A lot of my customers of the options trading course asked me a question – why I do not provide Nifty option tips?
Well two reasons actually:
1. I am an active trader. If I start providing tips my whole psychology will change as my mind will not be free. When my own money is at risk, it is OK to trade freely. I know that even if there is a loss, I will manage it and make money from the next trade. But when I know that a lot of people are following my trading tips blindly, I will either wait for the best time to enter the market which may never come for days and/or try to make money from every trade which is impossible. I will not be able to trade freely. Everyone will suffer.
All over the world especially the US, volatility trading is very popular. Its has a lot of benefits. For example if you have a big portfolio of stocks and you feel the stock markets in general may head south (going down) and the volatility will increase, you can buy the volatility futures. In that way if it increases, you can make money.
What is Volatility:
Well volatility is nothing but the “fear factor” in the market. If there is a lot of fear, like a war going on, or some kind of big news coming the volatility usually goes up. If there is any kind of uncertainty in the markets, in the country of the stock market or the world itself (like war between two countries, big bank declaring bankruptcy or any country’s economy showing signs of recession etc), the fear factor will increase. If fear factor (the risk factor actually – the risk of investing in the stock market) increases, the volatility will reflect that. If volatility increases the option prices – calls and puts – both will increase. If volatility decreases the option prices – calls and puts – both will decrease.
Note: Please read the warnings carefully.
Just like you I had a share trading account. I got it in early 2007 and was excited. I was having a well paid job, so could afford to fund it with some cash. I thought that now I can make a lot of money trading apart from my salary.
I asked my friends to tell me some shares to buy. I also researched same on the internet. I started buying shares without knowing anything about the company. If someone told me to buy XXX share I would buy it. In short, I bought shares randomly – a BIG MISTAKE.
Long strangle is very rewarding if market moves in any one direction rapidly. The last one word is very important – the market has to move in any one direction – up or down – RAPIDLY or Fast. If it does the long strangle trader will make unlimited amount of money else the losses are limited.
I actually hate this “unlimited amount of money” thing. I mean really? When was the last time you made unlimited amount of money? Somewhere a trader will book his profits. Why these so called experts say on this, and some other strategies like options buying can make unlimited amount of money, is what I fail to understand.
If you reached here looking for stock options trading tips from an advisory service provider, you have come at the wrong place. But I request you to please read this article, it will save you from a lot of hassle.
If you are in a hurry to know, I am a trader like you, but I do not provide advisory service on stock/nifty options or any other stock market related trading. Why? Because I trade them profitably, I do not need anyone’s help.
Ask yourself this question first – “Why should I pay someone to trade the stock markets? Can’t I learn some great strategies and make money myself.?”
Short straddle is a strategy when a trader sells or shorts calls and puts of the same stock, same strike and same expiry. It is a risky trade but can be managed.
Short straddle is exact opposite of long straddle. It is a very risky strategy as the losses can be unlimited. Please do not try this strategy unless you are an expert. You can try this if you have strict stop loss in the system. But in India we cannot put a GTC (good till cancelled) orders. So here in India it becomes a very risky strategy.
Markets usually stay calm therefore most of the times its almost always better to trade an iron condor or credit spreads. However there are times when traders get emotional and start behaving in an abnormal way. These are turbulent times. Markets lose their direction or shoot in one direction or the other. In other words the markets over-react.
This happens when a big news is expected. Like when a company is declaring its quarterly results. Or when some kind of big news like a company’s offer to buy another company. Some times FED decisions affect the markets. This happens a few times in a year. But they do happen. For example in the last 3 trading days Nifty has rallied over 400 points on the anticipation that BJP will form the government headed by Mr. Modi whom the markets thinks to be investor friendly.
Note: Protective put is also known as married put. Last year I had written an article on married put, but I think it was not well explained. So I am writing it again in details with more explanation and examples.
How many times has it happened that you bought a stock and it moved up, remained there for some time and then came crashing down before you could even book profits. You were not in a mood to book profits, thinking that the rally isn’t over. But exactly opposite happened. Sorry if it has happened to you. But the fact is you should have booked profits or bought a protective put.
How many times it has happened that you bought a share and it started to fall? If you plan to hold it for sometime than it is OK not to worry and keep adding more of it if you think the stock will eventually go up in a few days.
But what if you have bought it from a trading perspective? What if you do not want to hold the stock for long? What if you bought a future of a stock and the stock starts to fall? You start to lose money immediately. The future will expire in a few days and there is no way to know if in that time frame your trade will be profitable.
Diagonal call spread is traded when you are slightly bullish but think that markets will remain within a range for the next 25-30 days. In simple terms when you think Nifty will rise but not more than 200 odd points during the month and stay there.
So you must be thinking, why not trade call credit spreads which will also produces profits. Well if done right, Diagonal Spreads can make more money than credit spreads. We will know how.
Note: Since they can make more than credit spreads, its quite obvious that these are also complex strategies and may not be suitable for a less experienced trader. Moreover it is more risky than credit spreads. I recommend that you first try credit spreads and then try your hand at diagonal spreads. Don’t think about the profits, think about the risks first while trading and you will be a good trader.