Today’s blog is focused on the discussion with Mr. Subhasish Pani from Power of Stocks, an experienced trader in the options market. Mr. Subhasish has been trading for seven years and has achieved impressive profits, totaling over 20 crores. His journey began with the primary goal of making money, like many traders, but he also emphasized the importance of transparency in trading. He wanted people to understand that profitable trading is possible and to demonstrate the reality of both gains and losses.
He believes in showing the complete picture to his audience. While he might share fewer details about losses, he feels it is essential to present an accurate representation of his trading journey. This approach helps his viewers comprehend the ups and downs of the trading world, encouraging them to stay motivated and continue learning.
Recently, he has shifted from his individual account to a private limited company to take advantage of favorable tax benefits. However, he advises beginners not to rush into setting up a company right away. It becomes a viable option when profits consistently exceed certain levels.
He reflects on his trading journey and the progression of his trading strategies. He starts by emphasizing that despite the impressive profits displayed on the screen, achieving success in trading is far from easy. He wants his audience to understand that trading requires dedication, continuous learning, and prudent decision-making.
Initially, he started with trading stocks as he had limited capital. As his capital grew, he ventured into trading futures due to their higher potential returns and leverage. However, he was aware of the risks associated with futures trading and focused on proper risk management to safeguard his gains.
Following a significant market crash, he capitalized on the opportunity and turned 2 lakhs into an impressive 60 lakhs. He realized the importance of preserving and scaling his profits to ensure long-term sustainability. Gradually, he shifted towards option selling, a strategy that aligned well with his temperament and allowed for better capital management.
Option selling appealed to him because it provided more control over risk and profit potential. He also emphasizes the significance of following market trends, which further enhances his trading decisions.
He explains that initially, he used to trade futures due to their potential for higher returns and leverage. However, as his capital grew and market conditions changed, he encountered some losses in the futures segment. He realized that capital utilization played a crucial role in determining the success of his trading strategies. While he was successful in smaller capital sizes, his previous approach did not work as effectively with larger capital.
The concept of scalability became apparent to Subhasish, prompting him to reevaluate his trading style. He understood the importance of adjusting his strategies to suit the changes in capital size and market conditions. As a result, he shifted towards option selling, which offered more control over risk and profit potential.
He highlights the key advantage of option selling over futures trading—the ability to define clear targets and manage risks effectively. In option selling, he can set specific target prices and take advantage of time decay, making it easier to lock in profits.
In contrast, the unpredictable nature of futures made it challenging to determine precise target levels, leading to potential losses even when the market direction was correct. The lack of clear targets in futures trading created difficulties in booking profits, which further contributed to the losses.
The shift to option selling allowed him to better align his trading temperament and psychology with a strategy that provided more certainty and control over outcomes.
Initially, Subhasish started with stocks, then moved to futures, and eventually explored options buying and selling strategies. As his capital grew, he found that investing the entire amount in buying options didn’t align well with his money management principles. Instead, he reduced his buying exposure to around 10% of his total capital. This decision allowed him to maintain liquidity and take advantage of potential buying opportunities that may arise.
Apart from active trading, he now recognizes the importance of investing for long-term wealth creation. In the past, he didn’t prioritize investment, as he believed that small quantities of high-performing stocks wouldn’t yield significant returns. However, as his capital increased, he realized the potential of long-term investing and how it can significantly grow one’s wealth over time.
As his trading success has brought in substantial profits, he is now taking a more proactive approach to investing and building a diversified portfolio. He sees the value in putting capital to work for the long term, allowing it to grow steadily and potentially reaching greater heights over the years.
He addresses the scenario where he might have an extra 10 crore rupees in his account. He explains that if he doesn’t have a specific investment plan, he would consider investing a portion of the surplus in Nifty 50 stocks. By doing so, he can benefit from the overall growth of the market. However, he also emphasizes that his primary focus remains on his core trading strategies, such as option selling.
In the event that he already has significant holdings in a stock, he could pledge it to obtain margins and then engage in covered call option selling. This strategy allows him to generate additional income from selling calls, even if the stock price remains relatively stagnant. The combination of stock appreciation and option income can help multiply his wealth over time.
Subhasish underscores the importance of liquidity in financial planning. He acknowledges that while real estate may offer potential investment opportunities, the lack of liquidity can present challenges. Having sufficient liquidity allows him to respond swiftly to trading opportunities and access funds when needed.
