From IIT to intraday options on Nifty

August 3, 2013

Traders,

Find following an interaction with Rajesh, who’s very nifty trading options on the Nifty. He was not only the winner in the first challenge but is also presently up over 100%, 20 days into the second challenge. What makes him special is also the fact that he was up over 150% in the last financial year trading markets actively.

Rajesh

Rajesh

Education: MTech(Computer Science), IIT

Profession: Active day trader and a software engineer

Hobbies: Table tennis and meditation

Find following the interaction on Aug 2, 2013

How did it all start?

I have 2 brothers and both dabble in the stock markets and was lucky that one of my brothers mainly invests and the other trades options actively. I started my stock market career day trading in stocks with margin and also small bits of short-term trades. So I would have to thank my brothers for introducing me to the markets.

How did you perform initially?

Had a few lucky trades to begin with, but was never successful trading equity, blowing up my account a few times in the process. Most of the trades were based on guts and some on tips given on TV.

How did you manage to continue trading when you made these losses and for how long?

I was having a good job and that allowed me to stay active in the markets, adding trading capital from my salary at the end of every month, it was a blessing in disguise.

I started trading in early 2005 and this method of trading continued till May 2006 when there was a sudden fall in the market which was a big setback not only for my day trades but also on my delivery trades, which I exited in panic.

This incident was an eye opener on how trading based on news, watching TV or on a hunch can never really be profitable unless I had the news before everyone else did. This is when I got introduced to Technical Analysis and it started off with learning candlesticks.

As and when I learnt more about technical analysis, I suddenly felt that it is possible to have systems based on strategies which can run like a money making machine removing all human emotions. It also helped that I was good at shell scripting and the automation background helped me put up a few systems. You could say that I have tested over 1000 strategies from then to now.

So did these systems actually make money?

The backtested results made money in theory but when applied to real markets it didn’t. Most of the results were based on open price, but the open price that you see to what you can actually get while trading the markets has a huge variance. What also adds to this are the slippages, brokerage costs and other taxes. So personally for me just systems based on technical didn’t really work well and that is when I also started studying on the psychological side of trading.

What I had started noticing was because people follow similar technical/fundamental analysis strategies, there are traps that gets set (bull or bear traps) around important technical/fundamental points in the market. Typically scenarios where market suddenly looks bullish/bearish based on popular indicators and reverse just to trap the traders.

So what kind of strategies did you follow?

Around the same time I also got introduced to Futures and Options and found out that I was better at intraday trading and hence most of my positions were never carried overnight. I initially started looking for breakout setups but as and when I started giving more importance to the psychological side, it moved towards spotting bull/bear traps, spotting divergences and I also have a proprietary indicator based on the volume of bulls/bears on a candlestick chart. This is what I have been following for the last couple of years and it has been doing well for me.

Most of my trades are option trades and hence along with looking at technical charts, I also started mixing it with a strategy based on open interest, implied volatility and option prices. Basically the strategy using the data predicts which side of the option is skewed to move up, either calls or puts and also the strike price best positioned for this.

Since the strategy revolves around spotting traps or option skews as mentioned above, typically most of the trades would be counter trend trades. I personally find that being long options really works well for such a counter trend system.

There are some gut based trades, but I mostly stick with trades given by the system that I follow. But the critical thing is to accept that we as humans can make mistakes and can get carried away, so it is best to keep only that much money in your trading account that you can afford to lose, especially when trading in options.

But they say option buyers never make money; it is only the sellers who do?

Two things that I don’t do while trading options is hold it overnight or trade in-the-money options. When you hold options overnight, the time decay happens faster and if you trade in-the-money options, the absolute return when you are right on your trades is not much.

Also one of the things that I avoid as an option buyer is to pyramid, that is add to existing open option positions as and when it goes in my favor. When you buy options you are fighting time, volatility and price moves, so I personally never liked pyramiding and always lost when I did.

So you never carry option positions overnight?

