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What is Nifty Option Chain NSE in Details

Since I started this website in 2014, the most asked question was related to the Nifty Option Chain NSE (National Stock Exchange). A lot of traders see the options chain before taking a trade. In this post, you will learn how to read, understand and interpret the option chain. I will explain the option chain of NSE available here:
https://www.nseindia.com/option-chain

In short, an option chain will show the LTP (Last Traded Price) of the options of a particular expiry of a stock/index. You can change the expiry date or the stock to see the options chain of that stock’s expiry.

There is a myth that the option chain indicates which option to buy. Please note that option chain does not give any indication of where the market is heading.

The Nifty Option Chain NSE is an indicator that shows the current price movement of the stock market. It is based on options trading and is used by traders to predict future movements of the stock market. Note that it’s used to predict the movement – it does not guarantee the move up or down.

In this post, I will discuss what exactly a trader sees in the Nifty Option Chain and decides the direction and which strikes to trade, whether to buy or sell call or put etc.

How to Trade Options with the help of the Nifty Option Chain?

Details of the Nifty Option Chain NSE

The nifty Option Chain is one of the most popular indicators among investors as well as traders. This indicator helps them to determine whether the Nifty will rise or fall. However, no indicator gives a guaranteed direction of the markets. Similarly, Nifty Option Chain also gives an indication of where the market is heading or may finish on the expiry day, however, it’s just an indication and not an assurance. Please keep this in mind while reading this post.

What Is an Options Chain?

An option chain also known as an options matrix, is a live listing of all available options contracts and their trading data for a given security. It shows all listed puts, calls, their expiration, strike prices, volume, LTP (Last Trading Price) and more information for a particular stock/index. It is available 24/7 online. When the market closed the last data is kept for traders to study. When the markets open to trade again, the data keeps changing with the move in the stocks.

An option chain has two sections: calls and puts. A call option gives the right to buy a stock while a put gives the right to sell a stock. The price of an options contract is called the premium, which is the upfront fee that an investor pays for purchasing the option. This premium is decided on various factors which you can read here.

How The Call and Put Buyers Profit?

If the price goes above the strike price, then the call buyer will profit. If the opposite happens then the loss will equal the premium paid to buy the call.

If the price goes below the strike price, then the put buyer will profit. If the opposite happens then the loss will equal the premium paid to buy the put.

Similarly,

If the price goes above the strike price, then the put seller will profit. If the opposite happens then the loss will equal the premium received to sell the put minus the premium where the trader decides to take a stop loss.

If the price goes below the strike price, then the call seller will profit. If the opposite happens then the loss will equal the premium received to sell the call minus the premium where the trader decides to take a stop loss.

Important note: Traders look at the option chain mainly to decide which option strike to buy or sell. They mostly buy/sell the strike where they see the most volume (explained below) thinking that most traders (especially HNIs who have access to better insights into the markets) are putting their bets there – so they try to copy the HNIs.

Please note that copying the HNIs does not guarantee success.

Explanation of the Data of the Nifty Option Chain (NSE)

In India, Nifty Option Chain is the most seen option chain therefore I will explain the data shown by the exchange here. You can see the Nifty Option Chain here:
https://www.nseindia.com/option-chain

Please open the above webpage in a different window (by default it will open in a different window if you click), see it then come back here.

You can see:

CALLS, PUTS, OI, Chng in OI, Volume, IV, LTP, Chng, Bid Qty, Bid, Ask, Ask Qty & Strike

Note that this is what I see as of Nov 2022. The data may change with time, however, these are important data and they will be there – some additions may happen in future.

Here is the screenshot:

Option Chain Equity Derivatives NSE

Then we can see the open interest, volume, LTP, and strike price of both call and put options which are important parameters to depict the option chain.

Option chain data is the complete picture about option strikes of a particular stock or index in a single frame. If it’s not refreshing automatically you can refresh the page to see the current data. In the Option chain frame, the strike price is at the Centre and all data pertaining to calls and puts on the same strike are presented next to each other. This is made for the clarity of the viewer. You can compare the data of the call and put of the same strike to get an idea of volume and other data of both.

OI – Open Interest:

This is the total number of trades that took place in that option but were not closed. Suppose A bought an option from B at whatever price then the OI will be counted as 1. Suppose the same option is then bought by 10 more traders then the Open Interest will be 1+10 = 11. But now suppose A sees that he is making some profit and decided to sell the option. X bought that option. So the first trade that was opened by A and B is now closed. Therefore the OI will reduce by 1. It will be 11-1 = 10.

Since in the liquid option strikes the trades happen very fast you will see open interest in thousands or even lakhs. If you refresh the page after some time you will see that the OI (open interest) changes.

In technical language, the total number of all outstanding unsettled derivative contracts of an option strike is called the Open Interest.

Open interest can be seen in Nifty Futures as well. You can see it here:
https://www.nseindia.com/market-data/equity-derivatives-watch?name=NIFTY

Is a high open interest good?

If you are an HNI (High Net Worth) trader you may look for options that have high open interest because you will want to enter and exit that trade with ease. If there is low liquidity both entry and exit will be a problem. So yes, high open interest for a particular contract is good if you want to trade with 20 or more lots.

TIP: It is very important to check open interest if you want to trade in a high number of lots otherwise you may face slippage (irrational pricing) while buying and selling the contracts. Slippage in pricing happens when there is less number of people trading. If you hit market orders you may pay a high premium while buying and get less premium while selling. Therefore if you are trading in multiple lots always trade in high open-interest contracts and always place a Limit Order.

Change in Open interest:

As said earlier open interest keeps changing with new trades opening and closing. It becomes almost zero on the last minute of the expiry day. If you see that open interest in the call options is increasing, it indicates that most traders are assuming that the market will move up and therefore money is flowing on the call side. Please note that this is just an assumption markets are unpredictable therefore you should always trade with a hedge or strict stop loss. High open interest on the call or the put side can give you an idea of the direction. It definitely increases the chances of success but does not guarantee it.

If the open interest is declining it indicates that money is moving out and the current trend may start reversing.

Volume:

Volume is another important indicator of the market. Experienced traders look at these two metrics before taking a trade. Volume is the total number of contracts traded in a given period, mostly that day. A high and increasing volume means money is flowing in that contract and the trend may continue for that day. A decreasing volume means the trend is reversing.

Volume is a good indicator for intraday or short-term trading. However, you must have a plan before entering a trade. You must be sure when you will lock in the profits and when you will exit with a stop loss.

Sometimes you will see that the volume is higher than the open interest which suggests that there was a lot of action on that option contract. It usually happens in At The Money (ATM) contracts on an event day such as results or some news on that stock.

Open interest also gives you key information regarding the liquidity of an option. If there is no open interest in an option, there is no secondary market for that option. Derivatives are traded in the secondary market. Shares are issued in the Primary Market (for example IPO), while they are traded in the secondary market.

IV – Implied Volatility:

IV is the market’s forecast decided by some formula based on the trading patterns at that time. It implies the likely future volatility of the stock/market. A high IV means that the stock/index is witnessing and may witness in the short term high volatility. During high IV the stock moves up and down in a rapid way plus the distance between the high and low for that day will be high. During a low IV period markets are calm.

Please note that IV has nothing to do with volume but usually when IV increases the volume also increases. India VIX is the IV index of NSE. You can see it here:
https://www.moneycontrol.com/indian-indices/india-vix-36.html

India VIX is inversely proportional to the movement of the Nifty. You can also read how to trade intraday with help from India VIX. High IV results in a higher premium of options and lower results in a lower premium of options. Some traders buy or sell options looking at IV. They sell when IV is high and buy when IV is low.

What is a good IV for stock options to buy and sell?

Generally speaking, short options/volatility trades become relatively more attractive when the IV rank is above 50%, whereas long options/volatility trades become relatively more attractive when the IV rank is below 50%.

You can find IV of stock options here:
https://www.nseindia.com/option-chain

A high IV in stock options means that the price of the stock will go through a significant change in the next few days. Similarly, a low IV signifies the stock will not move much over the next few days.

