Ask the right questions…

question mark illustration

Every time an IPO or NFO comes on the block, the first question everyone asks is “Should I subscribe to XYZ?”. The overwhelming marketing material biases ones opinion towards a “Yes”. I think it is the wrong question to ask.

Whenever we want to buy something, lets say a watch, we ask ourselves, “Where is a shop which sells watches?”. We don’t just walk into any store, and then figure out what to buy.

So just a couple of days ago one of the mutual fund AMCs came up with an NFO. It wouldn’t have been much of a news if it had been any of its peers. But this one in particular has been very adamant about not needing to do ‘AUM seeking activities of releasing a fund for every category’. Plus their flagship fund has posted one of the best performances not just in multi cap across categories. Investors trust the fund managers and their philosophy of value investing. So much so that they were amongst few AMCs who had seen net inflows through the uncertain times that was the year 2020.

Recently they launched a liquid fund which would hold only T-bills and G-secs and would be mostly used as an STP vehicle for people not wanting to put lump sum in equity fund.

The third fund now is a conservative hybrid fund. It’s marketing material says it is for generating income from debt and money market instruments. Capital appreciation from equity and REIT, InvIT components as well as some income from the latter.

There’s nothing to worry about in debt part. The AMC is known to be conservative and hence wont take any credit risk. Equity component is limited to 25% so my guess is that it will be a scaled down version of their flagship fund itself. But with such small allocation, I don’t think exposure to international equities will be there.

The last component is up to 10% exposure in REITs and InvITs. There are several points to discuss here. Most Indian investors are highly exposed to real estate market anyways so logically anyone investing in REITs should take that into account. The 10% exposure in itself isn’t high enough to contribute to the returns of the fund in any meaningful way. And unless this fund forms the core of someone’s portfolio, the exposure to REIT, InvITs will be miniscule. Think of it as 10% of 10%. The AMC is also known to include provisions in their scheme documents which it may not use. The flagship fund has had the provision for REITs for a while but to the best of my knowledge REITs haven’t been part of its portfolio till date. Same is the case with the provision for covered calls.

A doctor doesn’t see the available medicines in the market and then decide what to prescribe to the patient. They first examine the patient and then come up with the best treatment based on available medications. We should look at our portfolios the same. Before looking at funds, stocks etc., we should know what we are looking for…

Monthly Options portfolio October 2020

I did make a simulated options portfolio for October as well. I focused a lot more on some experimental strategies this month as compared to simple delta strategies of September. Also I apologize for not making a sheet as promised for ease of tracking of the positions instead of such screenshots. Hopefully I will get some time this series to make it. This is directly the update post like the last month. Since not all of this portfolio was built at a time, there was no point in writing a ‘Start of the month’ article. Also this time it is difficult to gauge maximum profit on portfolio since some of the strategies did not have a fixed maximum reward. So let’s get into it.

BIG DISCLAIMER - I may not have position in the strategies I post here due to margin reasons. Derivatives are the most risky instruments available to retail traders. Please do your own studies before taking any trades in the stock market. I will not be responsible for outcomes of these trades. I do not own any charts or data I share here. Everything is for educational purposes only. I assume you agree to the disclaimer if you continue reading this article. 

Banknifty Double calendar spread

So what is a double calendar spread? In short, you buy options in far expiry, 26th NOV in this case, and sell options in current expiry. Unique feature of this strategy is that you get positive theta, and positive vega. Meaning, you gain from theta decay AND you gain from rise in volatility. I think this strategy deserves a post of its own. So I will discuss the details separately.


Maruti Bull Put spread

This was a relatively simple strategy. Maruti has a good support around 7000. So when the stock came around that level, I initiated this spread. Since this strategy was initiated just a week before the expiry and 200 points out of the money, the premium was very low. But that also meant that theta decay would be rapid. For about 30 thousand rupees of margin, and about 6-7 days of holding period, this was a decent trade.


Wipro Bull Call Spread

This was one of trades that went horribly wrong both in this portfolio as well as my real money trading account. Results of Wipro were declared after market. A potential buyback was announced at 400rs. So without studying other numbers thoroughly, I took a bullish position in Wipro. Not only did it open gap down, it ended the series about 10 percent down from the results day. I did try to reduce the loss a little by booking profit in 370 CE and selling 360 CE making it into a Bear call spread.


Reliance call condor

This was another one of those experimental strategies I tried out this month. I did the same strategy in Cipla in my real account. I had initiated this strategy at the beginning of the month hoping that 2200 is the lowest RIL would go. It went much lower than that. Just like double calendars, call condors have some unique properties. I will write about it in a separate article. One thing I would like to point out that I booked out on 23rd of October when reliance was at 2100. Despite that the loss I incurred in this strategy was negligible. No it is not a bug or a manipulation, that is a feature of call condors.


Infosys call condor

This was a results day trade. Results trades are designed to take advantage of volatility crash after the results are announced. Traditional results trades are designed around short straddle strategy. I decided to give it a try with a call condor. About a week before expiry I decided to cover 1200 CE short call and short 1150 CE since it didn’t look like IT pack was in the mood to give a rally. This was one of the good trade, not just because of the profit but because the system worked.


Coal India bear call spread

Coal India looked very bearish after breaking and retesting 120. I initiated a bear call spread since I didn’t expect a further sharp down move neither did I expect Coal India to reclaim 120 levels. Those with a keen eye would recognize this trade as similar to the one taken in Eicher motors in the previous month. Entry was decent. But looking back at it, I do not remember why I exited out of this trade. The trade would have ended at maximum profit had I held on to it. This trade was worse than Wipro because I broke my system though the loss is smaller than that in Wipro.


Reliance box spread

Box spread is an arbitrage strategy. You enter into a vertical call spread and a vertical put spread or vice versa. Either one of the call spread or put spread will be a credit spread and the other will be the debit spread. Since the strike prices are same, the difference between credit and debit will be your profit. And theoretically, no matter what happens to the stock your profit will remain constant at expiry. I just wanted to check MTM fluctuation in this strategy. This is another one of those things about trading that looks easy but isn’t. I will write about this separately too.

In total the portfolio made about 17 thousand profit. Applying our deductions of about a thousand rupees per strategy, we still made about 10 thousand rupees on this. Though in this portfolio the capital used would be a lot less than previous month, we would still consider 10L as our investment. That makes the ROI for this month at 1%. This is significantly less than last month’s returns. It is also less than Nifty returns for the month which are around 3%. But we must keep in mind that after continuous reduction for 6 months since April, India VIX rose by almost 27%. That is a crazy increase in volatility. So despite the rise in volatility we managed to make some profit. That is what portfolio approach is all about.

Happy Trading.

P.S. – I had said in my previous monthly portfolio update article that I will post my trades on twitter. But it turned out to be a lot more tedious task than I thought it would be. So I don’t think I will be live tweeting all of my trades from now on. I may post some of the trades some of the times.

Monthly options portfolio (September – 2020)

Unless it wasn’t clear from my earlier posts, I like trading. I particularly enjoy how well options help you translate your market view into a trading strategy. So I figured why not share some of them here.

BIG DISCLAIMER - I may not have position in the strategies I post here due to margin reasons. Derivatives are the most risky instruments available to retail traders. Please do your own studies before taking any trades in the stock market. I will not be responsible for outcomes of these trades. I do not own any charts or data I share here. Everything is for educational purposes only. I assume you agree to the disclaimer if you continue reading this article. 

There will be some trading jargon in the discussion that follows. So here’s a short key for that:

  • Position – A position in a stock would consist of multiple option trades.
  • Trade – Entry or exit from an options contract.
  • ROI – Return On Investment
  • PoP – Probability of Profit

So there are some rules that I will follow while making these strategies:

  1. Maximum margin used will be 10 lacs.
    After SEBI’s new margin rules, required margins have reduced greatly risk defined strategies. Some of my strategies will be risk defined.
  2. Adjustments, i.e. additional trades, will be taken if any position has the potential to give losses.
    It might take additional margin and hence we will leave some margin unused at all times.
  3. Margin calculation will be done in the ‘India’s Best Trader’ tab of Zerodha Sensibul.
  4. PoP will take priority over ROI.
  5. Strategies will only be in the options which are liquid.
  6. Strategies on stock options will be in current month.
  7. Strategies can be initiated anytime except in the week monthly of expiry.
  8. Strategies targeted at events such as results, court hearings etc, will only be taken if at least twice as much free margin is available to manage any unexpected movements in stock.
  9. 5% of capital (i.e. 50,000) in the MTM loss on a closing basis will be the hard stop to exit any strategy.
  10. After 40-50% of the max profit is achieved, we will look to exit out of strategy depending upon stock movements.

I know these are a lot of rules. But trading without any is just asking for your account to be blown up. Another disclaimer would be that I have constructed this on a weekend so option premiums are according to the closing price on the Friday 4th September. When you track these tomorrow the premiums will be different. Idea isn’t to get the exact entry price but to have positions which will require minimum maintenance through the expiry. If the market moves against any of the positions I might add the adjustments done here. But don’t hold me to it. I will also do weekly expiry trading in BNF in my trading account which I may update separately.

Not all strategies will have explanations as some of them are pretty textbook.





This is part of the positions which will be added as the expiry comes near. All the positions will be converted to MIS on the day of expiry and I will do the expiry day trade.




This is a little complicated one and relies on volatility of the NIFTY remaining high through this weekend. So the next week long options will not lose too much premium to time decay and I will get to keep the premium from this weeks sold options.

So far we have used a little over 6 lacs for these 9 positions. I will update changes, if any, in the captions of those images. Also I will try to find a better way of putting such trades on the blog. Suggestions are welcome.

This is the first time I am putting some of my trades in public. Please do not blindly follow anything you see on the internet including this blog.

Happy trading…