Those who have taken my course know that 100-200 points move DO NOT bother us. Strangely this is a budget week and Nifty is moving in a narrow range. 7100 on the lower band, and 7300 on the upper band.

But when things are calm and cool, there is a storm waiting in the hide-out. This will break this week for sure either on the Railway budget day or before.

Is it the right time to do the directional strategy?

Lots of people who have done my course called me and asked if this is the correct time to do Directional Strategy?

Yes it is. Nifty movement can come any day so try it. Directional strategy should be set BEFORE the move comes. If move comes in a day or two, you make money and end the game.

If you are setting up the directional strategy today, Monday is the Final day of results. You either make a profit before the budget or on the budget day. Be happy with a 30-50 points profit though and exit.

Those who are more comfortable with Bank Nifty can try the directional strategy there. Bank Nifty is known to move pretty fast and the profits may come earlier.

Do not trade this week without a hedge

It is suicidal to trade either Options or Futures this week without the hedge. Unfortunately most traders right now are on an non-hedged naked Futures trade. I just hope I am proved wrong – but these people are going to lose a lot of money in days to come. If they make a profit, it is going to be limited though.

Never bet on something you do not know. Budget times are uncertain and losses can be heavy. Profits will still be limited. Why? Because of the simple mistake of traders taking small profits out, and letting the losses run unlimited. When “unlimited profits” is ONLY in your mind and not while trading, then why you are doing a trade? Ask yourself – when was the last time you took “unlimited profits”? I mean unlimited profits by using your skills, not as a gift by markets with a gap up or down opening. I think the answer will be NEVER. If you do not have the skills to let the markets decide the profits – then you are trading with a bad formula. This:

“Limited Profits and Unlimited Losses.”

You should actually trade with:

“Unlimited Profits and limited Losses.”

But not many have the skills to learn that, so at least trade with:

“Limited Profits and Limited Losses.”

Tell me – Where Is The Money?

If you trade with the formula “Limited Profits and Unlimited Losses.” – where is the money?

And this you keep doing for your life. You only compound your losses and not your profits.

With stock market losses you are only reducing your Salary every month. A 1 Lakh loss in a year means your actual salary is 8000 less per month than what you actually get. But you pay taxes on what you get on paper, right? That’s double loss if you are not reporting your losses while filing your taxes. I am sure many do not. Strange! Please report your losses and at least get a tax refund.

Do not live on hope and trade

You will be 100 and you will still “hope” of the that day when you will make a lot of money trading. Trading on hope is the most foolish thing to do in a business. Aggressive traders without a plan, trade on hope. When they lose they bring more money and again “trade on hope”. This goes on for life.

Do not trade anything that you cannot compound

I hate any strategy that cannot be compounded – however good it is. What is point in making 5000 per month if you fear putting more capital into the strategy to trade?

With my course the non-directional strategies can be compounded. It means you can re-invest the profits in the strategies back again and again.

But the most important part about my strategies is trading with a peace of mind. Nothing for me is better than making money with a peace of mind. On top of that you make small profits almost every month. What more do you want? To become the richest man walking on Earth by trading?

Email me to know more about the course. If you do not know anything about Options and Futures please tell me, I will try to help you for free.

The budget week is a very dangerous week for option traders. Nifty can go anywhere and the options premium will reduce very fast.

We have entered into a dangerous week – the Budget Week.

Tomorrow the Budget Session of Parliament starts and government will present the General Budget on February 29, 2016.

Huge volatility can be seen in the markets.

It looks like expiry will be as usual, this Thursday the 25th of February 2016.

Are you buyer of Options?

If yes, it is better to shift to the next month – March 2016. Last 5 days are worst for options. It does not matter how much the VIX increases, theta will have a big effect on options and their premiums will decrease no matter what.

March options still have 38 days to expire and VIX not going down at least till Friday means chances of making money increases. Please note that risk is always there, but this one looks like a calculated risk.

As an option buyer it is very hard to fight melting premiums, therefore I highly recommend avoid trading current month options.

On the other hand February 2016 options will now be cheap and will lure buyers, unfortunately still they will lose money.

For example currently Nifty is at 7220 and the ATM Feb call option of 7200 is quoting at 59.40. That’s quite cheap isn’t it? But since only 4 days are left for expiry, even at 59.40 this is too costly.

If you are sure of a move then buy March 7200 Call option NOT February’s.

But remember VIX drops like a knife falling from Monday onward. So if you plan to buy options today you must close it on or before this Friday – 26th of February 2016.

So should you sell these options?

No selling now is even more dangerous. Why? Because you dont know what is in store in the budget day or any news coming before the budget day. There can be a sharp rally or a sharp fall. We dont know. So it will be better to stop selling this week.

When should I start selling options again?

From Monday onward. In fact Tuesday is the best day. All the news and movement will be out, and frankly the traders will be too tired to trade the rest of the week. So selling can be very lucrative from Tuesday – 1st of March 2016. Nifty will not move much at least from one week from 1st March, and VIX will keep falling – so premiums will drop heavily.

For People Who Have Done My Conservative Course:

Its highly recommended that you start trading strategy 1 from 1st of March 2016. If you are keen on trading now its better to trade with reduced lot size. Please show some patience and take less risk this week. Years are left to make money, one week cannot reduce your profits however this week has the potential to take away a lot of your profits you already made in last few trades.

Note: I have decided to send more newsletter henceforth. Probably 3-4 every week. When I don’t send a newsletter for a few days then people WhatsApp me to send newsletters. 🙂

Please also read my newsletters. I have to pay for the emails in the database. And its not cheap. If you do not read, unfortunately I will have to delete those emails.

Disclaimer: Views and opinions in this article is my personal opinion. Please do your own research before entering into any trade as suggested in this post. This is part of newsletter sent to my subscribers today. If you want to receive such newsletters please register your email here.

I got quite a lot of questions on my yesterday’s email on ideas to trade.

