Month: July 2021

trading psychology

Jul21-W5: Anticipation of big trading move deserves strike correction

The highlight of last week’s Nifty Index 50 moves happened during July 28, 2021. It more than made up for all the deadness since July 22nd. I think law of inertia skews trading psychology of novices in a big way. It definitely got the better of me.

With Friday, Monday and Tuesday being dead days, I had a notion at back of my head that I don’t need to see charts. I can’t be too tough on myself though as I literally had no time to check charts as I was preparing for a job interview. But lesson learnt, I must check charts twice a day if I have open positions or close them if I really don’t have time,

While it is easy to do chart analysis in hindsight, but it was absolutely clear on July 27th that a big move was about to happen. I must remember that this method of option strangle trading is a mix of predictive and reactive analysis. Therefore, I should have closed my positions on July 27th and waited for market to set the direction.

But I did not and July 28th morning never gave me a chance to make any corrections. With job interview from 9 to 10 AM, I checked market by 10:15 and understood I could not do anything. While the Put Options were at a loss of more than 500%, call options were not giving any profit. All thanks to vega.

I checked my blog for making sense of what market was doing. I made some minor adjustment to drawings and patiently waited for market to take bounce. I meanwhile could not help but think that if I would book over Rs. 10,000 of loss, it would mean going back by 3-4 weeks. Luckily, the market respected the expected support level and put options eventually went back in green.  

This entire headache could have been avoided if I had made correction on Tuesday itself. This has happened twice now in consecutive weeks. I need to watch charts more carefully and press the exit all button if I am having a bad feeling about stuff. This is like the movie ‘minority report’. I must pre-empt drawdown before it happens because mitigating it later does not work.

nifty index 50 trades

Jul21-W5: Nifty Index 50 Option Trades Beat Target CAGR

July 28, 2021 will be remembered as quite a day in history of Nifty Index 50.  The market dropped as if there is no support but there always is. I had written about the support value in my last post and luckily, the market respected it. Even though I could have used that day to make or lose a lot of money, I was occupied with a job interview and could not micro-manage trades.

The P&L screenshot below lies yet again. I witnessed an unrealized loss of more than Rs. 10000 or about 1.55% of deployed capital. This now is my new personal record and I am obviously not proud of it. I really need to think about how to avoid such events.

But there’s another problem called effective utilization of capital. One reason for the ROI remaining in low 30% range is that more than Rs. 50,000 simply remains idle. This happens for at least 3 trading days per week. But that is something which I cannot control.

So I sold OTM strangles from Jul 16 to Jul 22 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAverage CAGR till today
Rs. 3391Rs. 6,50,7080.521%31.03%741.83%

The following is breakdown of week’s positions:

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

nifty analysis

Jul21-W5: Nifty Index 50 to wait this week (Jul26 to Jul30)?

As stated last week, the drop below green trendline (no more visible in this chart now) will lead Nifty index 50 to 15600. But the rebound from that level has been quite strong.

Now, here’s what I am looking at:

I personally do not like the drawings. There is too much clutter but at the same time, it all seems important to me. Nifty index 50 slipped from an upward channel and found itself stuck in a downward channel. The blue trendline now looks like a major support. However, breaching all time high needs momentum which has been lacking for past 3-4 weeks now. Thus, I remain neutral on market.

Thus, scenarios for the week ahead (highlighted as yellow box with black lines dissecting scenarios)…

ScenarioProbabilityAnticipated Price Action
ConsolidationHighBetween 15975 and 15725
DowntrendLowIf breach below 15725; to drop somewhere till 15450
UptrendMedIf breach above 15975; to rise somewhere till 16225

The Fed has a complex decision to make. Inflation is rising steeply in US. If Fed decides to raise rates, it will trigger a fall in rest of the world markets. So, let’s see

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

nifty index 50 gap

Jul21-W4: Gap openings deserve strike correction

Last week’s movement by Nifty index 50 was unexpected. On July 16, it left an impression of scaling all time high. But July 19th came as a surprise with a heavy gap-down opening. The market never really recovered from the shock and went very low on Tuesday. I did expect such a downfall in such a scenario.