Ultimately, he believes in striking a balance between active trading, long-term investing, and other investment avenues. By diversifying his financial portfolio, he reduces risk and maximizes potential returns.
He shares a valuable lesson about the importance of capital management and discipline in trading. He admits that if he had started with a large capital amount earlier, he might have suffered significant losses. Hence, having limited capital at the beginning allowed him to learn and adapt without the risk of wiping out his entire account.
However, even after getting a job, his initial attempts at trading did not yield the expected results. He experienced losses and learned that trading is not about quick money but requires discipline, knowledge, and a systematic approach. He openly admits to losing his entire salary on some occasions, highlighting the risks and volatility inherent in trading.
He explains how he had to manage his finances creatively, using credit cards and borrowing from friends to continue his trading pursuits. Despite the initial setbacks, he did not lose hope and continued learning and experimenting with different strategies.
Subhasish story serves as an essential lesson for aspiring traders, cautioning against starting trading with loans or borrowed funds. He emphasizes that it is crucial to focus on learning, building skills, and gaining experience before risking substantial capital in the market.
He shares that he sought advice from reputed traders in India, but found that most of it was based on marketing and not genuine expertise. This realization made him understand that there is no “rocket science” in trading; success lies in excelling at the fundamentals and being disciplined.
He highlights the probability nature of trading, explaining that while everyone desires quick profits, losses are also an inherent part of the game. He urges traders to focus on probability rather than obsessing over specific numbers or trying to avoid losses altogether. It’s about maximizing gains when the odds are in your favor and minimizing losses when the odds are against you.
He discusses how traders often struggle to accept losses and end up making irrational decisions like averaging down, leading to even greater losses. Instead, he advises traders to stick to their risk management plans and avoid overreacting to short-term fluctuations.
He suggests starting with a small capital, say 10,000, and making a clear plan about how long they are willing to commit that capital and what their strategy will be. Having a well-defined plan and timeframe helps avoid impulsive decision-making and prevents treating trading like gambling.
He recommends focusing on becoming disciplined in one’s actions rather than trying to predict market movements. Traders can pick highly liquid stocks like Reliance, HDFC Bank, or SBI from the Nifty 50 index and either buy or sell them every day or for a set period. This repetitive practice helps traders develop consistency and discipline in their approach.
He emphasizes that traders should not worry about predicting market direction but focus on the process of executing their chosen strategy. By following this approach, traders can learn from their actions, track results, and gradually improve their skills.
By following this repetitive practice, traders can better understand the probability and risk-to-reward dynamics in the market. It helps them develop discipline and consistency in their trading activities. He stresses that success in the market is not about predicting daily market movements but about sticking to a well-defined plan and learning from the results over time.
He discourages traders from constantly changing strategies or seeking quick profits. Instead, he advocates a patient and systematic approach, allowing traders to observe the results of their actions and gradually refine their skills. He emphasizes that profitability in trading comes from maintaining a disciplined and well-defined approach rather than trying to make profits on every single trade.
Traders should understand that the market is a probability game, where stocks can either go up or down, or stay sideways. By embracing this perspective and sticking to their systematic plan, traders can better manage their expectations, learn from their experiences, and increase their chances of achieving consistent profitability over the long term.
He advises new traders to focus on one liquid stock from the Nifty 50 index and either buy or sell it daily for a fixed period, say 30 days. By doing this exercise, traders can develop discipline and understand the probability and risk-to-reward dynamics in the market.
The main objective of this exercise is not to focus on profits but to instill discipline and patience in traders. It helps them overcome the urge to constantly trade and chase quick profits. Instead, they learn to follow a well-defined plan and understand the importance of managing risk and reward in each trade.
Subhasish points out that this exercise also helps traders realize the importance of consistent actions over time. By sticking to the plan for 30 days, traders gain valuable insights into their own trading behavior and begin to recognize areas where they can improve and become more consistent.
Furthermore, he highlights that traders should not get overwhelmed with too much data and information from the start. It is better to focus on executing a well-defined plan with a clear risk-to-reward ratio, rather than trying to analyze complex data without a proper strategy.
As traders gain experience and become more disciplined, they can gradually explore other strategies and market segments. However, in the initial stages, it is crucial to keep things simple and focus on building a strong foundation of discipline and risk management.
