When you lose money trading in stock markets – its just not the loss you must add the interest lost had you kept that money in a Bank Fixed Deposit.

Read this email I got:

Hi Dilip Bhai,

I was a regular trader in the stock market but form 2005 to 2007 after that I had lost my all money in the crash, which is around Rs.15 lakh. If I invested that money in FD that would be more than 40 lakhs. Just think what I lost in this market. Then I stopped trading for 10 years and I thought I need more education to trade in stock market and I found a teacher who taught me trading in option with hedging option and hedging option with future, pair trading in options, arbitraging with current and next month future, time decay technics with current month and next month option selling, 22 ways of option hedge trading like butterfly, collar, condor, straddle, strangle but ultimately none of them can make money for me. Now my experience is this that somehow market will fetch money from the trader, no trader can earn from this market for a long run, may be 5% of trader are exceptional or lucky or punter what ever. Honestly do you think I need to learn much more or to quite for ever.

Here is the screenshot of that email:

And here is another trader losing 15 Lakh:

Adding FD interest loss to the loss makes sense. Current Bank FD rates as of July 2019 is 7% per year. So whatever your loss you can use this calculator with 7% per year interest rate to know your exact loss till date:

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Coming to the question, if you have lost too much money trading the stock markets (too much money is more than 5 lakhs with interest) – well even I am in that club, then should you learn and start trading again?

Ans – Well this is your personal opinion. If you have the urge to trade and invest even after the loss then yes you must learn to trade but you have to change your mindset to become a very conservative trader. You just cannot trade for revenge.

You have to change your mindset that 10% a month is simply not possible in the long run from stock trading. You must learn to first protect your capital by hedging your trades and be happy with 2-3% a month.

Use this calculator to know how much you can make at 2-3% a month if you start now and trade for next 10 years:
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

You have to be patient to recover your money – there is no other alternative.

My Nifty Conservative Course and Bank Nifty courses will help you to achieve 2-3% a month – but you must have the will to learn and trade.

If interested you can pay the course fee online here.

Date of posting: 04-Jul-2019

Its strange that tomorrow is Budget 2019 and INDIA VIX has actually dropped:

INDIA VIX 04-JUL-2019

Usually, INDIA VIX increases prior to budget or an event day and then drops after the event is over. But this time it’s different.

I think the reason is that India already knows what’s there in the budget because the interim budget has already been presented on 1 February 2019. Due to the General Elections to be held in Apr-May 2019, The Interim Union Budget of India for the year 2019 was presented by acting Finance Minister Piyush Goyal on 1 February 2019.

It looks like traders have an impression that there will not be a major change in the budget to be presented, therefore, India VIX is not showing a rise.

So what can you do tomorrow?

1. Reduce lot size.
2. Keep your profits and stop losses smaller than what you take on average trading days.
3. If you are a positional trader do not change your plan, but you can bring your stop loss closer.
4. If conservative trader then better do not trade, stay away from markets. Here are 7 reasons why you should not trade on budget day.

Note: If you are fed up with stock market losses you can do my courses.

Basically, my course will teach you how to combine buying and selling and create a hedge. They give you an edge over naked trading and keep you at peace – so you can wait for profits. On top of that if planned well your success rate will be over 80%.

Even after an increase in selling margin block, you will make an average of 3% per month. And there will not be any stress as these are direction independent strategies.

Nifty course has 5 such strategies. Min required is 1.5 Lakh.
Bank nifty has 2 strategies. Min required is 1.2 Lakh. For intraday in BN, only 70k required.

What you will learn:

– Conservative Options hedging
– Futures hedging
– Equities hedging
– Aggressive Options hedging
– Bonus strategy for reversal benefit

Here is the complete process of my course:

Once you pay I will send you the course materials for studying to your email. They are well explained in step by step manner with examples in PDF files. There is a total of 6 pdf files in Nifty and bank nifty courses.

