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

[LivetoTrade]

SmCt, you have seen a losing trade previously, like 'many' of us.
I say many, because a 'few' will still refuse to accept that they have lost in trading.

The risk taken in this trade is higher, and so is the notional loss.

You have bought the 'CE' assuming the market would move north.... then why don't you wait for a few more days to see if it does prove your assumption right?

LOL, a Rs 4 option has moved to Rs 60 on the expiry day - yes in a single day.

Neither will this be the only winning trade, nor the losing one.

If you lose in this, you are more careful in your next trades

 

[LivetoTrade]

Here's your Calendar.

TP, does this chart hold good even when the trend of the market is in the same direction of the option?

For example, if the market is moving down, and if you are holding an ITM put, or, if market is moving up, and if you are holding an ITM call ?

 

[smartcat]

Here's your Calendar.


PS : Watched a movie on TV today "Bet Your Life". Here's life imitating art

Haven't you heard? Cats have 9 Lives. So in April, I just press "NEW GAME"!

LOL, a Rs 4 option has moved to Rs 60 on the expiry day - yes in a single day.

Ohh! I did not know that. I had almost made up my mind to kill a trade (stop loss) if option value loses 50% in the future. Maybe that's not the right way to put stop losses in a trade then.

 

[LivetoTrade]

I am not indicating that you be over optimistic, but, here is an example of what happened in Jan 2012.

In just 5 trading days, 5100CE, 7 was at 70 !!!

 

[EagleOne]

Here's your Calendar.

PS : Watched a movie on TV today "Bet Your Life". Here's life imitating art

O Sirji, I think you got it wrong. This image will give SmartTrade a heartattack
The rate of change of time decay wouldn't be as such if you had recalibrated the time scale. Try replacing 100 on extreame left of the X-axis with 30 and then count accordingly the days to the 0 at the end. You wil know what I mean!

 

[timepass]

TP, does this chart hold good even when the trend of the market is in the same direction of the option?

For example, if the market is moving down, and if you are holding an ITM put, or, if market is moving up, and if you are holding an ITM call ?

The chart tells you the decay in the time value of the scrip. At present, all it has is time value (Rs. 154 on Saturday). With Nifty futures at 5399 and Nifty spot at 5359. its intrinsic value is zero. If the market moves up, fine (but the option is still losing time value every day, including the weekends and holidays - holi).

Haven't you heard? Cats have 9 Lives. So in April, I just press "NEW GAME"!

Right

But then the cats are extremely agile and don't continue sitting on their haunches while getting beat up

 

[SavantGarde]

Hi SmCt,

Let me put it point wise ...my thoughts...!!!

1) You did the right thing at the wrong time....!!!
2) Your knowledge of Derivatives market & what happens during Expiry week is NIL....!!!
3) Your 'Damage Control Plan' with respect to April option would be repeating the mistakes you made earlier....!!!
4) Frankly, if you think Trading Options is easier than Trading Futures...You need a serious Re-think...!!!

Step back watch the Nifty movement for a few days... without doing anything....!!!

Personally your Options Trading position is not such a headache at all to get it to Breakeven... in a matter of 5-7 Trading sessions......without any additional outlay.....as long as Nifty moves in a decent range of about approximately 40 points during the day....But then...if I stepped in at this point you wouldn't have the satisfaction of any achievement.....!!!

Therefore, you have a week to watch and if you can make sense of the Nifty movement...trade your existing position without any additional outlay..... keep us updated here about your option activity.....!!!

Also, let us know, if there is anything mentioned above that would be difficult for You...!!!

All The Best for Monday & Tuesday

SG

OK let's see if you all can understand my trading psychology. I started trading options in December 2011. The score since then -

Dec'11 - Rs. 3,763 LOSS
Jan'12 - Rs. 21,182 LOSS
Feb'12 - Rs. 83,294 PROFIT

If I book my losses in March and start from a clean slate, I will only be in Rs. 15,000 LOSS since December. But my thinking is - if there is a slightest possibility of the trade breaking even (or even making profits), why give away everything I've earned so far?

Yes - there is a risk of losing Rs. 1.34 Lacs this month. That messes up my overall score. That's why I'd prefer "slogging" on the puts side - not intraday - but for every 50 point move on the Nifty. My way of thinking is - even I book losses after 2 weeks on the 400 calls and if I manage to scrape out Rs. 30,000 profit on the puts side, I'm better off than just throwing the towel and running away from the "fight".

And if the markets go up in the intended direction, my *FEAR* might even be replaced by *GREED* - and I might hold something like 100 calls even after breakeven . I don't want to give up the opportunity of actually turning March into a profitable month.

