first of all, you have to remove a mental block of your mind What is mental block? When we buy, our cost is only premium We can get anything If we buy Reliance, the call is Rs.2500The example will be the same as in the last blog If you buy Rs.2400, the price of Reliance is Rs.2500
If Reliance becomes Rs.3000Then Annand, I will become a millionaire So we have this mental block When we buy options, our risk is only premium And we can get lakhs, crores, billions There is nothing like that First of all, you remove this mental block.
We will discuss each point But don’t let this mental block come in the discussion of this complete blog always do option selling Why do I do that? Let’s know the reason First Reason Odds are in your favor Your winning probability is the highest when you sell options Example, Reliance is running at Rs.2400What can happen with Reliance in the market in the next month?
First, Reliance breaks down and runs at Rs.2000Reliance breaks down a little and runs at Rs.2300Reliance is not going up or down, it is at Rs.2400Reliance increases a little Reliance runs at Rs.2500And the last situation where Reliance increases a lot It reaches Rs.3000 or Rs.3500There are 5 situations
Nothing can happen except this Now we understand that according to me Just an assumption think Reliance is a little weak have sold the call out of the money Price is running at Rs.2400I have sold the call at Rs.2500It means that out of these 5 probabilities will profit in 4 probabilities Success probability is 80%Right
Suppose I think Reliance is going to increase have put sell out of the money Price is running at Rs.2400What will be the put out of the money? Comment and tell us Answer is Rs.2300Now here, what will happen with me?80% winning probability Right Only 20% is the extreme situation Where I can lose but 80% probability is that I will win here and in India,
according to past data96% of the options expire at 0RightOption seller wins or wins 96% time and option buyer wins 4% time This is what past data can say It is possible that this data is a little bit wrong but normal math tells us That winning probability in selling is 80%Why is it so? Because option is a wasting asset You must remember the example of ice cube
The way we melt an ice cube on a pain the same way, premium melts and one more interesting thing is Singapore Nifty, SGX Which we track at 1 am and 6 am What happened? Options are not working there Because Singapore is traded by institutions Big players Everyone wants to work in options But they want to sell
There is no buyer Because of which options are not working If a big player thinks That winning probability in selling is high And we should sell options Then we should do the same Right This is the second point Taking profit is easy in options Suppose we buy Reliance at 2400And my target is 2500Pushkar, you can also ask this question .
Suppose my target is 2600How many times it happens? Our stop loss is 2595Right90It reverses from there And our stop loss is lost Right Means we say our target Didn’t touch and came after touching And our stop loss is lost Right Repeat it again I liked it Quotation Didn’t touch And came after touching And our stop loss is lost Very nice Remove it No, it was good I continued it
Our target didn’t touch And came after touching And our stop loss is lost How many times it happens for us And we can’t book profit here See And when we talk about stop loss Stop loss is not booked We keep waiting One more day Two more days How difficult it is For all of us here
Because you have sold out of the money You just have to wait patiently You have to be patient But out of the money It is easy for you to make profit Price is running at 2400You sold the call at 2600Because you thinking this month It won’t go above 2600Or you sold the put at 2200 or 2300Because you thinking this month it won’t go below 2200And for this Next point is related to last point Time is your best friend It is 30 days If the price is running at 2400
Let’s take one example So that it will be clear We sold the call at 2600We think it won’t go above 2600We sold the call for one month Suppose nothing happened in the first 10 days The stock price was running at the same level
The premium of your option Even though the momentum is not on your side It has worked in your favor Your premium has melted The ice cube that was melting on the pant has come in our pocket
The option has come out of the buyer’s pocket Here Sometimes you may feel I have got enough time value want to exit You can exit anytime we put up this point very specifically in the last blog You can exit anytime Suppose It was the example of Hardy Pandya a Suppose Hardin Pandya has put sixes on two balls
And we have already got a very good premium Your wish is that you want to exit You can exit You did put sale Your wish is to exit You can do it Here You have to decide how much maximum loss you have to do What is mental block?
Unlimited loss can be in option selling It is not unlimited loss The loss you have to manage is Suppose You were selling Reliance at Rest. 2400You sold a call of Rest.
