The entire objective of this week was to compensate last week’s loss of Rs. 11,500 and make some more if possible. The objective was noble but the methodology was abject. I myself knew that the momentum was tremendous and was not confident of mean reversion happening soon.
As my fears started becoming reality, the next resort was to hold on. Basically, I went into an unchartered territory. I was not trading anymore. This was sheer gamble. Either I was going to recover everything or lose a lot.
The writing on wall started going in favor of latter. By Tuesday morning, I was sick and tired of this trend. I have seen such scenarios earlier so many times. ITM options bleed money like a deep cut on forearm. I now had unrealized loss of close to Rs. 30,000. I knew I needed to close the position.
It was around 1030 when Nifty made the day low and my position was showing a loss of Rs. 3000 to 5000. The temptation to break-even was so high that I ignored the risk of pullback. Due to office calls, I was not able to completely focus on charts anyway.
The market pulled up fast and how. It made day high and I admitted defeat. The swing of emotions and money was too much to take. I booked a loss of over Rs. 35,000. I informed my wife who responded by saying: “So it is ok not to book loss of 3,000 and even better to book loss of 30,000?”
I did not have answer to the question. How could I tell her that I was gambling and I did not have a plan B if things went wrong? Having positions on the other side of trend can only be managed by averaging out. And I did not have the funds to do all that.
Eureka!! Spreads. I sold ITM call option spreads and found that only 25% of capital was being used. I could now do averaging if market still went against me. Fortunately, there was no need for it as Nifty fell a bit on Wednesday and I managed to recover around Rs. 25,000
Eventually, I ended the week in loss but not all is lost. Amidst all this commotion and despondency, I have realized that I need to use hedges to make the maximum of margin availability. I am super excited to trade iron condors and option spreads from next week. Let bygones be bygones. It’s time to move on.