LTP- in Share Market

LTP means the Last Trading Price. This means the most recent price on which a trade took place. Every stock, option, future or commodity will have the LTP shown in your trading dashboard. Once your trade goes through then you will see LTP as the rate at which you had done the trade. Another trade and it will change.

Is LTP important?

Today many trading websites offer tables that show you the history of the prices at which the stock was traded most recently – the history of LTP. You can check the history of LTP and buy/short the stock for the short term. If the LTP is increasing over time you can buy and if it’s decreasing over time you can short.

Chng:

This means change. Change is the difference between the current value and the previous day’s market close. Please note that any data change does not mean a recent change – like the price change or VIX change recently. It’s the closing price of the previous day vs the current live price in the market.

Bid Qty:

You see in any market there is a bargain. Every day we bargain for the price we are willing to pay for a product/service with the merchant/vendor. The stock market is not an exception.

Bid – The term “bid” refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time.

Bid Qty means the bid quantity – it means the price a buyer is ready to pay for any stock or option or commodity. When you open your trading dashboard to trade you can see the Bid and Ask price for any stock or derivative.

The total bid quantity means the total number of buyers in that particular stock or commodity.

Ask Qty:

It’s Ask quantity. It means the price at which the seller is ready to sell any stock or derivative or commodity.

The term “ask” refers to the lowest price at which a seller will sell the stock. The bid price will almost always be lower than the ask or “offer,” price.

An Explanation of Ask Qty in stocks:

As explained above the Ask price is the price a seller is willing to sell. However for any trade, there can be many sellers, so the stock market software shows the lowest price at that time a seller is willing to sell. The rest are not shown as no one will willingly pay more for trade. Once that trade goes through, the LTP changes and the Ask price moves to the next seller who is offering the lowest price to sell.

Note that once a trade is over the stock makes a move. Now depending on the Demand and Supply the stock can move up or down. If it moves up the sellers will move their prices up, thus the next lower price that is displayed may be higher than the previous  Ask price or lower depending on the stock move.

The difference between the bid and ask prices is called the spread. If the spread is high it means that the stock is illiquid. If you are getting into an illiquid trade make sure to trade in the Limit Price, or else you will get a very high rate if you want to buy or a low rate if you want to sell. Limit Price ensures you get the price you are willing to pay or get.

How to buy stock lower than the Ask price?

This is possible only in liquid stocks. Open your trading terminal and set a Limit Price to buy the stock. Note that you can’t set any price to buy the stock. This can lead to a false fall in the stock. For example, if a stock is at 100 and your bid to buy that stock for 90 for a huge quantity then a flash crash may happen in that stock. To overcome this SEBI has prescribed a percentage limit on which traders can ask or bid the prices. This ensures the stock price does not become too volatile.

If the stock falls you may be able to buy at the Limit Price you had bid for the stock. This way you can buy the stock lower than the current ask price.

Strike:

This term is mainly used when trading options. Suppose a stock has many options. Assuming the price of XYZ stock is 50. It may have options at strikes 50, 55, 60, 65, 45, 40, 35 etc. The strike price can be either In the Money (ITM), Out of the Money (OTM) or At The Money (ATM). The strike price determines the premium of that strike.

The strike is also the price at which the underlying security can be either bought or sold once exercised.

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How To Trade Intraday With Help From India VIX

This article is part of my newsletter sent to my subscribers. If you do not want to miss a post you can subscribe above.

I also wrote earlier in my blog that India VIX and Nifty movement are inversely proportional. You can read that post here:
https://www.theoptioncourse.com/nifty-and-india-vix-are-inversely-proportional/

What is India VIX?

India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask prices of NIFTY Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days. You can read more here:

https://www1.nseindia.com/products/content/equities/indices/india_vix.htm

So basically not just Intraday, but India VIX can help guess market direction to some extent for positional traders as well.

How India VIX and Nifty are Related

Today (12-Sep-2022), just to explain to you the movement of both I have their screenshot and pasted it below. See how India VIX is decreasing and Nifty is increasing.

This is the screenshot of India VIX on 12-Sep-2022 at around 1 pm when markets were open:

India VIX on 12-Sep-2022

Source: Google

This is the screenshot of NSE on 12-Sep-2022 at around 1.10 pm when markets were open:

NSE 12-Sep-2022

How India VIX can help you decide the market direction for intraday trades

If you are an Intraday trader India VIX can help you take a trading decision. Just go against the India VIX trend for the day. You can also go with the trend of the Index – but India VIX trend is more clear than the Index trend. You do not need any technical indicators to see the trend from your naked eyes. Just a glance will help you to guess the trend for the remaining of the day.

Can India VIX be Manipulated?

India VIX is machine-generated, so it cannot be manipulated. Though nowadays it is very hard to manipulate stock movements, if not impossible. But India VIX cannot be manipulated in any way.

Read How Illiquid Stocks are Manipulated

Illiquid (low volume) stocks are manipulated by fraudsters who login into someone’s account by somehow getting their password and short sell, for Intraday only, in huge quantities which creates real (but illegal and fake) volume. This crashes the stock. When the stock falls, they buy that in their account and wait for a reversal. When the stock reverses back to where it was – they sell and book profit. All of this is done in a few seconds. This is called a flash crash.

Can this illegal trade be reversed?

Unfortunately, unless the person in whose account the fraud was done, does not report this to NSE/BSE where the trade took place within 24 hours, it becomes a legal trade. Even if they report, they have to give proof that some fraudster had taken their password and did the fake trading to make sure the stock falls.

But even if NSE/BSE reverses the trade the damage would have already been done. The person who did the freak trade would have withdrawn all cash in his bank account. After this, the only option for the person who got cheated is to file a case in a court of law. Unfortunately, you know that in India it may take decades for a case to finish.

However, luckily nowadays due to strict surveillance by SEBI and market regulators, these things are not very common, but still, you must keep changing your Demat account password every 3-4 months and must not write it down anywhere. Just remember it as you remember your name and make sure not to give your Demat account details to anyone for whatsoever reason.

It is even more challenging to flash crash Index yet it does happen. You can check the dates here:
https://en.wikipedia.org/wiki/Stock_market_crashes_in_India

So trade safe and be safe.

Have you ever been asked about your trading password or any other details? You can write in the comments section below.

Related post:
How to guess Sensex and Nifty share price today for intraday

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How to Guess Sensex and Nifty Share Price Today for Intraday

This article was published on Thurs, 01-Sep-2022

Traders do a lot of speculative trading in the US as well as here in India. 70% of these trades in either options or futures are intraday. I asked a few of my customers why they trade only intraday – most of them replied the same. We do not want to take the overnight risk with our money. They were afraid of gap up or down opening the next day.

Well, there is nothing wrong with being afraid of the gap opening the next day, but most traders do not know that if they hedge their trades, the gap opening will not damage the position. The hedged trade works like a sword to protect the losses from the actual trade.

Trading intraday is ok as long as your position sizing is as per your risk appetite. If you made some money in one Intraday trade, that does not make you a genius of intraday trading. This is called beginners luck. You should not double your lot size in the next trade. There is a very high chance that you will end up losing all of what you won in the last trade. This practice is followed widely by intraday traders.

If you are trading intraday you must guess the direction of the stock indices. Today there is numerous software to give you millions of data in milliseconds. But I have seen that most of them are confusing. Data is just what is happening at this moment not what may happen in future. Intraday traders study something online, or read in some book or do some course and try to read data and take action based on this data.

Technical analysis combined with a good strategy may work intraday but just technical analysis alone is not sufficient. But there is a problem and that is which technical analysis is good?

Here is a List of Names and Descriptions of Some Popular Technical Analysis Indicators:

    • Bollinger Bands – A Bollinger Band® is a technical analysis tool defined by a set of lines plotted two standard deviations (positively and negatively) away from a simple moving average (SMA) of the security’s price, but can be adjusted to user preferences. For more information visit: https://www.investopedia.com/terms/b/bollingerbands.asp
    • Fibonacci Sequence – The Fibonacci sequence is a set of steadily increasing numbers where each number is equal to the sum of the preceding two numbers. Fibonacci retracements are the most common form of technical analysis based on the Fibonacci sequence. During a trend, Fibonacci retracements can be used to determine how deep a pullback may be. For more information, you can visit: https://www.investopedia.com/terms/f/fibonaccilines.asp
    • Stochastic Oscillator – This technical analysis is used for identifying overbought and oversold levels. An overbought level is indicated when the stochastic reading is above 80. Readings below 20 indicate oversold conditions in the market. More information here:
      https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/stochastic-oscillator/
    • Moving Average Convergence Divergence (MACD) – Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. For more information read this: https://www.investopedia.com/terms/m/macd.asp

      Note: Moving average is a technical indicator that I have personally experienced and seen it works 60-70% of the time. However, it only works for the short term, not the long term. Short term means 15-30 days. MACD will not help in Intraday trading. However, for swing traders and investors MACD is a good technical indicator tool.

    • Relative Strength Index (RSI) – This is a very popular technical indicator developed by J. Welles Wilder Jr. The RSI can point to overbought and oversold securities. It can also indicate securities that may be primed for a trend reversal or corrective pullback in price. It can signal when to buy and sell. Oversold securities can be bought and overbought securities can be sold.

      An RSI reading of 70 or above indicates an overbought situation. A reading of 30 or below indicates an oversold condition. A chart of closing prices is made for the last few days (mostly 14) and it is compared to historical closing prices to determine the strength or weakness of a stock or index. RSI also measures the speed and magnitude of a security’s recent price changes to evaluate overvalued or undervalued conditions in the price of that security. The RSI is most typically used on a 14-day timeframe.

      For more information visit: https://en.wikipedia.org/wiki/Relative_strength_index, and https://www.investopedia.com/terms/r/rsi.asp

      Note: Relative Strength Index (RSI) is another technical indicator I have experimented with a few times and seen that it works 70% of the time. Disclaimer: When I use technical indicators I used them in investing only, not for trading derivatives.

  • On-balance Volume Indicator (OBV) – On Balance Volume (OBV) measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. When the security closes higher than the previous close, all of the day’s volume is considered up-volume. For more information visit: https://www.fidelity.com/learning-center/trading-investing/technical-analysis/technical-indicator-guide/obv
  • Accumulation/Distribution Line (A/D Line) – The accumulation/distribution (A/D) line gauges the supply and demand of an asset or security by looking at where the price closed within the period’s range and then multiplying that by volume. The A/D indicator is cumulative, meaning one period’s value is added or subtracted from the last. For more information visit: https://www.investopedia.com/terms/a/accumulationdistribution.asp
  • Average Directional Index (ADX) – The average directional index (ADX) is a technical analysis indicator used by some traders to determine the strength of a trend. The trend can be either up or down, and this is shown by two accompanying indicators, the negative directional indicator (-DI) and the positive directional indicator (+DI). For more information visit: https://www.investopedia.com/terms/a/adx.asp
  • The Aroon indicator – The Aroon indicator is a technical indicator that is used to identify trend changes in the price of an asset, as well as the strength of that trend. In essence, the indicator measures the time between highs and the time between lows over some time. For more information visit: https://www.investopedia.com/terms/a/aroon.asp
  • Stochastic Oscillator – A stochastic oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period. This is somewhat similar to RSI. For more information visit: https://www.investopedia.com/terms/s/stochasticoscillator.asp
  • Head and Shoulders Technical Analysis – It is a specific chart formation that predicts a bullish-to-bearish trend reversal. The head and shoulders pattern forms when a stock’s price rises to a peak and then declines back to the base of the prior up-move. Then, the price rises above the previous peak to form the “head” and then declines back to the original base. A head and shoulders pattern—considered one of the most reliable trend reversal patterns—is a chart formation that predicts a bullish-to-bearish trend reversal. For more information visit: https://www.investopedia.com/terms/h/head-shoulders.asp

    As you can see it’s very hard to master every technical indicator given above. There may be more, but I only know the above. If you already know some indicators and it’s doing its job – great. Please do let me know in the comments section below. But if you do not know any technical indicator then it’s okay. In this article, I will reveal what is the best way to find the direction of the stock without doing any technical analysis. Just like technical indicators, this will not work 100% of the time. It will work 60-70% of the time, but this method is easier than learning a technical indicator.

    Here is a screenshot of Stock exchanges in the United States: Dow Jones Industrial Average (DJIA), Nasdaq Stock Exchange & Standard and Poor’s 500 (S&P 500) INDEX on the closing day of 31-Aug-2022:

    Dow-Jones-31-Aug-22

    NASDAQ 31-Aug-22

    S&P 500 31-Aug-22

    And now look at the screenshot of Sensex (on 01-Sep-22, when it was open for trading). Sensex is an index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE) in India:

    Sensex 01-Sep-22

    What do you make out? Can you see the similarities in the movement of the US stock exchanges and India? Due to the time difference, US stock exchanges close much before Indian stock exchanges opened to trade the next day. Of course, if it’s the 2nd day of the month in India, you can see the closing chart of the previous day (1st of the month) of the US stock exchanges and guess the direction intraday of the Index you want to trade on that day. Of course, you will trade Nifty options or futures.

    I have seen that Indian markets follow US markets a lot the next day. This will help you to take the trading decision for that day.

    Hope this article will help you to guess the market direction intraday and trade well.

    Want to know more on how to guess the direction of the Nifty intraday? Read this article.

    For any questions on stock trading, you can contact me here or write them down below in the comments section.

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Why Do Markets Fall On Rate Hikes By The Banks

This post was sent as a newsletter to my subscribers on Monday, 22-Aug-2022. The topic is – Why Do Stock Markets Fall On Rate Hikes By The Banks?

I wrote this topic because today (22-Aug-22) there was a fall in stock markets:

Image source: Rediff.com

The reason for this fall?

Reason 1: Central bankers worldwide including in India are aggressively doing rate hikes – this in turn is pushing the markets into negative territory. Source: https://www.businessinsider.in/stock-market/news/markets-are-entering-an-era-of-global-multi-year-interest-rate-hikes-to-combat-inflation-societe-generale-says/articleshow/93645531.cms

Reason 2: There is recession fear in China. Source: https://www.bloomberg.com/opinion/articles/2022-08-16/if-the-china-crisis-deepens-a-global-recession-will-be-much-harder-to-avoid

One cannot be sure how much will the markets fall but this is a valid enough reason for fall. When the fall reaches a level where the buying becomes comfortable or good news will hit – suddenly buyers will take over and the markets will start to rise. This is the life of stock markets.

Coming back to the topic – why do stock markets fall when there is a rate hike by banks?

Stock markets are known to give a return of 10-12% compounded annually. Fair enough, but it comes with risk and no guarantee that an investor will make this return every year. But what is a guaranteed return is the money kept in Fixed Deposits in a bank.

When the banks start increasing or hiking interest rates everything goes up – the EMIs of loans and the returns an investor gets in a Fixed Deposit. Now, what if the guaranteed return promised by the banks comes close to the return from the stock markets? Isn’t it obvious that stock market investors will take money out from equities and move to Fixed Deposits in banks?

This is what is happening now. Please note that movements due to news is for the short term only. Once the news becomes old and a new one hits, if good – the stock markets will move up again and if bad it will keep moving further down.

Though this post is short I have explained why stock markets keep going up and down in the short term. However in the long run the stock markets will move up and will generate good returns for patient investors. So if you are a long-term investor please do not panic – hold to your investments and get rewarded in future.

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A Full-Time Trader Should Become Very Conservative

On Friday, July 22, 2022, I received a testimonial from one of my clients in Bangalore. He took retirement (Voluntary Retirement Opportunity (VRO)) from his job and switched to full-time trading. And he started reading my strategies. 🙂

Read above – he started reading the course. So happy that in 2022 when Youtube has taken over in almost every aspect of life – from listening to music to watching shows & movies to knowledge on everything – my strategies are something my clients look back to. This is clear that he too must have tried some strategy seen on Youtube – but later realized that it’s all not worth the time.

