INDIA VIX and Stock Markets are inversely proportional. But there are exceptions – like this General Election 2024.

General elections will be held in India from 19 April 2024 to 1 June 2024 to elect the 543 members of the 18th Lok Sabha. The elections will be held in seven phases and the results will be announced on the 4th of June 2024.

Markets have high expectations that NDA led by current Prime Minister Mr. Modi will again win the elections and come back to power – and chances are high that NDA will win again. Therefore as you can see in the last year NSE kept rising.

And this may happen till the 4^th of June 2024. This means both INDIA VIX and Indian Stock Markets will rise. Thus the INDIA VIX and Indian Stock Markets moving inversionally proportional to each other rule may not apply.

NSE 03-Apr-24

In that case at least till the 4th of June 2024 – when the election results will be out – Nifty may not fall much. Even if it does – like recently, it will quickly come up. That doesn’t mean you start buying Nifty or Stock Futures because whatever I say is an assumption – but a highly likely assumption.

In a situation such as this, no technical analysis will work. Panic trading will start increasing as the elections will approach. This will lead to an increase in INDIA VIX. Volatility increase will lead to swift movements in stocks and indices. This will lead to profit / stop loss hitting faster than normal times.

What you can do as a trader?

Until the 4th of June 2024 trade very cautiously. Hedge your trades and reduce the lot size. Reducing the lot size for the next 2-3 months will not make you poor even if you are a good trader. And if you are a bad trader, reducing the lot size will reduce your losses.

Hedging the trades reduces the chances of losses and increases the chances of profits. By doing my Nifty and Banknifty course you learn proper hedging. My course details are here.

This post was sent via newsletter to my email subscribers on Mar 14, 2024.

If you sell options or trade futures it is highly recommended that you ask for a collateral margin against the stock holdings in your Demat account from your broker and trade futures and options with that money without bringing extra money into your trading account.

However, collateral margin money comes with terms and conditions. Kindly read about them on your broker’s website before taking the collateral margin.

For example, ZERODHA’s terms for  collateral margin are:

• A fee of ₹30 + GST per instrument, irrespective of the quantity pledged. Whether you pledge 10 shares of a company or 100s shares, the fee will be ₹30 + GST.
• The collateral margin will be available on T+1 day for the stocks that are pledged before 5 PM.
• When using collateral margin to trade F&O, the shareholder must have 50% of the margin requirement in cash or cash equivalents. If not, interest at 0.035% per day will be charged on the cash component funded by Zerodha.

  This means if the margin blocked is 100,000 to trade a stock/index future, the collateral margin that can be used for funding this margin without any interest is 50,000. Anything above this will be charged 0.035% per day until the trade is closed.

• Use of collateral margins from pledging the holdings will only be allowed with a positive cash balance. If your account has a negative cash balance then collateral margin will not be given.
• Zerodha can sell the stocks that are pledged if the trade is closed in a loss which is more than the free cash used to fund the trade. In the above example up to 50k was used by the client – but 50k was funded by Zerodha as collateral margin. If the loss is 60,000 then Zerodha can sell the stocks that were pledged to recover 10.000. So be very careful if you pledge your stocks for collateral.

• Pledged stocks will be considered for physical delivery obligations if stock F&O contracts expire In The Money (ITM).

My advice: If you are a disciplined trader and always trade with a hedge then there is nothing wrong with getting collateral. In any case, a hedge reduces the total margin blocked – so it is highly unlikely that you will ever pay any interest for the margin you are using.

Plus the hedging will ensure the loss if any is also less – this will make sure your stocks are not sold by Zerodha or your broker.

Kindly read your broker’s terms and conditions for pledging shares before pledging your shares to get the collateral margin.

You can do my Conservative Option Course to learn the best way to hedge options and futures and start making a monthly income.

This post was written on 18-Feb-2024 and sent to my newsletter subscribers.

India VIX has started to rise as elections are approaching

If you trade options you must know that when any major event happens India VIX starts rising. With this two things happen:

1. Volatility in the markets increase
2. Option prices also increase

India VIX and Nifty are inversely proportional – but this time the case will be different. There is a 90% chance that the BJP will come to power – so BOTH will increase India VIX and Nifty.

What can you do?

Hedge options and futures as in volatile markets only hedging will keep your money safe.

Start buying good stocks mainly for short-term returns.

If BJP does not come to power by chance, the markets will fall by at least 10%.

Therefore if you are buying stocks for the short term then book profits before the Genreral Eection 2024 results are out.

Indian stock markets are near an all-time high. Not only that but it has gone up continuously since the last 12 months.

Here are a few things you should and should not do:

• 1. If any stock is there that you feel has not gone up in this rally and therefore may go up – do not invest in that stock. There is a high chance that it may not go up soon. There must be some reason why it did not participate in the rally and therefore is a risky investment.
• If a stock performed very well in the rally and you want to take your chances thinking that it may keep going up then spread your investment in equal parts in the next 6 months.

