Most traders who call me to inquire about my course tell me that they know how to trade a butterfly. In fact this is first of the many trades they tell me they know. Strange it seems, but it looks like most Indian retail traders love to trade butterfly. Well frankly butterfly trade is not as easy as it seems and contrary to what many traders believe, it is a trade where some kind of prediction is required. Technically therefore it cannot be considered a non-directional trade.
Personally I stay miles away from a trade that needs any kind of prediction.
Most traders who take my options trading course ask me what I do with the profits earned with my trades. Well I believe in power of compounding. Frankly right now I do not need the money that I make from trading or the stock markets. So I would rather make sure I am compounding it. If I take it out and do not use it, and assuming I keep it in my bank account – it will grow at only 3.5% per year. Compare this to almost 5% per month. So where should I keep my profits? Of course I should reinvest it. If I keep re-investing in my trading account it will grow much faster than if I put it in my bank account or even an FD.
Short strangle is exact opposite of long strangle. I will discuss it soon but before that I would like to tell something. Since I started the options trading course many traders have called me. Most of the traders actually trade this particular trade and you know what, they lose money.
I feel bad when I see that most traders lose money. I can only see that the main reason is greed. You will soon learn that short strangle is such a trade that it will tempt you to be greedy. This is a trap and most traders fall for it. The results? They lose money.
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.