Day: July 31, 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.