Let me tell you very clearly that – FUNDAMENTALS WILL REMAIN INTACT.

Youtube was coming up fast in 2018 and in the last two years especially due to COVID in 2020-21 it took over as a go-to source for everything to know in life.

Today we say – Google Kar Le. I am sure by 2025 we will say – Youtube Kar Le. 🙂

Think deep – have the stock markets really changed from 2018 to 2022? No.

The fundamentals of the stock markets have not changed and will not change – however, Google and Youtube may be taken over by some other company that doesn’t mean stock markets have changed.

One thing changed – the margin blocked for selling options with hedge has been reduced from 1.2 lakh in Nifty to 25,000. That is good news for retail traders like us. If you are my old subscriber you may remember that since 2014 I have been advocating hedging. No at that time margin remained the same. I was advocating for reducing the risk. It still reduces risk and also reduces the margin. Isn’t this gold in both hands? But how many retail traders still hedge? They do not because they think it will reduce the profits – always ignoring the fact that it will also reduce the losses. Humans are strange – when it comes to stock trading or investments – they always make a rosy picture in their brains, totally ignoring the losses naked selling or buying can make. Unfortunately, humans also will not change.

Out of topic but please read: I hope you followed the Sushant Singh Rajput suicide case. SSR was an engineer from a reputed college – Delhi College of Engineering (dropout in 4th year). Why do college dropouts become successful in life??? Anyway in one of his videos SSR was telling to his friends to make a financial plan for him. Can you believe an engineer asking non-engineers to make a financial plan? Not his fault – financial planning is not of thought in either school or colleges. Not sure why. This is one reason why even the most educated person do financial blunders.

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Learn How to Start Investing in U.S.A Stock Exchanges

This page has information on all the major U.S / U.S.A Stock Exchanges, how a person can start investing in them, and possible returns.

Before naming the major stock exchanges in the US I would like to discuss what happens in the US stock exchanges.

Important Information on Stock Exchanges (Applies to all stock exchanges in the world):

When you buy a company’s stock you become one of the owners of that company and are fully entitled to get the benefits of that ownership. Do not get too excited, you are only a part-owner and your rights and benefits are limited to the number of shares in percentage terms you own. For example, if a company declares a dividend of 100 dollars to be shared among its shareholders and suppose there are only 100 stocks of that company floating in the market and you own just one share, then you will get one dollar as a dividend. One share of 100 is 1% therefore the dividend you will receive will also be one percentage.

Some More Information on Stock Markets:

There has to be a place in a country where shares, bonds, ETFs, commodities, derivatives and other financial instruments should transparently exchange hands. The marketplace where these financial securities exchange ownership is called Stock Markets or Stock Exchanges.

A few years back this was done physically where traders and brokers used to meet in the marketplace and bought and/or sold shares. Now due to the advancement of technology, it’s done electronically. A large volume of trades is also done by machines (computers) called algorithmic trading. Algorithmic trading is mostly done by high-net-worth (HNI) individuals and trading firms.

New companies can float their stocks, also known as IPO (Initial Public Offering), on the stock exchanges but every exchange has some requirements that a company needs to show. These are financial reports, audited earnings, minimal capital requirements etc.

An Initial Public Offering (IPO) is a process of offering shares of a private company to the public in a new stock issue. An IPO allows a company to raise capital from public and institutional investors.

Once a company is listed its financials are open to the public so that they can decide whether to invest or not. However, the benefit is that the company becomes visible to potential clients which leads to increased business.

Major Stock Exchanges in the U.S.

There are two major stock exchanges in the U.S.A:

1. New York Stock Exchange (NYSE) – The New York Stock Exchange is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world’s largest stock exchange by market capitalization of its listed companies at US$30.1 trillion as of February 2018. Website: https://www.nyse.com/ Address: 11 Wall St, New York, NY 10005, United States

2. NASDAQ – The NASDAQ Stock Market is an American stock exchange based in New York City. It is ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange. Website: https://www.nasdaq.com/. Address of NASDAQ Global Headquarters: 151 W. 42nd Street, New York City, NY, 10036, United States. It has branches all over the world.

More Details – The New York Stock Exchange (NYSE)

NYSE was founded in 1790. In April 2007, the New York Stock Exchange merged with a European stock exchange known as Euronext to form what is currently NYSE Euronext (https://www.euronext.com/en).

NYSE Euronext also owns NYSE Arca (formerly the Pacific Exchange) – https://www.nyse.com/markets/nyse-arca

A company can be listed on The New York Stock Exchange only if a minimum of $4 million is floating in shareholder’s equity. Traders/visitors can visit the exchange’s building on Wall Street in New York City however since almost all of the trading is done via the internet electronically, traders rarely visit the exchange.

There was another stock exchange called The American Stock Exchange (AMEX). It was once the third-largest stock exchange in the United States, as measured by trading volume. It was acquired in 2008 by NYSE and today it is known as the NYSE American a.k.a NYSE MKT – https://www.nyse.com/markets/nyse-american.

Unlike NASDAQ and NYSE, AMEX focused on Exchange-Traded-Funds (ETFs).

An Exchange-Traded-Fund (ETF) is a type of investment security that operates more or less like a mutual fund. An ETF will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. It’s kind of a mutual fund traded like a stock.

NASDAQ has an edge over The New York Stock Exchange (NYSE) for its very modern computerized infrastructure and lower listing fee than NYSE. Major gains like Google, Amazon, Apple and Microsoft are listed here.

Some Other Relatively not so Popular Stock Exchanges in the United States

Boston Stock Exchange (BSE) – is made up of the Boston Equities Exchange (BEX) and the Boston Options Exchange (BOX). The Boston Stock Exchange is a regional stock exchange located in Boston, Massachusetts. It was founded in 1834, making it the third-oldest stock exchange in the United States. On October 2, 2007, NASDAQ agreed to acquire BSE for $61 million.

Details here: https://en.wikipedia.org/wiki/Boston_Stock_Exchange

Chicago Board Options Exchange (CBOE)The Chicago Board Options Exchange, located at 433 West Van Buren Street in Chicago, is the largest U.S. options exchange with an annual trading volume of approx 1.27 billion contracts at the end of 2014. It must have increased now. CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds. They have an options education section here.

Chicago Board of Trade (CBOT) – owned and run by CME Group Inc. The Chicago Board of Trade, established on April 3, 1848, is one of the world’s oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange to form the CME Group. CBOT and three other exchanges now operate as designated contract markets of the CME Group.

Chicago Mercantile Exchange (CME) – owned and controlled by CME Group Inc. The Chicago Mercantile Exchange is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an agricultural commodities exchange. Originally, the exchange was a non-profit organization.

NYSE Chicago – NYSE Chicago, formerly known as the Chicago Stock Exchange (CHX), is a stock exchange in Chicago, Illinois, US. The exchange is a national securities exchange and self-regulatory organization, which operates under the oversight of the U.S. Securities and Exchange Commission.

International Securities Exchange (ISE) – includes ISE Options Exchange and the ISE Stock Exchange. International Securities Exchange Holdings, Inc. is a wholly-owned subsidiary of American multinational financial services corporation NASDAQ, Inc. It is a member of the Options Clearing Corporation and the Options Industry Council.

Miami Stock Exchange (MS4X) – The Miami Stock Exchange (MS4X) is a regional exchange that offers stock, currency, and futures trading from its location in Miami, Florida. The MS4X is a hub of trading services for the G27, which refers to the 27 Latin American and Caribbean Exchanges.

National Stock Exchange (NSX) – The National Stock Exchange (NSX) is an electronic stock exchange based in Jersey City, New Jersey. It was founded in March 1885 in Cincinnati, Ohio, as the Cincinnati Stock Exchange. In 1995, it moved headquarters to Chicago, Illinois, and was renamed the National Stock Exchange in 2003.

Nasdaq PHLX (PHLX) Philadelphia Stock Exchange, now known as NASDAQ OMX PHLX, is the oldest stock exchange in the United States. It is now owned by NASDAQ Inc. Founded in 1790, the exchange was originally named the Board of Brokers of Philadelphia, also referred to as the Philadelphia Board of Brokers.