One of them was interesting and I would like to share with you:

This was the question:

Hi Dilip,

Hope you are doing good. I learned a lot through your conservative attitude & greed control articles. Thanks for your awesome conservative strategies.

I have one silly question to ask that in this article you recommended ICICI Nifty Index Mutual Fund.

When I see the top portfolio of such front line index funds I see that almost all mutual funds have mostly similar blue chips in their top holdings.

My question is what difference it takes if we directly invest in such blue chips which are already 40 to 50% down from their 52 week high instead of investing in same sticks via mutual fund which charge us yearly expense ratio.

Can you please share pros & cons between investing into index mutual funds than directly investing into stocks?

Thanks for your valuable guidance as always.

Best Regards
===============

Well good question. No question is silly question. Here is my answer:

When you invest in Nifty Index Fund for a short term, then you are rest assured that if Nifty rises then the Index Fund or Nifty Bees will also rise in value and you will surly make a profit.

It is but commonsense that one day or the other (and that day is not far) when Nifty will be around 8000 – which is almost 12-13% from current levels.

In that case your investment in Nifty Index Fund or Nifty Bees will give a guaranteed return of 11-12% (1% deducted for expenses) in few days or months.

On top of that you don’t have to do research for Stocks that may rise. You just cannot invest in ALL the basket of stocks that these mutual funds invest in. Tracking them is very difficult too. So you will chose 3 or 4. This will take time. And the worst part is there is no guarantee these stocks will beat returns of Nifty in a short period.

So when you invest in an Index mutual fund, your time is saved and your investment is also diversified. You can live in peace, and you can invest as much as you can, the money that you don’t need for 1 year.

Remember that this particular investment is for 1 year and our target is to make 12-15% return in one year. With investing in a stock it gets risky. You may choose a correct stock and make a stellar return from that stock, but there is a high chance that your chosen stock does not perform. Or if you are invested in 4-5 different stocks then one bad investment can pull down return from the entire portfolio. In the end your profit may be less than an Index fund even after deducting 1% of the expenses.

So if its for short to medium term I would rather invest in an Index fund or Nifty BeEs rather than a few stocks, to feel safe. I am ok with a lower return but with a very high chance of success.

You Mean To Say We Must NEVER Invest In Stocks?

I never said that. Nifty is currently 20% lower than its recent high about an year ago. Nifty for sure will try to reach its mean within months. Let us not get into math, but 8000 looks certain in few months. We are talking about making more or less 10-12% in 6-12 months. At present investing in an Index fund looks the safest option to me. That is it. Yes in a few months from now some good stocks will double and you will rant on me for giving a bad advice.

But do you know the name of that stock today? NO. If you don’t know then it is always better to sacrifice some greed to make more or less what we want to make. How many people you know have stuck in a bad stock for years? Many. How many people do you know are stuck in Index Funds or Nifty Bees for years? None.

Its simple logic. 🙂

Note: Some greedy trader out there might be thinking I am a fool. Why am I not investing in Nifty Future when I know Nifty will be at 8000 some day. Thank You Sir. Every investment has an objective and this one is to make 12% in 6-12 months only with low risk. For investing in Nifty Futures I have different cash, a bit lower amount though, through which I can take aggressive bets. But not buying a Future now and selling it when Nifty reaches 8000. That’s a foolish trade in my books.

So When Should You Invest In Stocks?

Yes you must have a portfolio of good stocks. It could be anywhere from 10 to 15 stocks max. And you should every month invest in them in equal amounts for ALL your earning life, which is 30-35 years.

80% of them will prove to be losers, after 30 years of investment. But 20% of them will be worth crores. I mean multi-crores. The dividends itself will far surpass the invested amount. Just this small investment every month can take care of your retirement years. Read this article on how to make crores from the stock markets.

Note that this is one part of diversification – a very small part indeed. Some money should get into trading for regular income. Some money in liquid funds or fixed deposits that you may need urgently.

What I am trying to say is that if you can save 100 rupees a month you should know what percentage of it to invest where. And you should stick to the rule – no matter how good you are doing with your trading.

Even after making good profits since last few years in trading I am not going to invest ALL my investments in trading. I believe in diversification and this is how I do it.

Diversifying your money is very important when its matter of investments. You must know how much you need in few months, years and decades from now. Ok you may not be perfect but you must have an idea. Its always better to invest and work towards achieving those goals in time or slightly before that time. Over all 20% return a year from all of your investment will be huge.

Frankly if you don’t need that money now – its really a useless exercise to try to make that RIGHT NOW. That’s the reason I believe in making small profits on a consistent basis, rather try to make a lot in couple of months. That’s the exact reason I do not promise anyone more than 3% per month from the strategies in my course. Its a different matter that some of my customers are making more than that, but I really don’t care.

These small steps will become BIG STEPS in matter of years. And it is possible for every trader. Unfortunately this website will keep getting traffic for making 5000 per day from stock markets, or 1 lakh per month. Some even search for 50 crore a year – lol. Well nothing wrong in having such targets after all we trade to make money – but the problem lies somewhere else. The problem is when I get calls from such people, all they have is paltry 25000 in their account. These people are the targets of the tips providers. In a couple of month their account shows ZERO rupees. Hope you are not one of them.

Dilip, I don’t have patience to wait for 20-30 years to make crores, I want it now

Really? Then you must have lost a lot of money in stock markets. 🙂

People who don’t have patience are the biggest losers in stock markets. And they still don’t learn and keep losing for years. And you know what, they retire at 60 with heavy losses. Believe me world is full of them. At least 10 emails I get from such people every month. 🙁

You know what – it does not matter if you have patience or not. If you survive then you will turn 60 anyway – you can’t stop the aging process, can you? And if you don’t, then even all the money in the world if given to you is worthless. Hope you get the point. This attitude of “I need more and I need it now” is a sure shot way of destroying your wealth.

So learn to be happy with small profits. Occasionally if big profits do come be happy – but don’t lose it again to make big profits.

Smart trading and patience is the key in making money in stock markets. When I didn’t have patience I lost a lot. When I started being happy even with 1% return a month, I started making good money. If you don’t know 1% return a month is NOT 12% return a year – its 15% return a year compounded.

