In my last post I discussed 7 reasons why you should not trade on budget day.
Look how these words came true from that post:
Nifty will move swiftly up and down as the budget speech progresses. One good news and Nifty will jump 25-50 points, one bad and it will dip 50-70 points. You can never predict the direction of the markets that day. However watching Nifty dance will be fun if you are not trading. Moreover since Nifty will move very fast it will be hard to trade.
In this post I will analyze what may have happened to Intraday traders on the Budget Day. Look at the image below. See how Nifty danced:
Photo credit: moneycontrol.com
On 28-Feb-2015, the budget day Nifty opened at 8913.05, went to a high of 8941.10, hit a low of 8751.35 and closed at 8901.85.
From low to high the points difference is: 8941.10 – 8751.35 = 189.75. In terms of percentage it is: (189.75/8751.35)*100 = 2.17%. It looks small but see how Nifty danced from 8900 to 8840 to 8900 and then again back to 8840, then hit a low of 8750, then back to 8840, then again back to 8900 – closing almost flat since the days’ opening. All this in few hours.
Its not about budget, but any day when a big news is being declared Nifty will behave like this. This makes life difficult for Intraday traders. For positional and conservative traders however this movement means nothing.
Turnover was Rs. 10,064.41 crores. On normal days the turnover is around 6,000-7,000 crore. That’s more than 40% increase in turnover.
Such an increase in turnover on a single day is a proof that there was too much of Intraday trading. You can easily guess that most of them may have lost money.
On top of that India VIX dropped 13.29% from the previous day’s closing. It dropped to 16.97 from 19.57. (Read my previous article, I had mentioned that VIX will drop). Dropping Vega means the option premium will not appreciate well even if Nifty appreciates. It means most option buyers may not have made money.
All those who made some money had to time Nifty well. This means taking a contrarian call. They must have bought ATM Call option when Nifty was at around 8800 and sell it when it went back to 8900 levels. How many traders can do that?
Intraday traders mostly want to go with the trend. They do not go against the trend.
Which means when Nifty went up they must have bought calls, hit stop loss when Nifty was around 8750, then they must have bought Puts, but Nifty again changed trend, hitting stop loss in Puts again.
This is a guess, but this is what happens with Intraday traders during most trading days.
With option sellers (though only a small percentage of Intraday traders are option sellers), the problem may have been more psychological than technical. Imagine selling options and taking unlimited risk for a limited unknown profit on the budget day. I do not think anyone should do that. Just thinking selling naked options on a budget day makes me nervous. I do not have that guts.
Of course if you hedge your positions then profits and losses both are limited and that takes fun out of Intraday trading on such a huge day. I am sure most of them did not hedge their positions. And lost money. 🙂
Some Intraday players trade on budget day just to satisfy their egos. They know fully well the dangers involved, but still trade. If they make even 1 point profit they feel great. But then they take a large position only to lose more than they made. Egos don’t work in stock markets.
If you are also an Intraday trader, I urge you to stop trading Intraday as soon as possible. You will only make your brokers rich. You will lose money trading Intraday, if not you can never compound Intraday trading with large positions. Even if you are a smart Intraday trader, your profits will not be significant even years from now.
Have you heard of any Intraday trader supporting his family from his trades or increasing his wealth through Intraday trading significantly over last decade?
Did you trade Intraday on the budget day? If yes what was the result?
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