Any new and young aspiring investor or trader while opening a demat and trading account dreams big of making at least 10% return a month from stock trading. Almost all of them think they will double their money in one year, and then compound it.

Well same here, that’s the reason I lost money heavily when I started trading in 2007.

At that time people were not that smart or educated (though I am an MBA in Finance), I thought maybe this is the reason people think this way. Later India developed, our education system developed and I thought now people might have changed in ten years time in 2017.

But hey I was wrong.

Last week end May 2017 I received an email from one of my site followers. Here is the email:

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Subject: Inquiry for the option course from a very serious professional

Hi Dilip,

I am an entrepreneur and the founder of (company name hidden for privacy).

Since the last 2 months I have invested in learning and practicing charts, technical analysis in international forex trading. Later I found that Indian trading platforms are not suited for forex.

My note not in email: Forex, also known as foreign exchange, FX or currency trading, is a global market where all the world’s currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. In India forex trading is done mostly in USD (United State Dollars).

I am interested in your course, but here are the issues:

I have been practicing charts and trading a nominal amount, using this brokerage firm, but lack the basics. Like after every successful trade, still why I am losing money?

I need to understand the basics – money management, commission, ideal trading platform, etc. Also, though I have read a lot, I really don’t understand the difference between options and futures and I have not traded Nifty etc.

My question are:

1. Will you be able to start training from basics? I am a very diligent and fast learner, and will catch up really fast, as my technical understanding is good. I am willing to invest in education.

2. I am not looking to ‘get rich quick scheme’ and willing to learn and put the hard work just like I have did for my digital agency which is among the fastest growing now. I have 75000 capital to invest and looking at a decent 15000-20000 profit per month.

Waiting for your reply.

Name Withheld

This e-mail was sent from a contact form on http://www.theoptioncourse.com.
=====

Everything seemed fine but what surprised me was the last paragraph – I have 75000 capital to invest and looking at a decent 15000-20000 profit per month.

Please note that he is an entrepreneur which means he is highly educated, on top of that he has read technical charts etc.

Calculating the returns he is expecting every month.

(20000/75000) * 100 = 26.66% a month.

In that way he is expecting 26.66*12 = 319.92% return a year from stock markets. IMPOSSIBLE.

Let is see what 319.92% a year return can do to Rs.75,000 if compounded for 10 years.

Rs.127,857,692,121.36 that is Rupees 12 Thousand 7 Hundred & 85 CRORES and 692,121.36.

In ten years time this will make him the RICHEST person on Earth, probably much before.

In our times most people used to dream of 10% return a month, but look at this 26.66% a month.

I was like scratching my head after reading this. Now what to reply? Anyway I did reply. Here is the reply:

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Hi,

The course does not deal with basics as it is assumed that the person knows options and futures trading basics, like what is Call, Put and Future. What is the difference between buy call, sell call, buy put, sell put, buy future and sell future. If you know these things you can do the course. If you do not know still, the basic is very easy to learn.

I can send you basic course on options but support is not given in basic course. Support is given in the paid course only. If I start giving support on basic option course for free I will not be able to sleep.

>> I have 75000 capital to invest and looking at a decent 15000-20000 profit per month.

This is NOT decent. You are expecting something that is impossible to achieve. Max is 3-5% return a month. You are targeting 25% return a month. Sorry to say but from your point of view Mukesh Ambani is a fool. He should immediately close Reliance Ltd and start trading.

Dilip
=====

I could have lied telling some months its possible or something like that, like most tips provider lie to take your money. But the problem with me is that I cannot tell a lie to take your money.

Do my course if you are satisfied with 3% return a month, otherwise there are many people ready to take your money away by telling you a lie or sending SMS that 1 lac a day is possible by options trading. Hey even I get these SMS everyday. I delete them immediately.

Beware of them.

Anyway he replied again:

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Hi Dilip,

Please pardon if some of my questions are too naive, as I am a newcomer and trying to explore the scenario.

I have 3 points to highlight:

I am willing to invest more if you help me to learn basics as well.

5% return is fine. Does that mean if I invest 5 lakhs , I would be generate a profit of 25,000 return monthly ?

I am really willing to learn. Please help me. I would always remain a newcomer if no one handheld me in the initial days.

