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How To Best Trade Debit Spreads

Learn the best way to trade debit spreads – its a great trade for beginner option traders. Lots of tricks in the article so read carefully.

If you are a new entrant in the options world – a beginner – then you must know one trade and that is the debit spreads.

Note: If you do not know what a debit spread strategy is please read Call Debit Spread. In this post I will only explain how you can trade debit spreads in a better way.

Debit spreads can be traded both sides. Lets discuss:

  • When you feel the stock may move up you can trade Bull Call Debit Spread: Here you buy ATM (At The Money) Call options and sell OTM (Out of The Money) call options to reduce the cost of buying calls.
  • When you feel the stock may go down you can trade the Bear Put Debit Spread: Here you buy ATM (At The Money) Puts and sell OTM (Out of The Money) Puts to reduce the cost of buying puts.

Loss in both the above case is restricted to the premium paid minus premium received. That is your final net debit. Can you see how its much better a trade than simply buying options? Here either your option buy win or your option sell wins or both win and you can end up making even more than a naked option buyer.

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India VIX on 25 What to Trade

NOTE: Part of newsletter sent to my subscribers on 26th of August 2015.

Since my last email yesterday, a lot of questions started coming on the directional conservative strategy of my course.

India VIX at 25.52 – What to Trade?

India VIX has started to drop, and it is inversely proportional to Nifty. So overtime Nifty will try to come back to its normal range 8000+. One good news -> over-reaction from greedy traders -> 3-4 days of trading and Nifty back at 8000+. :)

The directional strategy needs VIX to increase not decrease. So I would suggest do not trade this strategy right now. Wait till VIX gets below 20.

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Nifty Down But Hedging Works

Note: All those stocks that I recommended yesterday are up today by more than 3%. If you are making reasonable profits on the Bull Put Credit Spread please close the position and exit.

Update on Markets close 24 August 2015:

The Sensex crashed 1624.51 points, -5.94% below the previous close to end the day at 25741.56. Nifty shed 490.95 points, -5.92% below to close at 7809 after hitting an intraday low of 7769.40.

CNX Midcap was down 9.6 percent and the S&P Smallcap index closed down by 8.8 percent.

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Nifty is Down by 4% What to Do

Part of newsletter sent on: 24th of August 2015.

Today what happened, happens once in 6 months. Sensex crashes by 1000 points and Nifty down by more than 4%. Chinese economy is bringing down the stock markets all over the world.

INDIA VIX is at 23.58 an increase of 6.47 points and 37.81% over Fridays close. This is very rare.

The truth is after three and a half months, stop loss is hit in our Strategy 1. We should accept it gracefully. The kind of losses that are being reported are like 8 points or 10 points which is cool.

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Profit in Trade Despite Loss in Futures

Note: This is edited part of newsletter sent to my subscribers on 20th of August 2015.

Today I got an interesting email from one trader who took my course.

This was his Nifty Future trade – the directional strategy – it can make money even if the Future trade loses money because of the options hedge. Of course, I will not reveal the hedge part of the trade as its only for paid subscribers of my course. :)

On 16th of July 2015, he had bought Nifty Future @ 8626, and on 28th of July he sold it @ 8350.

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Great VIX Trade in August 2015

Note: This is part of newsletter sent to this website’s subscribers on 13th of August, 2015. Its partly edited for public viewing. Signing up for newsletter is free. You can find the sign-up box at the end of the post.

Nifty is at 8391 and VIX at 17.02. Its a great time for option sellers. If you have taken my course then you can directly trade Strategy 2 or enter Strategy 1 now. You will get good premiums. I also bet VIX will go down soon, since no major news is coming in short term. We can exit in quick profits.

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Basic Income Tax Rules FY 2014-15

You must file your taxes every year.

Remember that last day of filing tax for financial year 2014-15 is August 31, 2015. You can file after that too, but you may have to pay a fine which should be avoided to save money.

If you are not a tax expert you should outsource this to a tax professional.

Even though you outsource, as a stock trader its always good to know some basic rules of Income tax.

So here are some very basic rules:

1. Trading Profits treated as Business Income – All profits made in derivatives (Future and Options) and Intraday trading (day trading) are treated as business income. Business income is added to your total income from all sources including salary or other businesses.

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How to Best Hedge A Future Trade

In this article we will learn how to best hedge a future trade, what is a bad hedge and where hedging is not required.

Yesterday one of my subscribers mailed me this:

I need your help in one of the future transaction which was done prior to my subscription to your course.

I have purchased one lot of LUPIN – (AUG 2015 Future) at a price of Rs. 1751/- without hedging. Although for last 3 – 4 days it is showing up movement, I intend to cover it by selling 3 to 4 lots of PUT Strike price of Rs.1600/- presuming that it will not go below 1600/-.

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Find A Stock Like WIPRO or ITC

Yesterday someone gave me a call from the US after reading this article on my site – how to make crores from the stock markets.

He wanted me to find out super stocks that will perform like WIPRO in 30 years. :) He wanted to invest 10,000 now in 6-7 stocks and wanted me to find these stocks. You can imagine he wanted to invest only 10,000, so what kind of paycheck he was looking to offer me. :)

Really? Dude I am not GOD that I can predict what will happen in next 35 years.

Hell even WIPRO owner Azim Premji did not know his company’s stock will create such huge wealth for its share holders in 35 years time. How can anyone else know?

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About Brokers and Discount Brokers India

If you have a large trading account and fear that your broker will run away with your money or do trading on your account without your knowledge then you need not fear. The rules by SEBI (Securities and Exchange Board of India) are so strict that the brokers actually fear trading without your permission in your account. The rules governing management of money in brokers account are even stricter.

According to a recent rule any money that is not used in a Demat account needs to be returned to the client. Earlier if you remember the brokers used to keep the money in your trading account. You could have used that money any time you want or leave it idle. But now rules have changed. The money that is not blocked or used for a certain time needs to be returned to the client’s bank account. This is to ensure in case you had left a lot of money with your broker and God-forbid some thing happens to you, all the money that is unused will be refunded.

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INCOME DISCLAIMER: Any references in this site of income made from the trades by the traders taken the course are 100% correct and genuine.
I will give you their trades as proof.
However every trade depends on the trader and his level of risk taking capability and knowledge.
Moreover stock market investments are subject to market risks.
Therefore there is no guarantee that everyone will achieve the same or similar results.
My aim is to make you a better & disciplined trader with the strategies you get from it. Thank You.