In this article, you will learn the strategies you can apply after looking at India VIX.

Today I got an interesting India VIX query via email from one of my clients. So I thought let me post it in the blog to help people.

The question is here:

Dear Dilip,

Good morning.

Just trying to know a concept for Option Selling or Hedging strategy.

Here are some range bands of India VIX:

10-15
15-20
20-25

Generally, for the above figure which range-band is best for options selling strategy like straddle, strangle, covered put, covered call, iron butterfly and iron condor?

Which India VIX range is generally considered for buying or selling Nifty Futures and BankNifty Futures.

Can you give some ideas or write an article.

Thanks for your cooperation.

Regards,
Rabindra

My reply:

First, you can see live India VIX here:

https://www.moneycontrol.com/indian-indices/india-vix-36.html

India VIX can only indicate future volatility – and this is just an indication, not a guarantee. But yes it does help to decide what kind of strategy to deploy on a particular day.

So if you see India VIX at the 10-15 range, it is advisable to trade conservative strategies as they are unlikely to hit the stop loss. Though the profit may be small, you will end up making some money which is better than losing money. It is better to make a small profit than to make a small loss.

In this range, it’s better to trade option selling strategies like straddles, strangles, covered put, covered call, iron butterfly, iron condor etc.

If you see India VIX in the 15-20 range, you can do a combination of trades. This means trading with some money the conservative strategies like the iron condor or ratio spreads (as described in my paid course) and trading some aggressive strategies like future hedged with options which are also there in my paid course.

If you see India VIX in the 20-25 range, it is advisable to try debit spreads or aggressive strategies like future hedged with options aggressively. India’s VIX in the 20-25 range is very dangerous for the markets. Here the intraday swing can be up to 3% up or down, and the gap up or down openings will also be very wide.

In this range, you can also do long calls or put straddles or strangles. However, do not go overboard and trade with multiple lots. Even if you are HNI you have to trade with max 5 lots.

I hope this helps.

Well, this is not news but for investors and traders these things are important.

Here are a few things that will happen:

From April 2024 India VIX will increase up to 30 – then after the results are out, it will fall to 20 within 2-3 days. Then depending on how the new government works it will again go up to 25 or come back to normal levels of 15.

Option premiums will go up and down as per the Inda VIX. They are directly propionate. However Indoa VIX and Nifty are inversely proportional. You can read more about it here.

Historically Indian stock markets move up before the general elections.

Equity markets in the calendar year before the past five general elections have shown wide variance, with NSE Nifty 50 returning gains of 70% to suffering a plunge of over 50%. And the benchmark has been muted in the year before the last two general elections—rising less than 6% in 2013 and a little over 4% in 2018.

More details here:
https://www.bqprime.com/markets/how-indian-markets-react-a-year-before-the-general-election

So what you can do as an investor?

Pick good stocks and buy them in small amounts every month for the next 12 months. Sell them at a reasonable profit just before the results of the elections as you never know what will happen after the results are out.

Want to buy and sell stocks without paying any brokerage? Open a free demat account here.

In this article, I will discuss why traders hold on to losing trades but do not let profitable trades run for longer. This single action is 90% responsible for losses.

Here are the reasons:

1. NO PLAN – I have written in my blog many times but it seems it has become a habit. Most of the trades taken by novice and even experienced trades is not pre-planned trade. They take a trade because they think it will work in their favour. This results in no planning of when to exit. By exit I mean you should know well in advance when to exit the trade – profit or loss should be well-defined.

Assuming that even if it was planned – things change when the trade is live especially when the trader sees a loss in the business. The plan changes due to HOPE. Hope is the second reason for taking more losses.

2. HOPE – For the time forget about stock markets. In life when something goes wrong we start praying and by doing so we gain hope. A hope that slowly things will get fine. Sometimes it does and sometimes it does not. But eventually, with time we get adjusted to the situation. Life continues.

The same thing happens in stock trading. We sit on hope, hoping against hope that the tide will turn in our favour and we will exit in profit – but it does not happen – expiry day comes and we take a loss.

Hope is not a solution to a losing trade – Stop Loss is.

Is hoping that the trade will turn in your favour wrong? No not always. If you have invested in a good company with sound fundamentals for the long term – then hope is the only solution for the stock to bounce back in your favour. It works because long-term investing has no time limits. But the situation is not the same in derivative trading. Expiry day usually is a few days away and you cannot sit on hope. You have to take action within the specified time else you may face a huge loss.

Sometimes losses become so big that it takes a lifetime to recover the losses. Here is one trader who lost 2 crores in options trading.

I do not think this person will be able to recover his losses.