Regards,
Name Withheld
=====

My reply:

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>> I am willing to invest more if you help me to learn basics as well.
I can just give you a document on option basics but no support on that. Support is only in the course strategies.

>>5% return is fine. Does that mean if I invest 5 lakhs, I would be generate a profit of 25,000 return monthly?
No 3% is average, which means 15000 monthly.

It is not your fault. Too many people think it’s easy to make 10% return a month from stock markets. When they lose lakhs then realize even 2% a month is good enough.

You are in the first zone.

Best Regards,
Dilip Shaw
=====

I am sure a lot of you are in the first zone dreaming to make 10% or more return a month. Let me tell you bluntly if you trade aggressively to make 10% return a month, may be one month you will make, but next month you may end up losing 20% or more.

Over a year you will be in loss.

I get phone 5-6 calls daily inquiring about my course and 100% of them are losing money trading options.

If you are also one of them do my course and learn something. Lots of traders have benefited from it since 2014. My first client paid on 12-May-2014, for the course – the very first day I updated a paid service. Before that I was helping traders for free but no one cared or listened. Then I realized that free is not valued in this world.

It is three years now and you can see the results yourself:

What traders say about my course
Latest testimonials
Testimonial page 2
Testimonial page 3
Testimonial page 4
Testimonial page 5
What people say just after reading my course

The above are real testimonials not fake Photoshop generated random images or a fake made excel sheet uploaded as monthly performance in many websites that you see online.

It took me three years and three lakhs to research and make these strategies that is why there is a charge.

If you think you will be happy with small profits trading options you can pay for my course here.

Read to know why many option sellers sell options on expiry day and try to make money.

A few months back I got an interesting email from one of my subscribers:

Dear Dilip ji,

Hi Sir,

I am your follower, though I am new to your course joined some days back, also familiar with market.

I wish to know from your vast experience, about:

1) Why bears/shorter select the expiry date or day before/near expiry only, for heavy selling?

Last time, on some expiry day only, the reason was Bank of Japan’s rate policy & on today’s expiry, reason is India’s surgical attack on LOC, whereas these reasons were already known for these bear community.

2) Why Long straddle / strangle is useful in the expiry week?

3) Can one go for Long straddle/strangle in this type of vertical fall?

Request your expertise comments, at your convenient.

Thanks.

I replied him the reasons, but I want to share with you as well.

It is true that on derivative expiry day a lot of selling / shorting of options (not futures) takes place.

But why on Expiry Day?

The reason is pretty simple. This is the day ALL the out of the money options will expire worthless. If they expire worthless all the buyers money will be eaten by sellers.

But there is a condition – it has to expire worthless. If it does not then there can be heavy losses for the sellers.

The problem with greedy sellers is that they forget what if they lose.

If you observe India VIX, on the expiry day, you will see that it almost always increases on expiry day. VIX is directly associated with panic in the markets. On expiry day most sellers and buyers are in a panic mood until the trade is closed. Biggest mistakes by option and future traders are done on expiry day.

These are some of the mistakes done on expiry day by option traders

Sellers hope that the option they sell will expire worthless and they can keep all the money they got for selling. On top of that they know if it expires worthless they will not have to even close the trade as when the option expires worthless there is no need to close. Though if they do not expire worthless you must close them.

Basically this trade is on hope. But the sellers forget that if there is even slight jump in the last minutes of the market closing they may lose years of profits in a jiffy.

On last day of trading even 200 points OTM out of the money options open at very low premium like 2 or less. Not worth selling.

100 points out of the money will be approx 3-5, again not worth selling.

So the only option left is to sell ATM at the money options. Now this gets a bit risky. This opens at around 15-20 to attract trading. Please understand that if option prices are not worth to sell, the sellers will not sell and trading cannot take place.

Therefore to make sure trading does takes place, market makers keep some attractive premiums in only at the money options.

Here is Historical Contract-wise Price Volume Data of Index Options, Index Futures, Stock Options, Stock Futures and Volatility Futures (very low volume here in india).

https://www1.nseindia.com/products/content/derivatives/equities/historical_fo.htm

You will see that volume of trading in ATM options is always high on most trading days, but exceptionally high on the expiry days.

One reason is obvious that traders are closing their positions. But the biggest reason why trading is done in ATM options on the expiry day is the most traders close their positions in other strikes and try their luck in ATM options depending on their view. Some become buyers and some sellers.

