SEBI says 99% of options traders lose money. Why do some people still suggest options for a long-term equity portfolio?

The massive failure rate applies to speculative naked options traders taking leveraged bets without owning the underlying assets whereas conservative investors use options strictly to generate yield on existing holdings.

I completely agree with the recent SEBI findings about options trading. However there is a massive difference between being an options trader and an options investor. The traders losing money are typically engaging in naked option selling.

They are taking highly leveraged speculative bets without actually owning the underlying assets. We are not doing that. We are using options strictly as a supplementary tool to hedge and generate income on a high-quality pre-existing stock portfolio.

If these strategies can generate an additional 12% to 20% yield you might wonder why institutional managers do not do it. In India mutual funds face strict regulatory hurdles regarding income generation via options and leverage. The tax treatment for derivative income also differs significantly from standard long-term capital gains on equities.

Scale is another massive issue. A manager overseeing a massive portfolio cannot easily scale these strategies without moving the entire options market.

Finally portfolio management services often charge a flat 2% of AUM regardless of performance. They are structurally disincentivized from executing labor-intensive advanced yield strategies when they can simply hold cash equities and collect their management fee.

You do not need to become a full-time day trader to execute these strategies. Managing covered calls and cash-secured puts takes roughly 5 to 10 minutes a week. By treating options as a conservative extension of your existing portfolio rather than a speculative lottery ticket you can safely generate regular rental income.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.