There are times when I do carryover options, but I reduce the size significantly. Also the option position carry forwarded is not because it has made a loss, so let us hold it to the next day hoping that it recovers. It is mainly because the gut sometime says that there is more in the trade left to play out.

Out of the money options only? That is very high leverage, are there any money management rules?

Leverage is a double edged sword, but a very important part of the business. One book which was an eye opener for me was on Position Sizing by Van Tharp.

In terms of how much trading capital, I follow a unique strategy. I come up with an assumptive trading size for my account based on my risk appetite, assume this is 10 lakhs. But what I actually bring into my trading account is just 15% of this, which is Rs 1.5 lakhs and my maximum risk per trade is 3% of my assumptive trading size (10 lakhs) which is 30,000. But as and when there is profit added to this Rs 1.5 lakhs, per trade size keeps going higher than the 3%. Usually I will withdraw profits from the trading account if the account size reaches between 2 to 3lks to bring it back to 1.5lks.

The idea behind increasing the trade size with profits is to give possibility of an exponential return and is also Van Tharp’s influence. I can’t say that I have perfected this, because the strategy sometimes causes huge amounts of volatility to the trading account especially where it has gone from being positive by quite a bit to being flat. Today I can afford to take this risk having a cushion of a full time job; I might change this strategy by a small bit if I were trading full time.

This way of managing money has worked well for me because I trade mainly out of the money options which can go up/down very fast. My trading activity picks up quite a bit as and when the market approaches expiry and is mostly in Nifty options because of the higher liquidity.

What do you do with the profits, go spend it?

It is very important to not treat this as lottery money and spend it. I look at it as a normal income and use it to supplement my financial goals. Also since it is a secondary income for me, I make it a point to allocate 20% of all my trading income for a social cause.

Your Favorite books?

Trading to Win by Ari Kiev and most of the books by Van Tharp, especially the one on position size.

What advice would you give others?

There is no system that can guarantee you return, in the last 1.5 years being profitable my ratio of winners to losers is at the best 62 to 38. It is important to understand this and hence manage your risk accordingly.

Trading is about building odds in your favor, one of the biggest reasons for my strategies to work is having Zerodha as the brokerage where I don’t have to worry about break even points while trading, especially huge quantities in out of the money options.

Trading is like a profession, people take it lightly especially because of the low entry barrier. It just takes a day’s time to open a trading account and transfer funds into it, but unless you are committed, focused, disciplined and ready to spend time learning, you should give it a thought before entering or continuing trading if you have already started

Future plans?

To be able to reach that assumptive trading size where I can quit my job and become a full time trader.

_______________________________________

Thanks, Rajesh, for the insights and hopefully your good run in the current 60-day challenge continues and be able to trade full time soon.

Happy Learning,

Do check out the other Winners

Nithin Kamath

Founder & CEO @ Zerodha, team working towards breaking all barriers that I personally faced as a retail trader for over a decade. Love playing poker, basketball, and guitar. Getting body fat % in single digit is the next personal endeavor :) .

61 comments

  1. Arnab says:

    This is valuable advice, thanks for the insights Rajesh and I wish you plenty of success, also thanks to Zerodha, you are without question the best brokers in the country 🙂

  2. Vent says:

    Congrats Rajesh!!!!!

    Thanks Zerodha for sharing this …. It contains Lots of Value and very helpful for the people who are there in this market….

    Big punters of Idiot Box learn something from this before you advice or say something….

  3. Pawan_Arora says:

    Software Engineers are stealing the show 🙂 !!!!!
    Congrats and Thanks for sharing your thoughts Rajesh !!! Wish you all the best for your future plans.

    Cheers
    Pawan

  4. Banti says:

    Congratulations!!!
    Thank for sharing your thoughts

  5. Gilly says:

    I don’t see Rajesh as a software engineer.
    Because of his natural talent he is gonna achieve greatness.
    I see him as a teacher.

  6. Gaur_Krishna says:

    Hi Rajesh, Congrats & going great!