Lesson: Do not let losses run so huge that it destroys your life.
If you can overcome this simple mistake of letting your losses run you will eventually stay in the game longer and become a good trader.

3. EGO – The mindset that nothing wrong will happen to me this time is a great motivation to hold on to losing trades. When traders lose the thinking changes to the next time they will not lose and the circle continues. This is a major issue for male traders, not females.

I cannot be wrong is a psychological phenomenon that can happen to anyone – it’s called – cognitive dissonance. It is normal but one should admit the mistakes in trading, learn from them and never repeat these mistakes. But it seldom happens.

Lesson: We are humans and can make mistakes. Make a note of all mistakes you do while trading and if possible read them once every week. If you read these mistakes will be ingrained in your brain and you will not repeat them.

4. Sunk Cost Fallacy – a phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.

This is a major concern for all financial decisions. This problem is not limited to retail traders, it is for HNIs as well. Investors who have already invested so much time and money into a position cannot bear to cut their losses and give up – so they wait and wait until the loss becomes unbearable.

Lesson: Agreed you have done some research and invested a lot of time and money – but what is failing is failing it’s better to cut short the losses. When you entered a trade you knew in advance that you are taking a risk, so you should exit when that time comes when the loss is manageable.

What is the way out?

When you enter a trade you should know that there is a 50% chance of winning and a 50% chance of losing. So define both profit and loss before you enter the trade. Here is a tip – keep the stop loss target 50% of the profit target in all the trades you take. Now even if you are right 50% of the time you will end up being profitable over the long term of your trading journey.

On Apr 8, 2023, I wrote to my email subscribers that India VIX is falling suggesting an up move. Today (Monday, 10-Apr-2023),  see that it is indeed going up:

If you want to receive my educational emails on investments and stock markets, you can signup up with the application above.

Today’s condition is rare – India’s VIX has gone up and Nifty has also gone up. Usually, they do not go in the same direction. If one goes down the other goes up.

India VIX is the fear factor index of the Indian stock markets. When unusual trading increases, India VIX – its just software, thinks that unusual trading means people are fearful – therefore it increases proportionately to the pattern of unusual trading compared to the statistical data it has of many years. And of course, when there is unusual trading it means that people are selling off their assets – whether it is options, futures, commodities or stocks. In this condition what will happen? Stock markets will fall.

When there is a normal pattern of trading, India VIX tends to fall indicating low fear in the market. When the total volume in trading decreases to 10% or less compared to the usual data – India VIX will fall below 10.

See the historical chart of India VIX. The 52-week high is 28.13 and the 52-week low is 10.17. This 52-week means data is from Apr 22 to Mar 23 (FY 22-23). Why it did not go below 10? Ukraine War, Hindenburg Research on Adani, and many other reasons.

India VIX is a very important indicator of overall market direction – not of an individual stock. For an individual stock news is an indicator.

So next time you want to take a directional trade, especially in Index, make sure to have a look at India VIX.

Note: This is a copy of my email sent to my newsletter subscribers on Monday, 03-Apr-2023. If you want to receive emails please register in the above application.

While writing this email I can see that INDIA VIX is at 12.94. You can check the current India VIX here.

India-VIX 3-Apr-23

Lower than 15 is an indication that there is no panic in the markets as of now – everything is normal.

So the expected move on any side is less.

Option premiums will also be reduced attracting option buyers. During these times volume increases. Since most options buyers are mostly immature or new entrants to the markets – they bring a lot of liquidity. In a few days when they will see losses – they will start selling the options they hold – which will again be bought by novice traders.

Low India VIX may be attractive for option buyers – but it is dangerous too because there will not be many moves making the options worthless in 2-3 days.

Tip for option buyers:

• • Buy not too far nor too near options. They are cheap and appreciate fast if the stock moves in their direction.
  • Do not overtrade, which means do not buy more than 2-3 lots
  • Do keep a stop loss of a max 20% of the amount used to buy options
  • Keep a target of 25% of appreciation. For example, you bought an option at 100 sell it at 125.
  • Do not stay in the strategy for more than 3 days, if you bought naked unhedged options. Profit or loss – just exit the trade.
  • Always hedge your option trades to stay longer in the game.

My Conservative Options Course will help you to learn 7 conservative options and future hedging strategies.

Click here to pay the course fee and start learning today.

After payment strategies will be sent to your email. You can clear your doubts by asking me directly. You can get my phone number in contact me page.

Copy of my email sent to my subscribers on Thursday, 23-Mar-2023. To receive my free educational emails and a 5-days free options course, please subscribe to the above form.

