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Note: Part of newsletter sent to my subscribers on 12-Oct-2015. If you want to receive such newsletters please sign up at the end of the post.
Refer my yesterday’s newsletter on Infosys results: How To Trade Infosys On Quarterly Results Day.
There is no huge movement in Infosys today after the results.
When there is no movement there is no trade. Just 2% move is not considered a move if the strategy needs a movement. This is in fact true for any directional strategy.
Those traders who bought call and put options on Friday must have lost a lot of money, and those who sold must have made a lot. Why? Because VIX dropped and 1 or 2% movement cannot destroy the sellers.
Sellers mostly win. 🙂
However those who have taken my course can trade the directional strategy on stocks that move a lot after the quarterly results. But be prepared for the small loss that may happen if there is no movement.
How to counter the “no movement”?
One way to hedge the “no movement” is to sell some calls and puts slightly out of the money.
Now if there is movement – you make money from the directional trade – but if there is not much movement then the sold options makes money to compensate for losses.
The biggest mistake traders do is to buy ATM options before quarterly results. The stock needs to move at least 7-10% for the buyers to make money and it has to happen the next day which is rare.
Why such a huge movement is required to profit?
Because VIX will crash by at least 20% the next day as all speculations are out and options premium will fall. So you will see even if the stock moved by a couple of percent, the options did not move and the trade made a loss. However if a lot of movement comes – like more than 5%, the theta loses but delta makes for the loss and the trader profits.
On top of that inflated VIX means they pay a lot more to buy ATM options. It does not matter whether you have sold options to hedge or not, VIX will drop and loss will be more on the buy options. OK losses will be less if you sold options too – but we don’t trade to make losses.
After the Infy email I got a lot of WhatsApp messages from my paid subscribers (and also traders who haven’t paid) on which direction to trade.
There was a time when I helped people for free and it ate a lot of my time. I have learned to respect my time now so I do not offer advice for free and/or for trades that does not come under my 5 strategies.
However some of my paid subscribers ask for help on trades done prior to doing my course which are making huge losses. I help them as I feel its my duty to save their money. They have paid for my service and I am morally obliged to help.
Anyways, which direction to trade is a silly question because the trade needs direction, the direction itself is NOT important. So why bother?
Here is an important tip: When the news is bad the stock will crash, but have you ever heard a stock crashing up? Well even that can happen with the stock hitting the upper circuit which happens very rarely. But mostly its stock crashing like 10% or more if there is a bad news. If its good news, the stock at the most will go up 3-4%.
This is where money can be made in directional trade. Just be on the buy Future side always. Check the strategy and see if stock crashes even 7% – you can make at least 20% on your investment in one day, though you will make huge losses in Future – this is exactly you want. 🙂
This is important from the risk management perspective – do not try in more than 4-5 stocks in a quarter. Limit your losses – but if the stock crashes – its a home run. Enjoy the profits.
Thanks again for being my subscriber.
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Hi sir pls update me about ur blogs u r updating everday si i can enhance my knowledge.
Done Siddharth. Strange that you did not subscribe to my newsletters. Please check your email for welcome email + bonus ebook + 5 days educational emails to know the best way to trade options.
Good, sir ji
Learning points from this post :
The biggest mistake traders do is to buy ATM options before quarterly results.
Which direction to trade is a silly question because the trade needs direction, the direction itself is NOT important.
Plz correct the following line :
In the para titled ‘ Here is an important tip : ‘
Well even that can happen with the stock hitting the upper circuit which very rare.
Well even that can happen with the stock hitting the upper circuit which is very rare. OR as
Well even that can happen with the stock hitting the upper circuit which happens very rarely.
M S Rao
Learning points from this post :
With results season round the corner this is the post for Stock option traders to follow in Toto to mint money.
M S Rao
Dilip ji, M S rao always done done done, why are you wrong writing many