Since I started the Conservative Options Course in 2015, I have talked with many traders who either lost too much money trading options and wanted to recover their money or made some money now and then but not consistently.

It’s a privilege to be able to talk directly with so many traders all over India. So I know what they want, why they trade and why they lose.

Most traders want consistent income trading options. It is good that most of them knew that it is not possible to double the money in 2-3 months trading options but almost everyone said they heard that someone out there is making 100% or more in every trade.

But when I asked them to name that person, they replied that they have just heard not seen.

The fact is they will never see that person because no one makes a 100% return in every trade. If this is not possible then what is? Generating small but regular income is a possible trading option. Options trading is NOT a get-rich-quick scheme that most of the newcomers to the trading world think.

In this article, I will explain some option income trading strategies. These types of strategies try to generate income regardless of the market condition.

When I was new to the options trading field I thought the best possible way to generate easy money was to buy a call and a put at the same time – one of them will make money. This is simply not true. Though it may work 1 out of 10 times, you do not know which is that time and hold, so you may end up taking a loss even though this was the best time to hold.

If you want to make consistent income trading options you have to practise trading them initially on paper and then in the real market.

Options Income Trading are strategies aimed at generating profits or income over the long term while minimizing price and volatility risk. Unlike directional trading, income options trading does not rely on price fluctuations of the underlying asset to generate returns.

Income strategies are designed to perform best when the price of the underlying asset is flat. Due to the lack of direction, the yield strategy can be profitable in both bear and bull markets.

Some of them are iron butterflies, straddles, strangles, condors etc. They are freely available on Youtube and many websites online. Yet 99% of traders lose money according to a SEBI report.

My paid course, therefore, has all non-directional option income strategies. The difference between my course and freely available strategies is that you cannot contact anyone for help to understand the strategies. But in my course, you get help for one year. Without a mentor, any freely available strategy is not worth trying as anyone – even your neighbour can upload a strategy on YouTube. This is counterproductive and dangerous for their followers. You cannot blame the Youtube video makers for your losses. It was freely available and no one forced you to follow. So you can only blame yourself for the losses.

To be honest, unless a trader is good at discerning price movements and market direction, it is difficult to accurately determine the direction of an underlying asset’s price movements. Even technical analysis cannot predict the market direction 100% of the time. They are correct 50% of the time. This is because the short-term movements of stocks are very random. So discipline is more important that the direction you are taking as per your technical analysis.

Therefore it is advisable to trade direction independent strategies also known as option income strategies. One of the advantages of option income trading strategies is that you don’t have to choose the right direction.

For this reason, option income strategies are also called non-directional or delta-neutral strategies.

Trading for income doesn’t give you much profit, but it often doesn’t give you much loss either. The reason is all the strategies are non-directional and are properly hedged. The hedge ensures that you rarely lose money and even if you do you its not huge as the hedge will make some money while the original trade loses.

The naked traders lose everything however the option income traders only lose a part as some of the losses are offset by the hedge trade.

It’s unfortunate that most of the traders who know that a hedge will save them from huge losses still chose to trade naked in the hope that they will make a lot of money. In reality, vice versa happens. Then they go for revenge trading. Instead, one should keep patience and try to bounce back from bad trading.

The bank nifty lot size will change to 15 from 25 and even the expiry day is changing. Read the details below.

BANKNIFTY Futures and Options expiry day is changing from THURSDAY to FRIDAY.

NSE (National Stock Exchange) has not given any reason for this but I feel they want to finish the weekly FnO contracts on the last working day of the week.

Please note that even though they are known as weekly contracts they start trading much before the start of the week. This means that technically an option expiring next week should start trading from the expiry day of the previous week, but they start trading before that.

So what will happen to the current contracts that are set to expire on Thursday?

Nothing to panic about – they will expire on Thursdays only until Thursday, 6th of July 2023. This will be the LAST Thursday expiry of Banknifty Futures and Options contracts. From next week the Banknifty options and future contracts will expire on Fridays.

The first FRIDAY expiry will be on FRIDAY 14th of July, 2023.

