Yesterday NIFTY opened slightly negative and was more than 60 points down in 5 minutes.
Then after a while it was down 100 points. Just when the bears were calculating their gains from the short trades, bulls came marching and all the NIFTY loss was done with. Then the index was pushed upwards and within minutes it was up by more than 100 points.
A little winding up sell was there and NIFTY settled for the day 77.85 points higher.
There was a difference of 214 points between the high and low point of the day.
On Friday, September 21, this difference was more than 400 points. Since then we have seen quite a few days with more than 200 points move.
It is difficult to trade such swings.
We can not pick our battles but surely can chose our weapons.
Options are the perfect weapon for the fight against volatility.
They may lose value as the volatile price move goes against you, but you are still alive with the weapon intact to fight another day. There is no other trading instrument that is so versatile.
I had written this article two days ago.
One example of trade was SUNTV futures.
Yesterday, it opened at 623.30. Let us say we were able to short it at Rs. 620. At the end of day, it settled for Rs. 656.80. Lot Size is 1000 so the loss booked becomes Rs. 36800.
Further margin would be needed to continue in the trade expecting a reversal.
I had suggested buying PUT 640 at around Rs. 43. Let us say it was bought at that price. This PUT ended the day at Rs. 22.90.
Loss in this case is Rs. 20100 but there is no margin call. You do not have to put in more money to stay in the trade. Maximum loss can not exceed Rs. 43000 whereas if the trade goes wrong again, one can lose it really big in futures.
That was a deep in the money option.
Mostly we are discussing out of money options here. We take a setback and stay in the trade. When the reversal happens, we are there to reap the rewards of patience.
The readers will do well to remember the month of June 2018 when the entire profit came only in the last two days of trading.
Bulls or Bears:
I am thankful to the readers who post comments. One of the comments yesterday was:
It is the talk on TV which makes us think like that. Bulls were all there a month back when NIFTY made the all time high of 11760. Why have they been hiding since then?
If the bears could push the market down, why did they not stop it from covering 200 points from the low.
The answer is that no one actually knows.
Bears and bulls are there all the time and the tug of war goes on.
Naturally when bulls are there lot of bullshit also happens which is served to us as expert advice on trading.
Avoid stepping in the bullshit, there is lot of it everywhere and stay focused on your trades.
The present volatility is here to stay. We have to trade in this environment without demur.
Enjoy the holiday today and be fresh and ready on Wednesday morning.