Updated: Mar 23, 2021
In today’s blog I’m making for all my members who are investors and want to be a part of stock market and today we will discuss about the future and options. Before that let’s understand that how we will learn this thing.
Friends I have one request from your side, please comment your suggestions that whether you want to learn about the derivative market from basic or advance learning.
In today’s blog I will also give you some tips from here and there and today I’m not taking any technical part. Although it’s a more technical oriented course for investors. So, let’s proceed and understand about this course and further, every week a new blog will be posted here in which we will discuss about the subjects and topics in relation to stock market so that everything will be perfectly synchronized.
So, in this blog you will learn about future and options which will include different strategy, how to achieve expert level, what is the psychology you have to develop, right time to buy or sell stock, mutual funds etc. Let me clear one thing that these blogs are going to be beneficial for investors and not traders i.e. those investors who wants to be in long term.
These blogs will help you to become independent in making decision regarding your investments. I’ll not discuss about those theory part which are not usable or which you may easily find in most of the books. For example: Explaining the formulas. Now most of the cases, software explains the formula, software calculates the formula. What you need to know is how to use those formulas to make decisions and not how to calculate the formulas. So that is the biggest blunder in most of the trainers who teach stock market. They teach more about theory and trust me friends there is huge difference in theory and practical.
In all cases, I generally divide my topics in 3 levels:
Basic: Here we will discuss about the basic stuff about future and options which you need to know before you go to advance level.
Advance: Once you learn the advance part you will be able to take a trade, Place the orders.
Expert: At last, after learning Expert part, you will be able to use most of the applications, indicators, advance edge, IT Systems which use generally we use as a setup. So, it will be more on psychology because building psychology is very important.
You can know everything but you have to know that how to put an investor psychology, how to take profits and how to take losses.
I can say that I have not made a lot of money but also at the same time I have not lost a lot of money and that is a biggest achievement in the stock market.
You can also find the explanations of these topics on you tube at channel name of “Mark2Market”
Everything here you will also find there on you-tube but on you-tube I cannot be very explanatory and cannot take lots of example because if the videos size becomes big then lots of people does not like big videos. There are different people and every person has different level of understanding. Somebody may understand with 1 example and somebody may require more examples and basically me as a trainer have to take care of everything and everybody. I want to be ensured that everybody should be on the same page so that I will try to cover everything.
So, I have already explained you about the basic and now let us understand that what you will learn in Expert level:
Developing/ Setting up the system: Here you will come to know about how to do the calculations
Making market view: How to view the market, how you have to ensure your risk management or strategies
Finding purpose of trading, traders, log book: Here you will know the purpose, why you need to do the trading, what is your targets to achieve because when you come with the target or need, you will definitely succeed and if you come with greed, you will get fail. As Greed does have its limits so always come with need and not with greed. Most of the people come to stock market with greed.
Discipline and time table, Risk Management: Here you will understand the time table, risk management.
Money Management, Position Sizing: How much position you should take.
Understanding Trading Psychology: This is the most important concern because 90% of the people succeed with their psychology. If your psychology is clear then it means you are a good investor and trader as well.
Trader Bias: What is the problem with trader. Why trader could not make money for a long term. If you talk about any big person, who has a name in the stock market like Rakesh jhunjhunwala, Burren buffet , they all are the investors.
Why trader names are not comes as an achiever because it is possible that they win for 90 days but they get loss for 10 days and when they losses for 10 days their net result is more of losses then the whole winnings. This already happened with most of the robust traders.
Understanding Advance Strategies with examples: There are so many advance strategies that you will understand in this course.
Technical Analysis for option trading
Since, its our 1st blog on this topic, hence lets start with the basic i.e. to understand that under options, whether you should go with options buying or options selling.
I will make a detailed blog on that topic. Today I’m going to discuss some normal part and I hope you will enjoy that.
So, 1st thing you have to understand what are future and options
Future and Options are hedging tools. Like in every trading, there are 2 parties involved out of which on part gain and other party losses.
Now, to understand this topic very easily, let’s consider, the seller of the option is an insurance provider and buyer of the option is an insurance seeker or insurance buyer. If you have a huge money then generally you will become the insurer and if you have less money then you will become the insurance buyer but as insurance buyer, you should have something to get insured. Simply, if you are taking the health insurance that means you have the health to get insured. If any person is already seriously ill then he cannot have the health insurance because no company will give the health insurance to him because he does not have the health.