Recommended Reading:

Close Futures And Options Before Expiry Day to Save Securities Transaction Tax STT

Why Expiry Day Trading Is Not Good

Date: 26-May-2017

Sir John Templeton (1912-2008), one of the greatest investors and mutual fund managers of all time founded the Templeton Growth Fund in 1954. It started in US but was one of the first mutual funds in US to invest in many countries globally. India is also one of them. In India it is the Franklin Templeton India Mutual Fund.

Sir John Templeton once said, “bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

Nifty from 8000 levels has now today as on 26-May-2017, has reached 9500+ level. This is an increase of 19% in a five months.

NSE Nifty 50 as on 26-Dec-2016, 7908.25:

NSE Nifty 50 as on 26-Dec-2016, 7908.25

NSE Nifty 50 as on 17-May-2017, 9525.75:

NSE Nifty 50 as on 17-May-2017, 9525.75

There are four stages of a bull market – pessimism, skepticism, optimism, euphoria.

I may be correct or wrong but my perception is we are in the third stage – Optimism.

US is in a very dicey stage. There are talks going on for impeachment of US president.

Frankly there is no big news in India and US or any other country of great economic revolution. Is the world or Indian economy 19% better than it was in December 2016? No. It might be better but nowhere near 19%.

It is just optimism or hopefulness and confidence about the future or the success of something that has brought Nifty from 8000 to 9500+ levels.

If you look at history every bull market ended up with a bubble. Especially the stock market crash of 2008, the world bubble after an euphoria. Stock markets all over world tumbled 50%.

Well that will not happen for sure as the world has adopted strict measure to make sure recession does not happen again. Even if recession has not happened this is a place where we can expect some kind of reversal if not bubble.

Here are some important points:

Every time there is a strong bull run, hedge fund positioning and investments becomes a major headache for stock markets.

Before the stock bubble or 2008, hedge funds had overbought tech and banking stocks. Once the bubble hit, both the tech and banking stocks tumbled bringing the stock markets the world over down 50%.

A recent Goldman Sachs report on hedge funds is showing similar pattern now in 2017. Hedge funds have invested most of the their money in small stocks on top of that they have not invested too much in hedging there portfolios. This is seriously bad news if a bubble hits in.

Since hedge funds invest in billions of dollars, if they start losing money and if not properly hedged the first thing they will so is start taking stop loss. Do not forget that to close their position they will have to sell their stocks.

Basically Sell will overpower Buy. Bears overpowering Bull is a signal of stocks going down.

Once hedge funds crack they have the power to bring stock markets down.

Another problem with hedge funds is that they use leverage to borrow and increase the size of their bet on stocks they hold. Some hedge fund managers are over confident of their investment decisions therefore leverage too much without hedging their bets. As hedging takes money to hedge they do not hedge due to overconfidence.

Once they see any sign on weakness in the markets they sell off all their holdings at once. Here is where is the problem. If all hedge funds sell off then there will be a bubble just like the bubble of 2008. However if the sell off is a few days apart, the markets will come down slowly.

It is well know that hedge fund managers are smartest people in the investing world, but if they do a mistake, everyone suffers.

What I have written above is what hedge funds are doing in the US markets. But do not forget that if US markets fall, Indian markets too follow through.

Disclaimer: This article is based on what is happening in the world of stocks markets especially US. There is no guarantee that we are near bubble or the stock markets will fall. It is based on pure research done by me. I am in no way responsible if based on my articles anyone takes an investment or trading decision. No one can predict the future, but everyone has the right to research. This article is based on my research.

Hedging is sort of Insurance. Like when we buy a car we also buy an insurance. Similarly other insurance products like life insurance, loan insurance etc. These are basically hedge against certain problems in our lives.

Hedging is the same. If take a trade and hedge it properly rest assured that the loss will be limited because hedge will make sure the losses are limited.

Hedge reduces or eliminates fear, one of the worst enemies of trading. It reduces fear because the trader knows that his loss is going to be limited. In that case hedging allows him to take a bigger trade.

Imagine a trader trading 10 future lots without hedging vs a trader trading 10 futures lots with hedge – both taking a long buy call. And if this is an overnight position the trader trading without hedge will not be able to sleep.

Hedging is not just an insurance as written everywhere, its most important feature is it reduces fear of trading.

What Exactly Is Hedging?

