November 2018— Option Buying — Day 17

On October 25, 2018, ( October Expiry ) NIFTY had closed at 10124.90.

After 16 days of trading, it closed at 10763.40 on Monday, November 19.

It has moved up by 638.5 points ( 6.3% ) which is really a very big gain.

I have seen in the past that NIFTY gains are delusional. Surely those of us who buy PUTS are losers in such situations but those buying CALLS also are not in very good positions unless they have been lucky with some of their trades. Life is tough for Option Buyers and this is a lesson we learn every day.

On Friday, we were upbeat even when NIFTY had moved up because stocks like RELINFRA and IBULHSGFIN decided to stay lower.

Yesterday every stock moved up whether it was RELINFRA, SUNTV or TATAMOTORS. MARUTI and M&M are already so far gone that the hopes from them are vanishing now. Only IBULHSGFIN helped us yesterday. With each day passing and market direction just going away from us, the situation has come to a point which is alarming.

The chart above tells about the not so happy situation.

I can take consolation from the fact that 5 out of last 6 trading months have been profitable and a second losing month is not going to hurt in a big way. But before retreating let us examine the situation.

RELINFRA is not very far from being ITM. It has enough volatility to be in the profit at some time in future.

Same is the situation in TATAMOTORS and IBULHSGFIN.

As and when more trade other than these three turns around our day is made. Giving up hope in option trading leads to a certain loss.

Remember June series. Anything can happen.

On our part, we shall do well to limit our exposure by not entering more trades till there is satisfactory exit in some of the current trades. We are in tough situation with 7 trading days left to expiry and look forward to come out of the situation better than where we are now.

We can take some consolation from the fact that US markets were down in a big way yesterday. Asia Markets are in the red this morning and SGX NIFTY is trading down about 40 points. Maybe a negative trend in NIFTY ( If it actually happens ) can work in our favor today.

Trade cautiously, trade profitably.

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.

Comments

Sachin November 20, 2018 at 8:24 am

Sir,
The OI in Idea suggests a range of 42 above, Tata motors suggest 180 above. How to read OI data, and if we rely on it then why we should not close the options which we have taken ? I know at the time of buying we know we will loose our entire money, but it makes more sense to accept that the trade has gone in other direction, accept that you are wrong and go back home with whatever is left and save your remaining capital ?
Why to loose entire money ?
I have bought Idea 37.5 Put at 1.5 and had to close at 0.60 yesterday, Bcoz OI shows that it won’t come down.

admin November 20, 2018 at 8:49 am

You are welcome to hold and share your views. I started writing this blog with the intention of keeping it simple. Open Interest and Put Call Ratios are just exercise about justifying your decisions. Salvaging some money will never help you make big money.

In September trades, I had seen my IBULHSGFIN 1160 Put go up from 13.50 to 52 and then back to 9.40. From 52 to 9.40 is a big decline. One would have run away like you exited IDEA. I finally sold that PUT 1160 for Rs. 230.

In June expiry, my TATAMOTORS PUT 270 had gone to Rs. 0.05 from Rs. 5.60. It was almost full loss booked. This was the status 5 days before expiry. On expiry day, I sold this PUT 270 for Rs. 6.70.

Open Interest is just another indicator which honestly tells us nothing.

These are my views and you have a right to differ. And my method is working for me consistently so I see no reason in making changes to what works.

Cheers.
Reply
- Umesh November 20, 2018 at 11:39 am
  
  Bravo sir. Very clear thinking and simple execution. I am very impressed by your style of trading.
  Thank you for sharing your knowledge
  .
  Reply
- Santosh November 20, 2018 at 12:22 pm
  
  Once you have the bought the option whatever you have the paid for the option becomes your maximum loss, that’s all. You cannot have more losses than that.
  Reply
  - Ravi kumar November 20, 2018 at 6:01 pm
    
    Hi Kiran,
    
    Below are my answers
    Q: what happens if one doesn’t close the options trade, like the one which you have depicted in table before expiry
    A: If your trade is expired worthless then your loss if the premium which you have paid upfront when entering the trade
    