    You say correctly that Full Time job is a blessing in a disguise. But how you are able to do Day Trading with FT job? How you are able to manage daily screen time required for day trader along with FT job? How about charts-on mobile?

    Regards,
    Gaur_Krishna

    • rajeshgan says:

      Thanks Gaur Krishna!
      Most of the time, the major moves happen within the first one hour of market open and again in the last one hour. Being in software industry where you have flexible timing helps a lot here and the day is still long after market hours !
      I use zerodha’s mobile app charting tool itself which works very well!
      For tracking other parameters on the OI and IV skew, I use the system built inside my website tripleint.com.

  7. mukund says:

    Congratulations! and Thanks for sharing your thoughts Rajesh !!! Wish you all the best for your future trading plans. I hope this article is very inspiring for all of us !
    Mukund

  8. carnot11 says:

    Hello Rajesh,

    Congratulations on your achievement.

    I have questions regarding hardware and infrastructure used by you.

    My problem is getting uninterrupted internet connectivity and reliable tick by tick charts for intraday trading.

    Please guide in detail so that I can adopt your suggestion and change my existing equipment / system for better performance. I am based in Mumbai western suburbs.

    1. What type (make/model/specs/etc) are used by you for the following – Laptop / Desktop / Mobile
    2. What type of internet connection (broadband/2G/3G/etc)
    2a. Which company for intenet connection (Idea/vodafone/Airtel/MTNL/etc
    2b. What type of internet plan (unlimited/limited/etc)
    3. Which company / service for data feed (tick or 1min data)
    4. Which software for charting and technical analysis (Amibroker/Metastock/Metaquote/etc)
    5. How do you maintain overview of your positions when on the move (travelling by rail or road/out of city/holidaying/etc)

    Any other information which you feel would hep me in solving my problem.

    Thanks.

    Enjoy,
    CArnot

    • rajeshgan says:

      Thanks Carnot,

      1. What type (make/model/specs/etc) are used by you for the following – Laptop / Desktop / Mobile
      [Rajesh] I use a Dell Latitude E6410 laptop and use Samsung Galaxy Tab2 as the mobile device.
      2. What type of internet connection (broadband/2G/3G/etc)
      2a. Which company for intenet connection (Idea/vodafone/Airtel/MTNL/etc
      2b. What type of internet plan (unlimited/limited/etc)
      [Rajesh] I use broadband of airtel unlimited and also airtel 3G
      3. Which company / service for data feed (tick or 1min data)
      [Rajesh] Though most of my positions are closed within a single day, I am not a day-trader in the traditional sense using 1 min data and charts. I use the live proprietary system developed to track OI and IV skew defined in my website tripleint.com.
      4. Which software for charting and technical analysis (Amibroker/Metastock/Metaquote/etc)
      [Rajesh] I use Fcharts PRO and use proprietary scripts to upload data. Most of the analysis is based on EOD charts, levels, traps and research is to select the right day for placing the trades. During the day the live Option system and price levels are used for timing the entries.
      5. How do you maintain overview of your positions when on the move (travelling by rail or road/out of city/holidaying/etc)
      [Rajesh] At any point in time, I do not have more than one or two option positions open and make sure that there are no positions open while I cannot track the markets using my mobile.

      My best wishes to you!

    • carnot11 says:

      Hello Rakesh,

      Thanks for your reply.

      Best wishes to you too.

      Enjoy,
      CArnot

  9. makarandkokane says:

    Hi Rajesh, Congrats and all the best wishes!
    It was nice reading your interview.

  10. rajeshgan says:

    Thanks to Zerodha for publishing my interview !!! The option trading strategy itself became a possibility only due to Zerodha’s low cost brokerage !!!For people who have been asking details on the option trading system and methodology, please visit my website at tripleint.com !Thanks again for all the likes, shares and encouraging words !!!