It is an investment or trade with negative correlations. It is like becoming a broker. Take money from one trade and give back money on another – the difference is the profit of the trader.

It is obvious that if the trader is reducing risk in the trade, then profits will also reduce. However, if the original trade makes a loss then the insurance pay off a lot which in turn reduces the losses.
Which type of traders are big hedgers?

Portfolio managers, high net worth individuals, conservative retail traders, and corporations trading in millions of dollars almost always hedge their positions.

Just like insurance hedging comes at a cost. But the benefit far surpasses the cost of hedging especially when the trade goes against their bet.

Instead of losing millions of dollars or rupees, they lose only a few lakhs. But when they make money, it’s only a small price they pay for hedge. All in all over a long period of time they make good money.

Even if it is 30 crores profit made on 100 crores of rupees this is a great return.

It is due to hedge that they are able to risk 100 crores, otherwise it is impossible to trade with 100 crores naked trading.

Do High Net worth Investors Hedge?

Yes they do. They trade with a lot at stake. Sometimes they also trade with borrowed money. When they are trading with millions of dollars they cannot even think of taking a big risk. Naked trading is winner takes all and loser loses all.

Winner takes all is fine, but when it comes to losers lose all, they have a problem.

HNIs mostly buy stocks worth crores and they hedge it with derivatives. When they feel stocks may fall they buy Put to protect the losses from the fall.

How many puts to buy and the strike price to buy puts depends on the pricing of the puts and the risk they feel on the stock’s fall.

If their data suggest there can be a huge fall they buy more puts and if they feel the stock may not fall too much they buy less insurance or hedge. This strategy is known as Married Put mostly done by high net worth individuals.

As soon as a trader enters the world of Options the first thing that comes in their mind is to buy options.

These are the reasons they start off by buying options as told by brokers, or friends or reading in websites:

1. Option buy has low risk – It is a myth. Agreed you can buy an option for less than 100 rupees but do not forget that it does not guarantee that it will make money. That 100 rupees can become ZERO. There is no business in the world where you buy something then there is a possibility of losing 100% of the money on it. Low risk if combined for one year can be very high risk. Ask any three year experienced option buyer how much he lost. I bet the average will be more than 1 lakh rupees.

Low risk is to lure option buyers to buy options.

2. Option buy has unlimited profits – This is only in theory. Have you ever heard of an option buyer who started with 500 rupees and went on to make 5 crores. Unlimited profit right? so why stop at 5 crore, why not 10 crore or even 100 crore?

Nobody has ever done that, no one will ever do that.

In reality option buyers book profit at some stage. This they call as target. There is nothing wrong in keeping a target for stop loss and profit because this is how this business is done, but then when there is a target to book profits and exit where does the word unlimited come from.

Beware of this myth of limited loss unlimited profits of buying options.

3. Best option trade in the world is to buy both at the money call and put because if the stock moves down out will make money and if the stock goes up call will make money – This is actually one of the worst option trades in the trading history.

In that case why not every option buyer does that? I mean buy both calls and puts of the same stock and keep laughing all the way to the bank every month?

Why this does not make money?

Do not forget that options do not come for free. What an option buyer pay for is the premium built inside the options.

Options are made up of Delta, Gamma, Theta, Vega and Rho. The worst of them is the Theta – the time value and Vega – the implied volatility which depends on India VIX.

At The Money options have the maximum time value built in them. And statistics suggest that most trading is done in ATM – at the money options, which has the maximum time value.

Last 10 days time value of options evaporates like melting ice. Time value evaporation means money getting evaporated in the sky. This is like throwing money.

Greedy traders who want to take advantage of movement in last 10 days actually buy options during last few days only. Imagine the kind of risk they are taking. It is like putting their money on fire.

Sure sometimes option buyers get lucky here and there, but long term they lose money. The real reason is written above – options slightly overpriced compared to the expected move of a stock. Overpriced means Theta and Vega is added to their pricing.

I hope now it is clear why most of the times option buyers lose money even if they buy both long calls and puts.

I know a lot of you want to either come to me for class room training or want me to visit their city for class room training.

I can understand why many people want it.

Here are a few reasons they told me:

1. They want to see me. It is strange, do you make money seeing me? If no then why you want to see me?

2. They want to ask questions face to face. This is fine but what is the difference between asking questions on email, mobile or whatsapp? It is the same. What is more important is the quality of the answer not the way the answer is delivered.

