Hi @rameez -
If I was just starting out, I would try to āreverseā my way into understand the amount of capital.
With options, you can lose 100% of the value of the contract on expiry (if you are long). If you arenāt trading near expiry, you can likely sell for some percentage of that. You never want to place all of your capital on a single options trade. If you are comfortable risking 10% of your capital (assuming that you could have a 100% loss), then you would divide the average cost of the contract you are purchasing by 10%. That would give you a guesstimate of the amount of capital you should need.
Iāve written a chapter on position sizing in my Trading Risk Management course to help you understand a little better.
A bit of background on option prices - They consist of both intrinsic value and time value. Maybe when you bought this option it had Rs5 of intrinsic value and Rs45 of time value. However, as expiration nears, time value will decay to 0. If the underlying moves favorably (upward for a call, downward for a put), then the intrinsic value will go up.
The LTP on expiry may have some small amount of time value ābuilt intoā it because technically it hadnāt expired. Perhaps, it was 0.25 of time value and 199.75 of intrinsic value. The settlement value of an option contract on expiry (if you hold through expiry) is the difference between the underlying price and strike price. Specifically:
Long Call: Underlying Price - Strike Price of contract
Long Put: Strike Price of contract - Underlying Price
What is the future of algo trading looking like?
I wanted to invest my time in this, but if the path is going to be hard in the next monthās, I will try other options. I mainly wanted to know what are the possible limitations we might see in the algo trading space?
I am hearing that we need to share the complete code to the broker . Is that right?
Will this condition apply to everyone or just those who are doing high volume trades? If we do just 5-10 trades a day will we have to share the code?
Thanks for the overwhelming response! Weāll be back with another exciting AMA soon. If you found this session helpful, keep the conversations going on the Community. Drop your thoughts below - what did you enjoy the most and what topics should we cover next?
This may sound very generic (and it isnāt a ātipā in a usual sense): there are almost always opportunities - they may just involve doing something that are currently outside your āstrategy setā.
As traders start out, they focus on one particular type of strategy (maybe scalping indices using a combination of TA indicators). However, on some days, the market just may not be moving enough for your strategy to work. This leads you to either force a trade or to sit on the sidelines. But just because the index isnāt moving for your selected horizon doesnāt mean that other ideas arenāt working. You could potentially āliftā that strategy and apply it to large cap stocks (for example). Perhaps the indices are flat because some stocks are going up while others are going down. This presents an opportunity. An alternative is perhaps you are always trading directionally (long call or long put). It the markets are consistently flat day-over-day, with either high or low movement throughout the day, then the opportunity involves switching up trading strategies including straddles, strangles, butterflies, and condors. As you get more advanced, you could have ideas about how the markets may move from week to week. This may allow you to shift into trading calendars.
Going along with that, you always need to be asking yourself: āWhat is my edgeā in the market. Why will this idea/strategy work for me (because if it works for you, then why isnāt everyone successful)?
@VIDYASAGAR_12600983 - I think that you asked this a few times so Iām reposting my response here as well:
In this case, your GTT order will be triggered around 6% (Considering the MPP). If the market is trading below the SL price, then the order will stay open. The order will not get executed at 10% immediately.
Hi @RAJESH_22337061 -
The spot price (and chart) will show the current value of the index while the futures price (and chart) is the current market value of the futures price of the index.
Let me break it down using the Nifty as an example. The Nifty (and other indices) have constituents like Reliance, HDFC Bank, TCS, etc. There are rules that define the construction of the index but simply, index values can be thought of as a āweighted averageā of the values of their constituentās prices. So, if 49 stocks on the Nifty are flat but Reliance is up 10%, the upward movement in the Nifty will be the weight of Reliance times its price movement. Iām simplifying a bit, but this is what the āspot priceā is.
When you trade futures, you are placing a trade on what the spot price will be on a future date. In doing so, the futures price accounts for the cost of capital. For other futures like commodities, the futures price accounts for the cost of carry which could include costs of storing the physical asset and transporting it for delivery.
Can you please cal me on 9493751339.
I have lot of confusion. If market opened below the stoploss price Stop loss will not be triggered and remains continue , if it falls 50% then I will lost 50% of funds then whatās the need of GTT Trailing Stop loss ?
Thanks for the question @Rameez - I think the answer to this really depends on your trading strategies / market opportunities that you want to take advantage of.
If you are looking to trade directionally, then determining whether you want to focus on futures or options (or both) depends on margin availability and capital that you want to put at risk.
If you are interested in collecting premium or trading non-directionally (taking advantage of changes in volatility), then trading options will be more appropriate.
Weāll be back with another exciting AMA soon. If you found this session helpful, keep the conversations going on the Community. Drop your thoughts below - what did you enjoy the most and what topics should we cover next?