For example, if you have 60,000 to invest then buy stock worth 10k of that company, remember the date and on the same date for the next 5 months buy that stock. You will end up getting the best average rate possible. In one or two or maybe all months, the stock will be lower than the price you paid to buy in the previous month. Even if the stock keeps going up – by the time it reaches the 6^th month you will be in good profit and if your view was to invest for the short term – you can exit the stock with profits in the sixth month itself.

Yesterday I got an email from one of my email subscribers. He asked – What is your view on Bajaj Finance and HDFC Bank. Currently, I am having a 12% and 9% loss respectively.

My answer was simple. HOLD –  both are good companies.

Investing in stock markets is prone to risk – but more risk for those who panic. Bajaj Finance and HDFC Bank are both fundamentally strong companies. So why was the reason Mr. Vinay was worried? He was seeing at the loss – he was not looking at the fundamentals of the company.

This is where most stock investors and even mutual fund investors make a mistake. Stock markets go up but the path they take is cyclic. It’s never a straight line.

This panic creation of a sharp drop which happens some days is aggravated by the media. Even if there is just a 2% drop in SENSEX/NIFTY the next day media print headlines like – Why SENSEX crashed yesterday and then baseless analysis – he said this that etc.

Even more fun is by the time you will be reading this in the newspaper the next day – the Sensex would already be up. But every drop creates a panic and the investor takes a panic-driven decision – like exiting the stock at a loss or just a small profit.

Both are wrong.

My advice is – do not buy any stock whose fundamentals are shaky. For example, Paytm has always been in the bad news since its very start – even before its IPO. The shares were listed on BSE, and NSE on November 18, 2021. This was one IPO that should not have been subscribed at all. But every IPO nowadays gets oversubscribed. I fail to understand why.

Buy good company shares up to 20 and hold them for at least 5 years then think about what you want to do. In between ignore the news except if there is something seriously wrong with the fundamentals of a company you hold. If yes – then exit without thinking. Else hold.

This post was written on Thursday, 08-Feb-24. Since the stock markets are changing every second the data written in this post may not match if you are reading it later. I also send my articles to my email subscribers via email. If you also want to get my emails kindly subscribe in the form above this post.

The Indian General Elections 2024 are expected to be held in India between April and May 2024 to elect 543 members of the Lok Sabha. I thought let me write a post on what you can expect from the markets in the next 3-4 months.

1. INDIA VIX will increase till the elections are over. Then start decreasing once the results are announced.

Have a look at the INDIA VIX. This is the graph of INDIA VIX from Jan 24 till date. Can you see it’s slowly rising?

INDIA VIX 08-Feb-24

It may go up to 20-22 or more depending on what is happening in the country. This is one of those few times when INIDA VIX and the markets do not depend on economics or business news. Even the fundamentals of the stocks may not work during the next 3-4 months.

A Note: This post was written on the 17th of Jan 2024. During this time the pre-market session was from 9:00 AM to 9:15 AM. If it changes in the future please refer to the stock exchange website for timings.

Not many investors and traders knew about pre-market sessions and demergers until the Reliance Industries Ltd (RIL) and Jio Financial Services Ltd (JFSL) Demerger. Since Reliance is a popular company it made demerger popular. People started Googling the word demerger and pre-market session. What was the reason? Searching for demerger is obvious but pre-market and price discovery were searched because on Thursday, 20 Jul 2023 there was a special pre-open price discovery session between 9 AM and 10 AM to discover Reliance (RIL) price ex-Jio Financial. Normal trading in Reliance Industries took place only after 10 am.

This was new for Reliance shareholders and those who keep an eye on share market news. The usual time for pre-open sessions is from 9 to 9.15 am to discover the price of the stocks to start trading from 9.15 am. But for demergers and mergers, extra time is required. So that special one-hour session for Reliance was done.

No this was not the first time it happened. But usually when it happens in a small or not much-known company people tend to ignore it. However, Reliance is a top-rated company so it caught the people’s attention. In this article, I will explain in simple language what pre and post-market sessions are and why they are required.

What is a Pre-Market session?

The pre-market session is done for price discovery of all stocks in the secondary market. The secondary market is a financial market where investors buy and sell securities that a company has already issued. For example ITC, Reliance, Wipro etc. This is different from the primary market, where new securities are issued and sold to the public for the first time. The primary market is the IPOs. Once listed the stock is traded in the secondary market.

The secondary market closes every day at a certain time and opens on the next trading day. Now here is a problem. Suppose a company XYZ closed at ₹30 on date 10, then on the 11th it cannot open at ₹30 especially if some news had come while the stock was not traded. So who will decide the opening price of that stock? The answer is the Price-Discovery session. Those 15 minutes of trading can discover the opening prices of the security.