Learn How To Invest In US Stock Markets Helpful for Beginners:

How to Start Investing in NASDAQ / NYSE:

You need a Social Security number and other personally identifying information to purchase stock in US markets. There are age restrictions also which will be written on the website of the stock exchange. Once you are eligible as per the required documents and age you will need to open an online brokerage account.

Once your account is opened you can download your broker’s app and start investing.

What kind of returns you can expect?

Before I answer please note this very important advice: Do not invest money in stocks that you may need in the next 3-4 years. Stock market investing is risky, so you should invest money that you do not need urgently.

$10,000 invested in the S&P 500 index 50 years ago would be worth nearly $1.2 million today (as of Feb 2022). But how many accomplish this? You can, but you need patience. If you invest today and expect great returns within 2-3 days, that will not happen.

Stock investing, when done well, is one of the most effective ways to build long-term wealth. Read this post to know even 2% a month is a great return over the long term.

I Do Want To Open a Brokerage Account – Can I Still Invest in Stocks?

Yes, not directly but indirectly via Mutual Funds.

Mutual Funds are a pool of funds (money) taken by interested investors to invest in stock and bonds of various companies. In a mutual fund, you do not directly invest in stocks – it is done by the mutual fund manager on your behalf. So if you are too busy you can start investing in mutual funds. You can invest a fixed amount of dollars every month in a good mutual fund and redeem it when you need the money. Please do not redeem for at least 2 years because to make a good return even a mutual fund needs time.

Investing in a mutual fund is a great way to invest in stocks as educated financial analysts invest your money in stock markets. They are more likely to be better than you in the selection of stocks and timing of investing and booking profits in stocks.

I already invest in Mutual Funds, now I want to invest in US Stocks – How to invest?

Above I have already written some criteria to open an online brokerage account to start investing in US Stocks. Once your account is opened you can start investing in stocks.

How to Choose Stocks to Invest in?

Well, many financial advisors in the US can help you choose stocks to invest in, but they charge a fee you may not be comfortable with. However, if you are ok with their charges you can take their advice. I would still suggest that you start reading about the fundamentals of companies yourself before you invest in a stock.

What Is Fundamental Analysis?

Every business or company maintain their financial portfolio for investors. Good thing is that this financial portfolio is open to the public and investors to see and take a decision. This financial data is necessary to determine the stability and health of the company. A company with strong fundamentals will surely give better returns in the long term than a company with weak fundamentals.

If you study fundamental analysis deeply you will be able to estimate approximately what kinds of returns that stock will give in 2 / 3 years. Well, this is not guaranteed but if you are good at fundamental analysis then it’s obvious that you will not go wrong 100% of the time. Fund managers also get investments right 60-70% of the time. When wrong they exit from the stock at a predetermined stop-loss limit. You will have to also follow their path to become a successful investor.

Patience is the Key:

Even if you become very good at fundamental analysis you will need a lot of patience to ensure you do not enter and exit a stock in a few minutes (day trading), or just a few days (swing trading). Investment for the long term does take time but it has proven itself to be much better than day trading or swing trading.

Fundamental analysis will also help you to know the fair value of the stock. Try to find stocks that have strong fundamentals but are trading at far below their actual value. Easier said than done, but with time and practice, you should be able to achieve this.

Tip for Short-Term Investors:

If you are investing for the short term you can invest in companies whose quarterly results are far better than market estimates. Many financial websites and even business channels do write what most financial experts assume about the quarterly result of a company. Read what they are saying. Once the results are out and if the company has performed better than the expectations of the market you can invest in that company for the short term. The company’s stock will likely move upward over the next few days. Once you make a 2-3% profit just exit the stock.

However, if the stock does not perform as per your expectation you can exit with the same 2-3% loss. In this strategy, if you are correct 70% of the time you will make a good return.

Key Takeaways:

  • You can open an online trading account sitting in your home and start investing.
  • Make sure you have the option to invest in stocks listed on Nasdaq as it has the world’s best infrastructure.
  • There are many other small stock exchanges in the US, but you can ignore them.
  • Invest the money that you own and not take as a loan and also the money that you do not need for the next 3-4 years or more.
  • Invest in good fundamentally strong companies – means those whose finances are strong, they are not too much in debt, their capital flow and sales are strong and getting stronger every year.
  • Try to find fundamentally strong companies whose stock prices are trading at lower valuations than they should be. It’s easier said than done but if you cannot figure it out then just invest via the SIP mode in 4-5 fundamentally strong companies.
  • Lastly, be patient with your investments. Some stocks will go down after you invest but do not panic and exit. With time and averaging out the stocks, you will get decent returns. Remember people who sit tight with their investments get better returns than the ones who enter and exit often. Day traders are the worst.

Similar Read:
Can non-US citizens buy stocks of US companies – Mutual fund section is important.

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How to Profit in a Stock Market Crash

As I am writing this on Monday, June 20, 2022, Sensex and Nifty are at the lowest level this year 2022. Not sure that it will go down further, but one thing is for sure it will move up someday, it’s just a matter of time. Here is the Nifty live chart at 1.46 pm on 20-Jun-2022 – Source: Google:

From 18,000 levels down to 15,300 levels. That’s a decline of 13.18% this year. Is this good? No, it isn’t good for short-term equity investors, but it’s just another day for long-term equity investors – this kind of volatility they have seen many times.

This cannot be classified as a stock market crash – it is just a mini-crash. This is not the first mini-crash. Indian investors have witnessed much deeper and strong crashes before.

Here is the Indian Stock Market Crash List:

Crash of 1982 – short-selling shares – primarily of Reliance. Stocks around 110,0000 was short sold. The value of shares decreased significantly. The BSE was shut down for three consecutive days.

Crash of 1992 – On 28 April 1992, the BSE experienced a fall of 12.77% – due to the Harshad Mehta scam.

Crash of 2004 – UPA 1 election crash. On 17 May 2004, the BSE fell 15.52% – its largest fall in history (in terms of percentage).

Crash of 2006 – On 18 May 2006, the BSE Sensex fell by 826 points to 11,391.

Crashes of 2007 & 2008 – The Great Recession a.k.a The Financial Crisis of 2007-2008 – on 21 Jan 2008, the BSE fell by 1,408 points to 17,605 leading to one of the largest erosions in investor wealth.

Crash of 2009 – On 6 July 2009, the Sensex fell by 869 points to 14,043.

Crash 2015 – On 24 August 2015, the BSE Sensex crashed by 1,624 points and the NSE fell by 490 points.

Crash of 2016 – The stock markets in India continued to fall in 2016. By 16 February 2016, the BSE had seen a fall of 26% over the past eleven months.

Crash of 2018 – BSE and NSE fell sharply on 2 and 5 February 2018, sparked by the comments of the Finance minister’s proposal in the budget speech to introduce a 10% long-term capital gains tax (LTCG) on equity shares sold after 12 months.

Crash of 2020 – On 1 February 2020, as the FY 2020-21 Union budget was presented in the lower house of the Indian parliament, the Nifty fell by over 3% (373.95 points) while Sensex fell by more than 2% (987.96 points). The fall was also weighed by the global breakdown amid the coronavirus pandemic centred in China.

Source: https://en.wikipedia.org/wiki/Stock_market_crashes_in_India

But if you look at one year chart of Nifty (from Jun 21 to Jun 22), you will see that it’s not fallen too much from June 2021 to June 2022:

So is there any reason to panic? No. Why? Because this too shall pass. Experts will keep saying in every crash that – this time it’s different. But they have been proven wrong every time.

Here is 15 and 20 years return of Nifty as of June 2022:

Even when a crash of 2022 is going on Nifty has given a CAGR (Compound Annual Growth Rate) of 11% and 15% in the last 15 and 20 years respectively. Please remember the crashes written above. In spite of these crashes, the returns are well above 10% for investors who have stuck with their investments with patience.

So my advice is – just keep calm during a crash. Do not take panic decisions and exit when you see a small loss. This is normal in stock market investing. You can hold the stock till you get a reasonable profit and exit.

