OPTION TRADING TIPS

Friday, 14 January 2022

INDEX OPTION CALL PUT TIPS FOR 14 JAN 2022

BUY 2 LOTS BANKNIFTY 37500 20 JAN PUT @ 160 TARGET 200

BUY 2 LOTS NIFTY 18500 20 JAN CALL @ 33 TARGET 47-48

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Thursday, 13 January 2022

LIMITED RISK IN OPTION IS A MYTH ???

When most of the world was reminiscing the bittersweet moments of 2021 and anticipating the arrival of 2022, Dinesh M, a Chennai-based stock trader, was wondering how he would be able to pay a penalty of ₹12 lakh because of SEBI’s new rules for options.

For Dinesh M, the New Year started off with him making a YouTube video begging for crowd funding through a story that demonstrates how vulnerable retail traders suddenly are in the Indian stock market.

Dr. Sanjay, another victim of the same rule, saw ₹35 lakh being wiped out from his account because of a price difference of 35 paise.

Shweta, who started trading to overcome depression, experienced another level of stress induced due to misfiring option trade in the backdrop of SEBI’s new rules that she was never informed about.

There are countless stories of retail traders dealing in options who are facing financial crisis, emotional blow, and havoc in their family life due to new rules introduced by Securities and Exchange Board of India (SEBI) on October 16 that came to a head with respect to a Hindalco options trade on the December 30 expiry.

As per new rules, introduced from November expiry, if Spot price of a stock closes below a Strike price (means In The Money for Put holders), then a trader holding Put options of that stock either needs to square off the positions before expiry or provide the shares. New rules meant option has to be settled by delivery. Thus, anyone holding In the Money (ITM) option will receive/give delivery of shares depending on whether one is holding Call or Put options.

For the uninitiated, put option means the trader is expecting price to go down from Spot price while Call option means a trader is expecting the stock price to move up from Spot price (current price). As per theory, buying option has a limited liability where a trader's loss is restricted to the premium paid while selling option has unlimited liability. But due to the new rules, even a buyer of option has to bear unlimited liability in case she could not square off positions before expiry and option becomes an ITM.

Over a dozen traders who lost a big fortune and are trading through different broking Firms like Zerodha, ICICI Direct, Profitmart, and Upstox. None of them were aware about changes in rules where delivery of shares for ITM trades is made mandatory. Not single retail traders was informed by their broker about the change in SEBI’s rules, nor were they given any warning before they came to face the liability that they now find hard to handle.