Staring At Massive MTM Losses - What Should I do Now?

[DanPickUp]

Hi

If you now add more naked calls to the existing amount, you even start to risk to loose the rest of the profit you still have.

In share trading, you have time and if you add there, time is not your enemy. Options loose daily on value and only market moves or changes in vola can hold against that.

I would not add more calls at this stage. That is highly risky and no solution. Better then to reduce the amount of calls you have now in the market and if the market then really moves up, you add in some calls or you go for the hopping path like recommended from SG and wait.

You choice

DanPickUp

 

[smartcat]

Hi

If you now add more naked calls to the existing amount, you even start to risk to loose the rest of the profit you still have.

In share trading, you have time and if you add there, time is not your enemy. Options loose daily on value and only market moves or changes in vola can hold against that.

I would not add more calls at this stage. That is highly risky and no solution.

I'm waiting for now.

Theoritically speaking - meaning I don't have an intention of trying this out - is it a bad idea to buy April expiry calls now? I know prices are slightly higher, but then one has 60 days to expiry.

I've read in many articles that sellers hold the time value advantage in near month expiry options. As a corollary then, the buyers should have the advantage in far month expiry options - provided the option prices are not too expensive for the latter. Has anybody tried making money only by trading 2 - 3 month expiry options?

 

[timepass]

Smartcat, how much more money can you put in ? Who is your broker ? How many points to breakeven ??

If you are smart, you can play the same holdings intraday for small scalps and bring down your costs.

 

[Taurus1]

Theoritically speaking - meaning I don't have an intention of trying this out - is it a bad idea to buy April expiry calls now?

There are still 27 days to go and anything can happen.
I would not hold the calls, but I expect the market to go down and your opinion may differ.
Dan has correctly pointed out that more calls is more time value that is eroding day by day. Buying April calls is better, but how do you know that the market will go up by then?
You must have your own opinion on where the market is going or keep out altogether. Getting lucky in Feb has no guarantee of a repeat.

 

[TraderDude]

I have 400 Nifty 5400 call (March expiry) options bought @ Rs. 335 on 22nd Feb 2012.

Initial investment - Rs. 1.34 Lacs
Current value of 5400 call - Rs. 147

Mark to market losses - Rs. 75,000.

Yes - and you guessed it right. I'm quite new (3 months) to options. I know this is sheer foolishness to have taken such a huge position - but such daredevilry resulted in massive profits in February From now onwards, I only intend to take smaller positions.

But what do I do with this position? If I square off position, I will be in profits overall (Feb profits + Mar losses) - but I don't like the idea of losing 75k this month. What are the chances of Nifty closing at 5800 by the end of this month? Do I let the position remain, and stand the risk of losing Rs. 1.34 Lacs or stop my losses at Rs. 75k? Or are there any other strategies I can try out to save the position or profit from the current situation?

Wow, just wow...

fine example here of how to blow your account. Already risked and lost over 50%.

conservatively , you should risk 2-3% of your initial account size on any trade.

Absolutely no risk management and then people cry after losing money.

Who's fault is it? market/broker or PEOPLE ?

Hope you learn t your lesson...

Good luck!!

 

[DanPickUp]

Has anybody tried making money only by trading 2 - 3 month expiry options?

Yes, but it was not done in Indian market as you do not get any options on Heating Oil. Just to prove it:

What you see in the picture is a synthetic condor done in the past with options which have a live time of 48 days ( Days are shown on the right upper side )

Now, as you have enough money to buy 400 calls for over 300 Rp, it should not be a problem for you to spend a few Rupees to make some testing on one or two options in your market which have a live time of 2 or 3 months.

DanPickUp

 

[CASPER]

Sorry to hear about Your Loss., Hope you will be able to get some good trades in future ...

I have 400 Nifty 5400 call (March expiry) options bought @ Rs. 335 on 22nd Feb 2012.

Initial investment - Rs. 1.34 Lacs
Current value of 5400 call - Rs. 147

Mark to market losses - Rs. 75,000.
....................................................
....................................................

 

[smartcat]

Who is your broker ?

Edelweiss. They are charging me Rs. 40 per lot. They used to charge Rs. 100 before, but once they saw my rapid fire trading (during my learning phase), they reduced the brokerage. I guess they assume that I'll trade more if they reduce the brokerage.

Smartcat, how much more money can you put in ? How many points to breakeven ?? If you are smart, you can play the same holdings intraday for small scalps and bring down your costs.

I can put in money, but I'd like to be careful this month. But I'm open to high probability trade ideas to extricate myself out of the situation. The 5400 call value needs to reach Rs. 335 levels to breakeven - currently it is around Rs. 150 levels I think.

How does one play the same holdings intraday? Are there any threads on this topic that I can check? Also, is the brokerage fee structure different for intraday option trading?

conservatively , you should risk 2-3% of your initial account size on any trade. Absolutely no risk management and then people cry after losing money.
Who's fault is it? market/broker or PEOPLE ?

I've read this many times in various articles and books - but I really don't have an "account size". Since I'm fairly determined to succeed in option trading, new money will flow into my trading account - till I really get a hang of options trading (or till I throw in the towel & give up ).

See - I'm a professional investor (NOT a trader) who makes a living out of investing in the stock market (dividend yield stocks basically) & bonds. It's only now that I've entered the trading arena. I have 12 years "experience" investing the markets. Looking at the way my stocks behave price wise, I get an "idea" whether we are in a bullish market or a bearish market. I have little or no knowledge of technical analysis.

So, questions -

1) Is learning technical analysis a necessity for trading options?
2) What should be the "account size" in my case?

I'm here for the long haul, basically.

Hope you learn t your lesson...

Good luck!!

Still learning my lessons - I think it is a continuous process!

What you see in the picture is a synthetic condor done in the past with options which have a live time of 48 days ( Days are shown on the right upper side )

Dan, what do you use to make these nice looking graphs?

 

[TraderDude]

Your account size is the initial amount of money you have in your trading account.

e.g . if you have 1 Lac to start trading in your account. your account size is 1 L.

Now from this you always risk say 3%.

Next you need to calculate your Position size.Position size is the no of lots or shares to be taken on any trade.This depends on what would be the Stop loss.

Say SL is 50 points on any Stock

Position size = 3% of account size / SL in points

Hence for a 1 L with 3% risk
Position size = 3000/50 = 60 Shares

Hence you can only trade 1 lot of nifty. Since 1 Nifty lot size is 50.

Someone correct me if i am wrong here in my calculations. I don't trade on NIFTY.

Yes, Technical analysis is very much required if you are going to trade.

Risking more than even 5% of your account is gambling and not trading.This is just my opinion.

With 3% risk , you would need around 30 consecutive losing trades to blow your account, and so you must have a sound method to trade with over 50% win ratio.

 

[timepass]

Edelweiss. They are charging me Rs. 40 per lot.
....
How does one play the same holdings intraday? Are there any threads on this topic that I can check? Also, is the brokerage fee structure different for intraday option trading?

Do this only if you can put in a lot of screen time intraday. I guess Rs. 40 per lot makes for about 2 points per lot breakeven ??

You are holding 8 lots. If the market starts going down, sell them and buy them back later at lower price.. Even if you make 5 points per lot, it contributes to lowering your costs and helps nullify the loss due to time decay to some extent. And make sure that you keep a stoploss, not too deep. And don't try for hefty profits, 5-7 points in one trade.

The trick is, since you are selling options from your holdings, you don't require any extra margin and if you end up making even 5 points, at the end of the day you have your options + extra Rs. 250 profit .