How I lost money in bull market?
I started trading seven years ago, Like every individual, I was in search of a second income. I wanted to provide some work to my home maker wife and keep her busy. All this could sound familiar to most of you.
I tried several methods using my analytical mindset! I was introduced to option trading about three years ago in one of the web-based seminar arranged by my broker. I was impressed, I got fascinated with option trading strategies. I read lot of books and material on internet, tested various option theories, strategies , started earning money month after month for about one and half year. I had conviction by then that I am one of the best option trader on the planet!
Things were fine till February 2014! My conviction by then was at pinnacle.
My method was very simple.
Sometimes I used to do, bull spreads and bear spreads. But main fun was in selling CALLs.
I used to sell OTM (Out of money or mainly deep out of money) CALLs! OTM CALLs in NIFTY and stocks.
It worked well for so long, giving me consistent income; though small, it was regular and was always at least 4 to 5 times of the bank FD interest and that too at very low risk.
It was not very straightforward path though. There were times where I had to book loss during the month, but then I used to sell OTM CALLs for next month to keep credit balance in my trading account. One could brand it as a kind of rollover strategy. In next month NIFTY would correct, my OTM CALL sell contracts would close worthless and I could able to keep premium to offset the earlier loss and eventually end up in to profit in my trading account.
To give you an example;
On November 27, 2013, NIFTY was trading around 6000. It was in up-trend. NIFTY already had bounced by about 200 points from the support level. Ukraine and other geopolitical concerns were around. Modi factor was known by then and in my view it was discounted in NIFTY price then. Also NIFTY was at higher end of the range that time. So I sold 6400 CALLs of December 2013 expiry and accumulated premium around Rs. 30. This prima facie looks very safe trade.
However, NIFTY did not stop up move and went up to 6200 on December 02, 2013, I averaged. Now my cost was 40. NIFTY went further up and my last average cost was round 50.
On December 09, 2013, NIFTY made high 6415 and 6400 CALL price was above 150. I was in tremendous loss, around Rs. 100/- per lot.
However, I am an intelligent trader (!!), I had a brilliant idea! As explained earlier, I sold 6500 CALLs of January 2014 expiration. If my recollection is right 6500 CALL of January 2014 expiration was trading at around 150-160 on December 09, 2013.
I squared off December 2013 contracts in loss, and added January 2014 expiration 6500 CALL sell contracts.
In January 2014, NIFTY returned to 6000 level and ultimately I end up making substantial profit in my trading account in January 2014.
This was not the first time, I had done this but I used to do this on small scale and in some stock options periodically.
This again added to my conviction about how great option trader I am!
I survived. My success was my biggest enemy!
What happened next?
I continued my CALL sell strategy in February 2014 and was in the money from the day I entered in to contracts. I was happy and proud. Strategy works!
I used to tell colleagues, act like Casino, he (Casino owner) knows at end of the he will be in profit, just because casino owner loses money with one gambler, he does not change his algorithm. And so did I. Just because I was out of money in early December 2013, I did not change my strategy!! I was proud and confident. I was telling many people about my blog. Viewership of my blog also improved dramatically by end of February.
What happened next?
That is interesting for every trader to know.
It will be part 2 of this post. So stay tuned.
GMRINFRA