For most of us even 15% a year is a great return.

This is an email by one of my paid customers of the course. I added this as I think it can add value to this post:

I genuinely believe its a real good write-up with the links to support it. There’s a multitude out there still groping with little or no knowledge about investments or trading, and yet venturing out to boldly make some ‘easy money’. Life is tough out there. Perhaps its not their fault – we were once like that too – I believe – not so long ago – but wiser after all the setbacks and failures.

Whatever, I think people should invest in knowledge, if not at least learn from their costly mistakes, and not keep repeating the same mistakes again. It reminds me of a quote: “Learn from your losses. They are expensive lessons. You paid for them”.

Whatever is written here may please not be made public. (At least not with my name) It was written in confidence only for your reading after seeing so many of my friends continuing to remain the same despite their setbacks. Some don’t want to learn, I suppose.

Some want to learn but don’t want to spend, and some just want it all ready-made.

Well the world has all types.

That’s all for now.
Best Regards

Please note that the person who wrote the above email is my paid customer of my course. Did you notice the change in his attitude towards the stock markets? He is now very happy with the small profits he makes every month. The course will not only teach you five conservative strategies, but will also change your view towards the markets. In other words, it will help you control greed which is one of the biggest enemy of the stock markets.

His last sentence is very correct. “Some want to learn but don’t want to spend, and some just want it all ready-made.” More than 99% of people who visit this blog do not pay for the course. I think the biggest reason is they don’t want to spend money to learn something that can make them 3% a month. For most its too less. Its strange that they keep losing money month after month, but are still looking for strategies that can double their money in few months. Let me tell you such strategies do not exist. You will keep looking for it for years and still will not find it. And mind it, 3% a month is not a low return, compounded this can be great return in years to come.

Nifty after falling relentlessly since last few months can see bottom at 6800. Read this post to also get other ideas to trade.

I have a strong feeling that Nifty has found its bottom and will not break 6800 at least in the medium term.

I have already written earlier a post on how you can trade this month. Apart from that there are many other ways to trade.

Remember the arbitrage opportunity on the stocks and Futures article? If you have not read that post I highly recommend read that now.

The premiums in Futures must have swelled and its time to make a guaranteed return of 1-2% in a month.

But it doesn’t end here. People who have done my course – its a great time to trade the conservative stock options strategy. If you think the markets may slide further then try BOTH the arbitrage in stocks and the non-directional trade (strategy 1) together. You may have to ask collateral margin against the stock bought though. That’s ok, as you make 1-2% from the arbitrage opportunity and another 3-4% from the strategy 1. That’s excellent return in 30-40 days.

Nifty BeES

Yes collect Nifty BeES if you are bad at selecting stocks. Approx 7100 is Nifty currently. What is 10% plus of 7100 = 7100+710 = 7810. I really don’t think Nifty will take more than 6 months to reach there. 10% return in 6 months is amazing. Any extra money that you don’t need for the next 1 year can be invested in Nifty Bees Exchange-Traded Fund (ETF).

Why 1 Year why not 6 months? Because when you invest money, you should always think of the worst case scenario. It may reach 7800 in 6 months, but you must be prepared mentally to stay invested for about a year.

Mutual Funds

Yes you can shift a percentage of funds from debt/liquid funds to Index fund. ICICI Prudential Nifty Index Fund is one such good fund to invest now. It has 0.71% Expense rate with ZERO exit load, which is great. But if Expense is bothering you Nifty BeES are cheaper (Expense: 0.54%). Frankly 0.71-0.54 = 0.17% don’t bother me. I am more comfortable trading Mutual Funds and Nifty Options, and I rarely trade in any other product. Yes I am a long term investor too.

I believe too much of diversification in trading is useless and is counter productive. Master a couple of trading strategies and make money form them. That is it.

Some people trade options and cash in morning and then commodities, oil, gold, etc in evening and then USD/INR (Forex trading) the whole day. I don’t think these people make money trading. Yes I do get calls from people who trade till 11 in the night. Don’t do this. It will not only take your health away, but also money away and peace away, family away, everything away.

I am not against working, I myself work till late in night sometimes. I am against chasing money. Don’t become slave of money. Don’t always keep thinking about money, if you work smart it will come. But if you work only to make more and more money without any reason, it will never come to you. Actually it will go away.

Ultimately you want to earn money to be happy, but what’s the point if you are unhappy earning it?

Buy Stocks For Medium to Long Term

Now when it looks like Nifty has found its bottom, its a great time to buy some value stocks as well. Banking stocks are now looking strong and are set for a reversal. Agreed banking stocks are volatile, but over the long run the banking stocks have produced stellar returns. If a stock is not volatile, you will never get an opportunity to invest. Do not invest all your money in a single stock or on a single day. Divide your money in 4-5 equal installments and invest in 4 great stocks of your choice in next 3-4 months.

You see you must act according to opportunity offered by the markets, and you are sure to win most of the times.

India VIX

Its around 21.93. Understand that this will not fall much, in fact will only go up until the budget. Then you will see it crashing from the budget day only which is on 29-Feb-2016. By mid March it will be back to 15-17 area.

Reduce the number of lots traded

Please do not get aggressive this month. Budget month is the WORST month to trade. So please reduce the number of lots traded. Its ok to make 1-2% this month, but its NOT ok to lose 5% trading aggressively.

Its matter of few days, I hope this much patience you have.

All of the above as you can see is smart trading. Invest, show some patience and make money.

I have told this 100 times I and will repeat it again – just 20% return on your portfolio year after year can make you very rich. (20% is just 1.66% a month) And top of that the process of making that money with ease will keep you stress free, happier and healthier.

Don’t believe me? Just 1 Lakh invested every year for 20 years at 20% return a year can make over 2.6 crores. (At 30% it is over 10 crores) But you have to make 20% from your ENTIRE portfolio of 1 lakh invested every year. This is only possible through trading options conservatively. Yes investing in some stocks can make you extremely rich in a few years, but the only problem is you don’t know which stocks – so where you invest? You can always trade with a small percentage of your money aggressively to try to make more – but NOT all the money at any cost even if you are the best trader in the world.

