On this blog the option buying journey has completed 13 months.
In this period, 173 options contracts were bought. 62 of them paid out some profit while 111 gave a loss. The success rate is 35.8% which is really good in option buying. Conventional market wisdom is that about 80% of options expire worthless. In our case, that percentage is below 65%.
With this success rate, the trades could generate a profit of Rs. 666708.
This profit could be made from a trading capital of just Rs. 200000 without risking more than Rs. 100000 at any time during these 13 months.
The success is mainly attributable to the Trading Selection Process and then waiting with the right trades.
There is regular demand from the readers to explain the selection process completely.
I have done it earlier and am doing it again for the benefit of new readers.
Some people have advised me about not sharing my trading method. They think that the method will not work if more people start following it. My views are different. Not many people follow good advice. Stock market is not different from life.
All of us get good advice like avoiding drinking, smoking, telling lies etc. We get advice about exercising and going for a walk for keeping good health. All of these are proven ways for staying healthy but there are more people who ignore these things than who follow.
Regarding trading advice, this is what ace trader Richard Dennis said:
“I don’t think trading strategies are as vulnerable to not working if people know about them, as most traders believe. If what you are doing is right, it will work even if people have a general idea about it. I always say you could publish rules in a newspaper and no one would follow them. The key is consistency and discipline.”
So, here I am publishing the rules in the newspaper. To follow or not is the choice of the readers.
Step 1 :
Go to this page on NSE website.
https://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm
You see this:
This page shows us how much the NIFTY gained over 365 days and 30 days period and all the details for the 50 stocks in NIFTY 50.
Step 2 :
Click at the extreme right column – 30 day % change.
This will sort out the stocks with biggest loser on top.
Now it looks like this.
This shows us that YESBANK has lost 15.02 % in the 30 day period while NIFTY has gained 3.24%. DRREDDY has lost 12.32% in the same period.
The stocks which have performed poorly in comparison with NIFTY will be considered for a PUT trade.
Step 3 :
As an example, let us click on DRREDDY in the first column.
We get this screen.
It shows the stock price movement for the day.
We click on Historical Data link and select 7 Day period from the drop down menu.
The 7 day data shows the details for 4 days. It does not matter whether it is 4 days or 6 days. We are looking at whatever this site gives us in the simplest way. Too much research does not add value to our trades.
This screen tells us that the stock continues in the downward direction as it has moved from Rs. 2724 to rs. 2580. We look at the general direction only and not the daily ups and downs.
This confirms that DRREDDY is a weak stock over the 30 day and 7 day period both.
We also see that the stock has made a low of rs. 2400 just 3 days ago and the 52 week low is at Rs. 1872.95 made in February 2019.
Step 4 :
The first 3 steps should take less than 3 minutes.
In the previous screen there a link to Option Chain on top right.
We click this link to go to Option Chain of DRREDDY.
It looks like this:
CALLS are on the left side and PUTS on the right. We are looking at the PUTS.
We look at the Implied Volatility ( IV ) of the options for the Strike Price near to the current price.
We see that for PUT 2600 it is 31.46.
This number is dynamic and we will not get bogged down by too much detailing and analysis. We take a trade if the IV is between 30-50. We make exceptions sometime and go for up to 60 on the high side and 25 on the lower side.
DRREDDY qualifies on IV criteria.
Now about selecting a strike price.
With IV on the not very high side, we look for an Out of Money PUT about 5% away from the current price.
That will be nearly 2450.
Strikes are available for Rs. 100 gaps, so we go for PUT 2500.
PUT 2500 was traded at Rs. 40.00 on Friday. With lot size of 250, it will cost us Rs. 10000 which is our maximum risk in this trade.
The selection process is now complete.
Risk reward of this trade :
The trade is based on the very simple fact that DRREDDY is showing considerable weakness in a strong market. There must be a reason for this and that reason will not vanish suddenly. There is a possibility ( good possibility ) for the down trend to continue for the same reasons.
If the stock just about moves to the recent low of Rs. 2400 by expiry, the PUT 2500 will be valued at Rs. 100. If the stock moves lower than that, our gains become better. We wait for the gains which the market gives to us secure in the knowledge that our loss can not be more than Rs. 10000.
This was the 4 Step Method for deciding an Option Buying Trade.
Let us get back to the Step 2 again.
Click on the extreme right column of 30 day chg %
Now we get gainers on top.
Step 2 :
We see this screen.
TITAN is the top gainer in the 30 day period followed by BAJFINANCE and ADANIPORTS.
Looking for a CALL trade in TITAN.
Steps 3 and 4 have already been explained. I am going to Option Chain of TITAN straightaway.
Look at the Implied Volatility ( IV ) column.
It is nearly 20. Nowhere near the 30 level which is our minimum requirement. We could make an exception if it was around 25, even that is not seen.
Therefore, TITAN CALL is not a trade for me at this stage.
