Risk Disclosure

Trading options and futures carries a high risk of loss and is not suitable for everyone. This site explains volatility, and several of the positions it explains have losses that are not bounded by their own structure.

The specific danger of short volatility

A short-volatility position — a naked option, a short straddle, a short strangle — collects a premium and accepts an obligation. Its maximum profit is that premium. Its maximum loss has no structural ceiling. Because the premium arrives immediately and the loss arrives rarely, such positions produce long uninterrupted sequences of small gains that are extremely easy to mistake for skill. They are not skill; they are an insurance premium being collected until a claim is made. When the claim arrives it can exceed the premium collected many times over, can exceed the margin posted, and can leave you owing money to your broker. Every one of these positions is documented on this site because a volatility library that omits them is incomplete — not because they are suggested.

Risks that apply to everything on this site

• Volatility rises far faster than it falls. A position sized for a calm market carries several times its intended risk within days of a shock. Our crisis volatility page shows the asymmetry.
• Gap risk. Indian markets gap on overnight news. Stop-losses do not execute at your price across a gap, and defined-risk positions can jump straight to maximum loss.
• Gamma near expiry. Short-option positions become extremely sensitive close to expiry. A move that was harmless with a week left can be a full loss on expiry day.
• Volatility crush. A long option bought for an event can lose money even when the underlying moves in the predicted direction, if implied volatility falls more than the move gains.
• Liquidity vanishes from the wings. In a crisis, quoted prices for far strikes stop meaning anything, and an implied volatility computed from such a quote is meaningless.
• Correlation goes to one. Diversification and dispersion strategies stop working in exactly the market that makes them necessary.
• Costs. Brokerage, STT, exchange charges, stamp duty and GST are excluded from every figure on this site.

The base rate

SEBI's published studies of the equity derivatives segment have found that a large majority of individual traders lose money, and that aggregate losses are substantial. Read that as the prior against which any idea on this site should be evaluated.

Model limitations

Every curve on this site comes from a Black–Scholes model that assumes constant volatility, no jumps and continuous costless hedging. Real markets satisfy none of those. Our curves are directionally right and quantitatively approximate, and they understate the danger of short-gamma positions. The illustrative time series are generated from a seeded random process and are not historical data. See Methodology.

Never trade with money you cannot afford to lose. This site is educational only; see our SEBI Disclaimer.

Last updated 10 July 2026.