I hope I am making sense. If you really want to learn conservative trading then I highly recommend my course. If you think 3% a month is just too less, I wish you good luck.

Read to know how you can trade the budget month of February and March 2016. Vega (VIX) will increase so buying options may be profitable.

The Budget session of Parliament will commence from February 23, 2016 and the government will present the General Budget on February 29, 2016.

Expiry day is on February 25, 2016.

Many a times, stock market makers will postpone the February expiry date to the budget day to help traders make the most of the budget day. Unfortunately it only helps traders trade more and lose more. Not sure if they are going to do that again this year and I hope they don’t, but for now 25th is the expiry date. If they extend the expiry day, I will inform you.

So even though the expiry happens in February, there will be interesting things happening in March Expiry as well.

So, How to Trade The General Budget February and March Expiry 2016

INDIA VIX:

It is is around 25 now, and I am quite sure until the budget is over this is NOT going to fall very much. May be it will be in a range from 22-25. But as the budget day approaches it may well be near 30.

People who buy options, February is the only month that favors you. VIX doesn’t fall. Huge volatility in markets. What more do you want?

Long Straddles / Long Strangles Will Work

This is the time to go long option buyers. 🙂

Note for traders who have done my course. With 10-20% of your trading capital, you can try going long with options.

You can trade Long Straddles or Long Strangles.

If you do not know what is a long straddle, then its buying of both Call and Puts Options of the same strike (usually traders buy ATM (At The Money) options), same quantity (no. of lots) and same expiry and waiting for a big movement. In the Long Strangle the trader can buy any strike call and any strike put option (usually out of the money (OTM) options are bought). In Long Strangle too number of lots bought remains same and the expiry also remains same.

Please note that payoff will differ in both the strategies. Long Straddle will almost always outperform the profits from the Long Strangle. The reason being the trader is taking more risk by paying more premium, why shouldn’t they make more for the same move? There is a technical reason as well, and that is the movement will take at least one of the options In The Money (ITM). Since the other side’s premium will not melt fast due to increasing VIX, it minimizes the effect of theta (time) on options, thus overall profits can be huge.

Warning: Movement has to come to make a profit in long straddles and strangle. But risk is low this month as premiums will not see a sudden drop. And we all know movement will come in the budget month.

Since VIX will not fall, its quite easy to assume that the options premium will not evaporate fast. And if the options premium will not evaporate fast, a movement of even 1% can bring great results. Please remember to square your positions Intraday (within the same day) or within a max of 3 days, no more. One day or the other theta will have to effect the premiums, irrespective of the increasing volatility, and so it gets dangerous to stay more than 3 days in a long straddle or strangle.

Do not trade long strangles of FEB 2016 expiry during the last 5 trading days of this month. Vega will fall very fast due to lack of time – no amount of increasing VIX will help. During the last five days, shift to the March month expiry. That is all trades taken on or after 22 FEB must be shifted to March expiry. Please also note that on the day of the budget, VIX will fall swiftly as its being read, so its very important to stop trading positional long strangles or straddles one day before the budget day, that is 26th of February, 2016.

What To Trade On The Budget 2016 Day?

On the budget day, trade the long straddle only and Intraday only. Huge swings will ensure huge profits. Sometimes 100 points down, sometimes 100 points up, but you target 20-30 points and exit. Do not trade again once you book profits. Take the day off and enjoy. Don’t even look at the markets. If time permits I will write another email on how to trade on the budget day.

Long Straddle or Long Strangle

If you are an Intra day trader I would suggest Long Straddle because in a few hours premiums will not erode and Nifty movement will bring huge profits. Remember that this is applicable to this month only and till budget day. After that long strangle or straddle will become very dangerous to trade. VIX will drop pretty fast taking away all the premiums. After budget these kinds of trades will lose money. That does not mean Short Straddles or Strangles will become profitable.

If you are planning to wait for a bigger move, its better to trade the Long Strangle as your risk will reduce when you buy out of the money options. You can leave long strangles overnight.

Once the budget is over – VIX will fall swiftly and within a few days will start trading in a narrow range making both the long as well as short straddle difficult to trade.

So this advice is valid only until the budget 2016 is over.

Which Strikes to Chose?

For the long straddle there is nothing to be told. You can buy Call and Put Options At The Money (ATM).

If trading Intraday, Long Straddle works great if VIX is increasing.

If you are planning to hold the options overnight then the strike prices you chose becomes extremely important. I would suggest not risking a total of 100 points on one lot trade. So basically the total points you may risk from both the call and put should NOT increase 100 points or Rs. 7500 per lot CE and PE. If its 2 lot 15,000 is at risk.

In reality you will not lose all

Fact is its notional loss. We will look at a profit of 20-30 points that is 20% to 30% return on the long options. OR exit at 30 points loss. VIX will not fall fast. So a combined loss of 30 points in 3 days looks very difficult. And for sure due to Volatility there will be a big move once in 3 days. There you go. That day when the total points of CE and PE exceeds 120-130 odd points – click the sell button on both.

Do not wait for reversal – exit both the positions

Though the possibility of reversal is very high during high volatility times – its a huge risk to get off one side of the trade thus making huge profits and waiting for a reversal. If Nifty does not reverse, then that 20 point profit may go down the drain.

Why are Puts costlier than Calls during high Volatility Time?

Right now, do you notice the difference between At The Money Call and Puts premiums? The reason is pretty simple. During high volatility times there is fear in the markets. The high net worth individuals and institutional investors have stocks worth crores and its a must that they save their portfolio from going down in value in case there is a severe crash. The only way to protect their portfolio is to buy Puts.

