Trading Options Is a Losing Game. So Why Can’t We Stop?
18 July 2025 6:20 AM IST
Nine out of ten small traders lose money in options, according to SEBI’s own data. That’s in part because of institutional investors, who have massive capital and fancy algorithms on their side.
Many retail traders aren’t aware of this. But, even those who are familiar are still drawn to options trading. Why?
In the latest episode of The Signal Daily, we’ll hear from traders and a behavioural finance psychologist to learn more. What are the signs that someone’s stuck in a toxic cycle, and how can they get out of it?
Links mentioned:
- Jane Street: Is It Time To Reinvent Rules For The Derivatives Market?
- Derivatives Trap: Indian Retail Investors Are At The Mercy Of Techno-Giants
The Core produces The Signal Daily. At The Signal Daily, we don’t do hot takes, instead we bring you deep dives into the how and why of consumer trends.
To check out the rest of our work, go to www.thecore.in. Thank you for listening!
The Core produces The Signal Daily. Find us wherever you get your favourite podcasts. To check out the rest of our work, go to www.thecore.in
NOTE: A machine transcribed this episode. A human has looked at this text but there might still be errors. Please refer to the audio above, if you need to clarify something. If you want to give us feedback, please write to us at [email protected].
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TRANSCRIPT
Kudrat (Host): In early July, SEBI, short for Securities and Exchange Board of India, released a 105-page report accusing the American trading firm Jane Street of manipulating the market. SEBI temporarily banned Jane Street from trading in the Indian markets, and asked them to deposit Rs 4,843 crore in an escrow account if they wanted to resume. Jane Street did so on Monday, July 14th.
The options market is a risky game; and one in which small, retail traders almost always lose. That’s in part because institutional players like Jane Street have the might of fancy algorithms and massive capital behind them. The Core’s has covered this before, I’ll link the story in the show notes below.
There’s hard data that says the same. Previously, SEBI has published multiple studies on how nine out of ten small traders make losses in options trading. Many describe this kind of trading as similar to gambling and yet, people are drawn to it. India is the world’s largest derivatives market; it accounts for almost 60% of global equity derivatives trading by volume.
Kudrat (Host): I’m your host Kudrat Wadhwa and you’re listening to The Signal Daily. We don’t do hot takes. Instead, we bring you deep dives into the how and why of consumer trends.
In this episode, we’ll hear from traders on what drew them to options trading. We’ll also hear from a psychologist who specializes in behavioural finance. What are the signs that someone’s stuck in a toxic cycle, and how can they get out of it?
Kudrat (Host): Buying stocks, or called equity trading or cash markets, is safe, for the most part. When you buy a stock, you basically buy a share in a company. If the company gains value, you can sell your shares and make a profit. Alternatively, the company can choose to distribute their profits, meaning you could receive a dividend. If the company doesn’t do well, you’ll lose money. It’s simple and relatively predictable.
But, options trading is a whole other ballgame. With options, you don’t buy a share but rather, you enter a contract, which allows you to speculate or hedge against future price movements. Even under options trading, there’s buying and selling. Think of options buying as playing the lottery – your initial investment is low, but your chance to make it big is high. The loss per trade is usually low, it depends on your premium. But, small traders end up losing a lot. That’s because they often get addicted. If the number of losing trades is high, then you end up losing big over time.
Options buying doesn’t require much initial capital, unlike options selling. That’s because if the trade goes against you, you could make unlimited losses. It’s possible to control that, by placing a stop-loss, but many don’t do that. That’s because by doing so, you also limit your potential for making a profit.
Options trading, particularly options buying, doesn’t require a tonne of capital. That’s also why many young people are drawn to it. A SEBI report said that in FY 2024, the proportion of retail traders below the age of 30 was at 43%. Most individual traders also come from a low-income background – their annual income, per the same study, was less than 5 lakh rupees.
The Signal Daily spoke to two former options traders, on what drew them to options buying.
Mayank: my name is Mayank. I'm a chartered accountant and a lawyer. Been trading for maybe 10, 11 years now.
Kudrat: Mayank is passionate about trading – for the past five years, he’s also been teaching people too. Right now, he said that he primarily sells options and uses technical analysis to decide on a strategy. He always has stop-losses in place too.
But, when he started off, he began by buying options.