How to Profit in a Stock Market Crash?

Do you remember the most popular advice from none other that the greatest investor in the world – Warren Buffett (CEO of Berkshire Hathaway)?

Side note: Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net worth of over $113 billion as of June 2022, making him the world’s fifth-wealthiest person. Source: Wikipedia

Warren Buffett once said that it is wise for investors to – “be fearful when others are greedy, and greedy when others are fearful.

There is another saying credited to Baron Rothschild“the time to buy is when there’s blood in the streets.” He was an 18th-century British nobleman and member of the Rothschild banking family.

I am sure you must have read it somewhere probably when you were in school/college. But did you ever do that? If not the best time is NOW – not tomorrow.

So how can you profit in a stock market crash? Just hunt for great fundamentally strong companies going for a bargain. Try to buy stock of companies that are at least 20% down from their recent high. These companies will be the first choice of HNI and retail traders when whatever situation that brought the crash gets over. These stocks will soar like there is no tomorrow – but you cannot pinpoint the exact time. It’s better to buy them now.

Suggested read: I have written an article on lessons from Warren Buffett’s letter to shareholders. This will give you some idea on how to choose good stocks at a bargain and for the long term.

Patience is the Key

After you buy you may see the stock going down further. You must show patience during these times. If you have the money and if the fundamentals of the company haven’t changed you can buy more and average out the investment in the stock to bring the buy level lower. But make sure to average out a minimum 10% lower than the previous buy price otherwise the averaging out will be useless. And just buy the same number of stocks or 50% less than what you bought the first time. Anything above this can be risky. Do not average out the third time. You have only one option wait for the crash to get over. Once the crash is over the stock will surge.

When to Book Profits?

10% is a good return or if you think the stock is good and you want to keep it longer, then sell 50% of the investment and keep the rest. This way some profit will be booked forever and you can exit the rest of the stocks at 20 or more % profits.

Do not go overdrive with your investments. Managing finance is more important than investments. You must invest the money in stock markets that you do not need for the next 5 years minimum.

If you need my help I have a course for this – Long Combined With Short Term Investment Ocean Wave Profit Booking Strategy Course

Here is the course content:

• List of 21 stocks that you must own for your entire life
• An explanation of why I chose these stocks – what were the criteria etc.
• A detailed explanation of how to invest in each stock
• How much to invest as per your income (optional)
• How to maintain a tab on these stocks
• An approach to investing
• How to start investing in these stocks
• The Ocean Wave Profit Booking System – (Swing Trading Explained – This is the MOST important chapter)
• And a lot more on how to increase your investments

… And in the email, I will explain how to make a monthly income by selling options against it.

The best part is – You may do the same logic in your current investments as well to increase the return from the stock – whatever the stock it doesn’t matter – you can implement the strategy.

You can read more about the course here:

Long Combined With Short Term Investment Ocean Wave Profit Booking Strategy Course

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Lessons From Warren Buffett Letter to Shareholders

Below are some of the lessons an Investor should learn from Warren Buffett’s letter to shareholders. I have sourced this article from many authentic websites. I have written the most important points that an investor should learn.

1. Economic Moat Keeps Changing of a Company:

What is Economic Moat?

“Economic Moat” is a long-term competitive advantage that a company holds that allows it to protect its market share and profitability. A company with a strong moat possesses a competitive advantage that is both strong and sustainable. The most effective moat is the Brand Name. For example SONY, SAMSUNG & LG charge a higher price than their competitors just because they can easily leverage their brand name in electronics items like Smart TVs, Music Systems, Refrigerators etc.

However, with time this keeps changing.

How companies can maintain or increase their Moat?

By improving both products and services. In modern times after-sales service is very important to maintain Moat. People have access to social media, so one bad service may be read by many and can affect the Moat. Sometimes it gets so bad that it becomes nearly impossible to get back the previous Moat. This happens when companies start looking at short term profits and ignoring the long term effects.

2. In a Commodity Business Returns on the Capital is Important

In a business where copying others is easy – all will do so in effect decreasing the returns on the capital deployed for manufacturing the product. The textile industry is one such example. You get $16 jeans looking as good as $160 jeans. In the textile industry maintaining the MOAT is very important. Branded jeans may sell for $200 while the unbranded ones will not sell above $100.

3. The Flywheel Effect

Though this is an example it is true for many industries. People do not want to pay for two or more newspapers. So who survived? The ones who printed too much news and advertisements on too many pages. In short, the fattest ones survived and the rest diminished. In other words, if a company gives more for the same money it will survive in the marketplace beating competitors.

One thing here is worth noting is that the newspapers never advertised how much they are making from selling newspapers and advertising in them.

So to summarize The Flywheel Effect – it is giving more for less, then scale it and keep quiet on how you are doing it.

4. Business Operation Leverage

Companies have two kinds of costs involved.

1. FIXED COST – Example lease rent fee, a product machine repair fee (almost fixed), salaries to employees and maintenance of the physical properties of the entire business which is but not limited to factory, offices, equipment needed to run a factory and offices like tables, chairs, ACs etc.

2. VARIABLE COST – Imports, third party services, logistics, electricity bills and other bills.

Companies that have high fixed costs and low variable costs will see earnings rise faster than revenue. It may be contrary to what you may think but if a company with a high fixed cost and low variable cost is making a good profit then they know and can manage difficult times. However, companies with lower fused costs and higher variable costs will have at least 4 months out of 12 to control the high variable cost that may hit them.

Example: A sports franchise owner has a high fixed cost and low variable cost, yet once they cross the breakeven they make a lot of money. If the brand value of their team or sportsperson is intact they keep making money in each season of the game their team plays.

A travel company has a low fixed cost and high variable cost. This is the reason during COVID-19 times (2020-21) their business went down to ZERO however the sports franchise owner kept making money earning from showing the games on TV and earning via advertisements.

5. Important Fundamentals of Investing

  • Know your ability (for example how much confident you are before investing in a company, how long you are willing to be invested etc)
  • Once you are confident and willing to invest you must check the future cash flows of the company (for example what products they are selling and to whom, is it a B2B or B2C, plus will they be able to sustain the lower/higher prices etc)
  • It is a waste of time to speculate on the future price. If a company has a good moat, good future cash flows then do not look or guess the future price
  • Volatility is another name for stock market investing. Just ignore the volatility otherwise you are bound to do mistakes.
  • Listening to the so-called experts on the stock market or a company is a waste of time.

6. Mr Market will Open From Monday to Friday – its There to Serve you NOT Guide You

You can only invest your money in the stock markets as you wish. The stock markets will not guide you to invest – it will only show you the rates of the stocks and give you a path to invest but won’t give you any signal of which is a better investment.

In a bear market, almost all stock prices will be low and in a bull market, all stocks will be near their all-time high. But you the investor, cannot know for certain the exact support and resistance. You have to invest in companies with strong fundamentals and sit tight for the right time to exit.

7. Risk is Not Prices Moving up or down – The Risk is the Money Invested and the Return Generated

After-tax return is the real return from a stock. You must know how much is a good return to exit from a stock. You have to keep in mind the inflation rate as well. Your return should be good post taxes and inflation-adjusted. This is possible only if you invest in companies with a good Moat and strong fundamentals.

8. Focus on the Return on Capital vs the Cost of Capital

Some people think that stocks with low Price-to-Earnings (P/E) Ratio, Price-to-Book (P/B) Ratio or High Dividend Yield is a value stock and invest in them. This is wrong. Similarly, a high Price-to-Earnings (P/E) Ratio, Price-to-Book (P/B) Ratio or low dividend yield might be a good stock to purchase. Instead of thinking about high/low PE or PB – you should focus on the return on capital vs the cost of capital.

9. Make a Note of What Does not Change in a Business

Like for SONY – it’s the Brand Value. Similarly, for others like Amazon, it’s the low price of products etc. Technology will change with time but if a business has something special for customers it will keep rocking.