    • RS6006 says:

      Hi Rajesh,

      I almost have similar background as yours (IIT, M.Tech; Shell Scripting). I am interested in building a trading system. Can you throw some light on how to proceed. Did you build your own trading system ?

  11. Rahul123 says:

    Hi Rajesh,

    Is there a mechanical way using which you search for traps? Will be very grateful of you can share your technique. My email [email protected] .. thanks!!

  12. sharekumar says:

    Hi,

    1.I am Beginner, Should I buy options that are In The Money , Out of The Money or At The Money ?

    2.How Open Interest, Implied Volatility and Option Price

  13. SHIRISHYV says:

    Mr. Rajesh,
    Congrats. My Question to any Analyst, Trader is what is the

    • rajeshgan says:

      Mr Shirish – Thanks for your message!
      The introduction part has answer to your first question in terms of % of profits made.
      Expecting a return of risk free rate is far too less to consider for any business and to maximize that we use the power of leverage.
      Trading is to be considered more of a business and to begin with, one needs to start off only with the capital one can afford to lose.
      In all probability there will be multiple times when one goes bankrupt in the trading account and it is continuous learning and perseverance and might take a few years before one could zero-in on the strategy and markets that one would be trading profitably. Derivatives as a product itself is designed to factor in leverage and so handling risk:reward well becomes a part of trading business and the goal is to make atleast 4 to 5 times the risk free rate in a year.
      Being a personal trading account, one would not want to reveal the absolute value and that is the reason why returns are talked in terms of percentages.

  14. Naveen says:

    Hi Rajesh,

    I have been trading from past 1.5 yrs and have not been a successful trader. I always end up losing money just because of these traps. The most common mistake i always do is i carry my position overnight, that has killed my account literally. I found a trading system back in May where i was making consistence profits with it, infact i doubled my trading capital in a week, but i lost the momentum because of a bad trade(carrying overnight position). I lost my confidence with that single trade. Since, I have been researching a lot over internet and reading books to have a trading system which works for intraday option trading but I have not found one.I would be grateful if you can help me with Where i should be starting with and how to make your own trading system.

    Thanks and regards,
    Naveen

  15. REENA A JOSEPH says:

    congratulations Rajesh!!!! Are you doing option trading only? Can u please share your strategies on commodity trading (crude/copper) if you are doing the same.
    Thanks & rgds

    Reena A Joseph

  16. LondonVisitor says:

    Great article or interview. Everyone has their own strategy. Rajesh’s unique strategy of only using OTM and closing by EOD needs to be carefully considered if others want to emulate. Good to know he is able to sneak some time from his full time job and do trade on his mobile platform. Congratulations and wish you continued success.

  17. vinay says:

    hi Rajesh ,
    Thanks for your suggestions ..
    can you please guide me is it better to join training centers to learn about tech analysis stuffs.. i want to learn day trading skills..

  18. Rajiv says:

    Hi Rajesh,
    it’s a great achievement,building a tracking system. Congratulations!!!!

    i’m a day trader.it requires a lot of monitoring the number of stocks for my strategies in Intraday trading. i’m planning to design a system,which monitors as per requirement and alerts the user.

    is it possible to get live open-High-Low-Close price for each minute using web services?
    can you please suggest in this perspective.

  19. Sunil says:

    Great ,

    Can you let me how you trade for nifty optiono ption trading strategies where we can earn money

  20. valsaraj says:

    very valuable account of a trader*s experience. I have read it many times. I thank Zerodha team for this opportunity to learn about the strategies and thoughts of other traders.

  21. John Murfy says:

    sir i have lost my entire money in option market

  22. Henry Solomon says:

    Hi Rajesh

    Congrats and all the best wishes!

    It was nice reading your interview.
    I am Henry Solomon from Mumbai. I have planned to trade in option intraday. I have joined a advisory company for the same. As you have advised, I am investing a amount which i can afford to loose. What is the minimum % I can think of in return.

    reply

  23. Manjunath B G says:

    Dear Rajesh,
    thks for the important valuable trading tips, one important thing to know where exactly we will get information about open interest, implied volatility and option prices.

