My calculations show investing in MF is better than options trading?

F&O
1

Hey everyone :wave:

I’ve been an MF investor since 2021/22.
My best performing fund has been Quant ELSS Tax Saver with 5 year CAGR of 37% and Axis Small Cap with 31%.

I’ve been on a learning spree recently using Varsity and some books on option selling/trading thinking I must be able to do better than MFs. People I respect on social media (Youtube) tell their new viewers they expect to beat the benchmark by at least 3-5 percentage, I guess that’s their justification for spending all that time/effort on trading.

Anyway, for hedged option strategies using Iron Condor method and NIFTY underlying (due to its lower volatility compared to Bank Nifty and others) I was indeed able to beat the Nifty 50 benchmark when backtesting from 2018 to 2023 by more than a few percentages. Nifty 50 averaged 13% CAGR during this period while my strategy yielded 26%. This is a naive calculation as I did not account for expenses and taxes associated with trading. I’m guessing after all that, I would be lucky to beat the benchmark by 5%.

While it’s not an apples to apples comparison, for example the Quant fund I mentioned operates using Nifty 500 benchmark and has other tricks like bonds, debentures, etc. to reduce risk and generate grater profit in the long run, I mean their resources are not limited to my own limited abilities, capital, strategy, etc. they do seem to be creating more profit. After all this is what I assume everyone is here to do, so why bother with options trading at all? I understand it’s used as a hedging tool by institutions, but as a regular trader hoping to generate a regular income from trading as a full/part time job this doesn’t add up at all.

What am I missing? :thinking:

1 Like
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Nothing.
Let’s put it this way. If you take all investors profits divided by total investments you will get a higher value than total profits of option traders divided by their total capital.
However you will get some extremes too. Some of the traders may outperform the best investor too.
99 percent of investors make money on a long run and 99 percent of traders lose money.
So then why do people trade in options? Everybody wants to be in that 1 percent.
Investing is boring but options is thrilling.

5 Likes
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It’s a cyclic process, If you consider 5 years ago, you would not have gotten major profit in MF and due to leverage options trading given more ROI. Now the cycle may get changed, but whatever happens, it is not constant. Changes will never change. So do diversifications.

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Curious, what changed in the last 5 years that MFs started generating as much or more profits as leveraged instruments like options? :thinking:

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For most it is.
And majority of traders (atleast ones with 10+ lac capital) are also conservative MF investors.

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i think.investing in mutual fund and trading are not apple vs apple story, because u can invest in mutual fund, use it as collateral and trade , so it can be (apple)2 , as even if u earn less in trading it is an additional income, from ur investment.

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Now you understand my cycle in a short 6 months time span, right??

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Thanks, I have come to understand the non cyclic nature of options :face_holding_back_tears:

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If you are disciplined, you can beat 5 years of your MF returns in only one year in Options after learning.
But remeber, you need to be extremely disciplined.
In order to be in that 1%, you have to do something that 99% of the people don’t do.

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I’m only getting 28% CAGR without compounding in backtests (after taxes and charges). :dizzy:

With compounding, it goes up to 100% but I don’t see how that’s possible if the IT peeps take a 40% cut each year, so MF it’s for long term wealth building :face_exhaling: