the game we shouldn't play, at least that way...

nobody will buy options if there were no leverage and only premium....who would need it then?

these were cleverly created to make profit form those who were otherwise not getting trapped and were otherwise difficult to beat. this way, through options they would potentially stand to lose via premium erosion even if they were not in the wrong trade direction.

and guess who gets naturally lured into buying options? those who have less money and/or want to get "rich" fast. options trading is a legal drug.

....small traders...millions of them...in herds....pan continents

the operators tried giving tickets of futures also, at small margins as an alternative to options (in fact, if i am not wrong, futures came earlier than options), but they have now started folding up the scale of the spread of the futures products as it lured lesser people than the genius options, scared more besides being constantly under the government and watchdog eyes for being politically and economically too risky for the returns

the game is overwhelmingly tilted towards option writers. and, mind you, not everyone can or should write options. just because you have the money to sell one or more option lots doesn't mean it is for you. if it is not for you, going the writing way is like being 100 times bigger fool and prey than an option buyer.

only "they" can and should write....

when f&o were not there, only way to beat the masses (though the numbers of traders then were far lower than those today) was in pure price volatility, on real and imaginary pretexts. as economic prosperity became more and more luring and desirable but less achievable, masses got started getting attracted towards stock markets. the invention of f&o made this possible. infact, these were created in first place to tap that potential casino market.

the best way to avoid this fatal slow poison trap is not only not to write options but also not to buy these. even if you are right in getting the direction right, you will eventually lose. i bet and i can prove it. because premium erosion is not the only trap. there are more traps lined behind it. including illogical surprise moves or lack of any.

not just f&o, every kind of leverage is poison including intraday margin. all are traps masked with mouthwatering "opportunity" promise to make a fortune with so less...

if you still want to do options you stand no chance if you don't have a very solid trading system which can fairly accurately predict portion or pattern of price movement with amazing dependable repeatability. many may think that they have got such a system but more often they are tragically betrayed by it.

besides such a "really loyal" system, you need immense patience to accept the unending delay in your becoming a millionaire (or billionaire) from the debt ridden tie-wearing failed masked mortal with injured ego you are (oops...sorry)

not that people are not getting their market calls right. in fact, many are....more and more traders in the world are beginning to crack  a part of the puzzle (though the overall %age is till miniscule). but despite getting it right they book profit too soon for fear of losing because of guaranteed unexpected surprise moves, or booking loss too late. this may sound like a cliche' but this is true with everyone. it is bot stupid and therein lies the tragedy of success of this trap.

this is the single biggest factor of masses being on continuous losing side despite their knowledge and skill.

so what's the message here?

1. i am not asking you to stop trading. half of the world is into trading...incl. potatoes, mobiles, souls, bodies and what not. trading is essential and good. but stop trading leverage. trade with what you have. earn, beg, borrow, steal the principal from somewhere (pardon the slang) but don't trade leverage. atleast, for heaven's sake, reduce it.

2. avoid the cake laced with the cream or honey poison of "premium". premium is the sign to look for. minor premium is ok. but anything more than a "small" premium is shady.

3. trade only clear cut opportunities. otherwise stay out, till you identify one. spend a lots of time in the jungle to identify the real non-fake opportunities. real opportunities don't look like one, except to a very trained seasoned eye. go the long route.

(decide what is "small" for you)

4. once you know that you have taken the right trade, hold onto the trade and don't get bluffed or ejected even if you were to lose big. that's why i say everything depends on the accuracy of your trading method and that's why i say trade only that big which is perfectly ok for you to lose all.

5. ignore the short term volatility, try to figure out (though system) what they are trying to achieve in the medium to long term. where are they taking the market. i know 99% still won't get it. if 99% get it, the operators will change the game to make sure only 1% get the ne version. but atleast, here's your and our chance to try to be in that 1%.

in the end i would say two lines....trade like you were a potato trader....play the trading game, don't trade the trade.

how much to safeguard?

dear ganeshji,

i am of the opinion that all ur money should be protected, not half.

2 nifty put options to hedge 2 bank nifty is what i recommend.

of course, this way you may not make money for small movement of BN,

but why play for small movement?

BN gives a move of 1000 points 8 out of 12 months.

and these moves can be gauged using indicators

(not option data of operators - one reason why technicals are indispensable).

out of 1000 move

assuming u manage to gain 800,

150 odd points will be the cost of hedging.

even that can be recovered if you can walk step by step in tandem with on-the-way fluctuations/volatility.

e.g. i booked BN profit at 9652 on 27th and bought again at 9496 yday.

this has resulted in my hedged nifty puts becoming "free of cost" till the end of october series.

i can take whatever "panga" with my godfather "mr.hedge" behind my back.

if u don't hedge all ur "wealth on the trading table" fear will get the better of you.

"never trade with scared money"

and

"never trade out of fear, never fear to trade."

Prepaid Trading - III

Here is a clever trading tactic used by one of my friends who is an Army Major just retired from short-service commission.

He calls this Reconnaissance Ambush Trading!

This he does with a team of Options and Futures.

Whenever his TA (Technical Analyses) suggests that the market is going to make a big move

he gets ready but doesn't deploy his "futures" straightaway!

Instead, he "sends in a reconnaisance team of commandos" to "test the waters"!

He buys an "out-of-money" call or put option (as the case may be)

and waits....

This option is like a reconnaissance mission which is used to determine the enemy forces disposition, intention, composition and capabilities without exposing the troops to danger.

He uses option as "cover" for his main "cash" troops!

If the option goes in his favour, that's what his TA predicted and that's what he wanted!

He is in a profitable position and all he needs to decide now is whether he should reinforce his winning position to make it big or just let the option run alone as far as possible.

If the option goes against his TA

he doesn't mind it!

This is precisely the reason he sent in his "options" before his massive "cash" troops!

There is a strong chance that market is bluffing and will give him more juicy position to deploy his big backup cash reserve!

Since he has an "out-of-money" option position, the loss is much lesser and limited as compared to the adverse movement in the market.

e.g. a 100 point fall results in a 25 point option bleeding. But a full recovery with futures or bigger option will result in net 75 point profit!

So, he patiently waits till the tide turns

and then he goes all out on the offensive either with bigger "in-the-money" option or with futures!

In his words

"When I get the signal, I send in the option squad. On the basis of information I get from this core team, I decide whether and when to send my entire company in the battlefield! Many a times, these Option commandos are enough for the assignment!"

Prepaid Trading - I

They say "Option trading is for the experienced traders only."

They say "Never trade naked options!"

The above statements are true lies!

True, because Options are more difficult to understand as compared to futures or Cash trading.

Lie, because these are more useful to inexperienced traders than experienced ones!

True, because naked options used recklessly are the fastest road to bankruptcy.

Lie, because hedged options are slow poison, and naked options, if used with caution, can be the shortest road to prosperity!

By not opting for the option of options

a new trader may miss out on the best feature of the option....

..........unlimited profit, limited loss!

Options became untouchables

when people who didn't read the "operational manual" of Options

started playing with it recklessly

and lost heavily!

They started saying

"my loss was limited...........to 100% of my premium!"

Onlookers believed all this over and above their perception that options were difficult to understand.

Thus, one of the most powerful and safe tools of trading became

"Only For Us"

for the select few!

Options are truely "unlimited profit, limited loss" provided you have read their "operational manual" (the do's and don'ts).

Those who have read it, know that trading with options is

....pre-paid trading, just like a pre-paid mobile!

Benefit of pre-paid mobile over post-paid is that in pre-paid you can control and limit your cost.

Similarly, option trading is a pre-paid trading wherein you can control and limit your loss

------------

Your technical indicators tell you that something is likely to happen in a particular direction.

You want to take the chance

but fear that your analyses may be wrong and you may lose money

or

you may be reasonably sure but fear of losing may simply make you a stone

like Arjun in Mahabharta!

Consequently, you opt out of the trade

only to see the trade eventually go your way....

....sans you!

On the other hand, if you knew options trading

you can buy a cheap "out-of-money" option and enter the trade!

If the trade goes the way suggested by your technical analyses

then you will double, tripple, quadruple your amount the fastest!

Otherwise, you lose a part of your small investment.

How much you lose depends upon how wrong your analyses went!

The loss because of analyses gone wrong, anyway, will be much lesser than when you would have invested in futures!

A naked option is the best way to learn with least money!

And it is also the fastest way to make a fortune!

You think you can't make a fortune by cheap "out-of-money" options?

I shall be sharing a few simple methods in the sequel to this article!

Keep watching this space!!!

A crash course in Day Trading!

A young farmer went to city to learn futures trading in wheat.

But there, he saw everyone day trading.

"Who knows what will happen overnight? Day trading is better." he heard.

"One bird in hand (intraday profits) is worth two, even 10 in the bush (swing trading or investing)" someone said.

"Only day trading can ensure sound sleep at the night irrespective of what is happening in Europe or US in the meantime!" he overheard.

"If all of them are doing day trading it must be the better thing!" he thought.

So he decided to learn day trading instead of futures swing trading his father had asked him to.

"I will surprise my father when I go back. He will be pleased." he thought!

For the next 5 days he learnt the "smart tactics" from the pit traders in the fish market terminal room.

On Saturday he went home with his neck held high!

"My entire village should be proud of me" he was sure!

When he reached home he found that his father had gone to his relatives in adjacent village for 2 days!

"I have 2 days to show results!" he thought.

Next morning he went to his fields.

Small wheat shoots had come out of the seeds planted a few weeks back.

The sun was shining and the sky was clear!

A good crop was on the cards.

He then went to his friend's house and had a nice time for the rest of the day.

Next morning when he woke up, he saw the sky overcast....

Dark thick clouds everywhere.

He checked weather forecast on TV.

"Severe Thunderstorms!!!" they announced.

He went to his fields.

It started to drizzle.

Clouds roared in the sky above.

Lightening flashed.

It was all too scary!

"Bearish signal!" his trained trader mind whispered!

"This is going to destroy the crop"

"I must prematurely book whatsoever crop profit I am getting. Greed of any more profit may leave our family with nothing."

