I had written earlier— Sometime we make money, other times we learn.
Yesterday was the day for learning. Market is a great teacher. It makes you learn the lessons fast. It punishes every small mistake so that we shall remember and not make the mistakes again. Traders are also like errant students. They learn only after suffering through the punishments.
The lesson learnt once again yesterday was that all the profits in Options Trades ( or any other trade ) are temporary unless they are booked. Another lesson was that things can go wrong just when everything appears to be going nicely. We learnt to be cautious while staying hopeful.
NIFTY gained 74 points.
On few earlier occasions our PUTS did not suffer when NIFTY gained. In fact they had gone up. We have lived a charmed life with our trades in this expiry. From a loss of 42000 to a profit of 122000 was a great journey. When you are on a dream run a thorn in the path pricking your foot can halt the journey.
This time that thorn hurt and hurt badly. It made us bleed few thousands of rupees of hard earned profit.
Our star performer turned into our biggest tormentor yesterday. The news of acquisition bu UPL made the stock go sky high. It moved higher by 15.52% in one day.
These occasions teach us the advantage of Option Buying.
Price went up to Rs. 639 from previous close of Rs. 549.60. We lost almost the entire premium in our PUT 560 which was Rs. 10.00 ( Rs. 12000 ). It is painful to lose. Just calculate what would have been the loss if you had Sold Futures or Sold a CALL.
Futures would have caused a loss of Rs. 83 ( Closing Price difference ) . Multiply that by 1200 and it is a devastating loss of Rs. 99600.
For our profit and loss calculation I have considered an exit at Rs. 4.00. We had known that we are terribly wrong and once the price stabilized near these levels it made sense to book the loss and exit.
All the bank stocks were losing for us earlier. Today they just rubbed it in a little more. The earlier glimmer of hope is almost vanished with the price moves of yesterday.
HINDALCO made a slightly lower 52 week low yesterday. I generally do not suggest exits when a stock is making new lows but we have to anyway exit in next two days. Be cautious with HINDALCO 210 PUT and protect the profits.
The chart is still profitable. But it has come down from the previous weekends great performance. That is the price paid for learning the lessons.
No new trade suggested today. Let us take care of what we already have.
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.