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Why Expiry Day Trading Is Not Good

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Lots of people ask me if I have any strategy to trade and make profit on expiry day. I ask them a counter question – why you want to trade on expiry day only? Most of them have no answer. However some say because options are dying (expiring) that day why not benefit from this situation?

OK let’s forget options for some time. Let’s assume a close relative of yours is dying on a day and you go to the hospital to see him for the last time. At that time do you think about making money using him or you try your best to console him and save him?

I hope you get the point. The day options are expiring it’s better not to trade them rather think about next month or wait for a better opportunity to trade.

Risk reward ratio is pathetic on expiry day trading.

Please remember that on expiry day all options whether they are In The Money (ITM) or Out of The Money (OTM), have lost most of their time value. Any option with 2-3% away (Out of The Money) from the spot price will be near 0 by 12 pm and all ITM (In The Money) options will have only the intrinsic value and no time value.

Intrinsic value is the distance between the spot price of the stock and the strike price of options. For example if Nifty strike price is 8250, then 8500 strike call option will be near zero by 12 pm and 8150 call option which is In The Money will be near 100 by 12 pm. Basically all In The Money options will behave like Futures not Options.

All options on expiry day are near Delta of 1 or 0. All Out of The Money (OTM) options have near ZERO Delta and all In The Money options have Delta near 1. Just like Futures delta.

So if you buy on expiry day 8150 Call if Nifty is at 8250, then if Nifty goes up 10 points you will make a profit of 10 points just like Futures buy, and if Nifty falls by 10 points you will lose 10 points just like Futures losses. Can you see the risks involved?

If you sell ITM (In The Money) options let us see what happens:

Assuming 8150 Call is sold when spot of Nifty is at 8250. If Nifty comes down 10 points the seller will make a profit of 10 points and if Nifty goes up 10 points the seller will lose 10 points. What if Nifty goes up and reaches 8350 at 3.30 pm when markets close? The seller of 8150 option will lose 100 points.

Of course since there is not much premium in Out of The Money Options very rarely traders trade them on expiry day. The buyer of options knows that it may expire worthless and they may lose 100% of the money buying them. The sellers do not get much money to sell OTM options and they think risk is too much for such a low payment so they do not sell OTM options.

The problem is in spite of all these risks people keep searching Google for expiry day trading.

So Why People Like to Know About Expiry Day Trading?

1. They hear from some source stories that someone is trading on expiring day and making good money. The problem is no one wants to know who that person is or exactly what they are doing. And if there is any truth in whatever they heard. Since they do not know the source and therefore do not know how they are trading – they Google it to try to find out.

2. Early in the morning on expiry day ATM (At The Money) options in Nifty are around 20-30 depending on VIX (volatility). Sellers of options want to make quick money on expiry day. So they think if they sell both ATM Call and Put options early in the morning and if Nifty expires within 20-30 points they can easily make 20-30 points in one day. Agreed if they are correct they will make. Let’s assume they get 25+25 points = 50 points credit by selling At The Money options. So if Nifty expires within 50 points range either above or below they will make a profit. What they forget is that on the expiry day a lot of movement is seen. This is very normal as all derivative traders are closing their position. The movement starts after 12 pm when these people come into action. So even if they make a profit in two expiry days, the third expiry day may see a huge move and all they made in last 2 months is gone plus markets will take away some principal as well. Where is the profit? Note that this is the most popular trade on expiry day. Hope after reading this you know the risks involved and will not trade this.

3. If one day trade can make them rich why trade for one full month: This again is a lazy trader’s mindset that is why they search for expiry day trading. They think if they can get rich by trading just one day in a month then why do all the hard work for the full month? They forget the simple fact that no one in the history of trading has ever become very rich by trading on the expiry day. Another fact for those who think on these lines – do you think you will become extremely rich by trading (working) just 12 days in a year? How can that logic be justified? Stock market trading is a business. Name me one person who has become extremely rich in any business in the world by just working 12 days in a year? Is that possible? In fact business owners work more than people who are doing a job because they know the more they work the more money they can make. Which is a fact. People who chose to work hard and not take lazy route to success are the ones who actually archive success. May be it takes a few years but at least they succeed. People who take the lazy path to make money never see success ever, not only that they are the ones who are the most stressed people in this world, because they see their hard working friends earning more than 10 times than they do within a few years and they are nowhere near them. This gives them stress and jealously. But dude you are responsible for your failures as you chose the wrong path to achieve success when time came to decide the path. So blame yourself no one else.