Mayank: I have apparently maybe 5, 7, 8 years ago when I just started off. Mm-hmm. I wiped off my two years earning in one go.
Kudrat (from clip): Oh, wow.
Mayank: So that is where, that is where I stopped my option buying. Okay. And I went for selling. I went for consistent return and that is what happened. Made me right now what I am.
Kudrat (clip): So you didn't have a stop loss in place, or why did you, how did all of it go away?
Mayank: You can say that at that point in time, I, I lost like maybe, uh, 500 K in, 50,000 K was five 50 lakh rupees that I lost an option buying in a day.
Kudrat (clip): 50 lakh,
Mayank: 50 lakh rupees. I lost like in a day that was. That is what I had earned in the last two years, but through option buying and just because my ego to cover and I not have a stop loss in place, and I just kept on averaging my position, that's where I got to understand that option buying would not gain me that kind of consistent return that I was looking for.
Kudrat (clip): What do you mean when you said that your ego took over?
Mayank: Uh, I had earned like 50 lakhs in two years. Yeah. Approximately. Maybe more than that. Then I lost one because I thought I will never be a loser. Hmm. That took over my head and I lost a lot of money, maybe 90% of what I had earned in the last two years.
Kudrat (Host): When he started trading, Mayank gained money – 50 lakhs in 2 years, but that trend reversed. That’s classic with options traders, early wins, followed by huge losses, according to Pallavi Pashte, a psychologist The Signal Daily spoke to.
Pallavi: Because, uh, when you start new, yeah, you start with the small capital and you gain start, there is beginners luck.
So you gain small, small profits and you consider those small profit as you can, uh, amplify them in a bigger one. So you start trading with the more capital. So, uh, you are previously trading with, uh, 10,000. But you will start trading. If I do with one lakh, I will gain 10,000. And if I do with 10 lakhs and I'll gain one lakh, so I should do with 10 lakh, they start using the leverage.
Mm. There is, uh, so many platforms which, uh, give you leverage. If you have capital of 10,000 only, you use the leverage and you amplify your gains. Mm-hmm. So this, this leverage, people don't understand if they lose, they have to pay back to the, uh, trading platforms. Mm-hmm. This results into the bigger losses.
Kudrat (Host): There’s very little friction in options trading. All you need is your phone – swipe, gain money, swipe lose money. Moreover, these apps are designed to give you a dopamine hit and keep you hooked. Here’s The Core’s Govindraj Ethiraj speaking to Vijay Mantri, the co-founder of and an investment advisor at JRL Money. He argues that just like there’s restrictions with drinking alcohol and smoking, there should be restrictions when it comes to options trading too.
Vijay: why can't we put a similar kind of thing at a minimum amount of net wealth to participate? And the second is like insurance.
Very simply, you just can't take insurance beyond your means. So, there are many people who used to take insurance in the name of their spouses beyond their means. But insurance industries put the restriction that you can't take insurance beyond certain means.
So, similarly, based on your income level, these things need to be put in because it's speculation. People would speculate. It is as old as a hill.
So, one has to put, look at, even look at reasonable restrictions as far as other sins are concerned. Let's look at alcohol, 25 years, 21, 25 years of age, smoking, a note at certain educational institutions and all these kinds of things. No advertisement.
Why can't we have a similar kind of stuff? Then we know that data are very clear that a significant amount of money has gone away from the investors. And one of the reasons for stress at urban consumer level could be this.
And we have, since I work in the financial advisory industry, we have honestly horror stories of people viewing their financial life and some of them actually lost their life. So, it is high time that certain restrictions be put in place.
Kudrat (Host): Options trading is akin to gambling. You might experience beginner’s luck, as Pallavi said, but in the long run, if you’re a small trader, you will most likely lose. That’s partly because options is a zero-sum game. Small traders are unaware that big players like Jane Street could be manipulating the markets against their interest.
But, even if people know that intellectually, they don’t always stop.
Kudrat (from clip): So are people who come to you aware of that, that there are these, uh, you know, big companies that are gaming the system?
Pallavi: Sometimes they're aware, but they still, uh, choose to do option trading because they have optimism bias. Mm-hmm. They think they can crack it. They think I'm the different person.
I can do it. I have that knowledge. They overestimate their skills. So even, even when they know all this news, all these things about big players and how they are manipulating things, they do option trading. They think they can overcome all those hurdles and can make a big, a big impact. Okay.
