Since September 2018, we have seen good volatility in the market. Stocks like DHFL, IBULHSGFIN moved 30-50% in a single day. Great fortunes were made or lost on such volatile days.

Let us have a look at IDEA stock price move over last one month.

It had moved down to Rs. 36.20 on November 16 and to a high of Rs. 45.55 on November 21, 2018. This is an up move of about 25%.

Then over next day, it fell to a low of Rs. 40.80 which is almost 10% from the previous day high.

If such trades are done through Futures Trading, profits can be spectacular. But traders are not conditioned to take big profits. Who has the patience to wait for 25% move or even a 10% move. Most of us get out at 2-3% gains. We stay in the trade only when we are wrong. This trade could have given a huge loss had we stayed.

In this blog, IDEA PUT 40 was suggested at a price of Rs. 1.00 on November 12.

“IDEA is among very volatile stocks. It can move up or down 5-6% on any day quite easily. The problem is how to decide whether to be on the PUT side or CALL side. I am going for the same logic as in TATAMOTORS that it has recovered about 30% from the low and should be losing some momentum now.

PUT 40 at Rs. 1.00 is a risky trade with maximum risk of Rs. 7000 and very good profit potential if it goes right.”

The PUT had gone up to Rs. 4.00 and then gone down to Rs. 0.30. On Friday, it closed at Rs. 0.70 and still has potential to give some returns.

But in all this turmoil of the price shooting up by 25% ( From Rs. 36.20 to Rs. 45.50 ), Option Buyer is secure in the knowledge that the loss could not be more than Rs. 1.00 paid at the time of buying the Option.

This is a great comfort in these volatile times. We know what we can lose. That is a distinct advantage we have over Option Sellers. They do not know how much they can lose.

This is a recent case of a company losing millions of dollars worth of their clients money via selling Options:

https://www.news.com.au/finance/money/investing/hedge-fund-managers-tearful-apology-video-after-losing-200-million-of-clients-money-goes-viral/news-story/3329a9866831925a34d7a762b1395388

OptionSellers had 290 clients with a minimum investment of $US250,000. Bloomberg reported the firm’s estimated losses could exceed $US150 million, with many clients actually left owing money.

Yes, we are also not making money this month. It is part of the game. But we are sure that our losses will be manageable hen they happen.

Option Selling is touted as high probability winning method. It actually wins small amounts quite a few times and then gives away the gains many times over in just 2-3 days.

Not for us.

We can have one bad August Series secure in the knowledge that good times are around the corner when market obliges us. It happened in September Series and will happen again in future.

Do not be afraid of volatility. We have to use it as a friend in difficult times. Volatility gave us our September profits and we look forward to more of it. Elections and election results are sure to cause more volatility.

It is time to stay cautious and avoid Futures Trading and Option Selling.

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.