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

[anuragmunjal]

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 .

Dear Timepass

trying to salvage 5 points in multiple trades...
one bad trade wd either put him out of his position forever, or a few good trades combined with a few bad trades + commission & charges wd set him back furthar..
and if he can actually manage to milk out 5 points 'everytime', I feel he does not need to invest money in long term options, he can just scalp the mkts. fr a living..

regards

 

[DanPickUp]

TP

But then you could go directly for the future and play the future as the filled for options in general is not as good as it is for the future. Check the delta of the options and you then are able to calculate how many futures you can trade to be delta neutral. You then trade some kind of synthetic put. ( Long call and short future )

SC; Check that link: http://www.optionvue.com/

 

[Smart_trade]

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.




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?



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.




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



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

I am extremely sorry for the loosing position you have on hand. I have suffered such losses many times initially so I know the pain.....but pain and joy is a part of the market...my suggestions are a under :

1) Trading and Investing are two entirely different games....dont mix them....they make a bad cocktail....

2) Options though allows you time, does not mean that you buy options and ferget about it.....it also needs stoplosses, may be a bit wider than the futures trades...but DO KEEP STOPS.

3) Option is a wasting asset when you buy them....if the price goes against you,the time decay and the price both act against you . From your posts it is clear that you are new in trading and also in options...dont buy options as if you are " investing".

4) I have very rarely seen a trader coming out fine from a messy trade....generally things get worse.....we have 3 major events and market will swing very violently both ways....can you stomach these adverse swings against you ?

5) If you are still in profit considering Feb and March ....just close all your positions and book the loss....I know it is a very unpleasant decision.....alternatively you can close 50 % positions at a loss....and hold balance 50 % ...so that if the market goes up, you will reduce your loss on the 50 % position which you will hold....but if the market tanks further, atleast 50 % you sold will help you salvage a bad situation....I had always followed 50 % principle in my early days......( now my stops now are never more than 2 % in futures and 5 % in options.....)

Hope you will be able to salvage the bad situation with minimum damage to your trading account.......

Wish you Good Luck and better trading.....

Smart_trade

 

[smartcat]

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.

I guess I get the idea - but it looks like a job for the experts! And since I've been a "fundamental analysis investor" all my life, I'm just not used to staring at the screen. That's why I don't trade in Futures where one needs to keep an eye on the ticker all the time.

Options though allows you time, does not mean that you buy options and ferget about it.....it also needs stoplosses, may be a bit wider than the futures trades...but DO KEEP STOPS.

Can you explain your stop loss strategy? Do you keep a stop loss on the underlying (Nifty in this case) movement or the option price? In your trading history, have there been cases where your stop loss has been hit, but the Nifty/Stock eventually went in the originally intended direction?

From your posts it is clear that you are new in trading and also in options...dont buy options as if you are " investing".

Hmm. I admit I have been doing that. Basically buying put/call option and holding it almost till expiry.

alternatively you can close 50 % positions at a loss....and hold balance 50 % ...so that if the market goes up, you will reduce your loss on the 50 % position which you will hold....but if the market tanks further, atleast 50 % you sold will help you salvage a bad situation....I had always followed 50 % principle in my early days......( now my stops now are never more than 2 % in futures and 5 % in options.....)

I like the 50% "loss booking" idea. Will probably do that next week.

Your stops are 5% in options? You mean 5% movement of Nifty right? Because option prices keep dancing all day, and 5% stop on price of puts/call will be hit very soon.

 

[timepass]

And make sure that you keep a stoploss, not too deep. And don't try for hefty profits, 5-7 points in one trade.

Dear Timepass

trying to salvage 5 points in multiple trades...
one bad trade wd either put him out of his position forever, or a few good trades combined with a few bad trades + commission & charges wd set him back furthar..
and if he can actually manage to milk out 5 points 'everytime', I feel he does not need to invest money in long term options, he can just scalp the mkts. fr a living..

regards

Please read the highlighted part in my post. The reason for his despair is - no stoploss.

TP

But then you could go directly for the future and play the future as the filled for options in general is not as good as it is for the future. Check the delta of the options and you then are able to calculate how many futures you can trade to be delta neutral. You then trade some kind of synthetic put. ( Long call and short future )

SC; Check that link: http://www.optionvue.com/

Right. But it would be the job for an expert, don't expect that from a newbie.

I guess I get the idea - but it looks like a job for the experts! And since I've been a "fundamental analysis investor" all my life, I'm just not used to staring at the screen. That's why I don't trade in Futures where one needs to keep an eye on the ticker all the time.

Wrong !! It is not the job for an expert, it is the job for a regular trader, which is what you have to learn to be.

Do you want to salvage this trade ?? Well, moaning about it won't do. There is no easy way. Putting in a bunch of more money (averaging) may help, but not much. This is going to be a very long series. So unless you are ready to buckle up and go for it. Look at the intraday charts of this scrip and decide for yourself if you couldn't have made some money from it.

 

[tomjerry]

What are the chances of Nifty closing at 5800 by the end of this month?

Keep eye on these dates for March:
March 6: Utter Pradesh Election Result.
March 8: European Central Bank Press Conference at 8:30am EST(New York Time).
March 16: Indian Union Annual Budget.
March 20: Is Greece paying (around $15billion as) Interest to its creditors? If don't pays then officially Greece is defaulted.

Nifty Strong Trend likely to be as described in following picture (I have mentioned minimum range for up side, while on maximum range it can go up, up & up):

Above picture in High Resolution: 2012Mar-S&P CNX Nifty-2000x1400.png - 198 KB

Hope this will help a little. [If you are 200% perfectly sure then only do Average otherwise Never Do Average, better find other opportunity some days later]

 

[Smart_trade]

Let me explain how I keep stops on options buy positions. Suppose my trading capital is Rs 10 Lakhs, I devide that in 10 equal parts.....and if the option price is Rs 200, I will buy max 500 NF options or 10 Lots....and in case at anytime during the trade I am in , the option looses 50 % or Rs 100.....that is my stoploss.....so I loose Rs 50,000 or 5 % of my trading capital on that trade. In most cases I will exit earlier depending on charts...but 5 % of my trading account is the maximum I am willing to loose on any option trade.....

Smart_trade

 

[NTrader42]

Yes why not.... either 111% or all of you can hold hands on the terrace ready for Bungee Jumping....

SG

Like Bungee, but not the holding hands type :rofl:






Edit: check out the avatar pic, the bull n bear saying hi, doorse doorse

 

[comm4300]

my 2 cents:

5400CE has closed at 150.00;
loss on your position is at Rs.74,000/-

Action:
sell 5600CE cmp at 67/- ; this will fetch you rs.26,800/- [67x400] margin required would be huge.

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what can go wrong?

market tanks: nothing much. you get to keep rs.26,800 from writing 5600CE. price of your 5400CE will also drop; it is much of your decision then.

market is sideways [doubt that, given so many triggers] : you get to keep rs.26,800.

market shoots up: if it shoots up above 5600, you get to realize 200 points by expiry [max. due to the spread].

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lessons i've learnt with options:
always consider the worst case scenario before you enter trade.
don't trade naked options. they are very exciting when it goes your way, but blow your account if you are wrong.

and again, if you want to stick with options, go for spreads.
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strongly recommend two threads for you:
debit spread by AW10;
and Options trading by Danpickup.
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all the best.

 

[timepass]

Smartcat, you have 8 lots, so try this with 4 lots. Try selling 4 lots at whatever opportune moment you see in the morning. See if you can buy them back at lower price.

Meanwhile the clock is ticking, it's dying anyway.