    If your trade enters ITM and is in profit then its better to close the trade on or before expiry day to avoid STT Trap
    
    Q: Does one need to pay those losses (in P&L only) ? or the entire amount worth of those shares?
    Your losses are what you paid as premium when entering those trades. Nothing more you have to pay apart from brokerage and STT
    Reply
    - kiran November 20, 2018 at 6:26 pm
      
      Thank you very much for the reply Mr Ravi and Mr Santhosh.

kiran November 20, 2018 at 10:15 am

Hello Sir,

First of all, i appreciate and respect your time and patience in writing a blog in simple way that many people (who are without much idea about stocks/ options) understand a bit of the same.
I am a newbie in this field and have seen some of your replies at quora and have high regards.
i have a simple question ; what happens if one doesn’t close the options trade, like the one which you have depicted in table before expiry ?. Does one need to pay those losses (in P&L only) ? or the entire amount worth of those shares?

Subhasis Ray November 20, 2018 at 10:23 am

Hi Sachin I use oi to sell call in red nifty days on intraday basis and make 2-3k and use this money to buy puts of these stocks you may use this strategy to minimise loss.

Sachin November 20, 2018 at 10:30 am

Hi Subhasis,
Appreciae your response, Could you plz elaborate a bit ?
Also if you use OI for selling nifty calls, then why cant the same understanding be used for stocks also? Further, i fell selling options is very risky as your loss is unlimited and with only one swing of market (which happens a lot of times these days), it will compltly erode your previous profit ?
Reply

RITESH TALWAR November 20, 2018 at 11:39 am

Dear Pramod Ji,
I booked profit in IBULHSGFIN 740 PE @ 48. I bought it @ 24 ( on higher side).
Is it advisable to enter lower strike say 720 PE @ 34-35 or wait for some time before entering again?
Regards,
Ritesh

MADAN MOHAN M November 20, 2018 at 1:34 pm

Sir, Appreciate your patience on IBULHSGFIN, till now i exited three time sand reentered 3 times. I am following other companies in the sector like DHFL and Relcap

Divyank November 20, 2018 at 3:51 pm

haha …As he once said we can’t go away to Himalayas after taking the profit, we are again in the same game the very next day so why increase the taxes and brokerage 🙂
Reply

Subhasis Ray November 21, 2018 at 12:45 am

Hi Sachin theoretically there is unlimited risk in call selling but realty is different. I Hi Sachin I use oi to sell call in red nifty days on intraday basis and make 2-3k and use this money to buy puts of these stocks you may use this strategy to minimise loss.use 15 min candle of the stock to get entry and sell the strike with highest oi. Of course you have to check some other things :
Nifty should be red with incrising atm call oi
there should not any news of the stock such as board meeting, result etc.
Choose weak stock that is the stocks those puts you brought generally from the recommendation of Sir.

Sachin November 20, 2018 at 8:24 am

Sir,
The OI in Idea suggests a range of 42 above, Tata motors suggest 180 above. How to read OI data, and if we rely on it then why we should not close the options which we have taken ? I know at the time of buying we know we will loose our entire money, but it makes more sense to accept that the trade has gone in other direction, accept that you are wrong and go back home with whatever is left and save your remaining capital ?
Why to loose entire money ?
I have bought Idea 37.5 Put at 1.5 and had to close at 0.60 yesterday, Bcoz OI shows that it won’t come down.
- admin November 20, 2018 at 8:49 am
  
  You are welcome to hold and share your views. I started writing this blog with the intention of keeping it simple. Open Interest and Put Call Ratios are just exercise about justifying your decisions. Salvaging some money will never help you make big money.
  
  In September trades, I had seen my IBULHSGFIN 1160 Put go up from 13.50 to 52 and then back to 9.40. From 52 to 9.40 is a big decline. One would have run away like you exited IDEA. I finally sold that PUT 1160 for Rs. 230.
  