3. They have a feeling that they will learn more in class room training. History is proof that many students have failed in class room training and many students have excelled in distance education. Do you know a lot of highly paid executives do distance education MBA from reputed institutions? They earn money while they do their MBA. It is just that they take three years to complete MBA, compared to two years who do it full time.

Almost all Universities in the world give distance education. Do they not get students? They do. Do all the distance education students fail in exams? No. The pass percentage is same as the students who attend classes.

4. Quality of education. Now this is the most important part.

“What You Learn Is More Important Than How You Got That Education”

It is a myth that class room teaching quality is better than distance teaching.

I have never attended a single class room trading training class. All my teachings and research came from books and online magazines on stock markets. I do not even watch YouTube videos on stock trading.

When you buy a book do you tell the author you will only buy his book if he teaches you face to face?

It is strange that when it comes to learning to trade stocks, people ask for class room training.

Assuming that I take class room teaching, then will the quality of what you learn be better? No. You will learn the same thing that you learn from what I teach you by sending the strategies to your email.

Then there is support for months. In that case you will have to stay in the class room for months. Is that possible?

Here is an email I received form a person doing PhD but wanted to do my course in class room:

Hi Dilip,

I want to take class room training on derivatives but would only need class room training. I know getting class room training is not feasible due to time conflict but we can work on the timing. Reason for class room training is I am doing PhD in derivative, and I have so many question which I think will be only answer in class room training.

I have done sufficient self study & read 100s of research paper on derivatives so that why doing this derivative training on email will not make sense to my problem for which I am trying to get an answer via class room training.

Thanks,
Name Withheld

My reply:

Hi,

Bang on 🙂

Not a single PHD done graduate doing research on derivatives made lots of money trading derivatives. 🙂 I mean in the history of stock markets.

Is Warren Buffett PhD in stock markets? Or what about Rakesh Jhunjhunwala?

Options trading is NOT a research subject – here logic is more important than research. Option may be a research subject, Option trading is NOT.

Sorry no class room training I take. For 5000 that’s not feasible.

Dilip

His reply will surprise you:

I took PhD out of passion for the derivative topic. Till now I have not traded in stocks or derivatives.

I totally agree with you that no single PhD done graduate made money trading stock markets, but I am sure who made it somewhere PhD must be attach in term of advice or strategy.

I am business analyst and it will help me in my day to day work.

Thanks
Name Withheld

Did you see a person doing PhD in derivatives NEVER traded in option, future or equity?

Then what is the point of doing research in stock markets if you cannot trade yourself and make money?

This is the reason I do not do class room teaching.

You must be more interested in whether you will be able to make money after doing my course. If the answer is YES, then it does not matter how the course is conducted.

If you feel it will help you then do it. If you can read my blog and understand, then what makes you think that you will read my course and will not understand?

If you trade in options and know English you can do my course.

After this email was sent I got an instant reply from one of my free subscribers:

With due respect to you sir this is the dumbest email ever all time I have received. Historically it is proven that a person grasps a higher understanding and retention amount in a class room with a teacher to face him in a conducive ambience. True universities now offer online courses. But even today these degrees have no value when applying for a job. Have you ever tried? Top universities from IIT, IIM, to Ivy League – still run their core classes in a class room Sir, and don’t argue and cry like your points you have made.

May be many people think that way therefore they ask me for a face to face class room trading class. But we are humans and our views may differ.

This was my reply:

I agree with you, but my experiences are different.

Here are my qualifications:

MA (Master of Arts) in English – Distance Education.

MBA (Master of Business Administration) – Distance Education.

Most of my higher education were Distance Education.

Now coming to this site and the course I provide:

All the knowledge I acquired on stock & derivative trading – Distance Education.

Articles I write in my site – Distance Education.

You are reading my emails – hey 14,500+ people read my emails everyday for free – Distance Education.

100% 100+ Testimonials in my site – Distance Education.

Ok fine since for you Distance Education is dumb, then I am willing to give you a face to face class.

Now tell me what you will pay me?

Please note that Distance Education is cheaper than face to face education.

Eagerly awaiting your reply.

I don’t think he will reply. But if he does I will update here.