10. Do Not Look at the Speed with which a Business is Growing – You Should Also Look at its Durability

If a business is growing fast it doesn’t mean that it will keep happening forever. If the company is not evolving with the latest trends and technology then it may not survive. For example, Kodak. The management of Kodak was overconfident. They kept ignoring new technology (digital photography) and did not adapt to changing market needs. When they should have used the profits to invest in new technology and advertising, they were acquiring many small companies. Kodak was overconfident in its brand value so failed. SONY on the other hand always keeps adopting new technology and also makes sure to advertise its products. Therefore they can charge a premium on their products just for the brand value.

11. Invest in the Quality of the Company and Hold as Long as the Quality is Maintained

Your investment will mirror that of the company’s progress you have invested. Even if a business is slightly overvalued, it’s better to hold on to it than a switch for a cheaper, lower-quality business.

12. Investing in a Mediocre Company Just Because its Price is Attractive is Foolish

In the long run, you will find that a mediocre business will either give a negative return or just less than FD returns or similar. It’s not good to invest looking at the price instead look at the company and its performance. A $1 can become a few cents of a bad company and $100 can become $150 of a good company in one year.

13. Do Not Leverage – Invest the Money That You Own

I have written about this in detail in this post, and this post. Even if the loan is small you will not be able to take the panic of a loss – you will immediately stop out. If the loan interest is 5% a year you will have to best this to make a considerable amount of money. Even if you make 6% a year – you will end up with just 1% profit which is not worth your time and effort.

14. Share Buybacks

We keep listening to this news now and then. Company A has offered a share buyback proposal at this rate etc. It makes sense only when a company has enough funds to maintain its position in the market. The company has no option but to invest the money anywhere else to generate a good return. The company’s stock price is below the intrinsic value.

15. Not All Earnings Are Equal

A company with too many assets that require frequent re-investments has no real earnings. When they get the cash they have no other option but to reinvest the money into their business. This reduces the profit of the company.

16. Do Not Depend on EPS alone

EPS – Earnings Per Share is misleading.

What Is Earnings Per Share (EPS)?
Earnings Per Share (EPS) is calculated as a company’s profit divided by the outstanding shares in the market. Once you get the number you can get an idea of the company’s profit. The resulting number serves as an indicator of a company’s profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution.

The higher a company’s EPS, the more profitable it is considered to be. However, depending on only EPS is not good. Today a high EPS is not a sign of high EPS tomorrow too. It does however helps when you are confused between two companies of the same sector but you want to invest in one of them. In that case, you can compare the EPS of both and invest in the one with the higher EPS.

Let’s take an example. Suppose you have some cash and want to invest in the SECTOR: COMPUTERS – SOFTWARE. The top companies are Infosys and Wipro. Both are fundamentally strong companies. Which one to select? Here is where EPS will help.

See below:


As you can see in the March 22 quarter Infosys Ltd. is the clear winner. So you can invest in Infosys Ltd.

You may be confused better Basic, Diluted & Cash EPS.

You have already read that Earnings Per Share (EPS) is calculated as a company’s profit divided by the outstanding shares in the market. A Diluted EPS is a calculation of a company’s earnings per share if all convertible securities were converted. A company keeps many securities with themselves which are not sold or traded in the primary security markets. These securities aren’t common stock, but instead securities that can be converted to common stock. Therefore Diluted EPS gives better data than Basic EPS.

Cash Earnings Per Share a.k.a Cash EPS is the operating cash flow. Cash EPS takes into account the cash flow generated by a company on a per-share basis, while the Basic EPS looks at the net income generated on a per-share basis, for a given period.

You will rarely find a huge difference between the Basic, Diluted & Cash EPS of a company. So you just look at the Basic EPS while comparing two companies for investment decisions.

17. Inflation has a Huge Role to Play

Companies with fewer assets will not be much impacted by an increase in inflation. However, companies that have to invest a lot in machinery and its parts will be impacted by inflation.

18. Be fearful when others are greedy, and greedy when others are fearful

This is the most famous teaching by Warren Buffet, unfortunately, everyone knows but few follow.

During the 2007-2008 financial crises retail and institutional investors sold huge numbers of stocks in businesses with weak and strong fundamentals – including me too :). This was a big mistake. Buffett, however, went on a personal buying spree, even penning an impassioned New York Times op-ed titled “Buy American” about the billions he had spent buying up marked-down stock.

And who came out as the winner? Warren Buffet.

Hope you have learned something from this post which will help you to select the stocks to invest in future.

If you do not have a Zero Brokerage Demat Account you can click here and open it online within minutes.

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Can Non-U.S. Citizens Buy Stocks of U.S. Companies

In short, the answer is YES.

There is no regulation that says that you must be a citizen of the US to buy stocks of the US company. In India and other nations, there are many mutual funds that invest in US companies like Alphabet Inc. (earlier known as Google Inc.), Microsoft Corporation etc.

I am not sure about other countries, but an Indian can invest in US markets by opening a US brokerage account. You must have a PAN to open a US brokerage account. Please also note that to buy stocks you will have to transfer money to your account first before buying the stock.

What are the Brokerage Charges?

It depends on the broker. I suggest you Google and check brokerage charges of the various brokers that allow buying stocks in the US. Though nowadays the charges are not very high. Still, you should open an account where the charges are low.

Please note that other than the brokerage fee you may have to pay some fee to the company that converts Indian Rupee to US dollars called the FX conversion fee.

How Much Can Indians Invest in the US Stock Market?

In accordance with the Liberalized Remittance Scheme (LRS), an individual can remit a maximum of US $250,000 USD (equivalent to 1,89,33,500.00 Indian Rupee – currently 1 USD equals INR 75.73), per year for investments.

Under the Liberalized Remittance Scheme (LRS), Indians can send money across borders without seeking approval from the Reserve Bank of India (RBI). The LRS has made it easier for Indian residents to study abroad, travel, and make investments in other countries.

How Much Can You Remit or Send?

As of Feb 22, the limit is US $250,000 per year per individual. This is equal to 1.90 crores. However, this may change as the RBI monitors the outflow of the money from India to abroad and may increase or decrease the limit per year as per the situation.

Why RBI Limits the Amount to Send?

RBI monitors its current account deficit and the value of the rupee. It may adjust the maximum limit of Liberalized Remittance Scheme (LRS) over time.

What Is Current Account Deficit?

The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. For example, if exports are 100 billion dollars and imports are 200 billion dollars then the current account deficit for that year will be 200-100 = 100 billion dollars. Note that if this continues for 10 years then the current account deficit will be 100*10 = 1000 billion dollars.

What Is the Current Account Deficit of India?

As on Dec 31, 2021, India’s current account balance recorded a deficit of US$ 9.6 billion (1.3 per cent of GDP) in Q2:2021-22 as against a surplus of US$ 6.6 billion (0.9 per cent of GDP) in Q1:2021-22 and US$ 15.3 billion (2.4 per cent of GDP) a year ago. Source: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53015#

Is There Any Other Way to Invest In US Companies’ Stocks?

Yes. You can invest via mutual funds which invests in foreign countries – HIGHLY RECOMMENDED. If you invest via a mutual fund you need not remit money to the US or pay any brokerages as this will be taken care of by the mutual fund company. However, for the charges that occur in transferring money and brokerages, they charge an expense ratio that may go up to 2% a year.

What is Expense Ratio in Mutual Funds?

A mutual fund is also a business. Investors invest money to get a good return. However, there is a cost involved in running and managing a mutual fund like office, infrastructure, electric, computers, software, accounting etc. Plus everyone working there needs to be paid. So, from where this money will come?

This money comes from a fee that the fund house deducts from the fund every year to pay salaries to its employees and manage the fund.

This fee is called the Expense Ratio.

Can you explain with an example?

Suppose Mr A aged 25 gets a job and started to invest via SIP (Systematic Investment Plan) – a highly recommended way of investing in mutual funds – ₹10,000.00 per month for the next 35 years. In between he ignores the volatility of the funds returns – this is also highly recommended. His mutual fund expense ratio is 1%. It generated a return of 12% CAGR (Compound Annual Growth Rate). Now let’s calculate his returns:

Real return: CAGR 12% – 1% expense ratio = 11%.