A CALL in TITAN may work out for all we know but our method does not suggest this trade at present.
For other trades, I would expect the readers to work out for themselves.
Step 2 Again :
In the first screen shown in this page, NIFTY 50 is the default drop down.
From the same menu one can select NIFTY NEXT 50 and NIFTY MIDCAP 50 and find another list of 50 stocks each.
There is a FO Stocks list too which lists all the F&O stocks.
Rest of the process is same.
Another Point :
It is part of the Step 4.
We take a trade if at least 100 contracts were traded in the same strike on previous day. We do not venture into stocks where option volumes are like 3, 10, 17 etc.
Good volumes give right prices.
Performance of this method :
This method fails more than 60% of the time. Sometime it has given only 1 Right trade out of 10.
It can fail badly at times.
But over a period of 13 months, it has been successful 35% times i.e. in 62 trades out of 173.
These trades generated a profit of Rs. 666708 on a risk capital of just Rs. 200000 in these 13 months.
Details can be read here:
http://optionsnext.com/blog/the-options-journey-one-year-may-2018-to-april-2019-a-review/
Summary :
About 80% Options expire worthless.
A method which does better than that ( 35% success ) is a good method.
The key to profitability is the belief in the method, patience and discipline. The results speak for themselves.
Keep working out your trades based on the method, keep the belief and money will be yours to keep.
Enjoy your Sunday.
Comments
Azar Shaikh June 9, 2019 at 9:50 am
Sir
ReplyPerson having low capital and got 2 to 3 consecutive loosing month.He will be running out of capital.If he decide to less trade then probably of winning down drastically.How to balance this?
Vishnu prasad maneendra July 27, 2019 at 7:24 pm
Hi azar..
First of all i would like to thank you for a good question, even i had same question before starting with optionsnext as i was one among the above subject list. I am the practical example of reverse scenario mentioned in above question. I started my options journey with a capital of 1.2lakhs in election month, now my capital is crossed 2lakhs, actually it should be close to 3lakhs as per sir guidance but as i am a new bee i committed so many mistakes in these 3 months so satisfied with 2lakhs. I am very much ok with this, as being a person who does not know difference between put & call 5 months back. Funny thing about me was, 5 months vack by seeing some good success story in this blog when a put was specified in this blog i used to go to direct equity market start procuring the share of same script & waited for share price to go up where as people here r waiting for down trend. Why because at that time all i know about stock market was buying company shares at low price & selling at higher price i really dont know put means u people r expecting down trend of share price. After watching 3 consecutive failure months of this blog, by gut feeling i entered optionsnext on may & taken so many good scripts. The first positive thought given by vishal on 3rd may (Though your risk was higher, the market has rewarded you for the conviction you showed in the trades suggested by the Sir using his method) & i never looked back.
As an answer to questions like this 2000 series came into picture for giving hope for so many traders with low capital. Thanks for ur question, any how no need to mention a BIG THANKS to pramod sir. I should be grateful to pramod sir throughout my trading career . God is very much favourable to me for appointing a genuine guide without crossing many fraud tips & suggestions. As like one saying “50% of problem is solved if u exactly know what the problem is” same way “50% of traders success is defined when he succeeded in finding a good mentor”. We are all very lucky in this manner.. i will never change my words if i encounter any painful months.
Thanks for reading..
ReplyPramod Kumar July 28, 2019 at 8:01 am
Thanks Maneendra,
Profits or losses are outcome of your trades, fear and greed.
Keep trading with a belief, a method with control over your emotions and the results will be good. You actually do not need me or any body else to become profitable in trading.
Key to success in trading lies within you.
Cheers.
ReplyVishnu prasad maneendra August 3, 2019 at 4:54 pm
@pramod sir,
Sorry for denying your comment sir (You actually do not need me or any body else). I used to have this kind of perception earlier, in my college days i even argued with so many elders saying that its only our capacity not the teachers. I couldn’t come to know the value of teacher in my 15 years of regular education, once i started doing my amie lonely along with my job i could come to know the value of teacher. Then i agreed to one saying “we should keep guru above god as god gives experience first & we should learn lessons from it, where as guru faces all experiences by himself & provides fruits to his disciples”. As our guru you faced all initial bad days lonely & finally when you arrived at a good method, we all joined with you to enjoy the fruits. How can i say that i dont need you sir? We strongly need you.
ReplySatish Kumar June 9, 2019 at 12:01 pm
thanks a lot sir for such wonderful and simple explaination. One of the great thing which we learn from you is the patience and exit time of trade with huge profit. This really helped me a lot from early exit in trade.
DRREDDY weakness is clear in the last week when there was huge long spike on 4th June. I took DRREDDY 2500PE @ 26.35. It went upto 57.5 on 7th June. now it is at 40.
Sir, how you see Biocoin 1:1 bonus of 12th June. Is it impact our earlier selected trade ?
