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Short selling

Short selling in cash/equity segment is entirely intraday (same day) game play only, where you don’t need to have the existing securities in your trading/demat account. You can sell first and then buy later, but it should be done the same day before market hour closure, else you will be forced to pay the penalty for not having the securities in your account. The best thing about this thing is when you are sure shot that particular stock is about to fall, then you can short sell them, but in few illiquid stocks or the stocks reaching lower circuit, it should be avoided as you won’t be able to exit your sold positions. In derivates (i.e. in futures and options), positional selling is allowed till the expiry.

Physical delivery

Physical delivery is very much like buying or selling shares. Let's understand it with respect to futures and options separately.

In futures, suppose xyz is trading at 800 and has 1000 as lot size, then total capital to buy that share is 8,00,000, then in futures you can buy that for say 1.5lacs normally. So, on expiry day if trade isn't closed or rollover to next series, future buyer has to pay up the remaining 6.5lacs, so that 1000 share of that xyz gets credited to your demat account. While for future seller, at the time of expiry, seller needs to have these 1000 shares in his demat account which he needs to sell. So to avoid default on both the part, exchange asks for more upfront margin 3 days in advance of expiry, 20% extra margin each day till expiry. Best way to avoid this is to rollover your position to next series which mean close your existing position and deal with next series.

In options, 3 in the money strike prices are forced to go through this process, where they get to buy or sell the shares at total price (strike price * lot size). To avoid the default, most brokers do not let their customers to buy those options for what is actual cost (premium * lot size) and for sellers margin are increased substantially. To avoid this, deal with out of the money option of the same series or in the money option of the next series.

This is applicable only for stocks listed in derivate segments (i.e. as futures and options). There is no physical delivery for index.

Expiry of FnO

In derivative segment, we have futures and options. In India, we have derivate for approx 120 stock and few index which have 3 monthly contracts, with current month being the ongoing contract and next 2 months contract has less volumes. They are just mere contract and not shares or bonds etc. and there prices are affected by the movement of underlying equity. They expire on the last Thursday of the month and cease to exist and next day, a new contract for the next 3rd month comes to existence.

However, for index, weekly expiry system was launched approx last year where expiry happen every Thursday. If it’s not a working day, then it will Wednesday. On expiries, usually index and its top weightage stocks are somewhat manipulated. By manipulation, I mean most patterns will fail, it will behave the opposite way as expected.

IPO Concept

Read the story below to understand it better.

Suppose you are the owner of a private company, it has been doing very well from few years now and thinks that you want your company to expand or pay off old debts. But taking another loan from banks or institutions means adding upto debts, so you decide to let gets more investor on board (who are not angel investors or private equity firm). Now you have the dillemma, where can I find the investors, you go to a investment bank who suggests you to get listed on a stock exchange thus making your company public from private and this way you, you get to have majority of stake at your disposal. Ideally after listing promoter stake do get diluted but still have good stake as they ain’t allowed to sell off every share of the company.

Then investment bank does all the paper work for you, fixes the price or the price range, approaches board and asks for due diligence by showing Red Herring Prospectus which undergo some corrections and final one is published over internet which have A-Z details of the company and its owner/s.

The investors can apply within the particular bidding window for minimum of one lot (not one share) which costs maximum of INR 15000 and can apply for maximum of 2lacs approx. This money gets blocked (till the allotment process is decided which is in a week’s time) from your bank account and not the demat account.

Now why is the allotment decided, if your company is doing good and has say 1cr shares available for investment, then there can be demand for 10cr share and hence investment bank handles the process for you. This is called over-subscription but at times it can be under-subsribed too.

In case of over-subs, not everyone gets the shares, the unlucky ones get their money back with no charges deducted while the lucky ones can check their shares are alloted to them. And usually it has been observed that if you have applied for say more than 1 lot and has got allotment, they credit just 1 lot to you, so that they can reach out to as many investors as possible. So, many investors apply it from various sources possible to increase their allotment chances.

Incase of under-subs, you get all the quantity whatever you have applied for.

So how to check at the time of application, whether it will be over or under, keep looking for information of that particular IPO over multiple place on internet and also subscription pace can be tracked on BSE, chittorgarh website etc as well.

Those who get allotted, their price may or may not be the same as what they applied for. It can be higher and are called listing gains, which is why many people apply for IPO. It’s not necessary that it will list at higher price, it can list at lower price also, but usually it has been observe to have listed at premium.

This way even you (the owner of the company) gets money too and the public also gets to be part owner of the company.

Poll 1

Thanks guys for the vote. 10/56 voters think that trading is gambling.