Whenever free you read these files strategy by strategy and ask me questions via phone/WhatsApp/email to clear doubts.
This will take about 2 days. Then you start paper trading and still can ask me questions. This will take about 10 days. After this, you can start trading. You can still ask me doubts in live real trading for one year from the date of payment.

Then you can start trading on your own. No need to depend on anyone once you are on your own.

Course fees can be paid online here.

You can contact me after payment.

A lot of traders move from buying options to selling options. Though in India since margin blocked is too high to sell options, many traders are unable to sell it. Moreover many traders do not want to sell options as they think its unlimited loss.

Huge margin blocked plus the unlimited loss combined effect stops many option traders to sell options. Some who want to sell, do not have the money to sell options, and those who have do not want to sell because they cannot overcome the fear of unlimited loss hovering their minds plus the greed to make unlimited money stops them from selling options.

Selling options can be dangerous if the stock moves against the sold option rapidly. If you leave a sold option overnight then a gap opening against sold options can be dangerous too.

Things to Keep in Mind When Selling Options:

1. Keep a limit on Position Lot Size:

If your account is 10 lakh it’s foolish to use entire margin to sell options without hedge. At max you can sell with margin blocked not over 5 lakhs otherwise you are taking too much risk.

2. Do not sell At The Money (ATM) Options

For overnight positions selling At The Money Options is not recommended. This is one option that will become In The Money even with a small move of the stock against it.

3. Create a Spread:

You can create a spread by buying a call option at a higher strike price than the short call option you sold. Once you create a spread it is known as a call credit spread. Though it may not help as much as you think, but creating a spread limits the loss from the time you create it. That way you can wait for a reversal if you want. If it does not reverses still your losses will be limited to the time you created a spread.

Note that creating a call credit spread will need some money because you will have to use some of the premium that you collected on the short call option to purchase and protect using the long call option. This will reduce your potential profit, but it will help limit any additional risk involved in the trade.

4. Sell A Put:

This is done by a lot of traders worldwide. What they do is sell an ATM Put where currently the stock is. However selling a put has limited potential to curb the loss from selling the call. However it does limit the loss to some extend and gives the trade some time to relax. If the stock remains in same place for long – the trade may make money from both the call sold and put sold. However if the stock reverses, you may have to exit the put sold to limit the loss from it. If it does not – you can sell one more put at the next strike collecting more premium to limit the loss in selling call.

This is some great ways to adjust a losing call sold position. But more than the adjustment make sure ghat your position size is appropriate to what you can manege before the trade goes live, else it gets hard to manage. Please note that any of the above adjustments will not work if you have too big of a position size.

So your first adjustment should be to reduce the lot size traded.

Hopefully this article helps you. If you have any questions, you can write in the comments section.

Trades wait for result season to trade the long straddle or long strangle in options to take benefit of the stock move either up or down.

If you do not know what is long straddle or long strangle you can read the following articles:
https://www.theoptioncourse.com/how-to-play-a-long-straddle/

https://www.theoptioncourse.com/how-to-trade-long-strangle/

Novice option traders do not know that Theta or time value is a very important factor in options premium. If you do not know Option Greeks you can download this file here:

https://www.theoptioncourse.com/Option-Basic-Course-by-DILIP-SHAW.pdf

You can read in the file that more than 60% of the option premium has time value built in it. That means the more time the stock stays in the same position, the more there in premium decay in options and it increases faster towards the expiry.

Trading the long straddle or long strangle is very common trades done during the earning season. Basically, traders want to play a potential big move after an earnings event. Infosys is a very popular stock traded during earnings season. But does a long straddle or long strangle makes a profit as expected by the trader?

Some traders go by market expectation. It’s common in every country where economists/market experts “predict” the result of a company one day before the actual result comes in. Some traders want to go with the market expectation and buy a call or put options as per the expectation. Like they buy a call if the experts feel that the company will perform better or they buy put if the market pundits expect a bad result of a company.