Frankly this is my personal experience. When I was a lazy person and was looking to make easy money without working hard through stock markets I lost all my savings in three years 2007-10. To survive I had to take a 1 lakh loan. My wife who was heavily pregnant at that time told me the truth – God is punishing you for being lazy and still trying to make money taking short cuts. You are responsible for this situation, no one else is. However you still have time, you are young just chose the correct path to make money. Start working hard from today onwards.

And man how correct she was. I thank her for changing my life. The very next day I started researching and reading about stock markets, options and futures trading, managing finances, mutual funds etc as well as trying to improve my job skills by reading related books.

The idea was to improve my skills at my current job plus make money from investing in stock markets as well.

The result? I got a promotion within 3 months in my job. Salary doubled. 1 lakh loan that was to be paid back within 2 years, I paid back in 6 months. Started investing in four of the best mutual funds of that time within 6 months through the SIP route. Within 2 years I bought a car and a house. Can you see what I destroyed in 3 years through laziness, I got back 10 times that in 2 years only. So do not think hard work takes too much of time to pay back. It only takes a few years and your life can change.

If you chose the wrong path to succeed you will never see success for years. In fact you may end up destroying whatever you had done all these years and then regret your decision for the rest of your life.

Yes I do get calls from people aged above 50 who have destroyed their wealth trying to make too much of money and taking too much of risk in stock markets without knowing what they are doing. The result is obvious some are sitting at a loss of 40 lakhs and some more – 2 crores. If you are young and reading this please do not try to take any short cut to make money it will never work and will take away whatever you have made till today.

Do not think that you are an exception – you are not. In Gods eyes everyone is same – it does not matter you are rich or poor the almighty will punish you if you take the wrong path.

Name one person who took short cuts to make money in any business in this world and is living a rich life today. In real world such a person does not exist and will never exist. So how can you be one?

The worst part is these people who are above 50 and lost too much money left their high paying jobs to trade the stock markets and lost everything they had made. The problem is since they are now near retirement age they will not get a job – so everything they achieved in life is gone. Please do not be in that situation when you are 60.

I get too many calls from young people who want to leave their jobs and trade full time to make money. I do not understand why. After all you got this job after a lot of years of studies and hard work – so why leave it to live a lazy life? Can you not trade while on a job? Yes you can, so why leave it? Even I had a job while I was trading. Since I am a very conservative trader who is happy with even 1% profit a month – the profits coming from stock markets never bothered me, and I could concentrate on my job as well and within years was promoted to a very senior position. So basically I was willing to work hard and gain knowledge because of this my life improved drastically. Think about this – I also started this website in 2013-14 to help traders get some knowledge and imagine the time I had to work. Almost 12 hours daily. Even while traveling I never wasted time – I had books in my bag so that I could read them while in a metro.

When you chose the right path – right things starts happening automatically in your life. If you chose the wrong path – wrong things will start happening automatically.

I hope it is now clear that risk reward ratio is not good in expiry day trading so I request you to avoid it. Trade with knowledge and have patience while trading. No person on this earth has ever become rich overnight by trading though many have lost their fortunes trading aggressively overnight in few months. But traders who are patient and follow proper risk-management techniques and giving themselves time to make money are actually making money. Now you chose which path you want to travel.

People who think it’s easy to make money though stock markets actually speculate to make money fast, you know the results how can a speculator make money fast? One bad speculation can take away months of profits and this will go on for years. People who have knowledge and trade to make money slowly actually end up creating a lot of wealth over the years and lead a happy life and retire rich.