This is a practical example of how the pre-market session works:

In the pre-market session, any trader can log in to their trading account and place a limit order to buy or sell a stock. The system takes note of the price traders are willing to buy and sell a stock. This helps in locating equilibrium prices for the day. The pre-open market session comprises 3 phases viz. the order collection period lasting for 8 minutes, the order matching period lasting for 4 minutes and the buffer session of 3 minutes to ensure a smooth transition to actual trading. The price bands applicable in the pre-market session will be the same as in the normal market.

Breakdown of the Pre-Open Market Session:

1) The Order Collection Period

It’s also known as the order entry session. It starts at 9 am and ends at 9.08 am. As soon as the pre-market session starts the order collection period starts. During this period the trader can place limit orders to buy and sell shares. They can modify or cancel the orders as well. The system will randomly close the session between the 07th minute and 08th minute, no orders can be placed, modified, or cancelled after the closure of this period.

Can a trader create a limit order for options and futures?

No. Price of the futures and options (FnO) is derived from a method (Black-Scholes pricing model) that can function only when the underlying stock or index is being traded. In the pre-market session, stocks are not traded. If someone places an order in FnO it will be rejected.

2) The Order Matching Period

The order matching period starts at 9.08 am and ends at 9.12 am. What happens here? In this session, the order confirmation and the order matching are completed. This is done by the backend software to decide the opening price of a stock. How this is done?

It constitutes of three steps:
1) First – the eligible limit orders are matched with eligible limit orders.
2) Second – the residual eligible limit orders are matched with market orders.
3) Third – market orders are matched with market orders if any.

3) The Buffer Session of 3 minutes

This starts at 9.12 am and ends at 9.15 am where the actual trading begins. As you can guess where the volume of trading is low but still it helps to make a smooth transition to open-to-all live trading.

Does a pre-open session reduce volatility?

Yes, it does help to reduce volatility by helping arrive at the equilibrium price based on demand and supply. For example, if demand (buy orders) is more than supply (sell orders), then the price has to open above the last closing price. The real-time demand and supply decide the best opening price for that stock. This way the opening price of a stock is justified which leads to a reduction of speculative trading and brings down the volatility.

This is the real reason for having a pre-market open session which brings stability in the markets.

When it comes to options trading it is very important that you have a trade plan. Without a trade plan, you are not trading but speculating. You should be very careful when the trade is live. This is possible only when you have a trade plan.

Every step of the journey when the trade is live should be there in your mind like when to take a stop loss and when to take the profit out. However, this simple thing is not followed when the time comes.

Whether you’re experienced or just started to trade, mastering these small but critical aspects can make all the difference:

1. Having a Trading Plan: A well-thought-out trading plan is your roadmap to success. It keeps you on track and helps you avoid impulsive decisions that can lead to losses.For example, I bought an option for ₹2,500/- I will sell it at 10% profit or 10% loss. Then it would be best if you exited at any cost at either of these two prices – ₹2,750/- (profit) or ₹2,250/- (loss). Do not break this plan at any cost. Keep the target stop loss in the system and leave the trade. Ideally, the profit should be double that of the loss. I have given the above example just to help you understand.
2. Following Your Trading Plan: It is one thing to have a plan; it’s another to stick to it. Discipline is the cornerstone of consistent profitability in options trading. Almost 90% of the time if you break the trading plan you will suffer a huge loss.
3. Having a Trading Journal: Your trading journal is your archive of lessons learned. It helps you track your trades, identify patterns, and refine your strategies over time. You can also check your trading journal to know what works for you and what doesn’t.
4. Periodically Reviewing Your Journal: The best traders are their harshest critics. Regularly reviewing your journal allows you to learn from both your successes and mistakes.
5. Monitoring the Greeks: Understanding and tracking the Greeks can help you fine-tune your option positions and manage risk effectively.
   Learn about the Option Greeks here:
   https://www.theoptioncourse.com/Option-Basic-Course-by-DILIP-SHAW.pdf
   HTML version is here:
   https://www.theoptioncourse.com/options-greeks-explained-delta-gamma-theta-vega-rho/
6. Being Aware of Earnings Dates: Earnings reports can cause significant price swings. Being aware of these dates allows you to adjust your positions or avoid unwanted surprises.
7. Setting Price Alerts: Don’t be chained to your trading screen. Set price alerts to stay informed when your pre-defined entry or exit points are reached.

Imagine having the knowledge and discipline to master these fundamentals.

That’s precisely what my option course is designed to help you achieve.

Whether you want to generate a consistent income or enhance your trading skills, this course will empower you with the tools, strategies, and insights you need.

Join us on a journey towards options trading excellence.

Gain the edge that successful traders possess by mastering the small things.

Your future as a confident, disciplined, and profitable options trader starts here.