In short do not expect face to face trading class room teaching to be possible with such a low fee of Rs. 5000. I know many stock trading face to face classes room teaching being conducted In India. The minimum charge is Rs. 22,000.00, going up to Rs. 1 Lakh+. Compare it to my course fees, then decide you still want Face to Face Class Room teaching or Distance Education?

Read this article to know the real meaning of volatility and its importance in stock trading. Hedge fund managers and big investors buy put to protect their funds.

Before reading this article I want to clear a confusion:

A lot of traders get confused between Volatility and VIX.

The stock is very volatile means it moves a lot.

The Index VIX is stable means there is not much panic in the markets and if the index is stable. Stable does not mean the Index is not moving. It is moving but not very Volatile.

For high volatile stocks, VIX will be high.
For low volatile stocks, VIX will be low.

For traders volatility is very important.

During April-May 2017 India VIX is hovering at historically low levels. 9-11 is considered low VIX.

You can find India VIX here:

https://www.nseindia.com/live_market/dynaContent/live_watch/vix_home_page.htm

See INDIA VIX as on 18-May-2017:

INDIA VIX 18 May 2017

Today Nifty has fallen so VIX has risen:

NSE 18 May 2017

Over the long period stock markets and VIX are inversely proportional. If stock markets fall, there is panic in the markets and VIX increases. And if stock markets rise, there is no panic in the markets and VIX falls. Like since the last 3-4 months Nifty went from 8000 levels to 9400 levels and India VIX from 17-18 levels to 10-11 levels.

See this graph for proof. You can see that when CNX Nifty rose VIX fell and when CNX Nifty fell, VIX rose.

Nifty vs VIX

Source:
http://www.moneycontrol.com/indian-indices/india-vix-36.html

What hedge fund manages do when VIX is low?

This is the time when options are available at cheaper prices to hedge. For them this is a great opportunity. They start buying puts to hedge their positions in stocks against a fall. How many lots they are willing to buy depends on how much money they are managing.

Do not forget that they manage millions, some fund managers manage billions. This is when they use options to do exactly what they were meant for. To Hedge.

Of course this will not come in the media. This is their personal decision on the job, and they will not disclose it in public.

Another time they hedge their positions is when the markets become very volatile. This is to protect from volatility.

Suppose a bad news comes in, the HNI (High Net Worth Individuals) and fund managers start buying puts.

When a lot of Puts is being bought, the markets gets into fear and the VIX goes higher and markets move lower.

In simple worlds it is profit booking by most investors or put buying by fund managers.

Why do you think when markets move higher, it starts to fall from some point? There is no bad news as on 18-May-2017, but Nifty has fallen? Why?

This is pure profit booking, not a fall because of a bad news.

It is a common mistake by most retail investors. Whenever in media they say the markets are volatile, they think that stock markets are falling. This is not true.

Period from when Nifty went from 8000-9400 is also volatile, same as when Nifty went from 8800 to 8000 levels.

Volatile can be going up or going down. Unfortunately volatility is associated with stock markets going down.

Volatile means fast movement, not necessarily the stock or Index going down.

Learn the difference between market, stop and limit profit or loss orders.

New traders often get confused between market orders, stop orders and limit orders. I am writing this post to clear their doubts.

In short:

Market Orders are the ones that gets executed immediately at whatever price is available in markets.

Stop Order becomes Market Order as soon as the price is reached mentioned in the stop order. Which as soon as the stock reaches the price given in the stop order, it gets executed immediately.

Limit Order has two variables. Maximum and minimum. Order is triggered only if the price reaches the maximum or minimum mentioned. Limit Order will be executed only between the maximum and the minimum price given in the order. If there is a jump in the stock price and the trade does not gets executed between the maximum and minimum price then the orders stays pending.

Explanation:

Market Orders

Stock XYZ trading at 10. Ask (best sell) price is at 10.50 and Bid (best buy) price is at 10.25. A new trader wants to buy the stock and hits Market Order. He order is triggered immediately and he buys the stock at 10.50 – the best sell price at the moment. Why the best sell price? Because he hit market order. A market order to buy is to get the stock at the best sell price, and the market order to sell is to get the stock at the best buy price currently available in the market. Please note that if a buy market order is hit and order is approved to go to the market place, but if there are no sellers then the order is rejected immediately by some brokers or is kept pending by some brokers.

It is advisable before hitting market orders please see the ask and bid prices.

Stop Order

Let us take the same example above.