Market makers know this. So to make sure that the markets remain a level playing filed for all, they make the Puts costly. Please note that its not done manually. The software controlling options premium knows important event dates and acts accordingly. You see if during these times if Puts are not costly, who will sell puts? For example right now there is panic in markets, can you sell naked puts even 200 points out of the money? So until and unless I am paid pretty well to sell puts I won’t sell. And if there are no sellers, there can’t be any buyers and trading halts. Market makers do not want this to happen, so its obvious Puts will explode in value.

During normal times getting less premium is ok. But when the risk is high why shouldn’t the put sellers get more money to sell these dangerous options.

If puts are not priced high, no one would dare to sell them and the whole market place would stop trading. Also not that as time passes, Puts will get even more costly compared to the Calls. Until of course the budget.

The calls also needs to increased in prices, though not as big as puts just to make sure there is parity in pricing of the options.

Trade Calendar Spreads

Experienced traders can trade calendar spreads. These are spreads where the trader sells options this month and buys far month options. It does not matter which far month – but in this situation its better to be long in March options and Short in February 2016 options.

WHY?

That’s because Calendar Spreads are Long Vega (Volatility). Now its pretty simple to understand that VIX is not going to fall until 29th of this month. However February options have to expire on 25th only. Now whatever the VIX, even 60, on the expiry day it has to become NIL by 3.25 pm. But VEGA of next month options cannot expire so they keep the VIX of 60. Do you get the point?

This situation can be exploited beautifully trading the the Calendar Spreads.

On the expiry day, this months options expire worthless, and there is huge probability to make money from bought next month options as well. So both the sell and the buy trades makes money. 🙂

So the trade is SELL an OTM (Out Of Money) Call Option expiring February 2016, and buy the same strike Call Option March 2016.

Similarly SELL an OTM (Out Of Money) Put Option expiring February 2016, and buy the same strike Put Option March 2016.

Keep an eye an exit at reasonable profits.

Warning: Calendar Spreads are for experienced traders. Its not an easy trade. My course has much better and easier trades than this. These spreads work great when next month Vega will increase and current month Vega may drop or get finished by expiry. As you can see, this is the only month in the year when we are sure of that. The other months Calendar Spreads may not work.

Well for most, budget trading is not a easy trading. Most people who sell options lose big time during this month and they don’t know why. Reason is huge movements like you saw today and an increase in volatility. I am sure a lot of option sellers lost a lot of money today.

That’s the reason my emphasis on hedging. If you lose small money it won’t pinch. Imagine losing months of profits in a single day’s trade. That’s not something you want. My course will teach you better hedging techniques and also strategies that can help you make money from the stock markets peacefully. I don’t promise a lot, like others do, but I can only say that after one year of trading my strategies you will be in good profits. Isn’t it better than losing money trying to make too much money from trading? You decide.

Please do ask questions in the comments section below.

Here is some help for people who have taken my course and are trying to back test strategy 1 and strategy 2 of my course. He is a full time trader since the last 4 years. He has already done the job of back-testing my strategies for you.

If you cannot read the below testimonial please click on the image to enlarge and read. This will help people who trade Strategy 1 and Strategy 2 in huge number of lots:

Testimonial – 30 January 2016 – Results may vary for users – Click on the image to enlarge and read

Here is the text of the email if you are seeing this post on mobile phone and for some reason cannot enlarge the image:

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

See that he trades on 14 lots which is 14*75 = 1050. So basically margin blocked is 40,000 * 14 = 560,000 (Five Lakhs Sixty Thousand.) I think slightly less than that.

Whatever, 3% of 560,000 is Rs. 16,800 per month. Remember that good traders do make more and specially Strategy 2 makes around 5% a month. But lets calculate on the average case scenario on Strategy 1. He has NEVER lost money. So his profits in last 7 months is 16800 * 8 = Rs. 134,400.00.

Remember when you call me to inquire about the course I say success rate is 80-90%? But here we have a trader whose success rate is 100%. If you can time the VIX your success rate also can be near 100%.

134,400 is 24% of 560,000. This means in 14 months around 48% returns. Lets take out 8% just in case he makes small losses in couple of trades. How is 40% return in 1 year and 2 months? And this in the conservative strategies alone. I am not even taking into account what the other strategies can do – the conservative stock option and the directional trades.

One more thing – these are ALL REAL traders doing REAL trades – just like you.

In my view this is MUCH BETTER than what Ravi accomplished. Why? Because he is sticking to very conservative approach and making sure that his growth is slow and steady and forever. No fear, no Intraday – just pure conservative approach to trading.

We have not even looking at the compounding effect this can have. Today he is trading with 14 lots, tomorrow 24 and then 50, 100? Sky is the limit when you trade conservatively. When you know the max loss is 10 or 20 points why stop at 14-20 lots. SCALE. That’s my idea of my conservative and compounded trading strategies.

I hope if you have taken my course, you are enjoying trading too. 🙂

If not here is the details of my conservative option trading course.

Please refer my last post on How To Trade When Volatility is High where in Section 4 I mentioned that you can try arbitrage trading as during high volatility, the Futures premium will swell giving great opportunities in arbitrage trading.

In a nutshell arbitrage trading is an opportunity where the trader tries to profit from the difference between prices of different trading instruments of the same underlying. The most popular of them all is to buy any stock in cash, and sell its Futures. Since Futures has a premium – this is the traders guaranteed profits on the expiry day. On the expiry day price of Futures and the stock will be same, hence giving guaranteed profits to the trader minus the brokerage and the taxes.

I also gave an example of arbitrage opportunity in the stock HDIL with live premiums as on 18th of January 2016. For more details please read this post. Since VIX is high now there will be many more arbitrage trading opportunities in the stock markets especially in the Futures/Cash segment.

One of my blog subscribers emailed me with a few interesting questions. I thought to convert this into a post in itself.

After reading this post you will learn the pros and cons of arbitrage opportunities in stock markets.

Here is his email. Please read his email to understand my answers better.

Hi Dilip,

Myself Abhi (name changed), taken your course in January 2016. Thanks a lot for such a good course. I am really benefited with the course.

