk. Avoid hasty buying and selling.