How To Make Money Through Options Trading

Option trading also refers to a type of derivative trading. Here investors get the right to buy and sell the underlying asset at a fixed price within a particular time period. These assets are usually stocks or indices. Unlike traditional stock buying, option trading allows traders to benefit from markets that rise and fall using small capital.

To understand the basics, you can also read our guide on how futures and options trading works. Here you can learn about the process of derivatives in the stock market.

Option trading has become one of the most discussed topics among new traders in India. Many of them wonder whether it is truly possible to make consistent money through options. When it comes to reality, yes, you can earn from option trading. However, it depends on your understanding of how it works, the strategies you use, and your ability to control risk.

In stock trading, you directly buy and sell shares. When it comes to option trading, it allows you to trade based on price movement predictions using a relatively small amount of capital. If you want to understand the basics, you can check out our detailed guide on how option trading works.

Here, you will explore how traders earn from options, how much capital is required, and whether options can truly become a reliable source of income.

There are multiple strategies in option trading designed to match different market conditions. Certainly new traders often start with covered calls, where you hold a stock and sell a call option to get premium income. Another strategy is protective puts, these act like insurance by reducing losses during a fall. Meanwhile, more advanced traders use spreads and straddles to benefit from volatility with risk control.

If you’re looking for regular guidance, visit our option trading tips page. Where we share right approaches that can support your journey.

As a trader, you can earn from option trading in several ways, depending on whether they’re an option buyer or seller.

Buying Options:

Option buyers pay a small premium to gain the right to buy or sell a stock at a fixed price. For suppose, if the
price moves in your favor, you can sell the option at a higher premium to earn profits.

• For example, if you buy a Bank Nifty call option when the index is expected to rise, then you benefit when the price actually moves upward.
• Usually, buyers mainly depend on price movement, time, and volatility.
  

Selling Options:

Sellers receive the premium from buyers. So, they earn when the price stays stable or moves against the buyer’s
direction. However, sellers must maintain margins when their risk is higher.

Using Spreads and Hedging:

Few traders combine buying and selling options to balance their positions. Therefore, using spreads
reduces risk and creates stable returns.

Trading Volatility:

Experienced traders earn by predicting volatility changes in the market.

At The Trade Bond, our Option Trading Tips for Beginners blog explains how to manage entry and exit points effectively.

The strike price decides how much your option will be worth if the market moves in your favor. Likewise for calls, traders pick strike prices a little above the current market price when strong moves are expected. For puts, if the strike price is below the market level, it works best during downtrends.

Selecting the wrong strike price can result in time decay losses, even if market direction is correct. Our detailed post on how to do options trading explains how to use OI data and volatility to choose better strike levels.

Risk management is very important in option trading to protect your capital from sudden price swings. Always define your overall loss per trade and use stop-loss to exit at planned levels. Also, stop using full capital in one position, and also diversify across contracts to reduce risk.

Position sizing is also very important. Traders should need to risk only 1-2% of their capital per trade to survive during volatility. With the help of discipline, you can stay consistent through difficult phases.

Option trading is not the same as buying or selling stocks. In stock trading, ownership of shares is transferred, but when it comes to option trading, you deal with contracts based on the future price of a stock.

Here you can understand how they differ:

Ownership vs. Right: 

Stock traders own the shares, and option traders hold a right to buy or sell at a specific price.

Capital Requirement:

Options require lower capital compared to buying shares directly. For example, to buy one lot of Nifty options, the margin requirement is much smaller than that for purchasing 50 shares of Nifty stocks.

Leverage and Flexibility:

Options provide leverage that allows traders to control a large position with limited capital.

Exposure to Risk:

Stock trading involves clear price movements, whereas options are affected by time decay, volatility, and premium fluctuations.

To understand how these differences work, read our blog post on the best stocks to trade in Options. This will help you a lot and bring clarity to option trading.

A common question among new traders is: Is ₹5,000 enough to start option trading in India?

Yes, you can open an account and try with small trades with small capital like Rs. 5000. However, the minimum capital for option trading in India depends on whether you choose to buy or sell options.

For Option Buyers:

You can start with a small amount of ₹5,000–₹10,000 to learn trading, test strategies, and understand how
premiums behave. But this amount is suitable only for learning purposes

For Option Sellers:

The margin requirement for sellers is ₹1 lakh or higher, depending on the strike price and market
volatility.

To learn trading, you can start with a small capital, but don’t expect steady profits in the beginning. Therefore, if you’re new to trading, it’s better to focus on learning how option premiums work. Also, if you want to test strategies, start with paper trading first.

Read and explore our article on how to pick stocks for option trading to learn how to make the right choices.