Stock XYZ trading at 10. Ask (best sell) price is at 10.50 and Bid (best buy) price is at 10.25.

An experienced trader wants to sell the stock at 10.90. Let us assume he is an Intraday day trader and bought the stock at 10.15 and keeps a stop order to sell at profit of 10.90-10.15 = 0.75 points.

Note that a Stop Order not necessarily means a Stop Loss Order. Most traders in India think a stop order is a stop loss order. A Stop Order can be a stop “profit” order or a stop “loss” order depending on what trader does.

In the above case he has put a stop “profit” order.

His stop order to sell the stock at 10.90 will show as pending in his order books.

Trading keeps going and as soon as the bid (best buy) reaches at 10.90 his order becomes a market order and will immediately get executed. The buyer who bid at 10.90 will be given the shares and the sale is complete.

Note that anything above 10.90 can also be triggered, but not below 10.90 as this is the limit to sell by the trader. If lucky, the stock is jumping and someone bids to buy at 11 then the order may get triggered to sell at 11 also.

Limit Order

Let us take the same example above.

Stock XYZ trading at 10. Ask (best sell) price is at 10.50 and Bid (best buy) price is at 10.25.

Let is assume there is some good news in the stock and suddenly there are lot of buyers in the stock and the stock is zooming up very fast.

An experienced trader wants to buy the stock to go with the trend. But he feels at current price of best sell 10.50 which is technically a market price it is quite high so he sets a stop buy order at 10.40 and the order gets filled after sometime.

Now after sometime a bad news hits on the stock and traders started selling the stock. It now starts to go downhill.

The trader who bought the stock at 10.40 panics and keep a stop loss limit order.

As written above limit order has two variables – low and high.

He keeps the stop loss limit order at 10.10 (high) and 9.90 (low).

In other words he orders the system to sell the stock between 10.10 and 9.90. Not below 9.90. Note that any buyer bidding between 9.90 and 10.10 will get the stock but if there is a swing and the stock nose dives to 9.50 then the limit order will remain pending and will not get executed.

If the order was a stop loss order at 10.10 then it will get executed at 9.50 if it nose dives there.
Hope the difference between market, stop and limit order is clear now. If any questions ask in the comments section below.

Since the last one month INDIA VIX is hovering around 10-12 range. This is historically at a very low range. Average range of INDIA VIX is 14-16, above 17 is considered high. Above 22 is very high. Above 30 it is better not to trade.

Right now at 9.35 am, 11-May-2017, INDIA VIX is 10.7050.

On top of that NSE is showing little movement since last one month. See this image below, Nifty has moved very low from 10-April-2017 to 11-May-2017:

This is just 1% move.

When there is no panic in the markets

VIX gets low.
Volatility is low.

Please note that volatility is the speed of movement. VIX is Volatility Index, which shows the market’s expectation of 30-day volatility. When the market is not expected to move much VIX will obviously fall.

Problems with lower VIX and if markets are stable not moving at all

1. Stocks give returns lower than or equal to Fixed Deposits.
2. Option premiums are low not encouraging Option Sellers to Sell as they get less for more risk.
3. Option buyers are at more risk as the lower premiums lure them to buy more options at the same cost. But when markets are not moving at all, the premiums gets evaporated and buyers in hope of a move keep the trade on hold. End results – option expires worthless and all their money goes down the drain. It becomes ZERO.
4. Trading becomes boring. See this, a major investment firm in USA tweeted this:

Same happening in India too as seen in the image above.

Does low VIX a sign of a Storm?

Most of the times it does happen. In stock markets whatever goes down has to come up and whatever goes up has to come down. So if not today, may be tomorrow or later VIX has to rise, and since stocks markets are inversely proportional to VIX, if it rises stock markets will fall.

Rich investors will hedge their portfolio against a fall.

Some mutual fund managers also hedge their funds.

Retail derivative traders who know hedge also hedge, but as most do not know are option buyers. In times like these money of option buyers goes to rich stock investors who hedge their investments, hedge fund managers and smart derivative traders who know hedging methods.

To end, I can only say is if you are an option trader and do not know how to hedge you are doing a big mistake.

Whether it is high volatility or low volatility, high VIX or low VIX, hedging is something that almost always helps you in trading properly and increasing your winning ratio.

My hedging course will help you to learn good hedging methods.