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Part of newsletter sent on: 24th of August 2015.
Today what happened, happens once in 6 months. Sensex crashes by 1000 points and Nifty down by more than 4%. Chinese economy is bringing down the stock markets all over the world.
INDIA VIX is at 23.58 an increase of 6.47 points and 37.81% over Fridays close. This is very rare.
The truth is after three and a half months, stop loss is hit in our Strategy 1. We should accept it gracefully. The kind of losses that are being reported are like 8 points or 10 points which is cool.
Now is the time to go to Strategy 2. A lot of my paid subscribers of course will experience strategy 2 for the first time.
These events happens rarely – so stay put. We cannot be winners every time – today is one of those days. I am sure a 10 point loss is very much acceptable.
Those who have still not started – do not trade right now. Within couple of days Nifty will settle down then you can start trading strategy 1.
Imagine a trader who bought Nifty Future on Friday without a hedge. He is now out of the game – we are not. Compare this with our directional trade where you can now exit in profits, even after huge losses in the Future trade – this is the beauty of hedging.
This is also a great time to stick to the theory of “buy when everyone is selling”.
Some great stocks are down. You should buy them in cash NOT Futures. Please stick to what is being said.
If you really want to play with derivatives then I would suggest the following limited profit limited loss trade:
Sell ATM Put Option
Buy just 1 level below strike Put Option for protection
– Same number of lots, same expiry for both trades
This is a Bullish Put Credit Spread trade with limited profit and loss. Of course do it only if you do not have cash to buy.
Some of the stocks that you can do this strategy are:
Bank of Baroda
Warning: Do not trade them without hedging please like just buying Futures. Only do the trade that’s written above or buy in cash and hold. If the shares finishes above the current level by expiry you can make good money. You have more than 30 days for it – and this is a calculated and limited risk trade with high chances of success. Because in the next 30 days, there is a lot of chance that some good news will come and stocks will reverse and you can make a profit. If it does not happen, its ok as the loss will be anyway limited.
Markets over-react, we must be ready to take benefit of this over-reaction.
Thanks for being my subscribers.
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Dilip Shaw, Founder
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