Recently I was going through one of your article about arbitrage where you have taken the example of HDIL. What I understand by arbitrage is that if there is any price difference between actual share price and its future price then we can apply this method and it is an guaranteed profit.

Profit = (future price – actual share price) * no. of shares per lot.

I got your point about volatility that due to high volatility price difference will be there to make good profits.

Based on the above here are a few questions I have:

1) Should we really care about volatility? We just need to find the stock whose future price is greater than the actual share price, whatever is the volatility. Finally, at expiry we should be in profit. Please let me know is there any point I am missing here.

2) Is there any scenario where we can be in loss or is this always a guaranteed profit strategy?

3) If this is a guaranteed profit strategy then why this strategy is not followed by lot of people? Also is it not something deserved to be in your course.

4) You have explained all positives of this strategy beautifully. Could you please share some negatives also about it so that we have complete knowledge about it.

Example:

I also searched for TCS. TCS share current price is around 2290 and its March Future is at 2314. So the difference is 24 Rs. As per this arbitrage strategy Rs. 24/- per share is the guaranteed profit at March 2016 expiry. Could you please let me know if I am correct in my understanding?

I searched for this stock only but there might be numerous stocks like this.

Hope to get your reply soon & Thanks a lot in advance.

Thanks & Regards,
Abhi

My reply to Abhi:

Thanks Abhi for the kind words. Its really nice to know my course has benefited you. 🙂

Now to answer your questions:

1) You are correct. Volatility does not matter. If you can find a stock having huge difference with its Futures price, profit is guaranteed. No need to care about volatility.

2) No scenario of loss in arbitrage strategy, though profits are smaller but guaranteed – every time. There can be slippages though and that’s the only issue. For example as soon as you close the Futures trade in profit and the stock falls 1% then that is the risk you need to understand. In such a situation close the stock first, and then close the Future as it is in profit. But then the stock can move a few points up and you may lose the profit in Futures. To counter such a situation I suggest open the trading platform in two different browsers and try to close the both the trades as soon as possible without wasting too much time.

3) Lots of reasons people do not trade this. Here are a few:

a) The biggest reason is that traders simply do not know the arbitrage strategy. Like you discovered after reading my post. 🙂

b) Another reason is, now days its very hard to find such arbitrage opportunities giving meaningful returns.

c) Liquidity in most stocks is very poor in India especially in Futures. You may find an opportunity but you will see that no one is trading. Ask and bid price difference in Futures will be poor.

d) Profits are small. Less than 1% a month is not very attractive. If stock soars, you will not be able to profit even if the stock doubles in 6 months. You will only make 6% in six months that too in the best case scenario. You will then regret your decision to arbitrage.

e) Trades are boring. It is really not very exciting to wait full 30 days and make just 1% on your trade when you can actually make more through the non-directional strategies in my course. Humans hate anything boring. So these trades are not very popular.

f) Lots of cash is required to trade this strategy. Minimum lot size in stock is now 4-5 Lakhs. Over 95% of traders do not have this much cash in their trading account. Those who have, are not satisfied with 1% return a month. They are high net worth individuals, and are willing to take risk and make more. 1% a month is not attractive to them.

For example taking your TCS as example, you will make some Rs. 4800/- in 60 days. TCS lot size is 200 and price difference is 24. So 24*200 = Rs.4800/- is guaranteed profits. Margin blocked in this trade will be 2290*200 = Rs. 458,000/- minimum. This converts to an ROI of (4800/458000) * 100 = 1.04% in 60 days. Approx 0.50% in 30 days. This is NOT a good return in any sense. This when VIX is high. Imagine the kind of returns you will get when VIX will be on the lower side. I have not even deducted the brokerages and taxes. After that probably you get to keep 0.40% in 30 days. In stock markets you should take calculated risks to make more money, but 0.40% return is just not worth any kind of risk. Not even in the US where 1% a month return is considered great.

So why it does not deserve a place in my course? No one would like a strategy that guarantees just 1% or less per month. Convincing people to buy strategies that can make 3% or more per month is difficult; forget about telling something that makes 1% a month even if guaranteed. No one would care for 1% a month strategy, including myself. They will think I am a fool. Also, it will give me a bad name to sell something that only a few people can trade and which is known by most advanced traders. I cannot destroy my name for 1% return a month.

And in fact even I am not interested in selling something that I would rather teach for free.

This strategy has no negatives except poor returns.

All in all after paying brokerages and taxes, you will end up making less than 10% in a year. And since it is almost certain that you will not hold any stock for more than 1 year – short term capital gain tax will come into effect. It will take some more money out of the profits. So you remain somewhere in the range of 7-8% per year. In fact if you keep this money in a good medium to long term debt fund for 3 years you end up making almost 10% a year return and you do not even have to pay taxes on them. On top of that there is no need to look for arbitrage opportunities in stocks and no need to trade as well.

All in all arbitrage is a good to trade only when you are getting more than 2% in a month for the margin blocked, else I would say markets have better opportunities to make money. If you are good trader look for better opportunities to make money.

Hope a lot of your doubts are cleared on the arbitrage stock trading. If there are any more please ask in the comments section.

India VIX is currently at around 20. 20 is considered high VIX, if not very high. It’s great time for option sellers – they get good premiums. But during these times there is going to be an issue. Budget 2016 is coming and this is big news for the markets. So its likely that VIX will not fall too much. Even if it does, it won’t go below 18.

In fact starting next month it will start rising until the budget day when it may fall 10%. I think day before budget it will be at 25 or more and will start falling from the budget day onward.

This is not good news for sellers. If you are an option buyer. This is the best time to do business. But please have a tight stop loss system in your trading plan.

What can sellers do when Volatility (VIX) goes high?

This is a problem traders face worldwide. When VIX is high its great to get good premiums. Due to this traders get lured into selling options only to see huge movements and face losses.

High VIX also means huge volatility, don’t forget that.

So how do you counter huge volatility when VIX is high? Here are some guidelines to help:

1. Since premium is high, reduce the number of options sold. You are getting the same money for taking less risk, why trade more?