Compounding 11% for 35 years for a SIP of ₹10,000.00 per month:

Total deposit made: ₹42,00,000.00
Total interest earned: ₹3,88,57,363.38
Future investment value: ₹42,00,000.00 + ₹3,88,57,363.38 = ₹4,30,57,363.38

Now Mr A’s friend Mr B also gets a job and he too starts investing via SIP in another mutual fund which has an expense ratio of 2%. His investment is also ₹10,000.00 per month for the next 35 years. He too ignores the volatility of the markets and continues to invest for the next 35 years. His mutual fund generated a return of 12.5% CAGR (Compound Annual Growth Rate). Note that it gave 0.5% more returns than Mr A’s fund. So you must be thinking he will get more money when he redeems the money at 60? No. Here is the calculation:

Real return: CAGR 12.5% – 2% expense ratio = 10.5%.

Compounding 10.5% for 35 years for a SIP of ₹10,000.00 per month:

Total deposits: ₹42,00,000.00 (Same as Mr. A)
Total interest earned: ₹3,40,55,572.11
Future investment value: ₹42,00,000.00 + ₹3,40,55,572.11 = ₹3,82,55,572.11

Difference: ₹4,30,57,363.38 – ₹3,82,55,572.11 = ₹48,01,791.27

Can you now understand that even after giving a 0.5% better return than Mr A’s mutual fund, Mr B got ₹48,01,791.27 less because the expense ratio of his mutual fund was just 1% more than Mr A’s mutual fund.

Investors ignore the expense ratio when investing in a mutual fund, but it’s highly recommended that you see the fund’s past performance and also the expense ratio before investing in a mutual fund especially if your plan is to invest for a long time. A small percentage difference in the expanse ratio can have a huge impact on the returns.

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Difference Between IntraDay Trading Swing Trading and Investing

You must have opened a Demat investing & trading account, if not click here to open a stock buying/selling brokerage Free Demat Account. Now if you do not know from where to start or what to do, then you are sure to do investing mistakes.

Before you start your trading/investing journey you must know the difference between intraday trading, swing trading and investing so that you know where to focus and expertise yourself. This is important because everybody’s lifestyle is different. Some people work 9 am to 7 pm and some work from 12 pm and some have night duty (security personnel, software engineers working from home for a US country etc). Plus patience plays an important part in investing and trading.

Therefore it is very important to know your trading psychology to know which style of trading suits you best and trade that.

In this article, I will discuss the difference between day trading (intraday trading), swing trading and investing so that you can trade as per your trading psychology.

And you will also read some good financial management tips in this post.

In this article, I will discuss what is the difference between day trading (intraday trading), swing trading and investing.

In the year 2007, (I was in my early 30s then, newly married and wanted to invest in stock markets, but has no idea from where to start) – a few people from a local stock brokering firm came to my house to explain about stock markets and I was done. I opened a Demat investing & trading account the next day. What happened after that you can read here. Now the story has changed but it was after a lot of struggle.

I remember in those days the most popular word in trading was Intraday trading. Not sure after years if it’s still popular among the young traders. 

Intraday trading was in my mind but I feared it because I had no idea so I started with stock investing and failed more so because I wanted to be in profit as soon as I invested in the stock. Unfortunately even today even experienced investors want to be in profit as soon as they invested. When the target was to make a profit in the long term then why think intraday? 

So as you may have guessed I failed in investing and moved to Intraday trading as it was already there in my mind. Unfortunately except for the beginner’s luck, I started failing in intraday trading as well.

I have seen that with most of the customers the story is the same. They also find some luck when they start trading intraday then they start to lose.

In those days equity intraday was more popular than options/futures intraday trading as most people did not have enough money to keep as margin to trade derivatives and most traders did not know trading options or futures.

Well, that’s a guess but I am sure that is the reason option trading became popular in 2010. See this graph:

Source: https://www1.nseindia.com/products/content/derivatives/equities/historical_fo_bussinessgrowth.htm

As you can see the growth in the Index options far out beats other derivative segments of trading. I had read somewhere that 70% of that volume in derivative trading comes in Intraday trading. 

TIP: If you want to trade derivatives master index options trading because there will be good liquidity. Please note that liquidity is very important in derivative trading else you may not be able to enter/exit a position.

What Is Intraday Trading?

Intraday Trading is a trade that is closed on the SAME DAY. This is the reason why Intraday trading is very popular. Traders get a kick/fun while trading Intraday because the profit or loss is known the same day, while in positional trading traders have to wait for a few days to make money which gets boring.

What Is the Difference between Swing Trading and Investing?

Swing trading is a trade that is NOT closed the same day and is carried forward to the next day to make a profit. However, there is a very thin line of difference between Swing Trading and Investing.

If a trader trades/invest either in equities, futures or options basically for a short term to make a profit then it is termed as Swing Trading. Swing Trading in derivatives can go up to a few days because they have an expiry date. Derivatives cannot be carried forward after their expiry day. Swing Trading in stocks can go from stock coming in the Demat account (T+2) to up to a few months but not exceeding a year. Once the investment crosses 365 days or a year then it can be called investing.
I failed 

Well from Intraday to swing investing to derivative trading – initially, I failed in each segment. However, there was one sector where I have achieved a 90% success rate – that is investing. 

Stock Investing is good but you need patience. Stock investing should be done after reading the financials of the company. One should invest only after researching well. And one should keep that money invested for a while to make a reasonable income.

I lost 7 lakhs mainly trading derivatives without hedge and proper planning. It was speculative trading. Speculative trading is nothing but gambling or buying a lottery. Gambling will never make you rich. You must first properly learn FnO strategies then only trade. My life changed after I realized that even 2% a month is a good return from stock markets. Let the Telegram channel owners or Youtube video makers say anything like make 50k per day from 10k or something like that, if I can make 2-3% a month I will stock to that and move my profits to liquid funds when I will start making 70k a month. 

That came in 2016. Till then I kept the job for financial security reasons. I left my job in the year 2016 when a comfortable income started coming from stocks markets. Today I am pretty happy that my conservative option course is helping a lot of traders since 2015. Testimonials.

My course will help you to learn 7 such well-planned strategies. You can check the course fee here. Go for the discount and do both the courses. you will learn both monthly options and weekly options strategies.

Finally What My Experience says:

  • You must invest your money in stock markets but wisely after learning, researching, reading etc. but not blindly on hope or doing speculative trading or on someone’s tips even if it’s free.
  • Start as soon as possible to enjoy the compounding effect till you retire.
  • Do not stop learning about stock markets (I still read about an hour a day).
  • If you become a successful trader bring more money into your trading account until it surpasses your current income from salary/business – THEN ONLY leave your job. I have done that 🙂
  • Once you are making enough monthly income take all money out every month and invest in liquid funds. Do not invest the money male from trading in equity mutual funds because you are taking a risk and winning – so that money should not get into stock markets again – either via trading / investing or equity funds. If you want to invest in equity mutual funds keep a different budget for that. The money saved in liquid funds will help you after retirement or if you leave your job early then the interest earned will help you to sustain your family initially. After leaving the job if you depend on stock market income then the first six months will be highly stressful. this time the liquid funds will keep you afloat. Therefore profits made from stocks/derivating trading should either go into a Fixed Deposit or be invested into liquid fu\nds. I prefer liquid funds they are safe and not binding. you can not partially break a Fixed Deposit – but you can take out 500 or more rupees from liquid funds from the very next day without an exit load. 
  • Learning to trade well is not impossible but is not an overnight process. But nothing worthwhile comes easy. The freedom, independence, and scaling of income in trading cannot be found in any other profession.

    I made the mistake of trying to figure out how to trade stocks on my own or by taking tips and lost. It took me years to become profitable because I didn’t seek to find proper education or a mentor to guide me in the beginning. Today the world is a different place. There are many courses available. However, to date, I have not found a single site that has content like my site (the one you are reading) and such testimonials on the site.

Details of my Course 1, details of my course 2, course fee.

Thanks for reading. Please bookmark my site because I will keep writing new articles each week. You can come back and learn a new topic every week.

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