Comment on Trading India VIX - Simplified

P R Sundar commented on 04 Apr 2014, 05:59 PM

Hi,
First let me introduce myself, I am Sundar from Chennai, trading only in options and making lot of money, at least Rs 10 lakh a month.
Second, let me appreciate your effort in making low brokerage venture a reality.
Third, everybody want to buy options ahead of elections to make money. That is actually a wrong strategy. There is something called “Market Efficient Hypothesis” which says that whatever news in public domain, they all are factored into the prices of options. So the buyer usually makes money when there is something surprise. For example, in 2009, nobody expected Congress coalition to get majority without Left support, that happened, so the markets shot up, option buyers made money. You may check, option prices for May series onwards are really very high.
Assuming that one buys May series 6500 Put and 7000 Call, he has to pay Rs 350. He will make money only when Nifty crosses 7350 or fall below 6150. Let us see what happens next month.
For option buyers: Option buyer pays only premium, option seller pays margin money which is very high. Option buyer has limited risk, seller has unlimited risk. Option buyer has the possibility of unlimited profit, seller’s profit is limited. So think basically why should any body want to be on sell side with everything is favorable on the buy side? The answer is simple.
If you want high profit, you have take high risk (Example: robbing a bank, your investment is very low, your reward is very high and correspondingly your risk is also very high)
If you want high reward without corresponding high risk, then also it is possible, but the probability of winning is very low. (Example: Buy lottery ticket, your investment is only Rs 10 or 20, you may get Rs 1 crore if you are lucky, no risk absolutely, but probability is very low)
So, the fact is that the probability of seller winning is very high. I have not seen anybody making good amount of money consistently by buying options.
I am a living example for making money consistently by selling options.
Option buying is just like buying lottery ticket, if you get it be happy, if you don’t get is, don’t worry as you lost only a small amount.
What I mean to say, the amount of money which you are prepared to loose completely, only must be deployed in buying options.
Last but not the least, option seller has the advantage of hedging his positions and can continue to apply delta hedging in order to come out if market goes against him. Option buyer has no options if his views go wrong, except getting out with stop loss.
Hope option buyers understand all the risks involved.
Most brokers entice the retail people into buying options by telling them “Limited risk, unlimited profit”. In reality that is totally wrong, the correct one is “Limited Risk, unlimited probability, low chance of winning”
Thanks.

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