Replyadmin June 9, 2019 at 12:04 pm
Thanks for the kind words.
ReplyBiocon trade will not be impacted.
Ravikumar June 9, 2019 at 1:11 pm
No need to search for options techniques anymore. No one can describe it more simple. This is enough . HONESTY is the hallmark of Pramod sir.
ReplyTharik June 9, 2019 at 3:41 pm
Dear Sir,
It would be great if we could get the number for the average money made in winning trades and the average money lost in losing trades.
Thanks in advance.
ReplyNARAYANAN June 9, 2019 at 7:28 pm
Your method of options buying…awesome. For me it is a Bible for options buying. Hats off to you Pramod Sir. Keep us posted with such analysis in future also. Keep it up
ReplyThanks and Warm Regards
NARAYANAN
Sudip June 9, 2019 at 8:44 pm
Frankly speaking, i think your record is notvso good, 33% is really low as per profitability is concerned, i think you keep on and on which really hurts on profitability, also, i feel you enter a bit late, in fact a lot late, where any stock is looking to rebound.
ReplyAnand Kumar June 10, 2019 at 8:05 am
Hi Sudip,
I think we sometimes have this feeling, because most of the times, we remember the trades that went bad. The trades went completely in opposite direction because it rebounded.
But we generally don’t remember the ones which went in our direction in great amounts.
So I think it’s better if we go with actual numbers than with biased and short term memory.
Even with 35% success rate, this method has generated now than 6L profit in a year. Doesn’t that speak for itself?
ReplyManas Kumar June 9, 2019 at 10:14 pm
Thank you Sir, I was searching for this once in the earlier blogs since last few days.
ReplyWhat I also need to know is the bullish or bearish nature of markets in a given month because that also decides the selection of calls/puts.
Vishal June 10, 2019 at 8:47 am
Wow. My all the blessings from Pune to you Sir.
ReplyHonestly speaking I have lost 2 lakhs during the process of following your blogs. The misfortune was mainly trying to time the market and going against your rules. I entered the trades as per your suggestion but manipulated as per my greed + hope + fear. I’ve no regrets of loss. I consider this loss as tution fee to Mr. Market.
Thanks again and wish you a healthy life.
-Vishal
Akash Bari June 10, 2019 at 6:17 pm
Very well explained. but one point is missing is when to exit and take profits. or continue to carry these trades until expiry.
ReplyOP Mathew June 10, 2019 at 9:10 pm
Suppose I took 2 positions today and on next trading day it is showing profit of 30k and 20k.
Should I book profit?
If I wait till end of day, positions lose value and end at 10k and 10k.
Tomorrow it may or may not rise.
How would you approach this scenario.
Replyadmin June 11, 2019 at 8:01 am
Apparently what you said makes sense. But then you miss out on the big pay off when it happens.
The way is to book the profit and move to higher or lower strike ( in case of call or put respectively) so that more profit comes in if the trend continues.
Cheers.
ReplyVijay June 10, 2019 at 10:35 pm
Dear Sir,
ReplyI have read many option books and done trading for 3-4 years but this is the simplest strategy I have found. How about we keep booking profit at regular intervals and go for OTM strikes while simultaneously booking profit in successful trades. Whats the problem in such strategy?
Thank you.
admin June 11, 2019 at 8:02 am
This is the way to trade.
You are absolutely right.
Cheers.
ReplyMS Advani June 14, 2019 at 10:16 am
I ‘m an Options Seller for more than 5 years. So the one taking the opposite position.
The success rate which you are talking about i.e. 35.8% will likely keep decreasing as the years pass by and by Year 5, it is likely to be between 6-8%, no matter how good your stock selection process is.
I know your stock selection process is good and it will turn out right ultimately but time is always likely to run out before the stock movement works in your favour.
Atleast that’s my experience as an options seller.I started with very low success rate and but as the years went by the success rate started inching up slowly.
Best of luck with your options buying journey.I really do hope that you make it and prove that this method works in the long term. In the meantime, I will continue with options selling.
ReplyRavikiran July 10, 2019 at 9:39 pm
Hello Sir, can this strategy with some tweaking be applied for NIFTY and NIFTY Bank options as well? or is there some other method to identify such trading candidates.
ReplyP.S. Thank you for your blog and inputs. Quite insightful!
Maninder Singh July 19, 2019 at 9:16 am
Hi Sir,
Example images are missing in new website. Please attach them again.
Thank you Sir
ReplyTeja July 19, 2019 at 10:07 am
This page is broken with new look..missing images. Can you please correct it
ReplyPrasad K B September 28, 2019 at 10:34 pm
Dear Sir, thank you for teaching us such a simple but great method to choose Options.
One small query I had was: when looking at the Options Chain for IV & Volumes, what is the impact of the column OI ‘Open Interest’. For example, if the OI for the strike price which we choose is lower than the OI of the next strike price, does it convey something and should we be choosing the other strike price?
Reply