Trade setups are typical for not-so-disciplined traders. These traders should prefer futures positions when they are confident on the directional price movement, as futures prices move one-to-one with the underlying. For setups that do not show strong trend, options seem a better bet. After all, the downside in options is limited to the premium paid upfront, whereas the upside appears higher. But what if you are an active trader in the futures and options (F&O) segment? This week, we discuss why active traders could use futures for all directional bets regardless of the trend strength and use options to capture time decay.
Delta, theta gains
An active trader has a clear trading plan and a disciplined approach to implementing it. A trading plan involves an entry price, a price target and a stop-loss. If you are disciplined in taking your stops, you must just as well take futures exposure for all directional bets. A disciplined approach to taking stops is important because of the symmetrical payoff on futures. Also, your losses are multiplied by the permitted lot size of the contract.
The argument to support futures for directional bets is two-fold. One, futures prices move one-to-one with the underlying price. And two, it does not suffer from time decay the way options do. So, a slow gradual price movement can still help you realise full gains on your futures position based on your price target. But the same price movement can lead to losses on your options position. You need to have a view on the direction and the speed of the underlying to generate gains on the options position.
Previously, we discussed in this column why options lose more value than they gain for a given change in the underlying. To recap, options lose value from delta and theta when the underlying moves in the adverse direction, whereas they lose only from theta when the moving underlying moves in the preferred direction. Meaningfully shorting options, therefore, could help you capture the delta and theta gains. So, active traders take short option positions in two situations. One, they combine short calls with long futures, where the short call is a strike above an overhead resistance level. These traders’ short options to improve gains on their directional bets. And two, they take naked short positions (both calls and puts) to bet on implosion (decline) in implied volatility. These setups are preferred when an underlying pauses after a sharp uptrend or downtrend and is expected to stay rangebound for a while.
Optional reading
Active traders typically prefer short position in options. For directional bets, this involves combining short out-of-the-money (OTM) calls with long futures. Such combinations also help in availing cross margin benefits on the NSE, reducing the trading capital. Most traders are not so comfortable combining short puts with short futures position as they are in combining long futures with short call. We leave this discussion for later.
(The author offers training programmes for individuals to manage their personal investments)
Published on December 20, 2025
