Hey guys.
As the situation is these days, you get certain ideas in your head.
What if the coronavirus infection spreads over a week to many individuals and the government decides to close everything including the markets for an indefinite period.
eg. My futures are for the April expiry Long @ 20000. Markets trade for the first week and the virus situation keeps on getting worse. The futures will also fall and settle at 17500 on Friday.
Over the weekend, there is an announcement from the government, to shut down everything including the markets and they don’t open for trading for the next two months.
What happens now?
How will my contracts get settled?
I am making huge MTM losses, do I have to book that loss?
Now, after closing all the contracts, the market opens up after two months in June, when the virus situation is somewhat stable and market gaps up @ 23000.
On one hand, i had to book huge losses in April, plus when I want to re-enter in June contracts, I will have to buy way higher than my previous entry price.
What about Option contracts? Premiums will vanish overnight and buyers entering near the close will face losses.
If this is the way it will work for F&O, it is really risky for Futures traders to enter into new positions right now, as we don’t know how the situation will turn out in the coming months.
Safer bet would be to buy equity as you have a chance to exit when markets reopen and become stable.
Has there has been a period in the markets when a lockdown was initiated?
@siva @nithin
Please share with us, what your knowledge is regarding the topic.
Thanks.
This is unprecedented, there has been nothing like this ever. Exchanges, like banks, are an extremely important part of an economy. I don’t think they will be shut down. But if you have seen yesterday’s circular, all F&O positions could potentially be pushed to reduce and margins increased. I guess it is the prudent think for SEBI to do when there is so much uncertainty. This will anyways be temporary.
Btw, when running a drawdown (losing money when trading), the best thing to do is reduce the trading size to as small as possible, maybe even take a small break from trading. Trying to make it all back quickly would mean you taking unnecessary risk which reduces the chances of making back up. I know easier said than done, but it is the right thing to do.
Yes, I know that shutting down the markets would be the last thing that the government would do.
Yes, I know that it is my choice to open a position right now in extremely risky conditions and thus I would have to be ready to bare the losses.
But, what if the above mentioned shut down were to happen?
@nithin sir, according to the current rules and your understanding, will it unfold as I have mentioned above? Or what will happen to open positions in F&O, in your opinion, in a hypothetical shutdown of the markets for a month.
This has never happened before so the answer is unknown to anyone, just hope for the best.