The path that looks easy to achieve success actually does not exist – it exist only in dreams not in reality. The path which looks a long way to travel and hard to travel actually leads to success though it may take some time. But frankly it does not take too much of time. Ask any successful people in your neighborhood and they will tell exactly what I am saying.

Just 45 days back I met with a serious accident and doctors have advised me to take rest for next 3 months – but I am still working around 10 hours a day and I am very happy working. I have a big excuse to give myself to hit the bed day and night but I am not doing it. I love working hard and cannot live without it. Hard work pays and I will never forget what my wife said years ago which changed my life.

I hope you will refrain from expiry day trading and leaving your job to become a full time trader. When you can do both why trade full time? Isn’t it easy to make Rs. 50,000 a month from a job but compare this to making Rs. 50,000 a month from trading. May be you can make but a very large capital is required to make that amount. And do not think trading full time is easy. It is actually more difficult than doing a job. You will be stressed seeing the stock moving in the other direction of your trade. Be ready to take stress from 9 am to 3.30 pm. A job is much better really. My point is when you can make money from 2 paths, why leave one path when you can travel both the paths without stress?

Stop thinking of making money easily from stock markets it does not exist. Start learning about stock markets trading and you will start making money – this one does exist.

Thanks for reading this long article of 2,401 words.


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About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 19 comments… add one }
  • Suryanarayanan Sivaramakrishnan

    Why the market is unusually going up without any break?

    • I think lots of positive news is flowing around and stocks were very attractive at low prices, so buyers were active. It can consolidate anytime now.

  • Amuthan

    Thanks Dilip….for the nice post.

  • Apprentice

    Whole, Perfect, Strong, Powerful, Loving …. statements about Life and Market.
    Practice, Practice and Practice. Thank you. Thank you. Thank you. Sir.

    • Thanks. Those who believe in real life and hard work actually progress in life. Those who think they are smart and hard work is done by fools live in fools paradise.

  • Shibashis Datta

    Wonderful post. We need to control our greed in order to success. There is no difference between invest in Sahara/Sarada/Rose Valley with unlimited risk expiry day trading. Although I made 26% profit on Bank Nifty using your directional strategy (slight modified delta 1:1.2) in last 2 days of May expiry.

    • Shibashis nice to know you made a good profit. Yes true, controlling greed is the first chapter to achieve success in life. If you cannot pass this chapter you will never see success. Thanks.

  • Chandramohan

    Very good article thanks for sharing.
    Chandramohan

  • Joseph

    gud sir!!!

  • priyanka

    sir , the last words told by you “Thanks for reading this long article of 2,401 words.” is not only 2,401 words sir it a precious words it changes many useless thoughts i don’t know what others think. but you are really a hard working person it shows in your article and this article changed my young mind into a proper direction ….. i don’t think a thanks is enough i just cant tell sir! each and every article thought me a great lesson may be it is more for my age but very true for my future you are a true inspiration for me in my young life after reading your articles i have taken my life very seriously to do more hard work from now …

    • Thanks Priyanka. Nice to know someone got inspired by reading this. 🙂

  • sandeep

    Sir is there a typo there in this case of 8150 call buy/sell and 8250 nifty spot example
    didnt understand this logic ,i think both buy /sell should also be 8250 ATM
    —-
    So if you buy on expiry day 8150 Call if Nifty is at 8250, then if Nifty goes up 10 points you will make a profit of 10 points just like Futures buy, and if Nifty falls by 10 points you will lose 10 points just like Futures losses. Can you see the risks involved?

    If you sell ITM (In The Money) options let us see what happens:

    Assuming 8150 Call is sold when spot of Nifty is at 8250. If Nifty comes down 10 points the seller will make a profit of 10 points and if Nifty goes up 10 points the seller will lose 10 points. What if Nifty goes up and reaches 8350 at 3.30 pm when markets close? The seller of 8150 option will lose 100 points.

  • sanket

    wow! thanks for the post really helpful.

  • Krishnakumar

    Thanks Dilip. Valuable message for life not only for trades.

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