The best spreads trader on Twitter: @Ronak_Unadkat
He trades in Nifty & Bank Nifty via spreads majorly.
In the Jainam Broking Speech, he shared how he trades debit and credit spreads:
Here's a breakdown of his 10 step method: 🧵
Collaborated with @niki_poojary
1. Why trade via spreads?
Overnight risk will be always capped
Limited Risk will keep you cool
Hedge our position
Strictly not to do for margin, as that will lead to overleveraging.
Traders Sell option for 100 and buy 10 rs option.
That is for margin reduction, not a spread.
If the market opens at the lower circuit or upper circuit, then our loss should be limited.
Eg - Expiry Trading on the 24th Feb Expiry
The market gapped down & traders lost huge sums of money.
Some lost 15% or 20% of their capital in a 4% index move.
If in 4% people are losing so huge then imagine if Modi says black money is back, we will open at an upper circuit.
If India-Pakistan tension news comes again we will open at a lower circuit.
In a 4% index move, people lost 10%, so in the case of a circuit, they will lose 50%.
To recover a 50% loss on capital, you need to make 100% returns with the leftover capital to break even.
In these cases, spreads cover your risk.
Even he lost 3-4% of capital on 24th but it is easy to recover in 1-2 months.