Why Option Buyers Lose Money Even When They Are Right: 5 Golden Rules for Options Trading

Watch: Options Trading में Loss कैसे रोकें? | 5 Trading Rules & Strategy | CA Nitin Murarka Podcast (~65 min)

This article is based on an educational conversation featuring CA Nitin Murarka on The Sarvesh Mishra Show. It is for general informational purposes and is not personalised financial, investment or trading advice. Options trading involves substantial risk.

Why This Options Trading Conversation Matters

Why can an option buyer correctly predict the direction of the market and still lose money? Why do some traders take dozens of trades in a single session but struggle to protect their capital? And why can trading costs, time decay, FOMO and emotional decisions become as important as the market prediction itself?

These are some of the practical questions explored by Sarvesh Mishra in his conversation with CA Nitin Murarka on The Sarvesh Mishra Show. The discussion looks beyond simply predicting whether the market will rise or fall. It explores options trading mistakes, option premium behaviour, theta decay, overtrading, stop loss, position sizing, trading psychology, technical analysis and a structured learning approach for beginners. Read the show explainer at What Is The Sarvesh Mishra Show?

This conversation is distinct from the Show episode with Deepak Wadhwa on option trading and the ₹10,000 to ₹10 crore claim.

What This Article Covers

• Why option buyers can lose money even when their market prediction is correct
• How theta decay affects option premiums
• Five important rules for options trading
• Why overtrading and FOMO can become dangerous
• The importance of stop loss and position sizing
• How trading costs can affect overall results
• Technical and data based analysis
• Trading psychology and emotional decision making
• A 90 day learning framework for beginners
• Common options trading mistakes

Why Do Option Buyers Lose Money Even When They Are Right?

One of the most important questions discussed in the episode is why a trader can correctly predict the market direction and still fail to make money. The reason is that options trading is not determined by market direction alone.

An option premium can be affected by factors such as time, market movement and the behaviour of the underlying asset. For example, a trader may purchase a call option expecting the market to rise. If the market remains sideways for a period of time, the option premium can lose value as time passes. Even if the market later moves upward, the move may not be enough to compensate for the premium lost earlier.

This is why understanding option premium behaviour and time decay is essential for anyone learning options trading.

What Is Theta Decay in Options Trading?

Theta decay refers to the impact of the passage of time on an option's value. An option has a limited lifespan. As expiry approaches, the time component of an option can decline.

This can create a situation where an option buyer's market view is correct but the trade does not produce the expected result. The key lesson is simple: being right about direction does not automatically mean being right about the option trade. Beginners should therefore understand concepts such as theta, delta, option premium and expiry before taking significant exposure.

5 Golden Rules for Options Trading

1. Learn Before You Trade

The first principle discussed by CA Nitin Murarka is the importance of understanding the market before risking meaningful capital. Options trading requires more knowledge than simply knowing whether to buy a Call or Put.

Beginners should understand Call and Put options, option premiums, theta, delta, stop loss, position sizing, risk management, technical analysis and market behaviour. The conversation also highlights the importance of learning from data and practice rather than entering the market simply because other people appear to be successful. Trading should not be treated as an easy shortcut to making money.

2. Understand Your Trading Costs

Trading costs are another area that can easily be overlooked. The episode discusses expenses such as brokerage, STT, GST, applicable charges and slippage. For traders who enter and exit positions frequently, these costs can accumulate.

This makes it important to evaluate trading performance after considering applicable expenses rather than looking only at the gross profit or loss from individual trades. The exact charges can depend on the broker, transaction and prevailing regulations, so traders should verify current costs from official sources before trading.

3. Control Position Size and Use a Stop Loss

Position sizing is an important part of risk management. A trader may have a valid setup, but taking an excessively large position can expose a significant portion of capital to one trade. CA Nitin Murarka discusses examples involving trading capital and lot sizes to explain why traders should carefully consider how much exposure they take.

The relationship can be viewed as: Capital → Position Size → Risk Exposure → Potential Loss. Stop loss is another important element of a predefined trading plan. Instead of deciding what to do after a position begins moving against them, traders can establish their risk parameters before entering the trade.

Why is averaging down risky? A trader may see an option premium falling and decide to buy more because it appears cheaper. But if the underlying market continues moving against the position, additional purchases can increase total exposure. Averaging should therefore not become an emotional reaction to a losing position.

4. Avoid Overtrading and FOMO

One of the most common problems discussed in the episode is overtrading. Some traders believe that taking more trades means creating more opportunities. But more trades can also mean more exposure, more transaction costs and more opportunities for emotional decisions. The conversation describes a more disciplined approach in which traders focus on defined setups and higher conviction opportunities rather than constantly entering the market.