This is a copy of my newsletter sent to my subscribers on Tuesday, 14th of Mar 2023. You can fill out the form above to receive my newsletters.

Silicon Valley Bank Collapse – should you worry?

During March 2023, three large banks in the United States with significant exposure to the technology sector and cryptocurrency collapsed.

If you are my old newsletter subscriber you may remember that I told you many times not to invest in cryptocurrencies. If big banks with lots of exposure to cryptocurrencies can fail – what makes you think that you will not fail?

The First Bank to Fail: Silvergate Bank.

It announced it would wind down on March 8, 23 due to losses suffered in its loan portfolio.

The Second Bank to Fail: Silicon Valley Bank

This bank which had given loans to technology startup companies – mostly bad loans which never got recovered caused the Silicon Valley Bank to collapse and be taken over by regulators on March 10, 2023.

The Third Bank to Fail: Signature Bank

Signature Bank, a bank that frequently did business with cryptocurrency firms, was closed by regulators two days later on March 12, 2023, with regulators citing systemic risks.

Not sure what will happen to the money of the depositors but I am sure the authorities in the US do have some mechanism whereby the money deposited by innocent investors is not lost. US President Joe Biden promised that investors will not lose their money invested in the bank.

Should an Indian investor worry and sell banking stocks as they are falling since this news broke out?

NO.

Because the above banks do not have much exposure to Indian banks, so why share prices of our banks are falling?

NEWS, followed by PANIC.

It’s just that the investors fear that the Indian banks may be impacted too and will also fall. The truth is nowhere near that.

So hold and wait for banking stocks to recover.

Update:

Credit Suisse, a 166-Year old bank having its headquarter in Zürich, Switzerland, also collapsed in Mar 2023. Credit Suisse was more popular and trustworthy than the other banks that failed. Yet it failed.

If you hold banking stocks I suggest you wait for one year at least. They will bounce back.

Note: This post is part of the newsletter I send to my email subscribers. The dates are Feb and Mar 2023. You can sign up to receive my emails by filling out the form above. You will also get a 5 days free course on options.

If you read my emails you may have exited all Adani stocks – but unfortunately, if you have not then most of the Adani stocks are hitting the lower circuit. Even if you want to exit, you cannot sell now as the stock is down by more than 50%.

What I did do with Adani stocks?

Before buying any stock I do due diligence and basic research. I do this mostly while travelling. I know most people talk/listen to music or just close their eyes and sleep. I try to read anything interesting on stock markets/economics.

Smart tip: I have a car, but when going out for any small work alone I usually take the bus/auto rickshaw or just walk if the place is within half an hour’s walking distance. This is for these reasons –

1) it saves money
2) it saves the hassles of parking the car
3) walking in the sun improves my health
4) I get some extra time to read about the topics I am most fond of without bothering about the traffic and traffic signals. This compounds my knowledge of the subject.

One day while travelling on a bus this happened:

Not sure if this happens on your mobile, but when I open chrome they show me some interesting topics, especially on stock markets. It’s not a blank screen like when you open chrome on a desktop/laptop. I am interested in this world so I read any topic I see interesting.

Of course, Google will not throw websites from non-credible sources. So you can trust and read.

On that day there was an article on “The reality of Adani”. I got interested and started reading. This was well before the https://hindenburgresearch.com/adani/came out on January 24, 2023.

There it was written that:

Adani profitability downward: While the company’s top-line growth has been healthy, its profitability has been on a downward trajectory since FY20 – this raised my eyebrows. Why? Because Adani stocks have shot up in the last 2-3 years only.

Adani Return on equity (ROE): ROE is calculated by dividing net profit by net worth. Generally, if a company has ROE above 20%, it is considered a good investment. Adani company’s Return on equity (ROE) is at a meagre 4.1 per cent on a trailing twelve-month (TTM) basis (as of September 2022). This again raised my eyebrows. The stock growing at an exponential rate while ROE is at 4.1%. Doesn’t the price defy logic?

Adani in significant debt: The company has significant debt on its books, and promoters’ stake has been pledged to take loans. If the promoters default, their stakes will be sold by the lender to recover the loans.

As of December 31, 2022, five out of the seven listed Adani companies have their promoters’ stake pledged. Adani Power has pledged 25.0 per cent of its promoters’ stake, whereas the flagship company, Adani Enterprises, has pledged a 2.7 per cent stake.

Adani pledged shares of ACC, Ambuja Cements worth about $12.5 billion.

What is Share Pledge? Definition: Pledging of shares is one of the options that the promoters of companies use to secure loans to meet the working capital requirements, and personal needs and fund other ventures or acquisitions. A promoter shareholding in a company is used as collateral to avail of a loan.

