Summary

 In the financial year of 2022, Indian traders lost $5.4 billion in options trading, with an average trader losing $120,000. This loss can be attributed to the influence of individuals promoting the dream of becoming a millionaire through option trading. These influencers, such as Elvish Yadav and Arshad Warsi, would hype certain stocks and companies on platforms like YouTube, causing their prices to increase. However, once the prices rose, these influencers would sell their shares, leaving their followers with worthless stocks. This practice is known as a pump-and-dump scheme and is illegal. One notable influencer in this space is Mohammad Nasiruddin Ansari, who operated a YouTube channel called Bap of Chart. Ansari claimed to have earned Rs.2 crore in a single day and encouraged his audience to invest Rs.1 lakh to potentially earn up to Rs.10 crore. However, Ansari was not licensed by the Securities and Exchange Board of India (SEBI) to provide investment advice, leading SEBI to freeze his bank accounts and demand the return of the Rs.17 crore he earned from investors. The popularity of options trading in India has surged in recent years, with more and more retail traders entering the market. This is partly due to the ease of access provided by new-age brokering apps like Zerodha, Upstox, and Grow. These apps offer user-friendly interfaces that attract novice traders, who are often lured by the potential for high returns. However, the reality is that 90% of Indian option traders lose their money, according to SEBI. The mistakes made by retail traders in options trading are numerous. Many fail to understand the value of time and the importance of the expiry date in option contracts. They also tend to buy options instead of selling them, as selling requires more capital and carries higher risk. Additionally, retail traders often engage in speculative trading rather than investing, treating options as a form of gambling or lottery. This mindset, influenced by finfluencers, leads to impulsive and emotional decision-making, resulting in significant losses. The introduction of weekly option contracts by the National Stock Exchange has further fueled the options trading frenzy among retail traders. These contracts offer lower premiums, attracting traders with limited capital. However, the shorter expiry dates and distant strike prices make it even more challenging to profit from options trading. While options trading itself is not inherently problematic, the way it is being promoted and utilized by retail traders is concerning. Influencers, brokerage companies, and even the stock exchanges benefit from the increased trading volume and commissions generated by retail traders. However, the majority of retail traders suffer losses, often unable to control their emotions or change their strategies. To address these issues, Indian regulators must take action to prevent the exploitation of retail traders by influencers and brokerage companies. Brokerages should introduce features to protect retail traders from excessive losses, and the government should crack down on unlicensed influencers and promote responsible trading practices. It is essential for individuals to understand the risks involved in options trading and to approach the market with a long-term investment mindset rather than treating it as a get-rich-quick scheme.