FOMO, or Fear of Missing Out, can become particularly powerful when an option suddenly starts moving. A trader sees a rapid price movement and thinks: “If I do not enter now, I will miss the opportunity.” This can result in chasing a move instead of following a predefined strategy. A disciplined trader needs to distinguish between a genuine trading setup and an emotional reaction to a market movement. Related: Priyank Sharma on intraday trading traps.

5. Use Technical and Data Based Analysis

The conversation also emphasises technical analysis and data. Some of the concepts discussed include Put Call Ratio, Advance Decline Ratio, VWAP, technical analysis, data research, backtesting and defined trading rules. These tools can form part of a structured approach to analysing the market.

Backtesting can also help traders understand how a strategy or set of rules behaved under historical market conditions. CA Nitin Murarka discusses historical hit ratios associated with rules used in his methodology. These figures represent his discussion and should not be interpreted as guaranteed future trading performance.

Common Options Trading Mistakes Beginners Make

• Trading without a plan. Entering a position without a clearly defined setup can make it difficult to evaluate why the trade was taken.
• Overtrading. Repeated entries can increase exposure and costs while making emotional decision making more likely.
• Ignoring stop loss. Without predefined risk parameters, traders may hold losing positions longer than originally intended.
• Excessive position sizing. Taking large quantities can magnify losses when a trade moves against the trader.
• Averaging losing options. Continuously adding to a losing position can increase exposure without addressing the original reason for the trade.
• Following other people's trades. Another trader's capital, strategy and risk tolerance may be completely different. Copying a trade without understanding the underlying reasoning can create additional risk.

Trading Psychology: Why Discipline Matters

Trading is not only about charts and strategies. Fear, greed, FOMO, impatience and the desire to recover losses can influence decisions. A trader may understand a strategy when the market is calm but abandon it when a position begins losing.

The conversation places significant emphasis on psychology and discipline. One useful question for traders is: “What is my predefined plan if this trade does not work?” Thinking about risk before entering a trade can help separate planning from emotional reaction. Related: Raghav Kumar Garg on becoming debt free.

A 90 Day Options Trading Learning Framework

CA Nitin Murarka discusses a three stage approach for people learning trading.

1. First 30 days: observe and learn. Understand charts, options, market behaviour and trading concepts. Paper trading can also be used to practise a strategy without immediately taking significant live exposure.
2. Next 30 days: start small. Move towards small live positions. The focus should remain on execution, discipline, risk management and understanding how the strategy behaves under real market conditions.
3. Final 30 days: evaluate. Evaluate performance and consistency before considering any increase in exposure.

The discussion also makes an important point: if the approach is not working, traders should not force themselves to continue simply because a 90 day period was planned. The purpose of such a framework is learning and evaluation, not guaranteeing profits.

What Should Beginners Learn Before Options Trading?

Based on the conversation, beginners should develop an understanding of options and option premiums, theta decay, delta, technical analysis, data analysis, risk management, position sizing, stop loss, trading psychology, backtesting and market behaviour.

The discussion also emphasises having another source of income or financial backup rather than depending entirely on trading. Money required for household expenses, EMIs or essential financial commitments should not be treated as trading capital. Related: Sachin Jain on the ₹1 crore SIP plan.

Frequently Asked Questions

Conclusion

Options trading is not simply about predicting whether the market will rise or fall. The conversation between Sarvesh Mishra and CA Nitin Murarka highlights the importance of understanding option premiums, time decay, trading costs, position sizing, stop loss, technical analysis and psychology.

For beginners, learning how options work and developing a structured approach can be more important than simply increasing the number of trades or the amount of capital being used. The central message of the conversation is about discipline, awareness and risk management. Before entering the market, traders should understand what they are trading, how much they can afford to risk and what their predefined plan is if the trade does not work.

Disclaimer. This article is based on an educational conversation featuring CA Nitin Murarka on The Sarvesh Mishra Show. It is intended for general informational and educational purposes only and should not be considered personalised financial, investment or trading advice. Options trading involves substantial risk. Any historical performance figures, examples or trading methodologies discussed by the guest should not be interpreted as guarantees of future results. Readers should conduct their own research and consult a qualified financial professional where appropriate.

Watch CA Nitin Murarka's full conversation with Sarvesh Mishra. More guests live in the guest index and the writings archive.

Sarvesh Mishra is an Indian entrepreneur, journalist, interviewer, author and storyteller. His career spans nearly two decades, beginning with ground level journalism and expanding into media entrepreneurship, digital content, long form interviews and intellectual property development. He is the Founder of Red Hot Media House Pvt. Ltd. and CureSoulLife Pvt. Ltd., and the host of The Sarvesh Mishra Show. He is also the author of Love With Benifit.