How to Start Options Trading with Small Capital in India

Options trading has become accessible to retail investors in India, thanks to discount brokers and online tools. While it offers potential opportunities, it also involves complexity and risk. This article serves as a beginner-friendly guide to help small-capital investors enter the options market responsibly.

Options are derivative contracts that grant the buyer the choice to purchase (Call) or sell (Put) a specific asset at a fixed price, known as the strike price, before or on a set expiry date. These instruments are commonly used for hedging, speculation, or generating returns.

In India, options are traded on exchanges like NSE and BSE, with instruments such as Nifty, Bank Nifty, and select stocks being the most popular.

Yes, but with caveats. Options are traded in lots, and the minimum investment depends on:

• Premium price of the option
  

• Lot size of the contract (e.g., 50 for Nifty, 15 for Bank Nifty)
  

• Whether you’re buying or selling options

For beginners, option buying (paying the premium) is more capital-friendly and less risky than option selling, which requires higher margins.

Here’s a step-by-step guide to help beginners enter options trading with small capital while managing risk effectively:

Step 1: Open a Trading and Demat Account

Choose a SEBI-registered broker that offers:

• F&O segment activation
  

• Low brokerage fees
  

• Educational support and risk management tools
  Examples: Zerodha, Upstox, Groww, ICICI Direct, etc.
  

Ensure your account is KYC-compliant and approved for derivative trading.

Step 2: Understand the Basics Thoroughly

Before placing your first trade, learn about:

• Call and Put options
  

• Strike price, premium, and expiry
  

• Lot size and contract value
  

• In-the-money, at-the-money, and out-of-the-money options
  

Many brokers offer educational platforms like Varsity by Zerodha and Sensibull.

Step 3: Begin with Index Options

Start with Nifty or Bank Nifty options, which are:

• Highly liquid
  

• Have narrow bid-ask spreads
  

• Offer weekly expiries for practice
  

• Are less prone to manipulation compared to individual stock options
  

Step 4: Use Option Buying Strategies

For traders with ₹5,000 to ₹15,000 capital, focus on:

• Buying Out-of-the-Money (OTM) options
  

• Buying At-the-Money (ATM) options near expiry for quick directional trades
  

• Avoid selling options as it requires high margins and exposes you to unlimited risk
  

Step 5: Use Risk Control Measures

Options trading can cause rapid losses if unmanaged. Protect your capital using:

• Stop-loss orders on every trade
  

• Defined risk trades (e.g., buying options rather than selling naked calls/puts)
  

• Risk-to-reward ratio of at least 1:2

Here’s how a beginner can use small capital to take low-risk positions in index options:

• Capital Used: ₹6,250

• Capital Remaining: ₹3,750 (for other trades or risk management)

Beginner traders often fall into these traps:

Overtrading

Don’t enter multiple trades just to be in the market. Wait for strong setups.

Ignoring the Greeks

While advanced, understanding Theta (time decay) and Delta (price sensitivity) is critical to manage expectations.

Chasing Losses

Do not try to recover losses with large trades. Stick to your plan.

Trading Without a Strategy

Even simple strategies like buying ATM calls after a bullish breakout can offer better results than impulsive entries.

Several free and low-cost tools can help small capital traders make informed decisions, such as:

• Option Chain Analysis: Available on NSE website and broker terminals
  

• Trading View: Charts and indicators for technical analysis
  

• Options Calculators: Provided by brokers or third-party platforms
  

• Paper Trading: Practise without real money to refine strategies
  

Returns in options can be high in percentage terms due to leverage, but losses can also be quick and large. Aim for small, consistent profits initially rather than aiming to double capital overnight.

Traders must be aware of tax rules and legal obligations while trading options, including the following points:

• Profits from options trading are treated as business income, and losses can be carried forward for up to 8 years
  

• Maintain a record of all trades for tax filing
  

• Consult a tax advisor if trading frequently
  

Starting options trading with small capital is possible, but it requires discipline, knowledge, and strict risk management. Begin with simple strategies, keep your trade sizes small, and focus on learning rather than earning initially. With consistency and patience, small capital traders can grow steadily in the derivatives market.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.