Diwali 2023 is coming and you must be thinking what’s next? Here Are Some Simple Tips on Financial Management And Stock Investing

If you have done my course please continue trading options or futures with a hedge. If you have not done I suggest doing my course.

Here Are Some Simple Tips on Financial Management And Stock Investing You Can Follow:

1. Avoid muhurat trading. In a short time, there is nothing you can do.
2. If you still want to trade buy a good stock. Do not over-buy just because it’s Diwali. Do your research and invest.
3. If you are a buyer of options kindly trade only intraday. Overnight options buying is dangerous as theta (time) decay will work against you even if you are right in the direction.
4. If you are a seller of options or a future trade please hedge.
5. Lastly, keep 5% of the margin blocked for the trade as a stop loss. Do not let the loss go beyond 5% of the margin. The target should be slightly above 5% – anything between 7.5 to 10% is good.
6. Do not put more than 10% of your annual income into derivatives trading. This will keep your finances in check.
7. Returning to No. 6 – if three years of your investment in derivatives trading (totalling 30% of three years of income) gives a negative return (you made losses) or is not above 12% return Year-Over-Year (YOY) then quit trading derivatives altogether.
8. 20% of your annual income should go into stock investments. You can choose to divide this into mutual funds or direct investing. The best is 75% and 25%. 75% going into mutual funds and the remaining 25% into direct stock or ETF investing.

   For example, if your take-home salary is 50,000 a month then 20% of 50k is 10,000. 75% of 10,000 is 7500 and the rest 25% is 2500. You can invest 7500 in Four good and diversified mutual funds and 2500 directly in stocks. Stock investing via SIP is also a good idea to average out the price. Do not invest in more than 5-10 stocks otherwise managing them may be a problem.

9. If you keep doing point 8 above for 20 years then even at a 15% return compounded annually the total corpus will be:
   Future investment value: ₹1,31,38,389.47
   Total interest earned: ₹1,07,38,389.47
   Total Deposits: ₹24,00,000.00
   Time-weighted rate of return: 1269.27%
   Suppose you started doing this at the age of 30, then by the time you are 50 years old, you will have enough to retire – all this by just investing 10k a month. Of course, with experience your salary will increase and you can invest more. I have not taken this into account. I assume this can go up to 2 crores of corpus by the time you are 50.

Follow the above rules and you will be a happy investor.

This is a copy of my email sent to my subscribers on Thursday, 02-Nov-2023.

In September 2023, the U.S. government’s debt was over $33.7 trillion. This includes debt held by the public and debt held by federal trust funds and other government accounts.

So what is the problem?

Because the federal debt is $33.7 trillion, just a 1 per cent increase in yields adds $337 billion to the annual cost of servicing the debt over time, as more of the debt is rolled over at higher interest rates. That adds to the Biden administration’s already large deficits so that higher interest costs grow the debt even faster. The Treasury is already spending an annualized $1 trillion to service the debt.

Source:

https://www.foxbusiness.com/economy/fuse-america-debt-bomb-just-got-shorter#:~:text=Because%20the%20federal%20debt%20is,over%20at%20higher%20interest%20rates.

Why am I informing you this?

Because if the US sneezes then the world will catch cold.

So should we panic? Yes and No.

The U.S. government has spent more money than it takes in every year since 2001. This is the problem. For the last 21 years, it has been buying debt and spending money on social welfare schemes and running the country.

It does not look like Biden is at all worried.

What may happen?

Both debt and equity markets may fall.

But the US is sitting on a great advantage.

All its debt is in US dollars. The US is the only country in the world which can print money and buy stuff or pay salaries without creating a situation like Sri Lanka.

If you do not know Sri Lankan government started printing money to overcome monetary problems. In May 2023, Sri Lanka began printing money to promote business by pumping artificial rupee reserves into banks. However, this resulted in currency depreciation and exacerbated volatility. Things became so costly that there were no buyers.

