Are you unknowingly donating money to your Bank ?

Bank is an institution for transferring money from hands of common man to big businesses.

And in the process of doing that, Bank itself makes good amount of profit.

To understand this, let me first ask you.


Have you taken any loan from bank ? It can be home loan, vehicle loan , personal loan or any type of loan. In today's so called middle class or salaried class, almost everybody has taken loan from bank. The interest rate may vary from around 10 % to 14% depending upon the type of arrangement you have with the bank.

 Although you have taken loan, still you must be having decent amount of savings , which are lying in savings account, fixed deposits or similar instruments. Best rate of interest you must be getting on these is to the tune of 4 % to 8 %.

Now in your loan and deposit , there is a decent gap of around 2 to 3% on the interest you earn (& pay 33% tax) and interest you give. In other words, bank has taken money from you at 7% and given it back to you at 10% ! The two transactions may be in same or different banks but ultimately the story for you is same.

 Also, you pay interest on interest but whereas what you get from bank is a simple interest. Does this really makes sense ?

 To some extent , yes , we need to have reserves for any kind of exigencies. This may be equivalent to two months or three months of monthly expenditure. But, it has been seen that without any consideration of loans and the interest component , we keep our surplus money very casually in fixed deposits or even in saving accounts.

This is not a great planning at all.

In fact , by doing this, we are very generously , DONATING money to banks. And that's how banks grow and pay decent perks to their employees.

That's why , there used to be a penalty in case you pre-pay your loan. Wow !, you are offering to give the loan back , but lender is interested in taking it at a later date.

Because that is how , the lender is making money.

If you are intelligent person ,you must not fall prey to this system. You must start investing in instruments which can give positive returns (after taking care of taxes + inflation). So, even if you are earning a very conservative return of say 18% on your capital, even after paying taxes and considering for inflation,still you are adding on to your wealth.

And there is no dearth of such instruments !

And you do not require to be an investment wizard for learning to take part in these instruments !

And last , you can be a passive investor also and still make the kind of returns I am talking ! Join our workshop.


http://theoptionschool.in/

Why Greeks are so important in Options Trading?

Markets will always move upside, downside or sideways. Now presence or absence of these movements will be responsible for profits or losses in the portfolio. As an investor or trader, we all understand this. 

When we trade in multiple hedged options, it becomes all the more important to know the effect of three different things on our portfolio. 

Three things which can affect our portfolio are: - 

- swing or movement in the market, 

- time left for expiry (options are decaying assets) and 

- changes in volatility of option contracts. 

 Let us try to understand with an example: - 

 Say Nifty is at 7850 and as a trader, you are expecting market to move up. So you purchase a call of 7900 strike price at Rs 80, so that in case market goes up, you make good profit. 

The question to be answered is, when will the market move up? Suppose market moves to 7900 in next five days. 

What will be the value of the 7900 call you had purchased in Rs 80 /-? 

Will it be profitable? 

May be, maybe not. 

Quite possible that even when the market has gone to 7900, the price of this call is Rs 60 only. So, if I had purchased this call in Rs 80, thinking market will go up, I will still lose Rs 20, although my judgement of direction of market is correct! 

My prediction of market was correct! 

My trade of buying a call was correct! 

Market has gone up! 

Still, I am losing money?? 

This may seem to be totally illogical. But, please hold on. Markets are very very efficient. There is surly a logic behind this.

The answer lies in knowing at least three Greeks - DELTA, THETA and VEGA. 

• How much the portfolio value increase or decrease with market movement?

• How much the portfolio or particular option value will increase or decrease every day? 

• What will happen if market remains there, but volatility increases? 

Knowledge of these Greeks will answer all this questions. After knowing these Greeks, we can decide whether to do adjustment in our portfolio or not. Not only this, but what adjustment to be done will also become clear with knowledge of Greeks. These are very important concepts so that you can steer your option strategies towards profits. 

Without them, its driving a car without a steering! Dangerous !

Learn about greeks in our 3 hours online workshop. Visit www.theoptionschool.in

What are Option Spreads ?

What are Option Spreads? 

 If we want to use full power and flexibility of options trading, we must spend time in learning what are Option Spreads. 

If you are buying a call or a put option, what you are doing is, you are trading in a single contract or we can say single ‘leg’. But if you are trading in multiple contracts or multiple ‘legs’ which are related to each other, it can be termed as a spread. So buying a call option and as well as selling a call option is one kind of spread. Similarly, buying a call option and buying a put option can be another kind of spread. 

Although spread trading seems to be pretty simple in concept, but it becomes more complex in practice as we need to take care of market movements and its implications on overall spread profit and loss. One might think that how is it possible to make profit or loss when simultaneously we are buying and selling a call, since both will behave in similar fashion with move in the market. Yes, you are right but the trick lies in choosing different strike prices. 

So according to your view of market, different kinds of spreads can be created. The benefit of creating a spread vis a vis a naked buying and selling of call and put is that it reduces your risk, considerably. And in trading options, if we are able to manage risk, we can be sure of profits. So to understand spread, we have different classifications. The most simple classification of a spread can be based on the option premium involved. 

With this classification, the spreads can be classified as :- 

1. Credit Spreads – Credit spreads are spreads which will give credit to your account in terms of premium. For example, if you are selling a call and selling a put, premium of both call and put will be credited to your account and hence this is known as a credit spread. Please bear in mind that for selling a call and a put you will require margin money in your account, which obviously will get blocked. But in terms of premium of call and put, you are getting credit and hence this is known as credit spread. 

 2. Debit Spreads – As the name suggests, if you create a position which is taking money from your account (in terms of premium), it will be a debit spread. For example – if you are buying a call and buying a put, you need to pay the premiums of both call and put to the market and hence the money will flow out from your account and hence it is known as debit spread. 

Things cannot be simpler than this. So, what are the different situations in which we create credit spreads or debit spreads. Or what kind of credit and debit spreads are there. Yes, its surly a next logical question but needs more explanation before we jump into any kind of conclusive statement. 

We need to understand another classification of spreads to get the whole concept in. As per this, again we can have two kinds of spreads :- 

1. Vertical Spreads – In case you are taking two positions of call (or put) in the same month for an underlying, it is known as vertical spread. For example – you may buy an 8000 call and sell a 7900 call of Nifty creating a vertical gap between the positions. Since you will be selling and buying both the strikes at different prices, it will give a play to gain or lose money according to the movement in the market. Similar positions can be made on put side also. Again, a vertical spread can be a debit or a credit spread depending on the strike prices chosen. (more on this in next post). 

2. Horizontal Spreads – In case we are taking two position in different expires, it creates a horizontal spread. For example, if we sell 8000 call of Nifty for May month and buy 8000 call of Nifty for June month, we have created a spread with limited profit and limited loss. This kind of spread is termed as calendar spread or horizontal spread. Again, as in case of vertical spread, horizontal spread can also be a net debit or net credit spread depending on the strike prices selected for creating the spread.

 More on spreads and benefit of trading in spreads, various kinds of spreads possible and what all we need to look at, while creating spreads will be shared in our next post. Hope you enjoy reading it. If yes, please share you’re your views. That gives us encouragement to share more.

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