However, I did not react appropriately on both days. On Monday morning, I did the right thing by leaving 15450 put options as it is. The put option later recovered completely and in fact became profitable. That was the moment when I should have closed it and taken a safer strike.

On Tuesday, the market started punishing me for my mistake. It kept falling relentlessly and at one point of time, I was looking at a loss of more than Rs. 4,000. This is equivalent to approximately 0.63% of deployed capital. The options’ LTP was also trading more than 200% of price at which I had sold them. It all meant that I should have taken the loss.

The only thing that kept me holding on these strikes was my blog post wherein I had mentioned that the market should pause around 14600. I held my nerve and luckily, the market started retreating. At around 14650, I exited my put options at loss and moved to safer strike.

This entire headache could have been avoided if I had done made correction on Monday itself. But I thought that since Wednesday was a holiday, theta decay would be brutal on Tuesday. However, option greeks are tough to anticipate. It seems that vega rose so much that even my call option was showing loss.

Lesson noted. Also, I need to respect my stop loss and if possible, book it when LTP doubles from my selling price rather than waiting for it to triple. There is a rule of thumb that if loss is more than 2% of capital, trade should be closed. Pro traders keep it at 1% or even 0.5%. I am not entirely sure if the rule applies to the style of trading I am doing. I am not sure if I am trading anyway.

nifty index 50 trades

Jul21-W4: Nifty Index 50 Option Trades Beat Target CAGR

Nifty index 50 could not keep calm last week as it dropped all the way till 15600. Even though I was expecting this to happen, my strike selection was not good. I should not take unexpected July 19 gap-down as an excuse especially when I had been anticipating such drama in my blog posts earlier. I should have adjusted strikes on Monday.

The P&L screenshot below does not tell the story. I was witnessing an unrealized loss of more than Rs. 4000 or about 0.65% of deployed capital. I have made a note of it. When I reach week 13, I shall be updating P&L numbers on homepage and this drawdown will also be posted there. Hopefully, this shall be the max drawdown.

So I sold OTM strangles from Jul 16 to Jul 22 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAverage CAGR till today
Rs. 4,048.75Rs. 6,47,1500.549%32.98%643.63%

Where annualized ROI for week = ((1+week’s return in decimal)^52)-1)*100

The following is breakdown of week’s positions

Jun21-W4: Nifty Index 50 to decide direction this week (Jul19 to Jul23)?

Nifty Index 50 has consolidated for far too long and now seems to be itching to create all time high. The lack of momentum though is a dampener and 15900 – 16000 range has acted has strong resistance

Now, here’s what I am looking at:

RSI is good representation of what has been happening. The sandwich between trendlines is simply not getting digested. Like I said earlier, it is clear that if Nifty reclaims parallel channel, buyers will win but drop below green trendline will give opportunity to sellers. As of now, I do not have any bias.

Thus, scenarios for the week ahead (highlighted as yellow box with black lines dissecting scenarios)…

ScenarioProbabilityAnticipated Price Action
ConsolidationHighBetween 16000 and 15775
DowntrendLowIf breach below 15775; to drop somewhere till 15600
UptrendLowIf breach above 16000; to rise somewhere till 16150

At a global level, there seems to be quiet and peace everywhere. At a local level though, the impact of earnings can influence the swing either way. So, let’s see

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

boring nifty index 50

Jul21-W3: Boring Nifty Index 50 makes money

If Nifty Index 50 does not move much (which happens more often than not as expected), it can leave trend following traders frustrated and option buyers miserable. But there is nothing better than a boring market for option strangle seller.

A boring market means that the options’ LTPs do not rise. It simply decays consistently with time. All you have to do is sit and witness the accrual of unrealized profits. But after booking profit, I think that my brain does not assess risk management properly.

Suppose that the premium of a position which I sold on Friday was 7. Now, if I close that position on Monday, I would think that I should not take a new position whose premium is more than 7. It is because Monday’s premium should relatively be lower than last Friday’s premium.  