2. Warning: Slightly Risky. Sell both ATM calls and ATM puts to get huge premium. This trade is also known as Short Straddle. If you are doing this, trade on a strict stop-loss system.

Lets say if you can afford to lose 20 points – then as soon as you see you are losing 20 points just close the trade. Same with profit booking – book your profits as soon as you get 20 points when you buy back to close. Over a long time this will work. Why? Because option buyers are losers and most of the time sellers win. When you don’t you take a Stop Loss. That’s it. 🙂

If in next 4-5 days there is not much movement and VIX drops by even 2-3% you will get close to 20 points on these two options. Remember that January Expiry is on 28th and there is not much time. ATM options have no intrinsic value, just time value and they have maximum time value than any other strike option. January 2016 options have already entered into the final 10 days. Theta will get very strong here.

For example on 18-Jan-2016 closing basis Nifty is at 7350 and I can see this:

28-Jan-16 CE 7,350.00 99.30
28-Jan-16 PE 7,350.00 82.70

Total premium received is 99.30+82.70 = 182

Sell these two.

Stop Loss will be when the these two become 182 + 20 = 202.
And Profit will be when these two become 182 – 20 = 162.

That’s it more often than not you will profit.

3. Buy more options to cover losses of the sold options. This is a great method if you love hedging. For example you can sell 1 lot of 7350 CE at 99.30 and buy 2 lots of 7500 currently at 36. So basically you still get a credit of 27.30 points. If Nifty expires below 7350, 27.30 points is yours to keep. But if Nifty starts moving up, the 7500 will start bringing double the profit than 7350 sold call losses. You can exit at 20 points profit.

However please understand that this strategy gets risky if expiry is close as you can make a loss in ALL three legs. For example if Nifty closes at 7500, you will lose money in sold options AND lose money in the bought options as they will expire worthless.

So do this when enough days are left for expiry.

4. Try Arbitrage if you have Cash: This is trying to benefit from high VIX when the premiums are high in Futures as well. You can buy a stock in cash and sell its far month expiring Future. For example lets take a high volatile stock whose volatility is high. This is guaranteed profit trade so the quality of the stock or the company does not matter.

See this. The price of HDIL on 18-Jan-16 closing is 65.95.

HDIL 18-Jan-2016 Closing Price

And see this. HDIL Futures expiring in March 2016 closed at 67.50 on the same day.

HDIL Future March 2016 – Closing price as on 18-Jan-2016

Lot size of HDIL is 6000.

So the difference is 67.50-65.95 = 1.55 * 6000 = 9300.

If you close both on expiry day of March 2016 then its a guaranteed profit of 9300 rupees on one lot traded.

Margin blocked will be 66 * 6000 = 396,000. Around 4 Lakhs. Ok the profits are less at around 1% per month – but mind it its a guaranteed profit so even 1% a month is good if its risk free. 12% return in a year without much risk is in my books a great return.

How is the Profit Guaranteed in Arbitrage?

Well its simple mathematics.

Assuming on March 2016 expiry day HDIL is at 100 (best case scenario). Note that on that day premiums from the Futures will vanish and only the intrinsic value will remain.

Profits from cash: 100-65.95 = 34.05*6000 = Rs. 204,300
Loss from the Futures: 67.50-100 = -32.50*6000 = Rs. -195000

Total profit: 204300-195000 = Rs. 9300.00

Assuming on March 2016 expiry day HDIL is at 10 (worst case scenario).

Losses from cash: 10-65.95 = -55.95*6000 = Rs. -335,700
Profits from the Futures: 67.50-10 = 57.50*6000 = Rs. 345,000

Total profit: 345,000-335,700 = Rs. 9300.00

As you can see once the trade is done whatever happens to the stock on the expiry day, you are guaranteed a profit.

But do you really have to wait till expiry?

See this the Futures contract rate of HDIL of the January 2016 expiry:

HDIL Future January 2016 – Closing price as on 18-Jan-2016

Its going almost at the same price 66. There is little difference. What does this imply? This means around Rs. 6000 profit in 30 days. I assume after 30 days the difference between the HDIL Future expiring in March 16 and HDIL cash will be only 3000, so essentially Rs.6000 is your profit in 30 days flat. Hey and this is guaranteed profit. 🙂

Lets calculate ROI:

(6000/396000) * 100 = 1.5% guaranteed risk free profit in 30 days. Isn’t it great?

Note: These are possible only when volatility is high. During low volatility times there is not much of a difference between Future premium and cash value of the stock. Arbitrage is only possible when VIX is high.

There was a time when there were plenty of such opportunities in the markets. Unfortunately many traders started abusing the system and market makers reduced these opportunities. Now these arbitrage opportunities are rare but still if you do some research you will find some opportunity in some stock.

For example I searched an opportunity in HDIL in less than 5 minutes. When you are experienced you can easily find these opportunities. Just target volatile stocks.

Remember that its not just 12% return – you can ask collateral against shares and trade a few conservative strategies and try to make more. In my course there is a better conservative stock option trade which is much better than plain arbitrage. The profits may not be guaranteed, but over a period of time we get that. Its not a big deal.

Also note that when you hold the stock you are also eligible for all dividends. These dividends are tax free.

What more do you want?

Arbitrage is STILL ALIVE Big Time in Stock Markets

Have you heard of Hybrid Arbitrage Mutual Funds? You can see a list of arbitrage funds here in value research. Can you see that 1 year return of all the funds is almost same at 7%? Why? Because all fund managers of these funds are doing the same thing. They buy in cash and sell in Futures. That’s it and chew bubble gum till expiry day. Close the trades and make profits for themselves and the investors. Their job is “trying to find out great arbitrage opportunities in the markets”. They take help from systems and huge data that they have. They still make 7% a year. Imagine 7% profits on hundreds of crores of rupees and get 2-3% of the profits. That’s huge for the mutual fund managers, and almost nil for investors. 7% is equal to inflation. So basically they make huge money and return you the same money after few years. You feel you made 7%, in real terms that is ZERO returns but you end up making crores for the mutual fund managers and the fund house. This is an arbitrage in itself.

