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!