How can a novice learn about option trading in India?
There are a lot of books you can refer to. For eg. The Bible of Options Trading.
My wife is a novice and many times I have tried explaining to her in simple ways, how option trading works. I fail all the times.
I was a novice once. Just reading books and applying it in market is never feasible. Books are written varying from markets to markets. And stocks and indices behave differently in every market and so does their derivatives. So what comes from practical can never come from theory. When you have money involved, you get serious in how things work.
I can not tell you how a novice can learn about option trading, but I can tell you how I learnt about options in last 9 years and then you can make a plan for yourself.
I started as an equity intraday trader and shifted to swing trading after burning my hands.
Got introduced to options by my father and was fascinated on how I can make money from as low as Rs. 10,000/-
Tried options buying many times and blew it every time.
By 2012, I was paper trading and again pretty sure as a student that I can turn 10,000 to Rs. 20,00,000/- by option trading. Didnt failed but had to quit after it reached 15,000/-. It wasn’t feasible.
Circumstances forced me into a job, and I was introduced to a book Get Rich with Options. I read it and understood option selling is the key.
I started paper trading at end of the day on daily charts. My target was to earn a meagre Rs. 35,000/- so as to quit my job.
After 3 to 4 years of back testing, I was finally some what sure that its time to quit.
I quit my job and started trading. Paper trading was different from real trading. It was not a side business. It was going to be my bread and butter. So no one can understand how frightened I was with my capital and every time I executed an order.
I understood, real trading is different from paper trading. I was not even ready to take my first stoploss.
I happen to know a big trading personality in the region who was humble enough to talk with me. He told me he hits stoploss 60% of the time and makes profit from 40% other trades.
I started exiting loss making trades and rode the profits till expiry. I was writing naked calls and naked puts out of greed.
My intial target was to earn profit of Rs. 35000/- but I was earning 60,000/- and in some months earned more than 2 lakh also.
Then volatility hit and I made a monthly loss of 100,000/- which was an eye opener. Equities can be highly volatile and can fall for more than 50% too.
Hedged strategies I knew were not feasible as equities had less Liquidity.
And so I shifted to Nifty and Majorly to Bank Nifty Trading.
After a loss of 100,000/-, I had to re-evaluate my game plan. I cannot sleep at night with the same kind of fear that equities may fall. I had to re-educate my self and adapt to a new system.
I didnt trade for two months and shifted to indices. I did back testing and searched for broker for my needs.
I again started trading in options and making constant profit from it.
Then came the september crash of market. Although I knew market was bearish, I was caught in a sideways volatile market which gave a no profit no loss month. I learnt, never catch a falling knife.
I also learn’t, not trading on instinct but on whats in front of you.
I got loss when my positions were not hedged. Never trade naked.
Be ahead of the market. Do not take a trade and then think.
Options are versatile and you can plan for every if then but scenario. Think of risk, reward, worst case and best case scenario and where to exit and when to exit before taking a trade.
Learn to sit at sides when things are not clear. It pays.
My down days taught me; To play the game, you have to be in the game. Protect your capital.
Things marked in bold are lessons that I learn’t and helped me learn the next step in trading. It is upto you if you can learn something from this and devise a plan for your self.