2500 You got a premium of Rest. 40You can say Until this premium does not go above Rest. 80I will hold it and Rest. 80 is cut off for merit is a stop loss Maximum loss is not unlimited here There is a limit You have to set that limit It is a wasting asset Take care of the example of ice cubit will be very useful Just predict That particular stock and index Can’t go up to where We have ruined our life
till now Reliance will be Rest. 2600 ITC will be Rest. 320 This will be this much and we are not successful in that We are not able to earn money there say you leave all that You just predict what will not happen Reliance will not go above Rest. 2700No matter how much it breaks It will not go below Rest.
2300 in this month Means what we were doing till now in which we were not getting success You have to do exactly the opposite of that Here as simple as that This happens in option selling Against this if I talk about option buying.
2400 is the price of Reliance You bought Rest. 2500 call of Reliance First your Reliance has to move the share in your favor While working hard from Rest. 2400You have to go up to Rest. 2500Then it will go above Rest. 2500You have to be in the right direction If you do option buying If you have that capacity You have the blessings of God Wherever you touch, you will be right Obviously, your money will increase in option buying
You will get more But your probability is very less Work hard and keep doing And you will be able to earn money only when you are right Final Risk management is easy You must be hearing this difference Everyone says that in option selling Risk management is the toughest
say it is the easiest You can see 25, 30, 50, 100 months of history And tell me how many times Nifty has given more than 3% in a month There will be some months But how less time is there Or is there any Nifty that will be 30,000 this month Or 20,000
I am not in the camp of those who make imaginary pulao That we talk about 50,000 or 5,000It is neither 50,000 nor 5,000They say that the color is neither white nor black Everything is grey Everything is relative In the same way,
we are not talking about the extreme Suppose if Coved comes Then obviously your stop loss will be set You will have to take But how many times will it happen What does probability say Usually, more than 3-5% move rarely comes in a month
So how easy it is for you to go out of the money and do any work Along with that, you are also taking care of the trend You are taking care of the general market trend You are taking care of whether your stock is maintained above50-200 moving average or not
Is your stock in strength or not After taking care of so many things Plus 80% probability without taking care of these things is in your favor Can’t you earn money Maybe yes These were the 5 reasons Because of which option selling out of the money is most favorable for retail investors For any investor And my favorite strategy is complete. Three small drawbacks. Risk is unlimited.
This is the biggest drawback. But this is your mental block. It is unlimited because you have to manage it. Now you feel that we can’t manage it. So you understand that this is its drawback. I can’t do anything about it. Now if I talk about its drawback, you will say that it is not Mental block will be there.
Management will be in your hands. You have to take a stop loss in the 20% or 10% or 5% that will move against you. In option selling, we have a probability to win. But we are not God. Second, limited profit. Annand, the premium we got, that’s all our profit. Can’t be more than that.
So I say that you do multiple trades. If your winning probability is more, then do multiple trades. You can make it a regular flow of income. If you have a good and sufficient capital, you can make it regular flow of income. The strategies we will talk about; you can use it to earn a lot of profit. Limited profit. I say that you buy stock.
Suppose you buy Reliance in 2400.Our target was 2500.There is limited profit for you. Even if Reliance is going for 10,000, you are going with target of 2500, 3000, 3500.So your profit is always limited. It’s a matter of mental block. Third, this is actually the biggest drawback.
And we have to admit this. Capital is required. Absolutely. In option selling, you think that you have brought 50,000. You can maintain the portfolio of option selling. You can’t do that. You need a sufficient capital that will be completely for option selling. We can’t do anything about it.
Earlier, there was a requirement of less capital. Now the rules of margin have become stricter. So the requirement of capital is more. We have to admit this. But I say that if your capital is too small, then playing in unnecessary call put, being rich overnight is not a gambling market.
If you are thinking by buying that it is a gambling market, thenI will have 1 lakh for 50,000.1 lakhs for 10 lakhs. And after that I will stop gambling. You won’t leave. Keep it. Because it has become your habit. And habits don’t leave. And when you work by buying randomly, you have to be wrong just once to make your capital zero.
You have to be wrong just once. And here you will get multiple opportunities. This does not mean that after this series ends, you will be motivated by these two blogs and go straight to fight the war. Right now we are creating the whole ground work. You have to give time.