Fortunately, the US can print money and yet will never see what Sri Lanka saw. Not sure why they are not doing and clearing all the debt.

If you are an economist reading this email, your valuable input will be welcomed.

I am sure the US markets know this and therefore we are not witnessing a great fall – but I just wanted to caution you.

This is a copy of my newsletter sent to my subscribers on Tuesday, Oct 31, 2023

Have you observed that most of the time the Put options especially the far-from-strike ones are costlier than the call options of the same distance? In this post, you will learn why it is so.

This is mainly due to volatility skew – the difference between the implied volatility of out-of-the-money, in-the-money, and at-the-money options. India VIX indicates volatility in the markers (high VIX means high volatility and low VIX means low volatility), however, every strike option has its implied volatility.

The further out-of-the-money options have larger implied volatility in terms of percentage.

This is the reason why the percentage of increase or decrease of the option premiums does not exactly match with India VIX increase or decrease.

Let us take an example.

When markets rise traders get optimistic and buy call options – but not many buy further out-of-the-money options because they want to capitalize on the moment knowing very well that profit booking may enter anytime soon. However, this is not the case with put options. When a stock falls traders know that an 8-10% fall is common. Most of them start buying further out–of–the–money options. Due to increased demand thenput options prices increase more than the call options of the same distance.

Here is a real LIVE example.

Date 31-Oct-23.  https://www.nseindia.com/option-chain

Current Nifty price:
19108.20

NSE 31-Oct-23

Source: https://money.rediff.com/index.html

Can you see there is a huge difference? 27.40 – 13.20 = 14.20. See that the difference is more than the price of the call option.

Check implied volatility also. Therefore put options are costlier than call options especially when the markets are normal and falling. However, the call options do not have such a huge difference when the market is rising.

This post has been long pending for many years. I must have received this question from many traders and I promised them that one day I would write an article on this and post it on my blog and also email it to my subscribers.

What a relief.

I hope you have learned why there is a difference in pricing between call and put options of strikes with the same distance from the stock.

This post is a copy of my newsletter sent to my subscribers on 02-Oct-23. You can also receive such emails by signing up the form above.

It is good that the US government avoided a shutdown. If this had happened then for sure our Stock Markets would have gone down by at least 6-7%.

Why the fall?

Events like the US shutdown affect foreign flows by Foreign Institutional Investors (FIIs) and Foreign Portfolio Investments (FPIs) into the Indian market, which is an important factor for Indian stock markets.

This may have had a cascading effect. What is the cascading effect? A cascade effect is an inevitable and sometimes unforeseen chain of events due to an act affecting a system.

Of course, 99% of retail investors will not know why the markets are falling. Those 1% of retail investors are either High Net Worth Individuals (HNIs) or Portfolio Managers (PMS). They will know and will start selling equities or will not buy new equities in the falling markets.

If there were no cascading effects the markets would have fallen by a mere 3-4% – but due to cascading effects, it could have fallen by 5-6%.

However, the bill has been deferred by 45 days until the 17^th of November 2023.

Then what will happen no one knows.

What you can do?

If you are an investor – stay invested – do not sell your stocks in panic. They will rebound later.

If futures and options traders – just hedge. Do my course to learn hedging and keep your money safe.

Side note: India VIX increased to 12.86 on 28-Sep-23 due to this news only. But when the news was out that the US government shutdown would not happen now – it fell by 10.68%

Nifty VIX 29-Sep-23

That’s it. Keep your investments and trading simple and you will generate a good income. Trying to do anything extraordinary will take money out of your Demat account.

Trade safe.

This is a copy of the email sent to my subscribers on Friday, Sep 8, 2023. If you want to receive such emails you can subscribe in the form above.

Topic: Bank Nifty Weekly Expiry has shifted to Wednesdays – what will be the impact?

Bank Nifty’s weekly expiry day started on Wednesdays. The first Wednesday weekly expiry was on the 6^th of September 2023 (Wednesday). You also know this. So why am I sending you this email?