After the market closes on Thursday, 6th of July 2023, all contracts will show the expiry date as Friday of that week not Thursday. This means on Friday, 7th of July 2023, when you log in to your trading account you will see all bank nifty futures and option contacts showing the expiry date as Friday, not Thursday.
There is no other change. So there is nothing to panic.

Now coming to the banknifty lot size. Currently, it is 25, however, the lot size of banknifty futures and options is reducing to 15 from 25 now.

All contracts expiring after July 1, 2023, will have the lot size of 15.

Please note that when the lot size changes margin also changes as per the size of the lot.

See how with the change in the lot size, the margin of banknifty futures and option selling will reduce.

Here is the difference – margin calculation done in June 2023:

Current lot size 25 – Future / Option selling margin required: 1,47,032.00
All contracts expiring after July 1, 2023 – lot size 15 – Future / Option selling margin required: 88,668.00
Margin calculator used: ZERODHA

I think this is done mainly to increase the participation of derivatives traders of banknifty.

On one side the market makers try to reduce the retail traders from entering the derivatives markets, on the other side, NSE does tricks to get more retail traders to trade. Not sure what exactly they want.

Anyway, all I can do is remind you to is to trade safely and carefully. Learn to hedge and respect your stop losses.

What will happen when the Bank Nifty lot size will reduce from 25 to 15:

1. It will bring liquidity to the market.

2. The selling margin will reduce from Rs 1,40,000 to Rs 85,000. This is 40% less. So some of the experienced traders will become sellers, who were buyers till June 2023.

3. There are a lot of traders who still do not know that if you hedge then the margin gets reduced for selling options and trading futures plus it also reduces the losses. These sellers will increase the number of Nifty Bank lots sold, compared to what they were selling now when the lot size is 25.

4. Then you have some I-am-very-smart-trader thinking type of traders who know that hedging reduces the losses plus the margin required but still do not hedge because they think they can never go wrong. These people will sell more than they are selling now as they will have more cash in hand.

5. High liquidity brings down the volatility in the markets. This will decrease India VIX and bring down the option premiums of both Index – Nifty and Bank Nifty. This is good news for my course customers – the success rate of strategy 1 will increase from 70% to 80%.

6. Option buyers will lose less due to decreased lot size but their loss percentage will increase.

7. Risk management will become easier as traders with 3-4 lakh cash will have extra money now to mitigate risk. Though trying in vain to save loss in a losing position results in more losses.

8. I feel a reduction in lot size in Nifty will also follow suit.

If you are an option buyer I suggest keeping your stop loss and profit levels looking at the level of the stock or nifty / bank nifty – not the option value.

For example, if you bought a call option then wait for a 2% move either way for the stock/index to move.

Do not wait further. Either it’s a small profit or a small loss. But at least 2% moves come fast and there is not much theta loss. That way you can be in the game for a long time.

You can do my paid course and learn strategies that work in any market condition.

If you hold stocks that have fallen, be patient.

It usually happens that when the stock markets are low, few people buy stocks, and when they rise, everyone is on a buying spree. It should be the other way around.

If you have bought stocks recently (June 2023), they are likely near their all-time high, as Nifty 50 is also trading near an all-time high. From an all-time high, the stock usually falls. In that case, be patient. It will prove to be rewarding.

If you have invested too much in a single stock and if it has fallen more than 20%, then you can take a partial stop loss.

A partial stop loss is an exit from a few stocks you hold. It could be 25% of the stocks. You can hold the rest of them until they make a profit.

India VIX at the time of writing this email is 10.65. This is considered a normal market condition. Which means it will be tough to predict where the markets will go.

So what can you do?

1. Research
2. Plan a trade
3. Decide where you will take a stop loss (this depends on how much loss you are willing to take).
4. Decide where you will make a profit. Ideally, your profit should be double your stop loss.
5. Take the trade.
6. Once it’s confirmed set the GTT (Good Till Cancelled) in the system and forget.

GTT is a feature that allows a trader to set a stop loss and profit in the system. So suppose you bought an option at 100. You can set the stop loss at 95 and the profit at 110. The GTT system will automatically trigger your profit or stop loss whichever is hit earlier, and cancel the other GTT order. This is called OCO – One Cancels the Other.

GTT stays in the system for one year or till the order is hit or till the expiry of the options/futures or cancelled by the user – whichever comes earlier.

Suppose 110 is hit – the system will close the stop loss order of 95 GTT automatically. And if 95 is hit, then the system will close the profit target order of 110 GTT automatically.

This broker gives GTT features free of cost. Plus it does not even charge on stock buying and selling.

More articles on India VIX:

Nifty And India VIX Are Inversely Proportional

How India VIX Is Calculated and What to Expect After Seeing High or Low India VIX

Low India VIX Indicates Not Much Move in the Stock Market

India VIX over 17 What It Means

In this article, you will learn the strategies you can apply after looking at India VIX.

Today I got an interesting India VIX query via email from one of my clients. So I thought let me post it in the blog to help people.

The question is here:

Dear Dilip,

Good morning.

Just trying to know a concept for Option Selling or Hedging strategy.

Here are some range bands of India VIX:

10-15
15-20
20-25

Generally, for the above figure which range-band is best for options selling strategy like straddle, strangle, covered put, covered call, iron butterfly and iron condor?

Which India VIX range is generally considered for buying or selling Nifty Futures and BankNifty Futures.

Can you give some ideas or write an article.

Thanks for your cooperation.

Regards,
Rabindra

My reply:

First, you can see live India VIX here:

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

India VIX can only indicate future volatility – and this is just an indication, not a guarantee. But yes it does help to decide what kind of strategy to deploy on a particular day.

So if you see India VIX at the 10-15 range, it is advisable to trade conservative strategies as they are unlikely to hit the stop loss. Though the profit may be small, you will end up making some money which is better than losing money. It is better to make a small profit than to make a small loss.

In this range, it’s better to trade option selling strategies like straddles, strangles, covered put, covered call, iron butterfly, iron condor etc.

If you see India VIX in the 15-20 range, you can do a combination of trades. This means trading with some money the conservative strategies like the iron condor or ratio spreads (as described in my paid course) and trading some aggressive strategies like future hedged with options which are also there in my paid course.

If you see India VIX in the 20-25 range, it is advisable to try debit spreads or aggressive strategies like future hedged with options aggressively. India’s VIX in the 20-25 range is very dangerous for the markets. Here the intraday swing can be up to 3% up or down, and the gap up or down openings will also be very wide.

In this range, you can also do long calls or put straddles or strangles. However, do not go overboard and trade with multiple lots. Even if you are HNI you have to trade with max 5 lots.

I hope this helps.

Well, this is not news but for investors and traders these things are important.

Here are a few things that will happen:

From April 2024 India VIX will increase up to 30 – then after the results are out, it will fall to 20 within 2-3 days. Then depending on how the new government works it will again go up to 25 or come back to normal levels of 15.

Option premiums will go up and down as per the Inda VIX. They are directly propionate. However Indoa VIX and Nifty are inversely proportional. You can read more about it here.

Historically Indian stock markets move up before the general elections.

Equity markets in the calendar year before the past five general elections have shown wide variance, with NSE Nifty 50 returning gains of 70% to suffering a plunge of over 50%. And the benchmark has been muted in the year before the last two general elections—rising less than 6% in 2013 and a little over 4% in 2018.

More details here:
https://www.bqprime.com/markets/how-indian-markets-react-a-year-before-the-general-election

So what you can do as an investor?

Pick good stocks and buy them in small amounts every month for the next 12 months. Sell them at a reasonable profit just before the results of the elections as you never know what will happen after the results are out.

Want to buy and sell stocks without paying any brokerage? Open a free demat account here.

In this article, I will discuss why traders hold on to losing trades but do not let profitable trades run for longer. This single action is 90% responsible for losses.

Here are the reasons:

1. NO PLAN – I have written in my blog many times but it seems it has become a habit. Most of the trades taken by novice and even experienced trades is not pre-planned trade. They take a trade because they think it will work in their favour. This results in no planning of when to exit. By exit I mean you should know well in advance when to exit the trade – profit or loss should be well-defined.