Basically, he has kept as a guarantee/pledged (actually half of ACC and Ambuja Cement) this much money and taken a loan to expand his business.

A loan that can be repaid with profits is fine. Ambani does this a lot so RIL shares will not fall, but pledging shares are in my view a well-read and experienced reading on how businesses work – is that this is a huge mistake which comes under the definition of greed.

Today Adani Enterprises Ltd. stock fell by more than 5% due to this news. One big news of the business failing – it may become half of what it is today.

Plus not sure why he has seven companies listed in the stock market. Reliance also has many businesses but Reliance has not come out with different IPOs of different companies.

IPO is basically free money from the investors which is never given back to them. I hope you can understand what I am trying to say.

Adani Enterprises’ revenue grew at 26.4 per cent CAGR in the past three years – but ROE at 4.1 per cent again raised my eyebrows.

Adani astronomical P/E: Price to Earnings Ratio or Price to Earnings Multiple is the ratio of the share price of a stock to its earnings per share (EPS). Adani enterprises’ P/E was at that time 361 times, which is 15 times more than its 10-year median P/E of 23.7.

To justify such valuations, the company would have to grow at an unprecedented rate, never seen before in the Indian markets.

What are the chances that they can do something that the Indian markets have never seen? 1%.

But I was interested as FPO was coming – this usually takes the stock to a higher level.

Now as an investor, I had to decide to invest in not a risky business but an overpriced and highly leveraged company.

So what I did do? Read – this is very important:

I knew greed was attacking me. My Demat account was opened on my mobile. My destination was still 10 minutes away. I had to take a decision. To invest or not? So yes I did – but bought only 5 stocks – a risk that I can easily manage.

At 3534.97 my total investment is just 17,674.85. This is less than the cost of my mobile. An investment that does not bother me. This is the reason I have not taken a stop loss, but advising you to take a stop loss. Why? Because your financial situation and mine are different.

I do not know how much you have invested so I can only advise you to take a stop loss and save whatever you can.

For me, 17k just does not matter. I can easily wait for years to make a profit from this bad investment without compromising my lifestyle.

But for you, my advice is to exit and save whatever you can.

Next time greed attacks you while making an investment decision – just remember this post and take the decision accordingly.

Update: 20-Feb-2023

So next time you read such a negative report of a company just exit the stock. If the loss is huge exit 50% – leave the rest for in case the stock rebounds. Exit the next day of the news. If you delay in the hope that the stock will rebound – the stock may go down so much that there will be nothing left to exit. This is what happened to stockholders of the Adani group who did not sell the stock in hope.

See where the Adani Enterprise stock is on 17-Mar-23, two months after the Hindenburg Research report came on Adani group.

Adani has control over almost all ports in India and too many businesses. If Adani will fail NSE could go down to 16000 levels.

But Adani is trying hard to repay debts in phases. Not sure if they will be able to repay 100% of the debt. But the damage has been done. Lakhs of investors may have booked huge losses in Adani shares. I do not know the exact numbers, but the loss will be huge.

So in this Hindenburg report effect who lost? Only the retail investors – you and me. Adani has nothing to lose. He was once the richest man on Earth. This was only on paper. His net worth was calculated by the total money of free-floating shares of his 7 companies in the world. That is not his actual worth. His actual worth is the debt-free money he owns and the value of the assets he can sell like his house, cars, jewellery etc.

Here is the real-time list of world billionaires:

https://www.forbes.com/real-time-billionaires/

this is updated every 5 minutes.

I saw a news article: Hindenburg effect: Gautam Adani’s net worth drops below $50 billion

Yes, it is showing in the Forbes post as well.

So is the list real? No, it is virtual – just on paper.

Today the Adani family lives in the same house in they lived before the Hindenburg report which came out on 24-Jan-23.

He still drives the same car, eats the food made by his same chef, he has the same clothes, and all his assets are ditto same as they were before the report.

So where has the $50 billion gone? If you took a loss in any Adani share – count yourself in, not Adani.

Next time you see a report saying that blah blah net worth has increased or decreased – just tell yourself that they are talking about his company’s share price – not his net worth.

No Forbes or any other company will ever come out with a real list of the richest people on Earth. Never. Because it’s impossible to contact every rich person on Earth and ask them their actual bank balance minus debts, and their sellable holdings.

Update on :27-Feb-2023:

Hi,

I do understand what investors must be going through for the last year. In 2020 it was Covid. Job gone, stock markets down. In 2021 – covid came again in Phase 2. This was as if a builder built a housing complex, then seeing its success made its Phase 2.

