© 2017, IJARCSMS All Rights Reserved 41 | P age ISSN: 2321-7782 (Online) e-ISJN: A4372-3114 Impact Factor: 6.047 Volume 5, Issue 9, September 2017 International Journal of Advance Research in Computer Science and Management Studies Research Article / Survey Paper / Case Study Available online at: www.ijarcsms.com A Study on Problems & Prospects of Option Traders in India: With Reference to Stock options traded in National Stock Exchange Shalini H S 1 Research Scholar, Department of MBA PESIT-Bangalore South Campus Bangalore, Karnataka – India Dr. R. Duraipandian 2 Professor and Head of the Department, Department of MBA PESIT-Bangalore South Campus Bangalore, Karnataka – India Abstract: Options are used as risk management tools worldwide. Options can be used for both hedging and speculation purposes. If the options are used for speculation purpose then it involves huge risk. It is a well known fact that options are a type of derivative instruments which will offer only the right but not the obligation to the option holder in order to trade in the underlying asset. To get this facility of exercising right, the option holder should pay premium to the option writer. This option premium which is the price of the option will act as the source of expense to the option holder while entering into an option contract. At the same time it will act as the source of income to the option writer who has sold the option contract. Therefore the option trader must be very careful while deciding on the price of an option contract. The present study will make an attempt to know about the problems faced by option traders while trading in options contract in India and it will also offer suggestions in order to minimize this premium expense by implementing suitable option trading strategies from trader’s perspective. Keywords: Derivative, Hedging, Option holder, Option Trading Strategies, Option Writer, Premium, Speculation. I. INTRODUCTION This study deals with option contracts which are effective risk management tools used worldwide. Options are a type of derivative instruments which will give only the right but not the obligation in order to trade in an underlying asset at a pre agreed price on or before a specific time horizon. While entering into an option contract, an option holder (buyer) should pay a small consideration to option writer (seller) in the form of premium. There are two types of options contracts namely Call and Put options. Call options will give the holder the right to buy the underlying asset and a put option will give the buyer the right to sell the underlying. This right will be exercised by both the buyer and the seller only if the option is in-the-money that means if the option contract is profitable. These call and put options can be combined in order to form the option trading strategy. It can involve either buying i) a single stock and a single option contract in the underlying ii) Spread or iii) Combination. Spread involves buying and selling of more than one option contract using either a call or put option. Combination involves buying and selling of more than one option contracts involving a mix of both call and put option. The present study will give an overview of the problems faced by the option traders while trading in options contract and it will also come out with the suggestions to minimize these problems by using option trading strategies from trader’s perspective. II. STATEMENT OF THE PROBLEM Option contracts are used as risk management tools. Unlike other derivative instruments the options have a unique way of operation in that they offer only the right but not the obligation to the option holder. To occupy this right the option holder must