So, to insure something like you are insuring car, so you should have the car first. But it is seen that if the person buying future and options and if they have nothing to insure then it means they are only speculating.
I’m not saying that options are wrong but as a standard 80% of the time, the option seller makes money but small money as option premium and 20% option buyer makes money but big money. So, you have to understand this part very well.
Now if we talk about capital the yes, option buying requires less capital, you will have to just buying premium but as option selling requires more capital because you have to bring margins but carefully understand that margins are not money.
So what are margins, basically you can have your investments which you can invest however sometimes your broker allows you to invest more than of your investment. It can be 2 times of investment or 5 times or any number of times and it totally depends on your broker.
Now there is a biggest concern, that if the broker is giving the margins then it means he will charge some interest @18% which is wrong notion. Basically if the broker has given you, say Rs.1 Lakh of margin, and if you have not used more than Rs.1 Lakhs then he will not charge you.
Sometimes people invest exceeding the margin amount and have not covered up when the market closes then only interest charged. Although so many things are there which you will come to know as we proceed further in this course. At the same time, you have to understand that if the broker charged @ 0.5% per transaction or @ 18% per annum on the margin then there is no point of getting the margin because me as an investor look return only @ 12% or 15% from option strategies.
So if an investor goes for 2% return per month with risk and my broker takes away 1.5% without risk then there is no purpose for option market and option market will get collapse. So, its not possible.
Most of the HNI (High Net worth individual) do the option selling because option selling gives you the double returns i.e. 1st return on your base and 2nd return on your portfolio and with that you will also get some margin and you may earn on that also.
Simply if you exceeds the margin only then interest will be charged. So, I think this question is clear to everyone.
There are different personalities to become the option buyer and option seller. If you are kind of relaxed person who does want to do lot of actions, lot of activities, i.e. you have their own job or other career or education then I’ll suggest that option selling is much better because in option selling, if played properly then there are no much actions are required and 80% time you make money but you have to find out either to avoid 20% times of losses or 20% times you don’t make big losses because this the only problem with option selling that you make small profits. If you could not be able to manage your risk properly then there are chance that you may incur big losses. So that’s all depend on the personality.
So its like you have opened a casino where people are coming and invest their money from which you make small money but a consistent money.
Options buying is more like robbing a bank so you have to went the bank at the right time, collect the money and get out from there. You cannot sit there. Basically, these are more for traders or the people who does not have most of the money but they have lots of time.
Now under option buying, only 20% of the time you will get the profit, so you have to keep seeking that 20% of the time. You have to do the daily research to find out when this 20% opportunity will come. So, you have to work for 100% time i.e. you have to work for whole time but you will get the opportunity for less time when the market is open. I hope you got my point.
So, if you have that much patience that you can work everyday and then 1 day you sees that opportunity, you can be very good option buyer where you can make money but for that you have to enter at the right time and the get out.
The problem with option buying is, it requires very big level of expertise. Even for most experience persons in the world in future and options cannot be right every time. The luck is always required.
So, that’s why most of the time, I do not suggest option buying. However, people comes to the greed that in option buying, we just have to invest Rs.5000 and may earn even Rs.1 Lakhs. In this case, you also have to consider that how many times this kind of opportunity comes to you and if you miss out then whole Rs 5000 will be lost.
So if you come in market with Rs. 1 Lakhs, 20 times you play, out of which your chances of winning is only 20% and if you win that‘s good because market cycle can be anywhere. You may start first losing and then you gain. Suppose 1st 80% comes first and your 80% lost and think whether you have the courage to continue buying options. Trust me, 99% people will say no and that’s the problem with buying.
Although, I know some situations where people go for buying options and make money and that I also do sometime because market gives us the hint about it as recently we have seen that market has just corrected and came big back.
There are some situation in which you can easily predict the market like recent budget or any IPO. So there are tricks, there are strategies which you can use for options buying and making money also but that requires a great level of time and great level of expertise.
So if you are an investor and do not have enough time then never think about the option buying. If you can sit on screen of the market then you may choose option buying.
Nothing is wrong and nothing is right, the only thing, if you can give lot of time, you can learn lot of things, option buying can work for you but again it is more for traders. Option selling is more for investors who want additional return on their capital.
So most of the time, I’ll discuss about the