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

[TraderDude]

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

How do you set a SL when you are trading futures or options. Don't you have to set SL everyday as a new order. ???

 

[EagleOne]

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 .

That's a bad idea in general, TP bhai, and particularly worse when dealing with options as a buyer. This intraday sell and buy back idea is acceptable when you do it in a cash segment with the scrip whose shares you're already holding in DMAT.
Problem is, traders generally take this fact lightly that everything would get stacked up against you the moment you think to hold on to ATM/OTM options - even ITM's premium gets scraped if the market gets rangebound or goes through a couple of up-down wild swings. Eg., BhartiAirtel. Yesterday 340CE was 22 at around spot price 346ish. Today the same price was showing at 350. About 3k are already gone whoosh!

If I were smartcat and had made this mistake (oh I have made many such mistakes! I would simply free up my money by liquidating all or a huge portion of the holding at the first sign of market taking adverse turn in the next session, then turn away from the market for an hour or so, come back and find some juicy oppertunities with fresh eyes. They are always there in the market...

 

[Smart_trade]

How do you set a SL when you are trading futures or options. Don't you have to set SL everyday as a new order. ???

In futures my initial stoploss is 2 % of my trading capital for swing trades and 1 % of trading capital on daytrades. In options it is 5 % as explained above. both stops are either on futures rates or option premiums ( and not on underlying ). The quantity is decided based on the stoploss....more distance of stop point from my entry...means smaller positions.

Yes stops are to be fed into the systems everyday as a good for the day stoploss order.

Smart_trade

 

[timepass]

That's a bad idea in general, TP bhai, and particularly worse when dealing with options as a buyer. This intraday sell and buy back idea is acceptable when you do it in a cash segment with the scrip whose shares you're already holding in DMAT.
Problem is, traders generally take this fact lightly that everything would get stacked up against you the moment you think to hold on to ATM/OTM options - even ITM's premium gets scraped if the market gets rangebound or goes through a couple of up-down wild swings. Eg., BhartiAirtel. Yesterday 340CE was 22 at around spot price 346ish. Today the same price was showing at 350. About 3k are already gone whoosh!
1) Nifty options are more liquid than various scrips.
2) It's a bad idea, of course, but in this case the idea is to salvage the trade, where the trader is a newbie and is not yet ready to take a hit.

If I were smartcat and had made this mistake (oh I have made many such mistakes! I would simply free up my money by liquidating all or a huge portion of the holding at the first sign of market taking adverse turn in the next session, then turn away from the market for an hour or so, come back and find some juicy oppertunities with fresh eyes. They are always there in the market...
Right, that's what an experienced trader will do, but then an experienced trader won't get caught in such a situation. Also, an experienced trader will, with due diligence, be able to convert Rs. 74,000/- into Rs. 1,50,000/-, and may achieve it in small bites, rather than a Javed Miandad style "last ball sixer" that a newbie would hope for.

It all comes down to taking some losses, running away to live and fight another day .

Meanwhile the clock is ticking, maybe NF will go above 5700 in this series.

 

[TraderDude]

In futures my initial stoploss is 2 % of my trading capital for swing trades and 1 % of trading capital on daytrades. In options it is 5 % as explained above. both stops are either on futures rates or option premiums ( and not on underlying ). The quantity is decided based on the stoploss....more distance of stop point from my entry...means smaller positions.

Yes stops are to be fed into the systems everyday as a good for the day stoploss order.

Smart_trade

so if we are unable to set SL for any day , we are basically screwed..

 

[Smart_trade]

so if we are unable to set SL for any day , we are basically screwed..

Not sure whether I have properly understood your question. Trading needs to be done with controlled risk (assuming you are taking naked futures/options buy positions and not the spreads ) and unable to set a stoploss is unthinkable....we will definately get screwed and blow up the account if not on this current trade, then on next trade......it is almost a 100 %certain outcome....

Smart_trade

 

[EagleOne]

It all comes down to taking some losses, running away to live and fight another day .

Meanwhile the clock is ticking, maybe NF will go above 5700 in this series.

Javed Miandad becomes immortal for genrations to come after that 6 on the last ball. But in the process, Chetan Sharma jaise lupt ho jaate hain BCCI ki chetna se sadaa ke liye! :lol:

Anyway, TP, trading world is so fast now-a-days that salvaging a sick trade usually consumes more energy/time/money than initiating a fresh trade in line with the market trend.

If you had been dealing with options like I have been, you would see that this option 'liquidity' thing is not that positive as generally believed. It is double-edged sword, mister. And the normal, hope-addict buyers are generally found at its wrong end month after month!

We will discuss these thing in detail on some later date. Right now it is time to say bye and good night. Take care.

 

[TraderDude]

Not sure whether I have properly understood your question. Trading needs to be done with controlled risk (assuming you are taking naked futures/options buy positions and not the spreads ) and unable to set a stoploss is unthinkable....we will definately get screwed and blow up the account if not on this current trade, then on next trade......it is almost a 100 %certain outcome....

Smart_trade

What i meant is to set and forget SL order, and not set it everyday manually in the trading terminal, like we do in MT4 terminals.

When are we going to get better order management features in indian brokers?

sigh

 

[anuragmunjal]

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

Dear TP

I am yet to meet anyone who trades nifty options with a 5-10 point sl fr a 5-10 point profit and is successful..

regards

 

[smartcat]

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.

If the trade goes wrong, I'll still lose Rs. 1.34 lacs minus Rs. 26K, right?

Can't the same results be achieved by booking losses on 100 or 150 calls right now? And still keep a small hope of winning big if Nifty shoots up for some reason?

I like the concept of limited loss, unlimited profit - rather than limited loss, limited profit.

Actually, I haven't yet written a call/put yet. I'm not worried about the "unlimited loss" part because I know one can make spreads and limit losses. But I don't like the idea of keeping a margin amount with the brokerage. And once in 2 years, Nifty acts like a mad man - moving 10% in a single day. I'm fearful the broker might sell off my shares (or worse) if I'm not able to pick up his call for some reason. I can't afford to keep huge amounts with my broker, when the money should be earning interest in bonds.

But anyway, my views are not at all rigid and I might start singing a different tune after a few months.