The ideal amount to start option trading purely depends on your trading style, strategy, and risk appetite.

Option Buyers:

As a buyer, you can start with an amount of ₹25,000 – ₹50,000. With the help of this amount, you get enough
flexibility to trade multiple lots and manage losses. Although you can spread your positions and avoid putting all your capital into a single trade.

Option Sellers:

Margin is required to sell options because the risk is unlimited. Therefore, the ideal amount is around ₹1.5 lakh to ₹2 lakh for a single lot in Nifty or Bank Nifty. It also offers room for adjustments and risk management.

Therefore, if you plan to trade part-time, you should maintain enough liquidity to cover margins and losses. Also, check out our Option Trading for Part-Time Traders blog for related insights

Major market events like RBI policy announcements, corporate results, and global economic data often cause sudden price swings. Such events increase implied volatility, which directly affects option premiums.

Therefore, traders often decrease their positions and use strategies like straddles to trade during volatility. Staying updated with economic calendars and news helps you to plan your trades. And avoid unexpected losses during high-impact sessions.

“Can I earn ₹1 lakh per day from option trading?” this is one of the most common questions among many traders.
Earning ₹1 lakh in a single day is possible, but not guaranteed. In reality, profits depend on several factors:

Capital Size:

To aim for a profit of ₹1 lakh on a daily basis, you would need around ₹10–₹15 lakh of capital along with proper
risk management

Volatility:

Due to market volatility, a higher price
movements can lead to larger profits or losses.

Risk Control:

Without a proper stop-loss strategy, a single trade can wipe out previous gains.

Experience:

Experience comes from understanding and
learning about time decay, volatility crush, and price movement.

So yes, it’s possible to make ₹1 lakh in a day occasionally. However, realistic profits in option trading come from stable monthly returns with controlled risk. Successful traders who sustain in the long term focus more on protecting their capital than chasing daily profits.

Sometimes options can be more profitable than stocks, but they also come with higher risk. Therefore, traders can control large positions with a small amount of money. Also, it means profits can increase quickly if
the market moves in your favor. However, if the market moves against you, you might see quick losses. Although stocks grow steadily and are usually safer for long-term investing as well. Options don’t require as much capital as stocks. They need more skill and timing. In short, options offer quick gains, but stocks provide more stable growth with lower risk.

There are several reasons why traders prefer buying options instead of stocks, mainly due to capital efficiency, leverage, and flexibility. Some of them are explained below:

Capital Efficiency:

You can manage larger positions with a smaller investment. For example, buying a Nifty option contract gives exposure to 50 shares using a small premium.

Leverage:

Options provide leverage, which means small price movements can result in large percentage gains.

Flexibility:

Because of their flexibility, you can profit in multiple ways during upward, downward, or even sideways market movements using different strategies.

Limited Risk for Buyers:

The maximum loss for an option buyer is limited to the premium paid.

Before you take any position in option trading, you must track and monitoring market trends is important. Many successful traders study trends, news, and data before executing trades.

Here you’ll understand how to track and analyze these trends effectively:

Usage of Technical Indicators:

You can analyze technical charts like moving averages, RSI, and some other charts to understand momentum.

Follow Market Sentiment:

Keep an eye on option chain data such as OI and the put-call ratio to predict market direction.

Spectate News and Events:

Economic announcements and corporate results can also affect volatility.

Study Global Markets:

Global market cues influence Indian indices like Nifty and Bank Nifty.

Understanding these trends before you enter any trade improves timing and also reduces unnecessary losses.

Option trading can be a reliable income source only with proper knowledge, discipline, and capital allocation.

And for some traders, these options act as a secondary source of income. Especially for those with experience, it becomes their main activity. However, consistency requires:

1. Learning the market structure and option Greeks.
2. Managing risk through hedging or spreads.
3. Avoiding over-trading during high volatility.
4. Recording trades to analyze performance.

With the help of a practical approach, you aim for steady growth instead of chasing daily profits. Even with 5-10% monthly returns, well-managed capital can grow significantly over time.

If you’re looking to trade along with a regular job and are unable to monitor your trades regularly. Check out our post on Option trading for part-time traders; here we explain how to balance your trading and work life effectively.

Option trading offers flexible ways to trade market movements with limited capital. By combining the right strategies, strike price selection, and risk management and awareness of market events. Hence, you can build the right structured approach.

As you continue exploring, make sure to check our detailed page on option trading tips. And how futures and options trading works, how to do intraday Bank Nifty options trading and how to do options trading to gain deeper insights. Learning steadily and practicing with planning is key to improving the trading journey.