But this is not true. Option pricing is very dynamic and while we cannot measure the biasness of institutional option sellers, we can always measure VIX. A rising VIX can allow Monday premium to be more than Friday premium even if all other factors are same.

There is no rule of thumb and whenever I should take trade, I should remain mindful of the ‘now’ than the ‘past’ or ‘future’. And this is what books on meditation also preach. But practice is always more different than theory.

Intra-day option selling is another area which I wish to master. Though the opportunities might be few, each opportunity holds potential of good profit. I need to take the risk of taking closer to money strikes. I missed one such opportunity on July 10. I hope for more chances in future. The market will not remain boring forever.  

nifty index 50 trades

Jul21-W3: Nifty Index 50 Option Trades Beat Target CAGR

Based on my previous analysis, I was expecting a drop till green trendline but had no clue what would happen afterward. Though I expected Nifty Index 50 to break green trendline and move to green rectangle, it kept moving up silently. I traded strangles conservatively but maybe I could have been a bit more aggressive. I also traded an intraday sell put opportunity on July 10 but again, my strike selection could have been nearer to money.

So I sold OTM strangles from Jul 9 to Jul 15 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAverage CAGR till today
Rs. 3,953.65Rs. 6,43,1970.615%37.53%545.76%

Where annualized ROI for week = ((1+week’s return in decimal)^52)-1)*100

The following is breakdown of week’s positions:

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

nifty index 50 greed and fear

Jul21-W2: Volatility compression is scary but should not be scary enough

I have always given high importance to the role of volatility in factoring option trades. I used to be a mean reverting option seller wherein even I would try to catch the top. Even if the stock doesn’t reverse or simply consolidated, I would make money since volatility will crash. I have barely traded the opposite scenario wherein volatility is bare minimum.

Volatility is cyclical in nature. If it is compressed now, it will blast later. But timing of that blast is quite an unknown aspect. If volatility is dead, it can stay dead for a long time or it might only give a dead cat bounce. Therefore, remaining scared of that volatility blast can give a wrong impression about current state of market.

And this is what happened to me last week. I took nifty index 50 strangles which were far far OTM than they should have been. Selling such options are safe but then one can park money in FD for this much safety. The notional loss of last week is huge. Had I sold options at appropriate distance last Thursday, I would have made good money by Tuesday. But fear got the better of me.

On the contrary, since I did not make expected money by Wednesday, I started doing just the opposite. I sold strikes which were near to money, just for the sake of reaching CAGR of 35%. While my objective is simply to beat CAGR of 15% or Nifty’s return, whichever is higher, I have been tasting 35% or more and did not want to slip. And thus greed got the better of me.

Fear and greed…greed and fear…market is a function of simply these 2 emotions. Price and volatility are nothing but a reflection of these emotions. Despite knowing it all, I made mistakes. I always do. The market forgave me this time. And I better pay my respects and learn.

The simple learning is this. I have a strike calculator. It is indigenously built and is proprietary stuff, I suppose. Since it is self-created, I do not believe much in it. I did not take the strikes which calculator was advising and made a mess of the week. Another learning is that I should also try to observe volatility behavior when it is low.

Important takeaways. I hope I remain committed to them.

Jul21-W2: Nifty Index 50 Option Trades beat target CAGR

On Jul 1st, I had sold nifty index 50 strikes which were so out of the money that they became indifferent to anything happening to Nifty. I was not able to book any profit before Monday. Even on Monday, I was scared due to low VIX and again ended up taking very far OTM positions. When I checked P&L on Wednesday, it was showing a profit of only Rs. 1100 or something. Thinking that no-risk-no-gain is the name of the game, I took really really stupid positions, especially 15650 PE. Though I ended in green, this is definitely not how I should trade.

So I sold OTM strangles from Jul 2 to Jul 8 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAverage CAGR till today
Rs. 3,830.73Rs. 6,39,3660.599%36.43%447.82%

Where annualized ROI for week = ((1+week’s return in decimal)^52)-1)*100

The following is breakdown of week’s positions