Sometimes they make money sometimes they do not. But the worst nightmare is when the trader sees the stock moving in the correct direction of their trade yet they do not see the option moving in their favour, in fact they see that the option premium has actually declined even when the direction was correct.

Why does this happen?

The enemy is the Implied Volatility (IV) crush that happens after the result is out in the public domain.

Where can you see Implied Volatility (IV) of a stock?

Well NSE website displays it. Take a look at this picture – 16.95 is the IV of Infosys 740 Call Option expiring on 27-Jun-19 as on Jun 17, 2019, 11:40:23 IST:

Source:
https://www.nseindia.com/

After Theta (Time Value), IV has the next big impact on option premiums.

Earnings events are very unique as the market does not know where the stock will move after the result is declared. For some strange reason, some stocks do not take the path as per the results. Even after good results some stocks actually decline. Well, I can write a post on this as well but in small it’s due to stop loss hitting. After 1 pm the move gets sharp.

In an unknown state, the Implied Volatility (IV) of a stock will increase, in-effect increasing the option premium before the event. The event can be anything like election results, a war-like situation, earning season or some major economic issues.

Theta decreases constantly for every option but Implied Volatility (IV) of a stock depends on the prevailing market situation.
Since result/earning season is one of them, Implied Volatility (IV) increases before the result is declared and decreases VERY FAST once the quarterly earnings are announced in media..

No there is NO manual intervention. Implied Volatility (IV), Theta and other Option Greeks are controlled by software to decide the option premiums. It’s hard to manually feed the data for each option traded.

Not sure if the event dates are inserted manually in the software or not, but this is what happens.

Once the result is out – Implied Volatility (IV) crushes and the software re-prices all of the options of the stock immediately. The option is then left with only the Theta value and other Option Greeks which has little impact on option pricing.

This takes out a major profit for the option buyer even if the stock moves in the direction of the option. A lot of times the option buyer loses money. As an option buyer, if you buy a call or a put option before earnings, you’re paying for this expected implied volatility and what I see is that more often than not, the stock does not move as far as a trader is paying for the expected premium. In simple language, you are paying for the theta and implied volatility that is guaranteed to crush once the result is out. So if you buy options before results, you are paying for some premium that is not in your favour.

What about those who trade long straddle or long strangle?

A long straddle / strangle will obviously lose money on one side, and the other side where the direction was right – the option premiums get crushed due to Implied Volatility (IV) getting crushed.

Implied Volatility (IV) gets crushed because the expectation of a big move has collapsed as the information is out in the market, it’s publicly available.

Does the long straddle or long strangle always lose money?

No. If the stock moves a lot like more than 8% then the long straddle or long strangle will be in good profit. But I have seen that a 5% move does not have much impact on long straddle or long strangle due to IV crush the option premium decay does not increases that much in value even after 5% move especially after the earnings are out in media.

Conclusion:

If you expect a 10% move in a stock then only trade the long straddle or long strangle before the result day.

If not sure of the move you can always trade non-directional strategies. These strategies are direction independent and make money wherever the stock moves. Looses are controlled by hedging the positions. My Nifty and Bank Nifty course teaches exactly that. These strategies make money wherever the stock goes.

Agreed we all trade to make money. But what if it’s taking too much of your time? A full time trader may be able to give time to trade but what about those like you who have a full time job. Can they trade full time?

The answer is yes. Which my nifty course you need not keep looking at the trade 24*7. Just twice a day is enough.

But there are many who trade time for money forgetting that the trades are affecting their jobs. I got sacked on the job. I was caught red handed trading stock markets while on job. In those days there was no way to trade stock markets on a smart phone… Now days it’s easier.

You must know how to deal with time for trading vs money. For example a commodities trader traders from morning till night. Is this good? It’s not.

If you are earning money and working from morning to night then you are not living a life. What is the point of earning money and not living a life?

Time and money have a very important relationship. To get success in trading and in life, you must understand the relationship between the two.