Stock markets again went down then recovered.

Then in 2022 Putin was the new Covid and still, he doesn’t get the sense that it’s not the land that is important – its human lives and the economy. He ended up destroying both and still doing.

Total death toll now in this war has exceeded 200,000 (2 lakh) 🙁

After almost one year of the war, there was hope that stock markets will ignore the war and reach new heights. It did a few months back – and then…WHAM

AADDAANI…

But then it’s our fault as well. If you had Adani shares before the report came I am sure you bought them seeing last year’s returns.

Was it a correct decision?

Look at this page:
https://www.adanienterprises.com/investors/debt-information

Straight coming out from Adani’s website.

This was easy research that one should not buy Adani shares.

Here is the reason:

Adani Enterprises FY21 Net External Debt was Rs. 9,767.00 Crore

And in

Adani Enterprises FY22 Net External Debt was Rs. 24,504.00 Crore

They have not written the figures are in Crores, but you can guess, its not lakhs.
What about the entire Adani company debt?

The group had a gross debt of ₹2.26 lakh crore as of September 30, according to a stock exchange filing. Total cash and cash equivalents was ₹31,646 crore. It faces a repayment obligation of ₹17,166 crore between January 2023 and March 2024.
Source: TheHindu.com.

And if you did just 5 minutes more research you would have found that hold your breath … Adani’s group’s debt accounts for 0.5 per cent of total loans across the Indian banking sector. For public sector banks (PSU), the debt is at 0.7 per cent of total loans and for private banks, it is at 0.3 per cent.
Source:
Livemint.com

It means for every Rs.1000 loan in public sector banks, Rs 7 was given to Adani. And for the private sector, it was Rs. 3 to Adani.

We are talking about entire India.

This was enough to decide not to buy Adani shares. Even if you wanted to take a chance then you should have bought 5-6 shares. This would have given you a comfort zone now. It doesn’t matter how much a stock will fall when your stakes are low. I am in that comfort zone club.

Next time please do such research if you want to invest a big amount in a company.

Keep it Simple Stupid Works in stock market investing. We have given an example of Reliance stock.

Since Covid-19, stock markets have just moved randomly – deceiving investors and traders.

There are many proverbs in English and Hindi and I am sure in other languages too which teach us many things about wisdom and the truth of life and stock markets.

There is one that makes sense in almost everything we do: KISS – meaning – Keep it Simple, Stupid.

It is a design principle that states that design and/or systems should be as simple as possible. Wherever possible, complexity should be avoided in a system—as simplicity guarantees the greatest levels of user acceptance and interaction.

Now compare this with investing or trading or even a business.

Suppose you want to invest in Reliance, what will you look at?

Option A) 5 minutes charts?
Option B) Bollinger Bands?
Option C) Relative strength index (RSI)?
Option D) Price Action?
Option E) Fundamentals of the company?

Of course Option E. If the fundamentals of the company are strong – just invest – do not look at the price or any charts. This is what the greatest investor of all time said – Warren Buffet.

But how many follow?

Randomly chose 100 traders and ask them to invest in Reliance. Do not give them any option written above. I can guarantee that 95 of them will start looking at charts. Based on that they will take a decision.

Here is a fact – when a stock falls, nearly all Technical Analysis tools/strategies will indicate not to invest or short.

For the short term you either make money or lose. This returns a net zero or loss.

However, fundamentals almost always win.

Here is the lifetime (till date) return of Reliance:

Source: moneycontrol.com

So the investor who followed the basics of stock market investing won by a huge margin over a trader who looked at charts for a short-term profit.

Fundamental investing is following the Keep it Simple Stupid strategy and not making the entire process of investing complex.

The same strategy can be applied to options trading. Just keep the strategy simple and it will work most of the time.

The strategies in my paid courses are simple and easy to understand. They have a simple logic that options have theta (time value) – so it takes benefit of that but with a hedge so that the losses are capped at max 1500.

Option buyers run against time whereas time is with option sellers. This is the reason HNIs are option sellers, not buyers.

There are many strikes to trade options – you will learn strike selection in every strategy. When to take the profit out and when to exit the trade all is well explained.

They are so simple that execution will not give you any stress neither will the trade give.

There are seven strategies in the course.

• 4 are option strategies
• 2 are future hedging strategies – how to find the direction will be told here
• 1 is the HNI strategy for investors having 5 lakh+. This is renting the stock to make a monthly income with ZERO work.

After payment, I will send the strategies to your email in PDF format. You can start reading and for any doubts, you can contact me by Phone/Email or WhatsApp.

This support will be there for one year from the date of payment.

You can find the course fee here.