Futures and Options short selling is riskier compared to the short selling in the equity or cash segment. The profit is limited but the loss is unlimited. In case, the price starts increasing then it is a double whammy for the trader i.e. loss in trade and the margin money requirement might increase.
The second risk is that Futures and Options is a time-specific trade unlike equity segment i.e. trader has to close the position before the expiry. In case he/she decides to carry forward the position then there is a cost attached to it. A trader has to close the existing trade and re-enter a new contract.
In case the stock becomes more volatile then the margin money requirement might increase. A trader might not be comfortable in this position & might book loss and close the position.
Futures and Options short selling requires very strict and non-negotiable discipline in terms of stop loss. Sometimes, the trader incurs loss due to bad timing of the trade. The best time to trade is near the peak & it is very difficult to identify the same. The Futures and Options short selling is most suitable for a bear market.