By following this systematic approach, traders gain a psychological boost and become more confident in their trading decisions. He believes that successful trading is not dependent on having extensive knowledge or using complex strategies, but rather on being disciplined and consistent in executing a well-defined plan.
He shares a personal example of teaching his wife a simple setup involving setting stop-loss and profit targets. Despite having minimal knowledge about the stock market, she has been profitable for 14 out of 15 months, showcasing the power of discipline and a straightforward trading strategy.
In the straddle setup, Subhasish explains that the market is currently at 18,000, and there are call and put options available at that strike price with premiums of around 80 and 85 rupees, respectively. A straddle involves simultaneously selling both the call and put options at the same strike price and collecting the premiums.
The logic behind the straddle setup is that the option seller is indifferent to the market’s direction. They believe that the market can stay at the current level or move within a certain range, and they can profit from the passage of time or theta decay. By selling both the call and put options, the seller takes advantage of the premium received and the likelihood that both options may expire worthless if the market remains stable.
For example, if the market stays around 18,000, both the call and put options will expire worthless, and the seller can keep the entire premium as profit. The risk in this setup is limited, but the potential profit is also limited to the premiums received. However, the high premiums offered for the straddle setup compensate for the limited profit potential.
He emphasizes that option selling is costlier initially because the option buyer pays a premium, but it can be a profitable strategy when done correctly. Option sellers need to be mindful of risk management and have sufficient capital to manage potential adverse market movements.
The straddle setup provides a way for option sellers to generate income without having a directional bias in the market. It is essential to be disciplined and follow the setup consistently to achieve positive results over time.
The setup involves selling both call and put options at the at-the-money strike price, which is the strike price closest to the current market price. For example, if Nifty is at 18,000, he sells both the 18,000 call and put options. This strategy is implemented on Tuesday, Wednesday, and Thursday of the week, as these days tend to have the maximum premium decay.
The risk-to-reward ratio is set at 1:2, meaning if the potential loss is Rs. 5,000, the target profit is Rs. 10,000. If the profit target is achieved, the position is booked, and if the loss target is hit, the trade is closed to limit losses.
Subhasish suggests that this setup is backtested and has shown a 70% accuracy in generating profits. However, he advises traders to respect the market and avoid trying to adjust positions if the trade goes against them. Instead, sticking to the initial risk and reward parameters is crucial for the success of the strategy.
The setup is designed for intraday trading, and it can be implemented with a capital of around 2 to 3 lakhs. It offers a disciplined approach to trading options, allowing traders to take advantage of premium decay and the probability of profits in the Nifty options market.
As traders gain more experience and confidence, they can consider making their own modifications to the strategy. However, he explains that sticking to the basics and being disciplined in following the setup is the key to success in the options market. This simple yet effective approach can serve as a foundation for traders to venture into the options market with a higher probability of making profits.
He divides the trading day into different zones. The main trading hour for options is from 9:15 am to 10:30 am, which provides ample opportunities for trading options. However, the time between 10:30 am to 12:30 pm is considered a “no-trade zone” as there is often limited momentum during this period.
For traders with a larger capital base, the last hour of the trading day, from 1:30 pm to 3:30 pm, becomes a potential trade zone. This is because there is often increased momentum and price movements during this time. However, it is crucial for traders to consider their capital size and probability of accuracy before engaging in multiple trades.
The most opportune times for trading options, as suggested by Subhasish, are the main morning hour and the last hour on the day of expiry. During these periods, traders can capitalize on price movements with minimal impact from theta decay. By focusing on these time frames, traders can increase their chances of capturing profitable opportunities in the options market.
He advises against trying to copy others and instead encourages traders to focus on their own progress and growth. Each trader’s journey is unique, and comparing oneself to others can lead to unnecessary disappointment and distraction.
Discipline remains a key attribute for success in trading. By being disciplined, traders can stick to their strategies, manage risk effectively, and make rational decisions even in the face of market fluctuations. It is crucial to recognize and appreciate one’s own progress and improvements along the way.
As traders gain experience and grow their capital, they will naturally discover their strengths and preferences in the market. This self-awareness will guide them towards the strategies and assets that align with their trading style and risk tolerance.
Finally, Subhasish advises traders to start with simple strategies and gradually explore different techniques like trading breakouts or using support and resistance levels. As they gain confidence and experience, traders can evolve their approach and diversify into other assets like real estate, depending on their interests and risk appetite.
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