Some People are Rich in Money but Poor on Time

My advocate is very wealthy. He owns a BMW and lives in a flat worth over 2.5cr. He is a property dispute and criminal lawyer and handles cases of who is who. So you can imagine how much he earns. But there is a problem. Whenever I try to meet him it takes me 2 days to get an appointment.

There also I have to wait at least 2 hours before my turns comes in.

Well it’s not good to ask someone how much they earn but it’s easy to ask how many hours they work. They feel happy about it. He works almost 12 hours a day every week, and this includes Sundays too.

He rarely goes on a vacation. Well he cannot as it is not in his hands to manage the dates of the cases he handle. He only eats breakfast with his family – rest of the times he eats alone.

What’s the point of making money if you don’t have any time to enjoy your life?

A successful person is who works smart, hard and still has enough time to enjoy his success.

A good successful trader is someone who trades without trading too much time for it. I would rather trade 2-3 hours a day and make less rather work from 9 to 3.30 pm on stress and make slightly more than what I make trading less time. Which I do.

If you do not have freedom to do what you want with your money then there is no point in making too much money. With my courses Nifty & Bank Nifty you will have both money and time to have some fun in life.

First week of June 19 I went on a sudden vacation to Gangtok, Sikkim. I had no idea what happened to stock markets from 1-7 June, 19 as I just closed all positions and took time off.

Here are two pics of the beautiful place taken from my mobile on my way to Yumthang, Sikkim:

Trading is very stressful no doubt because it’s uncertain and risky. One day you make money and another day you lose. But still you cannot take your hands off trading as you get tied to this habit. There is ego clash, wins, defeats all this leads to anxiety and stress.

You can use these techniques that can lower stress levels and make you less anxious in your decision making.

Why do traders get anxious while trading?

Because they are uncertain about the results so they are worried, nervous and uncertain about the outcome resulting in stress.

So why people are willing to accept this stress?

Because it’s a trade-off for the freedom they can get from their job and the chances of scalability of income is there if successful.

If you want to become a successful trader you must overcome your anxiety or at least reduce it to a large extend. If you want to become a good trader you must get rid of trading anxiety, this will improve your trading decisions. This will make your trading less stressful and more enjoyable.

Here are five things you can do to reduce anxiety:

1. Try to trade less volatile stocks or Index like Nifty

If you trade extremely volatile stock your trade may hit stop loss pretty fast. This may lead to stress. However if you trade less volatile stocks then chances of winning is more as you have enough time to book profits or take some step before the stop loss is hit.

Big returns in short period of time is not possible so trade less volatile stocks and make an exit with small profit. With volatile stocks you will panic and take a loss.

You will need some expertise to trade volatile stocks.

2. Reduce Your Position Sizes

When you start it is advisable to reduce your lot size. In 10 lots just 1 point MTM will show 750 loss in Nifty (as per lot size of 75), and you may start to panic. Agreed a 20 point profit in a day will be great – but to get that you may have to cross a 10 point loss that is 7500 – that’s just too much to bear and you may exit.

If you are a technical trader you will get confused between seeing the MTM (Mark to Margin) loss or profits of too many lots. and watching the signals.

The MTM loss will create anxiety which may force you to exit the trade without reaching its goal.

Focusing primarily on making and losing money makes anyone fearful and greedy. You should hide your unrealized PNL when you trade to reduce trade anxiety and minimize emotions.

3. Have A Proper and Well Optimized Trading System

Though I do not believe in back testing a technical analyst has back tested my strategies and found them to be good.
https://www.theoptioncourse.com/back-testing-dilip-shaw-course-strategies-by-technical-analyst/

This is his email:

Hi Dilip,
As promised, here is the testimonial.
I am a full time trader since last 4 years. I took your course 7 months back and was really impressed. I had read lot of books before that but your strategy 2 rang the bell in my head.
I backtested 2 years of 15 minutes data of Nifty (Amibroker) and kept on playing with some parameters. I noticed that when VIX > 17 and Nifty premium received ( from Strategy 1) > 0.004 of Nifty current value, results were superb.
In last 7 months, I took 8 trades and all were profitable. The best thing about this strategy is it is scale-able. Right now I am doing it on 14 lots.
Once again thanks for sharing your knowledge.
Please don’t share my name
Regards,
Name Withheld

Though a back tested strategy is not front tested at least it gives you confidence to trade. If you can back test a strategy and found it to be good it will reduce your anxiety and you will be able to trade well. You will not unnecessary panic and take a bad trade.

