Ok Optimist,
Here we are at the crossroads. Remember how we talked about stop-loss and assignment of a great % of capital on one trade?
Well today, the NYSE lost 777 points or about 7% or the biggest one day point loss or $1.2 trillion. Today, in most likelihood, your call option might be worthless and you will not be in a position to cut your loss when the NIFTY opens. No sweat (assuming the NIFTY does gap down the way it is likely to), i'm sure you would like to wait for the option to get to near expiry so that it may recover some value.
The reason I post this message before the NIFTY opens is that you, me and a lot of ppl on the street need to be aware that though 'option buying' limits your maximum loss (in reality defined by a stop-loss or by the option premium), it does not replace good money management and risk management practices: the cornerstone of a healthy longterm account.
These practices help you stay in the game for the long run, but rarely offer the get rich quick schemes that are offered so blatantly by 'disregard for risk'.
So, even if the NIFTY saves your day by not not gapping down 400 points, be aware that you were running the risk of :
1. Not coming into profit till the option expires (like in all trades ever made) even though the expiry may be a few months out and even though the Indian market is notorious for bouncing back
2. Losing 75% of your account (Rs 30000 out of approx Rs 40000)
3. Going back into the viscous cycle of quadrupling/wiping out your account.
(4. Losing 99% of your account, in the case of your previous trade.)
Always remember that even though you might have an excellent strategy that beats the market consistently, rare events can fail any strategy. It is the basic premise of any financial instrument/market that history is made again and again and is seldom repeated.
These are rare times. All bad strategies fail during normal times. Most good strategies fail during rare events. Risk management coupled with good strategies survive both.
Please remember that that as a trader it is your duty to assume that whatever capital you use to buy an option can be blown away. Hence the simple risk strategy of not allocating big chunks of account on any one trade.
So all the best. Don't panic. Think rationally, manage risk.
PS: if i owned your call option, and it is not totally worthless tomorrow, i.e., if i could get abt Rs2000-3000 out of the put, i would rather wait till the US Congress votes on a fresh bailout plan on Thursday. If i could get close to even half of the Rs 30000, i would take it and run like a jackrabbit!!
PPS:-
Disclaimer: I have just stated what i might do in a hypothetical situation. I do not wish to give financial advice as i might be incapable of it
Here we are at the crossroads. Remember how we talked about stop-loss and assignment of a great % of capital on one trade?
Well today, the NYSE lost 777 points or about 7% or the biggest one day point loss or $1.2 trillion. Today, in most likelihood, your call option might be worthless and you will not be in a position to cut your loss when the NIFTY opens. No sweat (assuming the NIFTY does gap down the way it is likely to), i'm sure you would like to wait for the option to get to near expiry so that it may recover some value.
The reason I post this message before the NIFTY opens is that you, me and a lot of ppl on the street need to be aware that though 'option buying' limits your maximum loss (in reality defined by a stop-loss or by the option premium), it does not replace good money management and risk management practices: the cornerstone of a healthy longterm account.
These practices help you stay in the game for the long run, but rarely offer the get rich quick schemes that are offered so blatantly by 'disregard for risk'.
So, even if the NIFTY saves your day by not not gapping down 400 points, be aware that you were running the risk of :
1. Not coming into profit till the option expires (like in all trades ever made) even though the expiry may be a few months out and even though the Indian market is notorious for bouncing back
2. Losing 75% of your account (Rs 30000 out of approx Rs 40000)
3. Going back into the viscous cycle of quadrupling/wiping out your account.
(4. Losing 99% of your account, in the case of your previous trade.)
Always remember that even though you might have an excellent strategy that beats the market consistently, rare events can fail any strategy. It is the basic premise of any financial instrument/market that history is made again and again and is seldom repeated.
These are rare times. All bad strategies fail during normal times. Most good strategies fail during rare events. Risk management coupled with good strategies survive both.
Please remember that that as a trader it is your duty to assume that whatever capital you use to buy an option can be blown away. Hence the simple risk strategy of not allocating big chunks of account on any one trade.
So all the best. Don't panic. Think rationally, manage risk.
PS: if i owned your call option, and it is not totally worthless tomorrow, i.e., if i could get abt Rs2000-3000 out of the put, i would rather wait till the US Congress votes on a fresh bailout plan on Thursday. If i could get close to even half of the Rs 30000, i would take it and run like a jackrabbit!!
PPS:-
Disclaimer: I have just stated what i might do in a hypothetical situation. I do not wish to give financial advice as i might be incapable of it
