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Well yesterday I got an email which was very disturbing. Someone lost more than Rs. 2 crores trading options.
Click on the image below to enlarge and read the email properly.
Disclaimer: I cannot verify the authenticity of this email nor do I know whether it is true or not, but if it is, then probably this is something un-explainable and inexcusable.
I mean you cannot lose so much money that can change your life. 5-7 lakhs is ok. In the long run it won’t matter much, it will not change your life. But that is it.
If you have lost more than a lakh in the stock market, you should stop trading and learn trading – not just keep speculating and losing. Most of the traders who lose money are option buyers.
Just imagine what this person could have done with this money or anyone of us can do with so much money especially in India. I mean you need not work for the rest of your life and still generate enough money every month from guaranteed returns that you would find hard to finish even if you live a lavish lifestyle.
If he bought a big house in any city of his choice, and a great car for 1 crore (85-90 lakhs for the house and 10-15 lakhs for the car. I know car lovers will hate me for this but in economics the car has a diminishing return – the house can be sold at a profit 🙂 ) – he would still be left with Rs. 1 crore. If he goes and fix this in a bank – he makes Rs. 72,588.00 per month from interests alone (calculated at current Bank Fixed Deposit (FD) of 8.75% per year).
Better still if he keeps this in a debt/liquid fund which returns better than Bank FDs, then he makes even more. Currently debt funds in India are making more than 10% a year – but it keeps changing and is not guaranteed “on paper”. However they return better than bank fixed deposits.
Whats more, if he can somehow keep that money in the debt fund for three years – then the tax on the returns gets highly reduced. You only pay 20% of the profits after indexation. Bank FDs returns are taxed as per your income slab even if it is kept for 5 years.
He can always invest 50% in bank fixed deposits and 50% in liquid funds to diversify the risk. Click here to read how I manage my financial portfolio and diversify my risk.
He can spend the money earned from interests guilt free, as he likes, without saving one rupee from it as he will again get 72,588.00 (or more if 50% of it is in liquid fund) next month. 🙂 Even after spending this much money, he gets to keep Rs. 1 crore. What a loss.
Here are some more loss stories that I was told on phone or email. All personal details of the trader is kept confidential:
I know one person who did not take a stop loss even when his losses were at almost one crore. He had sold too many naked Nifty Futures when Nifty was rising in 2013-14 thinking it will come down. This was when Nifty was at 7700. I asked him to take a stop loss immediately but he did not. Today Nifty is nearing 9000, if he has not taken a stop loss imagine where his losses are today. This in a small city in Warangal – Andhra Pradesh.
At least five traders have told me their losses have exceeded 40 lakhs. One person sold his property worth lakhs and lost all his money trading intraday.
An engineer left a plum job of software engineer in Bangalore to do trading full time. Initially made a lot of money, got greedy and lost it all. Now he is asking his friends to look a job for him.
Here is another sad story from Goa:
My name is XXX, I’m from Goa, I have been a trader for almost 4-5 years with little breaks in between. But, I have never made any mentionable profits as such. Mostly it was like little profit, more loss, this cycle was repeated for quite some time, till my account eroded considerably.
Furthermore I had taken money from my friends and colleagues and lost it too (approx. 15 lakhs) now these people are behind me to pay back their money, making my life really miserable.
I used to trade mostly in Nifty Futures (Index Futures – most of the times I used to make profits) and Nifty Options (Index Options – always made losses, unless some fluke trade made me profit).
Now, my situation is so bad, that even my wife and parents are not so free to speak to me. They have become reluctant to even talk to me normal day to day talking, because they have come to know what I have done with my money and my friends money. My friends frequently call me on my phone and visit my home and threaten me. Now the situation has become unbearable.
Even my self confidence has gone so low, I hardly go out of the home, even if I have to go for some urgent work, I wear full face black helmet and go, to avoid the people from whom I had taken money. To make matters worse, I’m not even getting a job with justifiable salary in Goa (this is because of the break I took to do full time trading).
It has become difficult for me to meet my daily expenses, and I can’t support my family.
Sir, right now I have only 16 thousand rupees left in my trading account, and don’t have money to pay you fully for the course, but I can pay you Rs. 2,000/- now and Rs. 2,000/- after some days, when I start making profits with the Rs. 16,000 that I have in my trading account and taking support of your options course.
So, I request your good self to kindly bear with me and allow me to do the course with 2,000 now and balance 2,000 later. But one thing is sure that I will definitely pay your money, since you are my Guru.
Please help me Sir, I will be really grateful to you.
I asked him to look for a job and stop trading.
I have been trading unsuccessfully since 10 years, meaning I keep changing strategies. I have a good understanding on trends, position sizing, supply and demand, however, when it comes to put on the trade, I am not consistent. The reason being I think directional trading can change your view with market ongoing. I also studied in depth options and have a good understanding on payoff, risk:reward, etc on option trading for iron condors, butterfly, credit spreads, etc.
What was difficult is that risk : reward are really risky when we see the actual options on NSE. i.e. you get less credit versus the risk. Sometimes it is skewed to 1:5 R:R. So if I think to earn Rs. 10,000 profit, I need to put on risk of Rs. 50,000. If the R:R is so extreme, I think 2 or 3 losses out of 10 will keep trading account in negative zone.
My view: 10 years of trading and still losing. Even worse he learned nothing. In 10 years a kid who was in class 1 will be appearing for his 10th board exams with a lot of knowledge about the world. What a waste of time. Money can be earned again, time will NEVER come back. To me time is more important than money.
This is what I replied: You may be right in what you say BUT only when you DO NOT manage risk well before time AND you have NOT hedged your positions.
Options can be made to play against one another.
Why let that 1 loss exceed the limit? Managing it before is the key and playing it smartly is also important.
There are countless stories I hear almost everyday but they are not worth mentioning. Please stop your trading if you are still losing money trading options. Read books or good websites online on options. I bet if you keep speculating, you keep losing.
Cheer up. There are some good stories as well. Someone told me that two guys in his city were making almost 5 lakhs every month trading options with a 40 lakh account. That is over 12% return a month. 🙂 Well congratulations if this is true.
So making money is possible but if you have some knowledge and have a strict plan. Enhance your knowledge in options and then trade. Please do not speculate. You will only lose money, and it will slowly accumulate to lakhs. Do not let yourself bleed slowly – you will not realize the small losses, but by the time you realize you may be deep in losses.
How much money have you lost or made trading options? Please do write in comment. Your email will not be shown and you can always use your first name to hide your identity. Thanks.
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Dilip Shaw, Founder
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