This makes entering and exiting positions a lot easier. You always know what you will be doing, and therefore have a lot less anxiety and stress in your trading. When you have defined rules, you will not change your trading pattern. Without defined trading rules you are just gambling.

4. Move From Smaller Time Frames to Longer Time Frames

There is no reason to stick to intraday trading if you are not good at it. I have worked with many students and found that some are very busy in their job yet want to do intraday trading. If intraday trading is not realistic it’s better to trade longer time frames where you get enough time to book profits.

A mind free of clutters is very important to trade. You cannot do job with one hand and trade with another. If you do you will fail in both. I was caught red handed trading in office and was immediately sacked by my boss the same day. Do not let that happen to you.

If intraday trading is not for you better change your trading style and trade positional trades.

My Nifty and Bank Nifty course strategies has all positional trades. Course fees.

5. Pre-define Your Stops Which Includes Loss and Profits

If you pre-define your profit target and your stop loss you are better off psychologically. This will reduce anxiety. If you do not know how much you want to make or lose in the trade then your anxiety will increase. Pre-defining it keeps your emotions in control.

Peace your stop loss and target in the system once your trade is live. And then it’s better not to look at the trades and let the system take control.

How many of us keep getting calls from advisory/tip service providers promising huge returns from the markets?

I fail to understand how they get our phone numbers? Have you noticed they do not know our names? They start with do you trade stock markets?

Anyway before I say anything you can see this email sent to me. This person is in deep debt. Lost 15 Lakhs in stock markets because he took tips from advisory companies.

His email:

Sir,
Due to heavy loss in the market due to wrong directions given by so many tips providers, I am not in a position to invest a huge amount right now. Currently my demat balance is only Rs.10,000. I have gone through your mails that the required amount to invest is Rs.75000/- or above. That is why I have not subscribed with you, because suppose after my subscription you would advise for hedge trade which is not possible for me as far as my investment is concerned. Any how I shall try to join with you very soon.
Siva.

After reading I asked him:
Due to tip providers how much you lost?

His reply:
More than RS.15 lakhs. Presently I am in deep debt position.

15 lakhs is not a matter of joke. Once you reach a certain level like 5 to 7 lakh loss you must stop immediately. Your hard earned money should not go down the drain just because someone you did not know called you and promised you huge returns without any proof whatsoever.

Moreover forget about 10% a day, even 10% a month is impossible to make month after month for continuously even 6 months.

The fact that no one in the world has ever done 10% a month continuously for even 6 months proves that 10% a month is not possible ever. Stock market is no 2-3 years old it’s more than 25 years yet no one has ever made. So if you are thinking you are the one who will make that 10% a month then you are the one who will enter the history books. If you think you can enter the history books then please keep try making 10% a month – a feat never being achieved for long by anyone.

Think about it – peaceful trading with 2-3% a month is good or never achievable 10% a month with lots of stress?

In short: Selling of options on paper is unlimited risk so brokers block a huge margin as regulated by market makers. 100% margin is given against Nifty BeES holding to trade derivatives. Read to know more in details.

I get too many questions on selling of options. Some traders are sacred selling options and some do not sell options because they think a lot of margin is blocked.

If a lot of margin is blocked then there is a reason. Selling of options on paper is unlimited risk. So brokers have no other option but to block a huge margin as regulated by market makers.

Do not worry brokers will not run away with you money. Margin blocked is done for their own safety, else if there is a huge loss they will have to pay from their pockets. Which obviously they do not want.

