BC TRADING
Saved by @vsamk

An option buyer made Rs. 58 lacs from Rs. 2 lac capital in a span of just one month (March 2020 COVID crash).

He is none other than Mr. Subasish Pani.

THREAD: 11 things you must know to become an option buyer.

Collaborated with @AdityaTodmal

 •Don't get carried away with the kind of return that Mr. Pani made in such a short period of time.

•This requires a high level of skill, and discipline in terms of which strike to choose, which time to trade, and which days to trade.

•It also comes with higher drawdown.
1/ Screen Time:

• Indian markets function from 9:15-15:30.

• Dividing this time zone into 3 sub parts:
- 9:15 to 10:30: trending market
- 10:30 to 13:30: for retracement
- 13:30 to 3:30: trending market

https://t.co/cO7FtokXTQ
2/ Focus on momentum:

• Option buyers make money when the momentum is quick.

• However if the market remain sideways for few days then the option starts to lose its value.

• This is because theta decay works against option buyers.
3/ Option buyers need momentum to make money:

• Hence focus on the 1st & 2nd time zone where the markets are trending.

• Avoid taking trades between 10:30am till 13:30.

• Special focus on Wednesday & Thursday as premiums are low and if you can catch momentum then good R/R.
4/ Theta decay is a friend of option seller:

• Let's say the market view is -ve and market stays sideways or goes down, option sellers will still make money due to theta decay.

• Hence, the probability of winning for option sellers is 66.6% whereas for buyers its 33.3%.
5/What's the favorable risk to reward (R/R):

• Since the winning probability of an option buyer is 33.3%, the edge is maintained by keeping losses at a fraction of gains.

Hence, R/R has to be 1:4.
6/ Why deep OTMs doesn't work?

• Most of the option buyers select deep OTMs , but they have a higher probability of losing value as time passes away.

• Hence, deep OTMs are usually favorite of option sellers.

•Option buyers should select strikes near to Rs. 100.
7/ Should option buyers focus on ATM?

• ATM strikes, having prems near to 200-300 is highly volatile. Hence the SL for ATM would be minimum Rs. 40-50.

• R/R is 1:4, then the reward should be atleast Rs. 160-200 which looks slightly challenging.

• So stay away from ATMs.
8/ Find the sweet spot!

• ATMs are too volatile and far OTMs lose value quickly, therefore the golden mean is to select option in the range of Rs. 100

• Rs. 100 option doesn't have that kind of volatility that ATM has and Rs. 20-25 SL works, without getting stopped out.
9/ On expiry days which premium to focus?

• During expiry's one can work with Rs. 40 - 50 especially post 12:30 noon.

• At times the 2pm moves are ferocious and one can even work with Rs. 20-25 premium.

https://t.co/GwqZ5cc2so
10/ Have no regrets:

• We don't know the target, we can only book as per our R/R.

• One can never capture the entire move in option buying.

• Be satisfied with what you book rather than having regrets of exiting the trade early.
11/ Scaling up:

• Choose option buying because it interests you rather than opting for it due to lack of capital.

•Psychological issues would be higher while scaling up due to the MTM swings in option buying.

https://t.co/wviTTCzNz5
If you enjoyed this thread, here's another one which might be helpful to get a set up in option buying.
https://t.co/1Au8unvmum
Hope you discovered something new (because that's the point!)

If you did, share it with a friend

Hop back up to retweet the first tweet

See past threads here:

@AdityaTodmal

&

@niki_poojary

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I have recd a lot of queries on exactly which video did Subasish Pani taught this set up..
Folks you can check his y'days video

Although, I have learnt this extended move set up from @iManasArora 🙌

Do follow him & check his timeline for such set ups!


I shorted the ATM CE's which Subasish Pani does, and hence I mentioned strike selection inspired by Mr. Pani!
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The most valuable aspect in trading you aren't using:

POSITION SIZING

Sizing is the key, you'll make big money only if you own a significant size without compromising on risk.

Here are 10 of them, and they are for free: 🧵

Collaborated with @AdityaTodmal

1/ For a faster growth, one needs to have a bigger size:

• What difference would it make if a stock moves by 300%?

• But then, what if you had only 1% capital allocation?

• Despite the stock performing spectacularly, your account won't reflect the same, due to small sizing.

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1. Fixed absolute Rupee amount that one is willing to risk.
2. % risk of the total capital.
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Risk tolerance should be taken into consideration while determining appropriate position sizing.

3/ Fixed absolute Rupee Amount:

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97% of retailers buy options and lose money.

But, you can buy options:

• At the right time
• For BTST
• When premiums are too low

The difference? Understanding how they work.

Here's how you can buy options if you're a beginner:

Collaborated with @AdityaTodmal

1/ Basic knowledge of Technicals:

Option buying is about capturing the momentum, hence sound knowledge of technical analysis is required.

Without any knowledge, if one is buying an option purely because he/she feels market will rise/fall is equivalent to buying lottery tickets.

2/ Technical Analysis knowledge:

The analysis could involve usage of pure price action or indicators or a mix of both to capture momentum.

Getting the direction right is very crucial, however along with the direction the timing is equally important.

3/ Basics of CE & PE:

Option holders can buy or sell a security at a predetermined price using contingent financial derivatives called options.

In return for such access, option purchasers charge a small amount referred to as a premium to such sellers.

4/ Why CE & PE options are purchased:

CE is an abbrevation for Call Option and PE for Put option.

The CE buyer benefits every time the price of the underlying goes up.

Polar opposite is the PE option, as a PE option buyer benefits every time the price of the underlying falls.
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Here is the detailed information of about strategy,

Entry time : 9.30 - 10
Exit : Upto you

Strategy :
Sell weekly ATM CE & PE at almost equal price
For ex : Sell Nifty 17250 CE at 50 and Nifty 17250 PE at 48 so it will become short straddle

Buy monthly ATM or near ATM CE & PE at matching price (5-10 points diff should be fine) as hedge
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Weekly Short straddle + Monthly Long straddle

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Capital requirement:
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