For beginners rule based trading is better for risk management. Experienced traders may change the rules depending on their experience and situation as per the market condition. But it’s better for all to stock to the rules.

In this post you will learn how you should trade options with rules. These rules will keep you safe.

1. Position Size Should be Small:

It has been told quite often and written many times in financial blogs that when you trade derivatives keep the position size small, but for some strange reason after a few profitable trades, traders start trading with 5-10 lots thinking they will make a lot of money in no time. read more

Post Date: 26-Sep-2019

One decision to lower corporate tax by Finance Minister Nirmala Sitharaman by a few percentage resulted in huge jump in stock markets.

The News: On Friday, September 20, 2019, Finance Minister Nirmala Sitharaman announced a reduction in the country’s effective corporate tax rate from around 35% to 25%. For companies that do not avail of any other incentive or commission, the effective tax rate would be just 22%.

This will save a lot of money of the companies doing business in India and of course will result in better profits, which in turn will result in business expansion and creation of jobs. Its a very good news for Indian economy. read more

Since 4-Jul-19 both BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are falling.

Two main reasons are:

1. Business sectors such as Automobiles (Maruti Suzuki, Tata Motors), Banking (PNB, Yes Bank), Non-Banking Financial Companies (NBFC) (Indiabulls Housing Finance Ltd), and even FMCG (Parle) are seeing a heavy slowdown in business. More than 1 lakh people have lost their jobs in these sectors in just the last two months and more will lose in the coming days.

2. FPIs and FIIs are selling, in fact, the rich investors in India also not happy. read more

This post discusses how Nifty Options settlement is done.

First thing you must know is that in India Nifty options are cash-settled. These are European-style settlements. A cash-settled option is a type of option for which actual physical delivery of the underlying asset or security is not required. The settlement results in a cash payment + brokerage and taxes, instead of settling in stocks, bonds, commodities or any other asset. In India, options are allowed for trading before expiration (American style). Which means a trader can buy/sell an option and finish the trade before expiry ant time he/she wants. However, in European style cash settlement, the option contract owner is required to hold until expiration. read more

This is a very common question befalling option buyers since ages. After paying the huge premium and the stock moving in the direction of the option bought if the option buyer sees a loss in options bought they get stressed and start thinking what wrong they did.

This is especially worrisome for novice options traders who just came into the options business. They get worried about seeing a huge decline in option premium if the stock stays in the same place or move slowly in the direction of the option bought. So they ask themselves or their mentors/brokers or keep searching online – why my option declined in price when the stock moved in my option buy direction? read more

Selling a put option is a slightly bullish strategy wherein the stock has to move up else the put seller may face a loss. Its better to sell a put option slightly OTM – Out of The Money. You must have read in lots of places that its better to sell an ATM (At The Money) put option, but my experience has been good with selling put options slightly out of the money. Out of the money put option gives you time to decide to book profit or take a stop loss.

Suppose you are very bullish on a stock then there are four things you can do: read more

When you lose money trading in stock markets – its just not the loss you must add the interest lost had you kept that money in a Bank Fixed Deposit.

Read this email I got:

Hi Dilip Bhai,

I was a regular trader in the stock market but form 2005 to 2007 after that I had lost my all money in the crash, which is around Rs.15 lakh. If I invested that money in FD that would be more than 40 lakhs. Just think what I lost in this market. Then I stopped trading for 10 years and I thought I need more education to trade in stock market and I found a teacher who taught me trading in option with hedging option and hedging option with future, pair trading in options, arbitraging with current and next month future, time decay technics with current month and next month option selling, 22 ways of option hedge trading like butterfly, collar, condor, straddle, strangle but ultimately none of them can make money for me. Now my experience is this that somehow market will fetch money from the trader, no trader can earn from this market for a long run, may be 5% of trader are exceptional or lucky or punter what ever. Honestly do you think I need to learn much more or to quite for ever. read more

Date of posting: 04-Jul-2019

Its strange that tomorrow is Budget 2019 and INDIA VIX has actually dropped:

INDIA VIX 04-JUL-2019

Usually, INDIA VIX increases prior to budget or an event day and then drops after the event is over. But this time it’s different.

I think the reason is that India already knows what’s there in the budget because the interim budget has already been presented on 1 February 2019. Due to the General Elections to be held in Apr-May 2019, The Interim Union Budget of India for the year 2019 was presented by acting Finance Minister Piyush Goyal on 1 February 2019. read more

A lot of traders move from buying options to selling options. Though in India since margin blocked is too high to sell options, many traders are unable to sell it. Moreover many traders do not want to sell options as they think its unlimited loss.

Huge margin blocked plus the unlimited loss combined effect stops many option traders to sell options. Some who want to sell, do not have the money to sell options, and those who have do not want to sell because they cannot overcome the fear of unlimited loss hovering their minds plus the greed to make unlimited money stops them from selling options. read more