Sep21-W2: Time to move on

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.