If March doesn't turn out very well, I can always start from a clean slate in April.




I would definitely buy call options at the current market rate, if I had not entered this trade already. You can call it "gut feel" or "positive vibes" or whatever - I feel that the Nifty will have a positive month in March.


What Went Wrong In This Particular Trade So Far, According To Me :

1) I was under the impression that In The Money options have a higher chances of success. That's why when the index was at 5600 levels on Feb 22nd (I think), I bought 5400 March calls. If I had bought 5600 March call option, my initial outlay would have been a lot lower.

2) I didn't know that 5400 March call bought in Feb would lose 50% of its value with just 4.5% movement of the Nifty (5600 to 5350).

3) I had made up my mind that I would trade 8 lots of Nifty every month. After looking at these MTM losses, I think I would be comfortable with maximum 4 lots at a time - and that too, when I buy at-the-money options.

 

[smartcat]

1) You did the right thing at the wrong time....!!!

I think I get this part - buying ITM option was not such a big mistake as buying the call at the top (5600 levels). And that I'm in such a loss because Nifty fell from the top.

2) Your knowledge of Derivatives market & what happens during Expiry week is NIL....!!!

Uh oh! I thought I was good at this part atleast. Actually, whenever I make a purchase of a put or call, I make an "Option payoff table" in my XL sheet - to see when is my Nifty breakeven at expiry.

For eg: Since I bought 400 Nifty Call @ Rs. 330 when Nifty Spot was 5600, I'd breakeven if Nifty touches 5735 on expiry. Any movement of Nifty beyond 5735, I would be in profits. My logic for buying 5400 call when Nifty was at 5600 was - just 2.38% movement of Nifty on the positive side in 40 calender days would result in breakeven.

3) Your 'Damage Control Plan' with respect to April option would be repeating the mistakes you made earlier....!!!

Yes, I do realize the negatives of the damage control strategy.

4) Frankly, if you think Trading Options is easier than Trading Futures...You need a serious Re-think...!!!

Not easier to make money as such. I just like the concept of options, rather than Futures.

Personally your Options Trading position is not such a headache at all to get it to Breakeven... in a matter of 5-7 Trading sessions......without any additional outlay.....as long as Nifty moves in a decent range of about approximately 40 points during the day....But then...if I stepped in at this point you wouldn't have the satisfaction of any achievement.....!!!

Also, let us know, if there is anything mentioned above that would be difficult for You...!!!

This part I didn't get.

Over the next 7 sessions, if Nifty moves from, say 5350 to 5400, are you saying the 5400 call value will go up significantly? And that's why achieving breakeven will not be difficult?

 

[SavantGarde]

It has been abundantly made clear in the past on several occasions....that Big Guys are the ones who Short (write) the options...... therefore anybody on the BUY side is at natural disadvantage....moreover our options market is not advanced enough for playing options only without delving into the Underlying or the Futures of the Underlying....!!!

I think I get this part - buying ITM option was not such a big mistake as buying the call at the top (5600 levels). And that I'm in such a loss because Nifty fell from the top.

As a beginner you always buy ATM options ..... of the current month...!!!

Uh oh! I thought I was good at this part atleast. Actually, whenever I make a purchase of a put or call, I make an "Option payoff table" in my XL sheet - to see when is my Nifty breakeven at expiry.

Not surprising....in a secular Trend.....even a beginner thinks he is a financial genius.......!!!

For eg: Since I bought 400 Nifty Call @ Rs. 330 when Nifty Spot was 5600, I'd breakeven if Nifty touches 5735 on expiry. Any movement of Nifty beyond 5735, I would be in profits. My logic for buying 5400 call when Nifty was at 5600 was - just 2.38% movement of Nifty on the positive side in 40 calender days would result in breakeven.

You want to trade in options big time.... here is what one should ideally do....in the first leg..... you look at a Strike price to Write the option and collect the premium.... and use the Premium collected to finance the second leg.....for Protection......!!!

Yes, I do realize the negatives of the damage control strategy.

Not easier to make money as such. I just like the concept of options, rather than Futures.

Personally, I rarely delve into options...unless somebody's ledger is extremely distressed & can be repaired only through Options to start with... am not comfortable trading instruments that inherently increase the odds for me....Have no such Death wish.....for more than normal odds that exist in our markets.... including uneven playing field which is heavily biased in favour of the Money Bags....!!!

Over the next 7 sessions, if Nifty moves from, say 5350 to 5400, are you saying the 5400 call value will go up significantly? And that's why achieving breakeven will not be difficult?

I was talking about the DAILY range of approximately 40 points....!!!

SG

 

[sanjosedesi]

So cat, what did you do today?