Because there are certain things that you should know if you trade bank nifty weekly options.

Please note that weekly options will expire on Wednesdays but the monthly and quarterly contracts options will expire on Thursdays only.

If you do not know about the quarterly contracts – here is a short explanation:

Nifty Bank index options have three quarterly expiries – the last Thursdays of March, June, September & December.

Please note that monthly expiries and quarterly contracts are not different. They are the same option contacts – it is just that some traders want to trade farr-off options which are not very popular in India. So to make them popular NSE has branded them as quarterly contracts. Just to increase the liquidity in the capital markets.

For example, in September 2023 the Bank Nifty expiry days are:

1^st expiry – Wednesday – 6^th of September, 2023 (weekly expiry)

2^nd expiry – Wednesday – 13^thof September 2023 (weekly expiry)

3^rd expiry – Wednesday – 20^th of September, 2023 (weekly expiry)

4^th expiry – Thursday – 28^thof September, 2023 (monthly & quarterly expiry)

If Wednesday is a trading holiday, then the expiry day would be the previous trading session.

If Thursday is a trading holiday, then the expiry day would be the previous trading session.

What impact this will have?

Some traders hedge nifty options with bank nifty as the move is almost the same. This will end. They will now have to hedge bank nifty options with bank nifty options only. If you have done my course you will know that I discourage hedging options of one company/index with another.

For example, you cannot hedge HDFC Bank options with Axis Bank options – it will only get confusing.

So I think this is good. However, traders have a lot of ego. Those who hedge bank nifty options with nifty will still do it. They are willing to take a loss but will not change their strategy. It is unfortunate but this is what they will do. They might change after taking some big losses. But not sure why they let their ego come under way in trading. You at least do not let this happen.

Volatility in Nifty on the weekly expiry days (first three Thursdays of the month), will reduce as Banknifty has a lot of weight on Nifty. Both Nifty & Bank Nifty monthly options expire on Thursdays – so last week will be volatile.

Today is Thursday and see how Nifty is behaving:

The volume will increase on Wednesdays in Bank Nifty and Thursdays in Nifty. Expiry day intraday traders will trade bank nifty weekly options on Wednesdays and nifty options on Thursdays. On the last Thursday of the month, both Nifty and Bank Nifty will be volatile.

Moreover, there is news that the instant settlement of stocks is to come in by October 2024. I will write an email when all the details are clear.

Trade with strict stop losses and profit targets.

Wishing you the best always.

Have you heard about Beginners Luck? The stock market is a great place where everyone when they start trading or investing sees good profits. This lures them to trade more often and then within the next 6 months, they end up losing 6 times the profits they made in the first two trades.

Be cautious and keep writing your profit and losses in an Excel sheet so that you can check on your finances.

Learning to invest/trade doesn’t happen overnight. It takes time and effort to become successful at it.

You can either practise on your own or do my course or anything else – but you will not become a superstar overnight.

You should make a consistent income – however small it is should not bother you initially. Later when you get confident then scale.

Learning to trade is just like learning to drive a car. Initially, you need a trainer, then slowly you get into the driver’s seat with the trainer sitting beside you, then within months the trainer leaves and you start to drive but at speeds up to 40 kmph. You fear going faster than 40 kmph, then in the next 3-4 months you become more confident and can drive up to 80 kmph.

Well in any case it is better not to drive the car beyond 60 kmph unless it is a medical emergency. Start early so that you drive slowly yet reach on time, or if you started late still drive slowly to reach your office alive. Getting to your destination late and paying a fine is better than trying to get there too fast and never reaching there.

Stock market trading and investing are the same. Start slow – do not invest more than the minimum required for a trade. Keep a check. Respect your stop loss more than the profits. Keep your profits target double the stop loss target. Both should be reasonable. Try to be successful more than 60% of the time. If not you do something about it. Details of my course are here. See if it helps you then just do. If you have any questions you can contact me.