This is my first post on the blog.I am writing this blog to share my experiences and some trading strategies for the Indian market. I have been a trader for about 5 years now. So first question anybody asks me is how much money did i make in the market? Well i think its better left unanswered. My prespective is that of a speculator and not that of a risk manager. Profs in B-schools try to drive in the point that options are for hedging and not speculating. But some home i believe most trade happens for speculation and not for hedging( I dont have statistics to prove that..:)).
So title of the blog is Nifty Options. Trust me i have never made money in Nifty Options by just buying them. After i analysed my trades i realised the following:
Nifty Options have more liquidity which means there are many individual traders in the market. When there are large number of traders, it is obvious that the market will become more efficient(You like it or not Efficient Market Hypothesis has some relevance). Hence when the market become more efficient it become very difficult to predict it direction. Also in an efficient market, the options are rightly priced, hence the chances of buying an option cheap almost does not exist. So the basic premise of the speculator to buy cheap does not happen in the first place.So the trade will be profitable only when you get the direction of underlying right. Which means you are speculating on the direction of Index which is nothing but random.Also most of the time options expire worthless because Nifty did not move in the direction you wanted or Nifty was just stuck in a narrow band.
Finally, if you are trading only Nifty options then you are not diversified enough. Yes i know what you are thinking. Nifty is an Index how can it not be diversified? The point is diversification helps only in the long run. But options are short term in nature depending on the expiry date. So if you are buying a call or put option, it only means that you are exosed to fluctuation in a single underlying.(In this case nifty).
Hence trading in only Nifty Stock Options is not a sustainable way of making money. Its just a random guess. So how does it mean no one makes money in Nifty Options? Not really. The broker and the market maker always make money..:). And traders who know to use option strategies also make money. You can learn about option strategies on the web. But i suggest one attends a formal session on Options before using option strategies.
Thats it for now.Keep trading!