My guess will be either you have taken trades without informed decision or you haven't kept proper stop loss. Be it trading or investment stop loss matters.

Now you may think, stop loss was there, well, if you are buying at support or short selling at resistance, your stop loss would be negligible. But if you enter into trade between support or resistance, you can't keep your SL anywhere depending on your position sizing.

Position sizing shouldn't be decided based on the capital size but on the basis of max loss you can afford given the proper entry and SL points. Try this approach, initially you may feel that you ain't getting much profit, but loss would be too negligible that you will become one step towards having profits on consistent basis and that's my dear friend is one of the best milestone for a person to become a great trader!!!

Poll 2

Well simple answer to this poll which I answered earlier is.. why limit the profit, take as much as possible, if others call it greed, let it be. Focus should always be on limiting the losses.

Poll 3

Well, the answer was NO. Only 4 ppl other than me voted for it. And the reason was simply stated there.

Why it is the fact that intraday traders lose money, it's just because of the placement of stop loss. You can't just chose any trending stock and say let me place SL here coz I can afford to lose max XYZ amount. If you can lose only XYZ amount in a single trade.. instead of taking planned 4x quantity, maybe take 2x quantity or 1x quantity, your win to loss ratio will drastically increase, maybe profit per trade will seem smaller... But ocean is formed by many drops or the Rome wasn't built in a day... Whatever quote motivates you..

Okay, now suppose, SL is comparatively far than target point, risk point is more than reward point, what shall you do? - Simple answer, just take another stock, there are lot of stock to trade in the market, why stick with just one, sit on the winning side 💁🏻‍♂️

Poll 4

Actually this is very complicated to answer. But the best thing I can suggest is like we have stop loss in intraday trades, keep stop loss in investments as well but little wider.

Suppose in intraday if your stoploss is 1% below support then keep it's like 5-10% depending on the volatile nature of the stock.

What will happen with this strategy is, suppose you bought something at 50, shot up to 100, you have SL at 85, pandemic crash came, your SL hit at 85, you get profit of 35 points. Wait for the price to go as much as below as possible, let it make a base, see the strength in retracement, and then add more quantity. Now that you have 35 more points, you will be able to buy more shares. But always ensure to buy shares once retracement is good.

If you hold on to existing investment, you are just not getting much benefit. It’s idle nature. Use money to make money, don’t let it sit idle and do the job for you.

Poll 5

Thanks for taking time out to answer the poll. Looking forward for more active participation going onwards.

Simple answer to that question, if Goddess Lakshmi (God of money) is coming to your house why put any limitations to it. Now you may say, 3-5 or more than 5 trades is too much. Read the question again, I mentioned good trades which means less risk more reward with high probability for reward.

You shouldn't keep finding good trades during market hour because that time you will be more focused on taking trade and less focused on finding all the valid reason for the trade to be a good one. This way, you can also get saved from over-trading, it's cost in terms of money and mental peace.

For those, who are in some full time profession, can take max 2 good trades a day and focus on the job while other who have more time can focus on more trades but shouldn’t execute them without proper due diligence, remember focus should be on getting best risk:reward. Also trading every day isn’t necessary as well 😉

Is option trading profitable or risky?

Option trading, if done with detailed information on how the option greek behaves with the market movement, then only it is better for profitable returns. If you the view that, ABC stock is going to go up in some days because of some news, and you plan on buying the call option, then THETA (one of the option greek) is time decay will eat away your premium even if stock price move up very slowly or there is not change at all. Same is the case, if you expect stock to go down and you simply bought put option.

That doesn't mean, buying option is risky. Selling option has been said to have higher probability to be in profitable venture just because of this THETA. Option buying has the advantage of being less risky as the maximum loss is defined over there which is premium multiply by lot size but when you sell the option, usually it take 4-9x of that capital. There are other option greeks as well, VEGA (measure of volatility) and RHO (measures VEGA), if they suddenly go against your view, then the risk might increase rapidly.

My point is not to develop fearful thoughts regarding option trading, the profit and loss in options aren’t as linear as is the case in equity/cash or futures trading. You need to be very well aware of the situation when to trade options. Key to option trading lies in Momentum.

Wanna know more about options and option trading strategies?

Then read my article https://theharshvardhanbiswas.medium.com/options-a-derivative-product-6876369f0cf8 and if you do like that, please click the applaud button there and share feedback on that post.

And, lastly one trading tip

Note : Whenever index falls heavily due to global factor which may not have big correlation wrt India, then it's safe to go long. If you are going to try it the next time, buy call options, but don't go heavy until you are confident of this setup.

Disclaimer : I am not a SEBI registered person and neither intend to.

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