The Future of Options Trading: How Samco’s Options B.R.O. Makes Complex Analysis Accessible

​A look back at the retail presence in India’s financial markets reveals that for the most part, individual traders typically restricted their participation to the equity segment. In recent years, however, this has drastically changed. Retail participation across other segments has skyrocketed, with the derivatives market becoming a particular favourite among individual traders.

Since 2019, the derivatives market has grown by over 500%. Recent data from the markets reveals that the F&O segment is 400 times bigger than the underlying cash market. Weekly options and short-dated contracts are especially popular, and the average Indian trader only holds an option for less than 30 minutes!

Speaking of this worrying new development, Nilesh Sharma, ED & President of Samco Securities, shares his insights about this trend.

“This trend shows us that many traders are starting to treat options trading like it's a game of chance, almost like gambling. They're jumping in and out of the market hoping to make quick money. But here's the catch: trading like this is risky because it skips the crucial step of doing the necessary homework before making a move. When traders don't analyse their strategies carefully, they're setting themselves up for trouble.

One big reason traders skip the analysis is that it can be extremely complex. Many retail participants also do not have the right tools needed for thorough analysis — which are rarely found all in one place. Even when they do find a platform that offers comprehensive tools, the cost can be a barrier. This makes it difficult for traders, especially those who are already suffering losses in the market — because they may not have the resources to invest in multiple expensive tools. Without easy access to such products, traders are left to make decisions with limited information, thus increasing their risk of making costly mistakes.”

Sharma also explains that at Samco, the core belief is that it is important for the industry to work towards providing more accessible and affordable tools to help traders make informed decisions and ultimately, trade more safely and successfully. This technology-driven B.R.O.kerage firm also walks the talk, because the Samco trading app has a wide range of inbuilt features that simplify complex options trading strategies.

Top among these is Options B.R.O. — an industry-first options trading tool that filters out the top 3 strategies that align with the trader’s market outlook.

Trading Without Strategy Analysis: The Consequences for F&O Traders

Samco Securities recently analysed the profit and loss of 29,520 traders in the derivatives market from January 1, 2023, to February 13, 2024. The study has revealed some concerning trends that highlight the need for sophisticated tools like Options B.R.O.. Here’s what the analysis revealed:

This data highlights a systemic issue in the derivatives trading space, where a lack of risk management strategies like hedging results in significant financial losses. It further tells us that traders engaging in long calls and long puts faced losses on average, whereas those opting for short calls and short puts generally made profits.

This pattern suggests that a substantial number of traders do not fully grasp the complexities of options trading, including the critical role of option Greeks and how they influence option pricing. The pursuit of disproportionate gains with minimal capital — which is much like buying lottery tickets — often overlooks the strategic aspects of options trading and naturally leads to substantial losses.

5+ Ways in Which Options Strategy Analysis is a Game Changer for Traders

Options strategy analysis requires traders to understand the potential risks, rewards and overall market conditions that could affect the outcome of their position. Here’s a detailed look at why it is crucial for options traders.

Options trading can offer high returns, but it comes with high risks. By analysing a strategy beforehand, traders can identify the maximum potential loss and the break-even points of each trade. This helps determine how much of the capital is at risk and assess if the potential return justifies that risk.

How effective an options strategy is depends greatly on the current market conditions. For example, some strategies work best in volatile markets, while others are suited to range-bound or trending markets. Pre-execution analysis helps understand whether the current market environment is conducive to the strategy chosen.

Analysing different options strategies and their potential outcomes also allows traders to identify the most lucrative opportunities. By comparing various strategies like spreads, straddles or strangles, it becomes easier to select the one that best aligns with a given market outlook and financial goal.

Trading in options involves various costs like commissions and the bid-ask spread. By thoroughly analysing a strategy, traders can identify the most cost-efficient way to execute it. This may involve selecting strategies with lower transaction costs or choosing the right time to execute a trade to minimise slippage.

A pre-execution analysis of options strategies encourages traders to set clear objectives for each trade and define crucial metrics like the target profit or the maximum loss acceptable. This clarity helps traders make informed decisions during the life of the trade, especially when they need to adjust a position in response to market movements.

Analysis of the potential outcomes of a strategy allows traders to prepare for them in advance — whether it involves taking advantage of favourable market movements or mitigating losses during adverse changes. This also includes understanding the Greeks (delta, gamma, theta and vega) and how they affect an option’s price.

How Samco's Options B.R.O. Makes Complex Analysis Accessible

Analysing an options strategy may offer varied benefits, but the process of carrying out the analysis can be quite complex. Often, given the sheer volume of data and the number of possible strategies available, it can be impossible for the average trader to manually conduct the in-depth evaluation required to pinpoint the right strategies.

Here is where Options B.R.O. from Samco Securities is making a revolutionary difference. This pioneering options strategy builder, which is integrated into the Samco trading app, only requires three inputs from traders: the option they’re trading in, its expiry and the trader’s market outlook (whether bullish, bearish, neutral or volatile).

Based on these few yet fundamental inputs, Options B.R.O. in the Samco trading app filters out the top 3 strategies that align with the trader’s view. This is accompanied by hundreds of other strategy suggestions that match the outlook selected. Samco’s Nilesh Sharma explains how this proprietary industry-first strategy builder makes complex analysis more accessible to options traders in India.

“Options B.R.O. Build. Research. Optimize. gives traders a clear picture of their trade strategies in a very straightforward manner. It reveals crucial details like how the expected profit or loss from a strategy might change with the market price. Traders can even pick a future target date before the expiration to see how their trades could perform at that point in time. This tool also breaks down the payoff details and the options Greeks for each strategy, so traders can understand how sensitive a trade can be to market changes.

Options B.R.O. also makes it easier to find strategies that suit a trader's risk level — be it aggressive, moderate, or conservative. Traders can sort through strategies by looking at the maximum loss, maximum profit, or the probability of making a profit. For those with capital constraints, there's even a filter to choose strategies by the margin required.”

With such extensive analysis performed within seconds, Samco’s Options B.R.O. gives traders the missing link to improve trading performance. But what truly sets this options strategy builder apart is that Samco Securities has made it available to traders free of cost. In a market where even genetic tools are often only available at a premium, Samco charges absolutely no additional fee from traders who have signed up on the platform.

This revolutionary move may help drive a paradigm shift and be pivotal in changing how traders view the F&O segment — as a market that is less like gambling and more of strategic trading. Perhaps this shift, in turn, can help options traders improve their current success rate in the market, which now was as low as 10% in FY22 as per SEBI’s recent study.