You can do arbitrage yourself, and fetch much better than 7% a year. You just read how. High VIX are the best times for arbitrage opportunities. Research now you may find better stocks than HDIL.

5. Even the far OTM options will fetch good premiums. For example on 18-Jan-2016, Nifty 7050 PE was going at around 16. After all what are the chances that Nifty will fall that far after already falling almost 10% in just a few days? Time is running out. Even at a slight pull back of 100 odd pints, this 7050 premium will fall to 5 and you can close with a small profit. This is just an example. You can get better premiums in stocks. Of course do this with a strict stop loss system in place. Pease understand that selling naked options is risky and its advisable you do it only when you are experienced in shorting naked options. Else I recommend learn hedging techniques which can reduce you losses, yet give you ample scope to profit.

What do you do when VIX goes high and there is a high chance its going to stay there for sometime?

First a note for people who bought my course in January 2016.

After the mayhem in August 2015, we are in somewhat similar satiation in January 2016.

The point is every 6 months or so option sellers will have issues in managing positions.

INDIA VIX has shot through the roof and is currently at 20.75 up 12.59% since yesterday at 1 pm today. Nifty is down 1.52% at 7300.00 down 1.79%.

All this because of turmoil in China and Crude prices hitting 12 year low. We all know all this will phase out and again markets will get stable and start rising.

China will act fast and get its economy running again. Demand for Crude oil will start rising due to low prices and it will start going up again. Result? VIX will fall, Nifty will rise. I assume not until the budget is over. VIX will be between 25-30 until budget.

If you bought my course in January 2016, you might be seeing a small loss in the first strategy. This is perfectly OK. This is normal. The strategy works 80% of the times. The rest of the times there can be small loss and we as traders have to accept the fact that no strategy in the world can make money always. I hope you remember that when you call me asking about the course I tell you in plain language that the success rate is 80%. But one thing is guaranteed that over a period of six months you will be in profits.

Another thing that is guaranteed is that you will trade in peace. Even now when we are seeing a small loss we are OK and we know we are better than 95% or traders who may have lost lakhs of rupees during the month of January 2016. Comparatively we are much better.

This is for everyone:

If you are trading with one or two lots there is nothing to worry. But if you are trading with more lots you can do a few things:

1. Close a few lots – half is good enough. This reduces risk. Strategy 1 may hit SL or may not hit SL – this is irrelevant. Right now there is panic in markets, so we will take less risk. When times will be stable we will trade with maximum capacity. Currently its not the right time to be aggressive. PERIOD.

2. Buy more protection. This will give amazing protection. If swift move one side happens with VIX not dropping, it may actually be profitable. One side is guaranteed to make money, the other side will also make money. Try it.

3. Close all option trading and start buying stocks. Remember the phrase – Buy when everyone is selling and sell when everyone is buying. I cannot tell you how many times I have profited from this simple basic strategy alone. Today also I bought my favorite stocks. In fact I never trade options in cash. I am always invested in some stock and ask collateral from my broker. If you read strategy 3 – the conservative stock option trade you will see how beautifully you can use this strategy and make money from three places. Unfortunately traders in India want to make money only in options. This is nothing but ego. For God sake leave ego behind and trade smartly. Money is money is money. How many times I have said in my blog that profits are profits – it does NOT matter from where you get them. The only thing that matters is how much taxes you are paying on that. One year investment in stock and you pay ZERO taxes. Even if you make 10% that is free money. Ask collateral and trade conservative option strategies – and you are now easily hitting 30% + a year mark. You only need to make 20% from trading options. Which you can easily achieve from my course. Remember you pay taxes only on the options profits not on the stocks. How sweet is that?

Agreed stock may not rise. But for how long? Go and see history. Great stocks deliver great returns every three years.

Click here and see this graph of HDFC Bank. You will see 20% compounded return per year return on average whatever happens to the stock markets. Now see its 6 month return, it is almost ZERO. Who cares? Your broker is giving you collateral to trade options – you are making money anyway. One good year and HDFC bank will double – doubling your money. 🙂 How simple is that? But your ego to trade options and make money is actually taking your money away. It is not the stock markets fault. Its your ego and you are not letting it go.

I buy MORE when everyone is selling in panic. Yes and I did that today as well. This is the best time to buy stocks. Some of the stocks will double when Nifty will be at 9000. And you do not need a technical analyst brain to understand that it will not take 5 years reach there. Even in the worst case scenario it will be there in three years. Money doubling in three years – do you really want more from the stock markets? If yes, you will lose half your money in three years. Yes I am not joking. Because you will trade aggressively to make more and lose. Some people are really good at it like Ravi, but can you be Ravi – that is the question.

Do not get me wrong, great traders make amazing returns from the stock markets. But not all can be great traders. Learn to accept that.

Bottom line is learn to use leverage. Options and Futures are leveraged product – why trade them on pure cash?

4. Try the directional strategy: Yes markets are moving and how. On 30% of your capital try the directional strategy of the course. All it needs is movement and you are done. But please DO NOT copy Ravi.

After Ravi’s success story I get lot of emails on teach me to trade like Ravi. In the hindsight what they mean is also tell me the secret to make 40% return in a week. Simply put that cannot be taught, that needs practice and a lots of practice. I can show you the path, but it is you who need to walk not me. Remember on a new year’s eve on a weekend this person was working on the directional strategy. When most of us were having fun, Ravi was working. Why shouldn’t success come to him?

One person who has taken the course told me that he is willing to pay again for the course – but I need to teach him to trade like Ravi. 🙂 The only difference is that Ravi chooses different strike prices on different situations. THE TRADE IS THE SAME. This comes only from experience and practicing. So please practice if you really want to trade like him. I did not reply him I hope he is reading this.

Tomorrow again I will write on how to trade when VIX is high. I hope you will read that as well.

Thanks for reading and being my subscriber.