Founder, Underpitch · Source review includes AMFI, SEBI, NSE, RBI, IRDAI, exchange, company or insurer documents where relevant.
2 July 2026
Futures and options combine leverage, rapid price movement, expiry, volatility and transaction costs. SEBI’s study covering FY22–FY24 reported that 93% of individual equity F&O traders incurred losses during that period. The statistic is historical, not a prediction for every trader, but it shows why derivatives should not be treated as easy or regular income.
Key points
- Leverage magnifies losses as well as gains.
- Option buyers face time decay and volatility changes; option sellers face asymmetric tail risk.
- Brokerage, taxes and repeated trading reduce results.
- Competing against professional and algorithmic participants requires a tested edge.
Why leverage changes the risk
A relatively small adverse move in the underlying can create a large percentage loss on margin or premium. Additional margin requirements can force an exit at the worst time.
Why being right on direction may not be enough
An option buyer can correctly predict direction but still lose because the move is too small, too late or offset by falling implied volatility. An option seller can collect frequent small premiums but face occasional very large losses.
What disciplined participation requires
Understand contract specifications, expiry, settlement, assignment, margin, liquidity and worst-case scenarios. Use only dedicated risk capital, maintain records and evaluate the strategy after all costs over a meaningful sample.
Worked Indian example
A trader buys weekly call options before an event and the index rises slightly. Because the rise was smaller than expected and implied volatility falls after the announcement, the option loses value. The directional view was partly correct, but the instrument and timing produced a loss.
Comparison table
| Risk factor | Futures | Options buying | Options selling |
|---|---|---|---|
| Leverage | High | Premium can lose rapidly | Margin and tail exposure can be large |
| Time decay | Not direct | Works against buyer | Usually benefits seller until a sharp move |
| Volatility change | Indirect impact | Can help or hurt premium | Can create sudden losses |
| Maximum loss | Can be substantial | Generally premium for a simple long option | Can be very large depending on strategy |
| Complexity | High | High | Very high |
Simplified comparison. Multi-leg strategies and contract rules can change exposures.
Risks and limitations
- Loss can exceed the planned amount after gaps or margin events.
- Backtests can overfit historical data and ignore costs.
- Short-dated options encourage excessive trading frequency.
- A few profitable trades can hide a strategy with severe tail risk.
Frequently asked questions
Does the 93% figure mean nobody can profit?
No. It reports the historical share of individual traders who lost during the study period, not an impossibility theorem.
Are option buyers safer than sellers?
A simple long option has a defined premium loss, but frequent premium losses can still be severe. Sellers face different and potentially larger tail risks.
Can stop-loss orders remove F&O risk?
No. Gaps, slippage, liquidity and rapid volatility can produce losses beyond the trigger.
Should derivatives be used for hedging?
They can be used for hedging, but the hedge must match the exposure, quantity, expiry and basis risk.
Sources and methodology
Rules, thresholds and product terms can change. Verify the latest official material and product documents before relying on a figure.
This page is for education and product understanding. It is not a personalised investment, legal, tax, trading or buy/sell recommendation. Stocks, derivatives, PMS and AIFs can result in partial or total capital loss.