He went to the garage, took out his combine harvester and razed the half baked crop in just half an hour.

He was happy at his trading skills!

"Now I am assured of good night's sleep despite whatever happens in US or Europe overnight!" he proudly said to himself.

"...a bird in hand is worth 10 in the bush!" he was reminded!

He went home and found that his dad had returned home as well.

He proudly narrated his "achievement"!

"I am proud of you my son!" his dad said.

"With your day trading skills, you have surely harvested enough food for our cattle for the rest of the season! Now take me to the city tomorrow morning to learn day trading. For I have no other way left to feed my family after your achievement!"

The son was shocked!!!

He remained silent for what seemed like ages!

He realised his foolhardiness!

He went out and saw the clouds receding!

The lightening had stopped flashing.

The drizzling had stopped.

"My son! Never worry about Clouds whether in market or fields. Never worry about lightening. There will be many every other day! Never worry about thuderstorms. Never worry about what they predict in the forecast on TV. If you have faith in the crop, wait patiently! The sky is not falling and neither is the world going to end tonight whether here in India or Europe or US! This is what I learn from my father - your grandfather, and this is what he had learnt from his father!"

Apples of Himachal !

Himachal is famous for Apples!

Wherever you are, whenever you eat an apple, there is a good chance that it has come from the high altitude orchards of Himachal (whether from Shimla, Kinnaur or Kullu distt.).

Each box of apple contains 90 to 175 crisp, juicy and nutricious apples (depending upon the size of apples)!

Last year Himachal produced 1.5 Crore boxes of apples.

And it was considered a bad yield!

You must be thinking that the orchardist must have regretted the poor output!

On the contrary, they laughed all the way to the bank. Tax free!

Since the supply was drastically reduced from the previous year, a box of apple which normally fetches Rs.800-1000 fetched upto Rs.2500!

Supply and demand at work!

This year the crop is bumper!

Estimated 4.5 crore boxes!!!

Should the orchardists be partying?!!!

Think again.

The bumper crop has resulted in the fall in the prices!

The price has dropped to 800 per box!

You think the quality of the apple in the 800/- box was poor!

You are grossly mistaken.

As per my first hand information from a young orchardist Ravi, it was painful for him and his family to get 800 per box for 'A' grade mouthwatering export-quality apples whereas last year even 'B' grade apples fetched 1700 per box!

Fundamental quality of apple crushed by the supply and demand market forces!

Hail fundamentals!!!

Advantages and Disadvantages of Futures & Day Trading

1) Leverage = you can trade upto 3-10 times the money you have in your pocket thus increasing the chance of earning by 3-10 times. (On the flip side, the chances of losing are also increased by that much. So, if you are "expert" you may make money very fast, otherwise you are destined to get badly mauled. Also, Even "experts" can be unlucky)

2) Low Cost = DayTrading and F&O have 10 times lower costs than delivery based trading. (On the flip side, the income tax on delivery based trading is 0-10% v/s 30% (depending upon your income slab)

3) Peace of mind = For the duration you are holding a position in DayTrading or Futures your stress levels are high. You tend to be nervous and insecure. you are unable to focus on life and its various facets (unless u r a PRO and you are fulltime into trading - which most of us are not). You tend to get sticked to TV (CNBC,BloombergUTV,ZeeBusiness,ETnow etc.) all the time, even after Indian market timings to see what is happening in the world markets.Quality of life is severely compromised. You start becoming short tempered and easily irritable. The time you give to your family gets compromised in quantity and quality. On the other hand, while you are invested, you are least bothered by day-to-day, week-to-week gyrations. You have a sound sleep

4) Risk = Risk in Futures (& Day Trading) are huge - often unlimited. If any big unfavourable news comes which suddenly shakes the market in the direction opposite to your position, you can be in serious trouble. Typical situations are when the stock or market catches the CIRCUIT. I remember, a lot of people who had aggressively shorted nifty futures went broke the day Congress returned to power in May09. Also, I remember a lot of people who were short on Tech Mahindra went broke the day it caught upper circuit. On the contrary, even those who had INVESTED in Satyam which plunged from 226 to 6 (yes 6) and held on, recovered to 126 last month. Very soon they will get back to 226 and even more. no investor os Satyam (who waited) went bankrupt

5) Returns = If you pick a stock (delivery based) at the right time when it is about to shoot / breakout , which many are doing successfully in Mudraa, then you can make more than what amateur Day Traders or Futures players make. On an average I have seen that amateur Day Traders and F&O players win 12 out of 20 trading days a month while 2 times out of remaining 8 non-profit days they lose big. They move 5 steps ahead and 3-4 steps back, at times even more. On the contrary, if you position trade or invest in a good stock at the right time and wait for 1-2-3-4 weeks, you are likely to make huge returns. In DAy Trading we often miss out on the big overnight moves which otherwise are lopped up in positional swing trading and investing

I seem to be in exces favour of Investing and Positional trading and against Futures and Day Trading and I must admit that. Only Professionally trained or exceptionally gifted fulltime talents should do speculation. Remember, if you know driving a car is a blessing, otherwise it is deadly for you and others.