    Thanks & Regards,
    Manjunath

  24. gulshan kumar says:

    like it

  25. sanjay says:

    this is false u can not earn in day trading . iam also trader . i used to do only short staranglle in deep o t m .iearn regullareelly about 3–7 % of my capital .but what he told about day tarding is impossible ..

  26. A.N.Charlu says:

    Hi Rajesh

    Congrats and wish you success.

    I also trade in options. Recently I have developed my own tool in excel for certain option strategies. I check the pay-off and also ROI on the margin money blocked. If I am convinced about the profit margin and risk-free range of the underlying I take the trade position. Its working well for me. I am also able to track it along the dynamic market from my tool.
    I am not a software person. I want to take this tool to further refinement. I am looking for some experts to help me out.

    Thanks.

    • Ramesh says:

      Hi Charlu,
      I am a software engineer, I could able to help you if there is any requirement from my end.

      Thanks.
      Regards,
      Ramesh

    • Kannadasan G says:

      Hi A.N.Charlu,

      I am a software developer by profession. I can help you to refine your tool if needed without any charge. If interested revert me back.

      Thanks

  27. Milan Bhogayta says:

    Hi Rajesh,
    i have read that you never hold position overnight.
    i want to know that your maximum trades are buying option / Writing Option.

    if you buy at last trading hour then also you do not hold if you write/short option of nifty (call/put).

  28. R S Yadav says:

    Hi Rajesh,
    Congratulations on your success.
    I fail to understand your viewpoint that in the money options don’t move fast & out of the money move fast. It is infact the opposite.
    One request from the Zerodha team. Can you please publish stories of people who have lost heavily & why

  29. Ravishankar says:

    Rajesh, lease share your mail I’d. Tried contacting thru your website but got no response.
    [email protected] com

  30. Great inofrmation keep it up.

  31. GHANSHYAM SINGH says:

    INSTEAD OF GIVING 2.5% OR WHATEVER RANGE IS GIVEN IN COVER ORDER, IF YOU GIVE 10, 15, 20 —SO ON POINTS IN STOP LOASS TRIGER BLOCK IT WILL BE HELP FULL. IF IT IS BY 10, 15 POINTS -(MINUS) STOPLOSS TO THE PRICE WE PURCHASE @ THE MARKET RATE. IF IT IS SELL 10,15,—POINTS +(PLUS) TO OUR PRICE PURCHASED WILL BE OUR STOP LOSS. WETHERE IT CAN BE DONE.

  32. Ajay says:

    name of that indicator?

  33. Bobby says:

    Nithinji why you are not updating this section after 2013 I found Mr. Rajesh post of 2013 and there was also post from you as a trader that too from 2013 I think now its time that you should post some fresh 2016 traders in this 60 day competition.

  34. Abhishek says:

    Hi Rakesh sir!
    I’m new to options trading..
    I’m lossing money everyday from one week because when I buy put or call when the premium goes down I panic and sell it off..:( can u suggest me some strategy which I could learn and apply.. lost some money but still I want to trade intraday options I can use my full time on it please help waiting for your reply ty

  35. Sachin says:

    Here is what I have learned in my 6 months of option trading….
    – Very few people have been successful in making money in Nifty options, Stock options are even dangerous…
    – So less advise is available on internet for Nifty options, where as you have so much advise on Stock Futures, Intraday. Not sure why… Is there any advisory service who specialize in Nifty option trading…. ???

  36. A Bhapkar says:

    Hello Rajesh
    Should compliment your efforts in building a system takes into consideration all aspects.
    Wanted to know if your triplent site is still active and are you into offering services ? There is no mention of any recent trades in PERFORMANCE section (last was upto Mar’14). Also VIEW TRADES mentioned update of Mar’17 as the last one.
    Awaiting your revert please
    Regards-A Bhapkar

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