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Reminiscences of an option seller

nifty index 50 market volatility

Jul21-W1: Volatility reversion to mean is money

Though my view on Nifty for the week was quite bullish, I was already holding strangles since Jun 23rd. The strangles started giving nice profits due to absence of any action on Jun 24th and Jun 25th. By end of Jun 25th, I rolled in the strikes while again having no idea what could happen on Monday.

In hindsight, I should not have had such a bullish view since stochastic on daily timeframe was never going up. Market respected the momentum indicator and started slipping since Monday. However, the pace was not enough to cause any damage to puts. In fact, the put options remained in profit despite the fall.

The sluggish movement of market until Thursday meant that all I had to do was roll-in options on both sides. This helped me in earning a handsome profit for the week ending July 1st. In fact, July 1st must be one of the most boring expiries over the past couple of years.

However, the law of averages spares none. It is incredibly risky for option sellers to hold positions in such a tightly squeezed market. I am therefore forced to take positions which have very little premium in them. So, the coming week may not be as profitable. Absence of volatility might make the next couple of weeks difficult for me.

mean reversion strategy

Jun21-W4: Reversion to mean is money

My view on Nifty 50 index for the week was mostly neutral with a tinge of bearishness. Thus, I began Jun 18th by selling calls but by the end of day the market was looking quite poised. So, I created a strangle and had no clue what could happen on Monday.

Mondays now are turning out to be ridiculous. They usually used to be dead but now they start the week with a bang. Jun 21 was again one of such weeks. There was a nice gap down which gave me opportunity to sell more puts as Nifty was far away from its intra-day mean.

Now adding more positions is something that I can do today with the power of converting a delivery (NRML) position to intraday (MIS) position. Unfortunately, SEBI is all set to snatch this power soon. Until then, I guess I should make the most of it. I ended Monday again with strangles. In my subconscious, I knew it was not a good move as I knew market was going to be positive.

But I did not exactly expected this much positivity. Tuesday was a gap up day which made my call options go in red. In scenarios like these, the other side i.e. put options don’t return as much profit as the call options show loss. Based on my homework, I believed that Nifty won’t cross resistance and mean reversion might save again.

Luckily, Nifty didn’t go up further and by Wednesday, I took 1st July strangles. Since I took positions early, I am pretty excited about next week’s P&L results. I am determined to trade Nifty strangles every week, with a hope to maintain CAGR as a high double digit positive number.  

Apr21-W2: Time is money

Despite having taken hundreds risky trades, I did have butterflies in my stomach before taking the first relatively safe nifty trade of wannabebull.com. It may have been because of performance pressure since I did want the first week to not only be green, but meet the target CAGR of 15% also. And there’s my learning straightaway. The minute you start keeping expectations from a trade, your mind starts making wrong decisions.

The first trade should have been a no-brainer. Since market opened negative, selling calls was a sound option. But I had reasons to hold bias for uptrend (more details here). So instead of selling calls, I sold puts on the first sign of pullback. It did not take long for Nifty to break the swing low and I had to sell calls. The feeling of being stupid soon converted to panic as I saw loss of more than 400% on those puts. That’s my max stop loss limit.

But then the voice at back of mind said that the strategy was not only about being directionally correct, it is also about theta decay. Why not wait until 2:45 PM before booking loss? But then, what if Nifty falls more? Well, the intraday ADX seemed to be topping out. And so I decided to hold on. The decision somehow worked.

But then the same problem happened on Tuesday when I sold call options during the first 5 minutes of opening, thinking that it was going to be a repeat of Monday. The market rebounded sharply and those calls now needed help of theta decay again. Moreover, RBI meeting on Wednesday meant that option premiums were going to remain inflated. Luckily, Wednesday and Thursday brought the power of theta decay in full glory and the week was not only saved, I ended up earning more than target ROI (more details here).

All thanks to time!! Unfortunately, I have complete lack of it till end of month now. Even during these Covid times, my landlord is forcing me to change house while my office work is getting a bit hectic. Considering these factors and the relatively high monitoring that I had to do over the week, I have decided to pause trading till end of this month. It is ironic that I am pausing before even properly beginning but just like the week did not exactly go as per plan, life too does not work as per wishes.

Meanwhile, I shall continue to write views on Nifty and blog posts while also working on WordPress stuff. Nifty trading to be resumed when the time is right. After all, its all about time and timing anyway.

wannabebull

Welcome to WannabeBull.com

This website’s main purpose is to act as a log of ideas and trades which I undertake on weekly basis. Maintaining logs is one of the most important aspects of being a disciplined trader. However, since log maintenance is not exactly a very exciting or motivating activity, I decided to build this website to stay diligent and entertained at the same time. I will keep these logs simple so that readers would be able to understand and perhaps take such trades on their own if they wish so. Lastly, I hope to receive feedbacks from this website to improve trading skill or devise new strategies.

My trading strategy is highly conservative in nature. I will be selling far out of the money weekly options in direction of the trend. I may sell options on the other side as well if things don’t go according to plan. I believe that even if my analysis is wrong, theta decay of options can help in making money. I would be keeping a stop loss between 200 to 400% of my selling price, depending on time to expiry. I have observed that the strategy holds potential to give a return of more than 15% on annual basis. It does not require a lot of monitoring also.

Here’s a breakdown of the site’s pages:

  • Plan: Posts here shall briefly describe
    1. What happened to Nifty in previous week
    2. Daily timeframe chart with support / resistance levels
    3. Possible scenarios for week ahead
    4. My bias and trading action plan  
  • Trades: The page shall mainly display screenshots of P&L and order log, along with ROI numbers. In case a trade goes in loss or if I faced any challenge, I would be writing my experience
  • Blog: This is the page to vent out my wishes, experiences and learning. Posts here can be absolutely random

There shall be a new post on all the above 3 pages every weekend. Since the 3 are correlated, I shall be using a common heading syntax so that it is easy for reader to know what ‘trade’ and ‘blog’ is an outcome of ‘plan’. The syntax is <Month><Year><week> wherein week number is governed by Thursday.   

  • Education: I like to document whatever I learn in fundamental and technical analysis. I shall now be using this page for the same purpose, but this is only for new learning and not what I already know. However, I would be more than happy to write on any topic if I receive a reader’s request. Thus, the frequency of posts here shall be random.  
  • Watchlist: This page shall contain daily timeframe charts of selected large cap and mid cap companies which are fundamentally sound and make sense for long term investment. I am planning to track these and either take positional trades or invest for the long run. At least one post per month can be expected from this page.

Most people who trade options do it for the purpose of getting rich overnight. While it is possible, this website would not be able to serve that purpose. At the risk of being discriminatory, I believe that this strategy is best suited for women who are looking for work-from-home careers and also for anyone who wants a tiny little second stream of income. Selling options in India is a costly business as 1 lot needs an approximate margin of Rs. 1,25,000. Thus, meaningful trading requires an initial investment of at least Rs. 5 lakhs.

I feel or at least hope that blogging shall keep me consistent and profitable. All screenshots on ‘Trades’ page shall be unedited images. It would be great if I can connect with more experienced traders who have been selling weekly options so that we can share ideas. If you are one of them, please leave a comment here or connect using the form at bottom of home page.