  In June expiry, my TATAMOTORS PUT 270 had gone to Rs. 0.05 from Rs. 5.60. It was almost full loss booked. This was the status 5 days before expiry. On expiry day, I sold this PUT 270 for Rs. 6.70.
  
  Open Interest is just another indicator which honestly tells us nothing.
  
  These are my views and you have a right to differ. And my method is working for me consistently so I see no reason in making changes to what works.
  
  Cheers.
  - Umesh November 20, 2018 at 11:39 am
    
    Bravo sir. Very clear thinking and simple execution. I am very impressed by your style of trading.
    Thank you for sharing your knowledge
    .
  - Santosh November 20, 2018 at 12:22 pm
    
    Once you have the bought the option whatever you have the paid for the option becomes your maximum loss, that’s all. You cannot have more losses than that.
    - Ravi kumar November 20, 2018 at 6:01 pm
      
      Hi Kiran,
      
      Below are my answers
      Q: what happens if one doesn’t close the options trade, like the one which you have depicted in table before expiry
      A: If your trade is expired worthless then your loss if the premium which you have paid upfront when entering the trade
      
      If your trade enters ITM and is in profit then its better to close the trade on or before expiry day to avoid STT Trap
      
      Q: Does one need to pay those losses (in P&L only) ? or the entire amount worth of those shares?
      Your losses are what you paid as premium when entering those trades. Nothing more you have to pay apart from brokerage and STT
      - kiran November 20, 2018 at 6:26 pm
        
        Thank you very much for the reply Mr Ravi and Mr Santhosh.
kiran November 20, 2018 at 10:15 am

Hello Sir,

First of all, i appreciate and respect your time and patience in writing a blog in simple way that many people (who are without much idea about stocks/ options) understand a bit of the same.
I am a newbie in this field and have seen some of your replies at quora and have high regards.
i have a simple question ; what happens if one doesn’t close the options trade, like the one which you have depicted in table before expiry ?. Does one need to pay those losses (in P&L only) ? or the entire amount worth of those shares?
Subhasis Ray November 20, 2018 at 10:23 am

Hi Sachin I use oi to sell call in red nifty days on intraday basis and make 2-3k and use this money to buy puts of these stocks you may use this strategy to minimise loss.
- Sachin November 20, 2018 at 10:30 am
  
  Hi Subhasis,
  Appreciae your response, Could you plz elaborate a bit ?
  Also if you use OI for selling nifty calls, then why cant the same understanding be used for stocks also? Further, i fell selling options is very risky as your loss is unlimited and with only one swing of market (which happens a lot of times these days), it will compltly erode your previous profit ?
RITESH TALWAR November 20, 2018 at 11:39 am

Dear Pramod Ji,
I booked profit in IBULHSGFIN 740 PE @ 48. I bought it @ 24 ( on higher side).
Is it advisable to enter lower strike say 720 PE @ 34-35 or wait for some time before entering again?
Regards,
Ritesh
MADAN MOHAN M November 20, 2018 at 1:34 pm

Sir, Appreciate your patience on IBULHSGFIN, till now i exited three time sand reentered 3 times. I am following other companies in the sector like DHFL and Relcap
- Divyank November 20, 2018 at 3:51 pm
  
  haha …As he once said we can’t go away to Himalayas after taking the profit, we are again in the same game the very next day so why increase the taxes and brokerage 🙂
Subhasis Ray November 21, 2018 at 12:45 am

Hi Sachin theoretically there is unlimited risk in call selling but realty is different. I Hi Sachin I use oi to sell call in red nifty days on intraday basis and make 2-3k and use this money to buy puts of these stocks you may use this strategy to minimise loss.use 15 min candle of the stock to get entry and sell the strike with highest oi. Of course you have to check some other things :
Nifty should be red with incrising atm call oi
there should not any news of the stock such as board meeting, result etc.
Choose weak stock that is the stocks those puts you brought generally from the recommendation of Sir.

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