Risking big was my mistake. Lost 1.5 lacs in one day!
During the beginning phase, I use to trade with few thousands, take 10 times margin exposure, was able to make few 1000 rupees but after 2nd or 3rd attempt i end up losing all due to bad position size. Later, just like everyone, started learning about technical analysis, fundamental analysis but one important factor that i did not give much importance earlier was "Trading Psychology" which plays a vital role in trading. After few years, all I tried to do was "surviving in markets with my capital", i did not focus on earning higher profits, instead focused on protecting my capital.
This habit helped me in risking only 2% of my capital on every trade, due to which I was able to trade regularly - intraday and as well as positional. After I was doing decently well in equity cash segment, tried my hands on Option trading.
I started learning option trading, there are multiple factors involved in options like volatility, theta, gamma, delta.., all these are Greeks and Latin to me. So did not learn about it, instead i just understood one concept.
If you expect the stock price to go down, Buy put option. If you expect the stock to rise, buy Call option.
So based on my little technical knowledge, i tried dabbling with options. I trade only with few 1000s, few times i made 5 to 10 times, most of the times i loss all.
During the quarterly result season, i noticed many stocks spike up or break down like anything. But we cannot judge the outcome of the quarterly results, so I started "Long Strangle" trades, it means, i buy both put and call option. After the results, the stock has to move up drastically or move down drastically to make profits with my trade. So i bought both the options, so that if the stock tanks then my put option will give enormous profits and if the stock goes up, my call option will give higher profits.
Say Rs.5000 i buy Put option and Rs.5000 i buy call option. Total investment is Rs.10,000. Most of the time, its OTM. If put options works,that is if the stock price goes down drastically after the results. then Rs.5000 on put option can become Rs.25000 to Rs.50000 and Rs.5000 on call option can go to zero(doesn't matter if i can make 10x returns on my total investment). Similarly, if the stock shoots up drastically after the results, then Rs.5000 on call option can become Rs.25000 to Rs.50000 and Rs.5000 on put option can go to zero.
I tried this trick many times(during my initial days, finding this strategy was a eureka moment - i felt like as if i found the holy grail-later realized how dumb i was :) ), and I was able to make decent returns most of the time.
Now the real shaitan started appearing my mind, if i could make good returns with lesser capital, then why not with higher capital. Infosys quarterly results was due next day. So i pulled in my savings money and bought call and put options for 1.5 lacs.
D - day
Next day, market was about to open, and before market opened the results was out, Infosys quarterly results was in fact good and meets analyst expectations, I was sure am going to make enormous profits on my call option, as the results was good, i was expecting the stock price to shoot up. And i started calculating in my mind, what should i do the profits.
As expected Infosys stock price opened with gap up, but the real shock of my life came when i checked my option price. Booom!! Both my call option and put option price tanked, my 1.5 lacs is down to Rs.50,000. For a moment I was like, whatthefuck!! When i was started looking for the reason for the loss, the options price started declining steadily and came down to Rs.20000. That's it. I realized, am screwed. Squared off the position and booked the loss and was wondering rest of the day what has happened.
Lesson learned: Options Trading involves immense knowledge, need to understand how option premium price works, should have good understanding on implied volatility, historical volatility, open interest, and so many other things. Only then its possible to be successful in option trading, until i learn all these i decided to stay away.
After many ups and down,and many years of learning, slowly and steadily I was able to make decent returns. Enrolled myself with NSE technical analysis courses, won couple of Zerodha 60 days challenge.
Completed Technical analysis module
Completed currency Derivatives module
Won Zerodha challenge with my trading strategy.
What I do now?
Finally created my own strategy, coded it and converted into 100% automated algorithm that will trade automatically without any manual intervention. As it was profitable, i started my own startup(www.squareoff.in), which is now specialized on providing these algorithm platform to retail traders who do not have time to do analysis due to their job. The Algorithm makes the trading decision for the investors.