Assuming that even if it was planned – things change when the trade is live especially when the trader sees a loss in the business. The plan changes due to HOPE. Hope is the second reason for taking more losses.

2. HOPE – For the time forget about stock markets. In life when something goes wrong we start praying and by doing so we gain hope. A hope that slowly things will get fine. Sometimes it does and sometimes it does not. But eventually, with time we get adjusted to the situation. Life continues.

The same thing happens in stock trading. We sit on hope, hoping against hope that the tide will turn in our favour and we will exit in profit – but it does not happen – expiry day comes and we take a loss.

Hope is not a solution to a losing trade – Stop Loss is.

Is hoping that the trade will turn in your favour wrong? No not always. If you have invested in a good company with sound fundamentals for the long term – then hope is the only solution for the stock to bounce back in your favour. It works because long-term investing has no time limits. But the situation is not the same in derivative trading. Expiry day usually is a few days away and you cannot sit on hope. You have to take action within the specified time else you may face a huge loss.

Sometimes losses become so big that it takes a lifetime to recover the losses. Here is one trader who lost 2 crores in options trading.

I do not think this person will be able to recover his losses.

Lesson: Do not let losses run so huge that it destroys your life.
If you can overcome this simple mistake of letting your losses run you will eventually stay in the game longer and become a good trader.

3. EGO – The mindset that nothing wrong will happen to me this time is a great motivation to hold on to losing trades. When traders lose the thinking changes to the next time they will not lose and the circle continues. This is a major issue for male traders, not females.

I cannot be wrong is a psychological phenomenon that can happen to anyone – it’s called – cognitive dissonance. It is normal but one should admit the mistakes in trading, learn from them and never repeat these mistakes. But it seldom happens.

Lesson: We are humans and can make mistakes. Make a note of all mistakes you do while trading and if possible read them once every week. If you read these mistakes will be ingrained in your brain and you will not repeat them.

4. Sunk Cost Fallacy – a phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.

This is a major concern for all financial decisions. This problem is not limited to retail traders, it is for HNIs as well. Investors who have already invested so much time and money into a position cannot bear to cut their losses and give up – so they wait and wait until the loss becomes unbearable.

Lesson: Agreed you have done some research and invested a lot of time and money – but what is failing is failing it’s better to cut short the losses. When you entered a trade you knew in advance that you are taking a risk, so you should exit when that time comes when the loss is manageable.

What is the way out?

When you enter a trade you should know that there is a 50% chance of winning and a 50% chance of losing. So define both profit and loss before you enter the trade. Here is a tip – keep the stop loss target 50% of the profit target in all the trades you take. Now even if you are right 50% of the time you will end up being profitable over the long term of your trading journey.

On Apr 8, 2023, I wrote to my email subscribers that India VIX is falling suggesting an up move. Today (Monday, 10-Apr-2023),  see that it is indeed going up:

If you want to receive my educational emails on investments and stock markets, you can signup up with the application above.

Today’s condition is rare – India’s VIX has gone up and Nifty has also gone up. Usually, they do not go in the same direction. If one goes down the other goes up.

India VIX is the fear factor index of the Indian stock markets. When unusual trading increases, India VIX – its just software, thinks that unusual trading means people are fearful – therefore it increases proportionately to the pattern of unusual trading compared to the statistical data it has of many years. And of course, when there is unusual trading it means that people are selling off their assets – whether it is options, futures, commodities or stocks. In this condition what will happen? Stock markets will fall.

When there is a normal pattern of trading, India VIX tends to fall indicating low fear in the market. When the total volume in trading decreases to 10% or less compared to the usual data – India VIX will fall below 10.

See the historical chart of India VIX. The 52-week high is 28.13 and the 52-week low is 10.17. This 52-week means data is from Apr 22 to Mar 23 (FY 22-23). Why it did not go below 10? Ukraine War, Hindenburg Research on Adani, and many other reasons.

India VIX is a very important indicator of overall market direction – not of an individual stock. For an individual stock news is an indicator.

So next time you want to take a directional trade, especially in Index, make sure to have a look at India VIX.