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Trading and Updates and all that


I’ve kinda stopped trading nearly all of last month as I wasn’t too happy with the way the markets moved. Now I’ve figured out at least some thing and I will be back on it – but there are a few major reports:

  • My portfolio has just about performed at the same level as the Nifty. I think this is because of a) bad trades that I didn’t manage risk properly in, and b) focussing on momentum but taking detours into longer term trades.
  • The market is always right. Just because you think there will be a downturn does not mean it will happen now. Trade where there is an opportunity, do not try to predict.
  • Risk management is everything. Where an F&O contract is too big to take on, take a smaller cash position – F&O leverage is not necessary when it’s too risky.
  • Options are interesting but you should sell and buy, both. I’ve made a LOT of money on options, and lost very little on them.
  • You should respect your stop losses.
  • Trading is all about odds and probabilities. If you don’t take enough trading opportunities you will only lose – because you need the numbers for odds to work in your favour. So that means: Take multiple positions, in smaller quantities, where the criteria is the same. For ex. I bought a Mudra Lifestyle because it’s results were far better than the P/E given – but I should have taken on five others, which were just as good. That would yield better results (I had to book a 2% loss on Mudra).

The most interesting story of last month was the only trades I held through the last fortnight of November. I had a credit put spread on when the Nifty was around 5600, and I had bought a 5600 put, and sold the 5400 put. The spread cost (difference in premium) was around Rs. 50. Meaning I paid 50 Rs. x 50 Lot size = Rs. 2,500 for the chance that the Nifty would end up between 5400 and 5600 on nov. 29. I watched the spread slide down to Rs. 30 as the Nifty went up beyond 5900, and then I held on – my max loss was only Rs. 1000 per contract at this point.

The Nifty then fell near the 5400 levels – and on the way down I’d picked up a 5700 put as well, at about 120, and sold futures, both of which yielded a near 100% profit (small quantities). I closed those positions.

The put spread was now nearly 100 – meaning that was up a 100% now – but the Nifty rose some more – and I saw the spread contract to Rs. 60 within a day – when I sold. I bought some 5700 calls as the Nifty moved up and those were profitable too, very soon! Of course, I gave a lot of it back on a single covered call strategy on 29th – a small test I had ventured into to test a certain setup. Still paying for the education!

Lesson was: A put spread can be far less risky than a naked put – and yield just as good if you have the patience to keep it on. Another lesson was: Reliance Money is SLOW and in a fast move, you need a fast web site.

I will explain some of these notes later in separate posts – what are put spreads, what is a covered call and how you can execute effectively.

Note: A completely new portfolio begins from Dec 1, let’s see if I do better the next two months!


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