Once the sold option is closed then your blocked margin is released.

Remember that other than option buy all derivatives trades must be hedged if you are taking an overnight position else a breakdown of 4-5% can cause unbearable loss to your trades.

Here is another confusion.

I got an email asking this question:

Dear Dilip,

Thanks and regards,
Name Withheld

My reply:

A) Suppose I have sold say Put at 10400 Nifty. Imagine during the month (before expiry of the contract in that month), Nifty moved below 10400, meaning the sold call became In The Money (ITM). Can I wait till expiry & imagine at expiry date, Nifty rebounded at say 10500. So, in that case, I will have little profit/less loss?

It will be profit as the Put you sold will expire worthless – but when it goes ITM you are sitting on FIRE. Better exit.

Am I right in my understanding? During the month, even if ITM, contract will not be expired – right? Please correct my understanding.

On expiry time 3.30 pm only option final prices are decided. If ITM then even if for entire period it was OTM still it will be declared ITM and vice versa which means if after you sold it went ITM (In the Money), but on expiry day it went OTM then that option will expire worthless.

So if you sold an option and it has gone In the Money (ITM) you should exit immediately – means you should close the position and take a stop loss.

B) Can I buy Nifty BeES (or any Nifty ETF) & trade against that money? How much leverage I would get if I want to intraday? Suppose, I have Rs. 5 Lakhs Nifty Bees in my trading account. How much margin broker would give me for intraday trading approx?

If you bought Nifty BeES for 5 Lakhs then as far as I know most brokers in India give 100% collateral margin against Nifty BeES without charging any interest. Note that for stocks brokers give up to 80% collateral margin and do not charge any interest on 50% of that. However for Nifty BeES 100% collateral margin is given without charging any interest on the full margin.

Nifty BeES is treated as cash holding. If you lose in option sold or future trading traded in that collateral margin – some holdings of the Nifty BeES will be sold to recover loss.

If you are an option buyer/seller and you are making huge losses its because you have no planning and not hedging your trader. If you want to learn proper trading strategies you can do my course and learn conservative ways to trade Nifty & Bank Nifty options.

There are a lot of traders who want to trade intraday or in other word indulge in day trading involving options.
There is nothing wrong with this except the problem is they want to do this while having a day job.

Do you know I was caught red-handed doing day trading in my office and was sacked immediately the day I was caught in the office doing day trading.

So if you want to day trade its fine but make sure you are doing it in your mobile and safely from the eyes of your boss – else the results can be bad.

With limited loss capability option buying intraday trading looks like a great idea, but even if direction is right sometimes the option may not increase as much as possible. Option does not increase as per the stock’s direction is because of the time value component. You can read about time value in options here. The time value has so much power that it can dampen any price movement – and if wrong the trader suffers more.

Near-the-money options are mostly traded for intraday purposes. Near the money options have the benefit of intrinsic value going up with the underlying stock price, but to some extend this gain is offset by the loss of time value. So the trader never sees a one point rise in option with a one point gain in the stock. Some traders therefore shift trading to futures. This is again a mistake.

In some options strikes especially the Out of The Money (OTM) options due to liquidity issues there is a big difference between ask and bid prices thus affecting the option premiums. In India the bid-ask spreads are usually wider in stocks, sometimes up to 2-3 points. This reduces the profit potential of the Intraday trader.

So if you are planning to do intraday trade options, you must overcome these two problems.

How to overcome these problems?

1. Index options like Nifty and Bank Nifty are very liquid – so its advisable to trade them rather than stocks.

2. If you still want to trade stocks look for liquidity first in the option strike then decide the trade. If a particular option is not traded much, its better to ignore that option. in that case you may have to stock to the strike that’s being traded more for that day.

3. Trade near the money options – they have a balance time value and intrinsic value if In the Money. Of course risk is more which can be tackled by a stop loss but profit potential will also be more.

4. Set up a target and stop loss in the system so that you do not have to manually take a stop loss or profit.