Last year I had started a series — Stock Selection for Trading — Everyone Can Do It Right on February 28. 2018.
This series was continued for two months and the results were very good. March series had 10 right trades out of 16 selections and profit in futures trades was Rs. 249000. In April series, there were 6 right and 6 wrong trades for a profit of Rs. 114000.
Many readers wrote that it is not possible to hold so many trades in futures as the margin requirements are very high. Then we started applying the same selection process to Option Buying from May 2018 series and have completed 8 months in that series with 2 losing and 6 gaining months. The profits have been very good.
Traders always look for something new, something different.
It is a fact that there is nothing new in the markets. Whatever we do, many people have done it before. Only difference we can have is in doing the same thing in a different manner with better results.
We are trying the old theory of Buy Strength, Sell Weakness with a new approach.
This is an experiment. It is likely to succeed but then who can say so about the markets. So we shall proceed with caution and review every day. Corrective action will be taken at the end of the week.
Step 1 :
Identify the Top 3 Gainers and Losers among the NIFTY 50 stocks. This we do everyday for selecting our option trades.
Here is the result for January 08, 2019:
So we have INFRATEL, IBULHSGFIN and YESBANK as the gainers and EICHERMOT, HINDALCO and DRREDDY as the losers.
Buying Futures in the gainers and selling futures in the losers should do the trick and we stay in the trades for a short duration ( about 5 trading days ). It is assumed that the trend of these stocks will continue in the same direction for few more days. All the traders are not very patient with their trades. Probably this method will give them a little more action.
Step 2 :
Futures Margin for these 6 trades on January 08, 2019 closing prices is Rs. 660315.
We do not want to commit this much money mainly for the reason that we do not have it. The other reason is that if the trades go wrong, the loss can wipe out the entire capital. While anticipating the gains, possibility of a loss is always lurking around the corner.
We buy In The Money options.
INFRATEL CALL 280 @ Rs. 22.00 Lot Size 2000 Trade Cost Rs. 44000
IBULHSGFIN CALL 780 @ Rs. 60.00 Lot Size 500 Trade Cost Rs. 30000
YESBANK CALL 170 @ Rs. 27.00 Lot Size 1750 Trade Cost Rs. 47250
EICHERMOT PUT 21000 @ Rs. 1400 Lot Size 25 Trade Cost Rs. 35000
HINDALCO PUT 220 @ Rs. 15.00 Lot Size 3500 Trade Cost Rs. 52500
DRREDDY PUT 2600 @ Rs. 86.00 Lot Size 250 Trade Cost Rs. 21500
Total Cost of Trades — Rs. 233250.
Buying In The Money Options needs some patience as the volumes are thin. But it is possible.
In place of Rs. 660000, we are getting the trades with almost same impact at one third of the cost. There is no worry about margin calls in case of trades going wrong. The trades will act like futures trades in case they go right. These will act as options in case of going wrong i.e. premium lost will be less than the likely loss in futures trades.
Step 3 :
After Step 1 and 2, the third step is to wait and let the market decide what to do.
We book our profit/loss at the end of 5 day period after a review.
Again we enter the top 3 gainers/ top 3 losers for the next set of trades.
Let us watch how it works out. Do not take unnecessary risks. Markets are forever.
We shall need this strategy when SEBI would be bringing more and more F&O scrips into physical settlement mode. Let us be prepared for those times.
Disclaimer: This post and examples are for teaching purpose only and are not meant as advice/suggestion to trade in these stocks. Trading in Futures and Options can lead to big losses and should be done with appropriate knowledge and advice only. Mentioning the stocks here does not imply that I have a trading position or likely to take a trade in these stocks.
Azar Shaikh January 9, 2019 at 9:37 am
if any stock comes under F&O physical settlement.Should we avoid ? and move to next stock.Because there is F&O ban comes for stock like Jetairways,DHFL. so its difficult to come out this trade near expiry
DeepWater January 9, 2019 at 12:24 pm
By End of 2019 all the F&O stocks will be for physical delivery. You could still trade by keep suffient margin during expiry week since broker ask for increased margin for the stocks under physical settlement and try to close position by previous Friday of expiry week. So that you need not hold increased margin.
And your question on F&O ban , you wont be able to add open interest meaning if you have already have open position in F&O you will be able to exit or close position and you can’t create fresh position till stock is out of Ban.Reply
Azar Shaikh January 9, 2019 at 1:46 pm
Thanks for your commentReply
kaushik January 9, 2019 at 3:27 pm
axis bank is making 52 week high with volume. does it qualifyReply
Sankha January 9, 2019 at 5:07 pm
And so is ICICI Bank – new highsReply
Avinash January 9, 2019 at 8:10 pm
Sir,From step 3,is there change in our previous strategy to hold till expiry?Or this is for people who don’t have patience?Reply
admin January 9, 2019 at 8:20 pm
This set up is different. Here we are virtually trading futures through option route. We shall hold till expiry if the stock maintains its gainer/loser position. Otherwise we book profit/loss and get out.
The other series is being continued. That is for regular traders with patience.
Azar Shaikh January 9, 2019 at 8:32 pm
Sir Can we apply same to long ITM Top 10 nifty weighted stocks options and short nifty future. Margin required to long will be lessReply