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.

Note: This is a copy of my email sent to my newsletter subscribers on Monday, 03-Apr-2023. If you want to receive emails please register in the above application.

While writing this email I can see that INDIA VIX is at 12.94. You can check the current India VIX here.

India-VIX 3-Apr-23

Lower than 15 is an indication that there is no panic in the markets as of now – everything is normal.

So the expected move on any side is less.

Option premiums will also be reduced attracting option buyers. During these times volume increases. Since most options buyers are mostly immature or new entrants to the markets – they bring a lot of liquidity. In a few days when they will see losses – they will start selling the options they hold – which will again be bought by novice traders.

Low India VIX may be attractive for option buyers – but it is dangerous too because there will not be many moves making the options worthless in 2-3 days.

Tip for option buyers:

• • Buy not too far nor too near options. They are cheap and appreciate fast if the stock moves in their direction.
  • Do not overtrade, which means do not buy more than 2-3 lots
  • Do keep a stop loss of a max 20% of the amount used to buy options
  • Keep a target of 25% of appreciation. For example, you bought an option at 100 sell it at 125.
  • Do not stay in the strategy for more than 3 days, if you bought naked unhedged options. Profit or loss – just exit the trade.
  • Always hedge your option trades to stay longer in the game.

My Conservative Options Course will help you to learn 7 conservative options and future hedging strategies.

Click here to pay the course fee and start learning today.

After payment strategies will be sent to your email. You can clear your doubts by asking me directly. You can get my phone number in contact me page.

Copy of my email sent to my subscribers on Thursday, 23-Mar-2023. To receive my free educational emails and a 5-days free options course, please subscribe to the above form.

This is a copy of my newsletter sent to my subscribers on Tuesday, 14th of Mar 2023. You can fill out the form above to receive my newsletters.

Silicon Valley Bank Collapse – should you worry?

During March 2023, three large banks in the United States with significant exposure to the technology sector and cryptocurrency collapsed.

If you are my old newsletter subscriber you may remember that I told you many times not to invest in cryptocurrencies. If big banks with lots of exposure to cryptocurrencies can fail – what makes you think that you will not fail?

The First Bank to Fail: Silvergate Bank.

It announced it would wind down on March 8, 23 due to losses suffered in its loan portfolio.

The Second Bank to Fail: Silicon Valley Bank

This bank which had given loans to technology startup companies – mostly bad loans which never got recovered caused the Silicon Valley Bank to collapse and be taken over by regulators on March 10, 2023.

The Third Bank to Fail: Signature Bank

Signature Bank, a bank that frequently did business with cryptocurrency firms, was closed by regulators two days later on March 12, 2023, with regulators citing systemic risks.

Not sure what will happen to the money of the depositors but I am sure the authorities in the US do have some mechanism whereby the money deposited by innocent investors is not lost. US President Joe Biden promised that investors will not lose their money invested in the bank.

Should an Indian investor worry and sell banking stocks as they are falling since this news broke out?

NO.

Because the above banks do not have much exposure to Indian banks, so why share prices of our banks are falling?

NEWS, followed by PANIC.

It’s just that the investors fear that the Indian banks may be impacted too and will also fall. The truth is nowhere near that.

So hold and wait for banking stocks to recover.

Update:

Credit Suisse, a 166-Year old bank having its headquarter in Zürich, Switzerland, also collapsed in Mar 2023. Credit Suisse was more popular and trustworthy than the other banks that failed. Yet it failed.

If you hold banking stocks I suggest you wait for one year at least. They will bounce back.