Dec21W4 ROI

Dec21-W4: The fallacy of the plan got exposed

Monday was the day when all my loopholes of mean reversion strategy were exposed. The strategy which had been giving me windfall profits for past 13 weeks or so was almost showing me an unrealized loss of over Rs. 1,00,000. I need to write my experience clearly as it happened on Monday:

TimeWhat I didWhat I should have done
First 15 minutesI knew that Nifty was not oversold yet on shorter timeframe but I still went ahead and did averaging since my P&L of put positions was deep redI should have rolled in the call options without disturbing put options
Next 15 minutesI purchased hedge positions which were expensiveI should have exited calls and averaged puts
Until 1015 amI exited hedges to save losses on them but that made my margin go negativeI should have taken hedges with intent to avg a bit more and exit hedges immediately
Until 1145 amI rolled in put options until then went ITM while ensuring that new premium > current premiumI should have rolled in only once while ensuring new premium > current premium
Until 1245 amHopelessnessI should have repeated the cycle until contracts went ITM

The chink in armor of my mean reversion strategy is that hedges are simply useless if this strategy is being leveraged on any day before Wednesday (or maybe Tuesday, will need to check).

By God’s grace, market started reversing by 1 pm and I was able to hold my nerve until around 2 pm when I eventually exited my positions and ended the day at around Rs. 20,000 of realized loss. However, I was holding positions which if kept till expiry could have recovered the loss completely.

This was easier said than done though.  During subsequent days, the market’s ATR was big and it kept swinging here and there but mostly in positive direction. I had to wipe the slate clean multiple times, meaning that I wasn’t gaining much.

It was only on Thursday that I got a chance to do another mean reversion when I sold ITM contracts to the tilt while keeping hedges. While I did earn profit, I could have milked more by rolling out the strike with same number of positions. The idea simply didn’t strike me then. I now need to remember that Wednesday and Thursday are golden days of mean reversion, if done properly.

All above has led to awesome learning. I had been taking this strategy casually which I can’t afford to do so anymore.

So I traversed through the following candles during the week:

Here are the results  

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAnnualized  return till today
Rs. 6870.59Rs. 1058414.71%67.83%2756.21%

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.

1 thought on “Dec21-W4: The fallacy of the plan got exposed”

  1. Pingback: Dec21-W5: Retail traders are looted by regulator

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