Kudrat (from clip): So they feel like they are different from Yeah. Work out for them.
Pallavi: Yes. Yes. It'll work out for them. And they have, uh, another level of optimism due to this, uh, influencers and, uh, other financial advisors who are not SEBI-registered and, uh, creating videos on all these things and, uh, teaching people how to do.
Kudrat (Host): SEBI has been trying to crack down on such unregistered finfluencers, but there’s still many who either flat out lie, or only show their wins but not their losses.
Which means that viewers get influenced by them. That’s also what Abhishek, another trader The Signal Daily spoke to said.
Abhishek: हाँ तो शुरुआत से actually मेरे friend एक थे वो करते थे। मैंने भी शुरू किया कुछ इंटरेस्ट आया। फिर पढ़ना शुरू किया और उसके बाद में ये तभी YouTube वाला सारा। शुरू हुआ पर यूट्यूब पे मतलब लोग आ रहे हैं अपना दिखा रहे हैं ये सारी चीज़े हो रही है। हम्म तो वो करते करते वहां से influence होना शुरू हो गया। उसके बाद पढ़ाई भी बहुत करी है ऐसा नहीं। वो है की ultimately ninety nine percent वाली पेशियों में ही आ गया मैं भी। profit profit कुछ दिन हुआ फिर उसके बाद लस जब एक बार शुरू हुए ना। तो वो फिर रुके नहीं कभी
Kudrat: Though he made some profit initially, Abhishek later only saw losses. He realized that as a retail trader, his likelihood of succeeding is low.
Abhishek: street वाला मतलब वही और एक सबसे बड़ी एक तो human trader जो है ना भूषण involve हो जाते हैं। हम जैसे ही लेवल पे एगो बनाना is not a very easy task हम एगो खुद अपने लिए बना। okay वो उन लोगों के पास वो power भी है की वो अपनी बना सकते हैं plus trader के पास आप majority retail traders के पास paid trading view का software भी नहीं होता majority के पास। और उनके पास और पता नहीं कितने तरीके के सॉफ्टवेयर है। हम as a retail trader उनकी positions कभी नहीं judge कर पाते generally मेरे ख्याल से।
और वो आपको एक पर्सेंट भी जो होंगे ना ऑप्शंस में प्रॉफिट वाले वो आपको सब यूट्यूब पे ही मिलेंगे। ठीक है आपको एक्चुअल कोई बंदा जिसने प्रॉफिटेबल जो कर सकता है वो एक्चुअल दिखेगा नहीं। मतलब मुझे तो। अपने संकल्प में मैं अभी तक जितना को जानता हूँ कोई options profitable मुझे नहीं है।
Kudrat (Host): Abhishek said that he has given up on options trading completely. He’s going to stick to equity, which he says is much safer.
Kudrat (Host): Once things stopped working in their favour, Abhishek and Mayank were able to stop trading options. But, not everyone is that lucky. The psychologist Pallavi Pashte told The Signal Daily that ‘gambler’s fallacy’ kicks in. Even when traders start making losses, they’re unable to stop. They think that, “oh, maybe the next time, this will work in my favor” and so on.
Kudrat (Host): Pallavi also said she’s noticed that most people who get stuck in this loop tend to be on the younger side.
Pallavi: There are, there are few people, mostly younger people who want to make it big. Hmm. They are stuck in this kind of loop. They don't have any way out. They can't tell their parents. Hmm. They are unable to tell everybody that they are so much of that they are not able to repay their debt. They have taken money from relatives, from, uh, uh, scanning platforms and they're under the lot and lot of stress.
Kudrat (Host): Financial stress is no joke. Pallavi said that her clients see serious physical manifestations of this stress as well.
Pallavi: This, uh, this financial stress make them actually sick physically. Mm-hmm. They go into depression and sometimes they're not able to work, not able to go to colleges, not able to concentrate on anything. Mm-hmm. They end up getting sick, fever, uh, infections because of all this accumulated financial stress.
Kudrat (Host): The ones who end up in Pallavi’s office are still fortunate. She said that what usually happens is that their friends and family members notice that something is up, and encourage them to see a mental health professional. Pallavi starts off by getting her clients to talk about what’s going on.
Pallavi: Mainly to talk it out. Why you started doing it. What was your purpose? What was your, uh, intention behind it? And what was your motivation, uh, be before starting the option trading? After understanding this motivations and all we can, uh.
Give the other point of view and other way to get out of the situation so that they stop doing the option trading and start reaching out with people and reaching out for another sources of income. So maybe they can start working in better way to pay off their debts. Okay. And that will eventually reduce their stress.
So now the option trading is done, the losses are done. We cannot reverse back the time or the losses. Eventually we have to pay off the debt. Yeah. So finding out another way to make money or another way to educate yourself.
Kudrat (Host): Pallavi also encourages her clients to educate themselves before properly diving back into options.
Pallavi: Take it option. Trading as a professional skill one needs some mentor or mentor or say, register advisor.
So, uh, getting in touch with such advisors, I suggest that and, uh, they can gain all the skills required. And again, start with within the profitable limit and within the risk management, uh, frame, I guess. Okay.
Kudrat (from clip): Like with a stop loss and everything.
Pallavi: Yes. Stop loss. Then entry and exit points. Then strict rules about the trading, timings about the tradings.
Kudrat (Host): But of course, trading isn’t for everyone. Here’s Ashish Nanda, President and Digital Business Head at Kotak Securities, talking to The Core’s Govindraj Ethiraj about how he thinks of investors versus traders. He used a cricket analogy to explain the difference:
Ashish Nanda: It's absolutely fine. Trader has its own value in the stock markets, you can become a trader. Becoming a trader is not easy.
Becoming a trader takes time. So I think three rules which I generally tell all my listeners or all my clients is that number one, start small. You can't put the kind of money, all your money, all your capital, it's a hardened money where you are getting it from.
I think you can't put the entire capital into F&O when you are in the phase of learning. So it is okay to kind of trade in one lot or two lots in a very small number of and put in a very small amount of capital. As over a period of time you kind of understand the nuances of the stock market, you can increase your exposure but start really, really small.
The second is to get the risk management right. At the end of the day, the position sizing, the amount of money that you put into the capital, you should not put the kind of money into the market that you lose sleep over it at night. So I'm saying A, keep the size small, manage your risk well and you should also know there are a lot of tools which are available to investors.
For example, one largely known tool is something called a stop loss. The difference between an investor and a trader is that the investor is fighting with time. He has to come into the market over a period of time, he has to make money, he's he's got that batting style of a Rahul Dravid who plays test match cricket over a period of one day, he will defend more balls, make runs on less number of balls but at the end of the day, make a hundred and make India win.
I will generally relate to the trading style of Suryakumar Yadav, the Sky we call him. I think he's not bothered about time. Every ball is a chance and he has to hit that ball for a six or a four.
So that is what a trader is. He has to come every day, every day he has to be at the terminal and try to make money. But if he loses his entire capital in one day, I think he will not have anything to come the next day and make money.
So I think risk management is very important. There has to be strict stop losses and there are a lot of tools available with the broker that he has to actually know. There's something called bracket order.
We have something called a strategy board. A lot of tools that he should be aware of which make him a slightly efficient trader. So I think it's all about learning.
You will not be able to make the money the first day and you should not be overconfident.
Kudrat (Host): So, why do people keep trading options, even when the odds are clearly stacked against them? For starters, the apps are too easy to access. Though the initial capital you need is low, your losses can be high. We need some more friction in trading, as Mr. Vijay Mantri argued.
From the trader’s perspective, this is similar to gambling. Making a trade gives them a dopamine hit. Even when they lose, they’re unable to stop. They think that the next trade will be the one. But the truth is, without the right knowledge, guidance, and risk management strategies, options trading can be devastating.
If you or someone you know is stuck in this cycle, it’s worth reaching out — to a financial advisor, or a mental health professional. Because sometimes, the smartest decision isn’t the next trade. It’s deciding to stop.
Kudrat (Host): That’s all for today. You just heard The Signal Daily. We don’t do hot takes. Instead, we’ll bring you deep dives into the ‘how’ and ‘why’ on consumer trends.
The Core produces The Signal Daily. Follow us wherever you get your favourite podcasts. To check out the rest of our work, go to www.thecore.in.
If you have feedback, we’d love to hear from you. Write to us @[email protected].
Thank you for listening.Trading Options Is a Losing Game. So Why Can’t We Stop?
