Most people meet options as risky bets — and the data backs that up. In its study for 2024-25, SEBI found over 91% of individual F&O traders lost money, together losing about ₹1.05 lakh crore in a year. But options were not invented for gambling. They began as tools to manage risk. This article explains two of the calmer, better-known strategies in plain words. It is for learning only, not advice to trade.
First, a reality check on the rules
Options are not "small money" anymore. To reduce reckless trading, SEBI raised the minimum size of an index options contract to about ₹15 lakh, and limited weekly expiries to one index per exchange. In short, F&O now needs real capital and real understanding. If you are new, read calls and puts explained before anything here.
Covered call — earning a little income on shares you own
A covered call is used by someone who already owns a stock.
- You own the shares.
- You sell a call option on them and collect a fee (premium).
- If the stock stays flat or rises only a little, you keep the fee as extra income.
The catch: if the stock jumps far above the level you sold, you must give up that extra gain. So a covered call earns small, steady income in calm markets, but caps your upside if the stock soars. It is income in exchange for giving away the big rallies.
Protective put — buying insurance for your shares
A protective put is like insurance.
- You own the shares.
- You buy a put option, which rises in value if the stock falls.
- If the stock crashes, the put cushions your loss.
The catch: insurance is not free. You pay a premium, and if the stock does not fall, that premium is simply a cost — like paying for insurance you did not need. It buys peace of mind for a price.
The honest takeaway
Notice that both of these are used on shares you already own, to manage risk or earn modest income — not to gamble on direction. That is the sensible face of options. Even so, they have costs, need enough capital, and can go wrong.
For most ordinary investors, simply owning a diversified, rule-based portfolio — like our Model Portfolio — is enough, with no options at all. Options are an advanced tool, useful to a few, unnecessary for most. You can also start a free trial.
Covered calls and protective puts show that options can be about safety, not just speculation. But given SEBI's loss data and the capital now required, treat them with great care — and never confuse them with the reckless betting that empties most trading accounts.
Calls and puts explained: what every beginner must know about F&O (and the SEBI warning)
Options (calls and puts) and F&O look exciting and cheap to start. In plain words: what they are, how they differ from shares, and why SEBI found over 9 in 10 traders lose money.
Options spreads, straddles and strangles: risk-defined vs unlimited risk
Beyond single options lie spreads, straddles and strangles. In simple words: how they work, the vital difference between risk-defined and unlimited-risk trades, and why selling options can be so dangerous.
How Often Does NIFTY 50 Move 1%, 2% or 3% in a Single Day?
How frequently does NIFTY 50 move more than 1%, 2% or 3% in a single trading day? Ten years of data reveal a clear pattern in daily NIFTY movements and raise an interesting question for options traders.
Comments
Loading…