How to trade for RBI policy on 5th April,2016 ?

Today RBI will announce its policy at 11:00 a.m.

How can we use this event for making some profits ?

There can be two scenarios :-

First - Markets move sharply in any direction due to some sudden surprise by the policy.

Second - Markets remain range-bound as there is no surprise in the policy.

In both the cases , there is one thing which will surly happen.

Implied Volatility of options will go down after the policy.


So, best method to trade in such an event is sell options on both sides. Yes a short strangle can be a great strategy, as after the event,  prices of both call and put may go down , considerably.

More conservative traders can create an iron condor , so that even if there is a big move in any one direction, there are no / small losses

We must take some precaution while  creating such positions. Most important is , we must ensure that  we are sufficiently away from the spot levels of market so that in case of any sharp move, none of  our positions get In The Money. In case we are able to achieve this, chances are very bright that we will be able to make profit only.

Because of such events, IVs always go up and after the event, irrespective of outcome of event, IVs go down. So if IVs will go down, option writers will be benefited. Since we know that markets may not make a significant move till the policy announcement, we can always initiate our positions just before the event.

If you are relatively new with option writing, just go for paper trading to understand the scheme of things.

All the best.

www.theoptionschool.in

How to choose a Broker ?

We have been getting requests for recommending a broker with which subscribers can open account .

There are so many brokers and brokerage plans offered and overall there is a cut throat competition to acquire new customers.

What you should be looking for while selecting a broker.

Let us try to clarify some of the important aspects.

Broadly there are two kinds of brokers in the market.

- Normal Brokers

- Discount Brokers


Normal brokers will charge much higher brokerage as they claim to give better services , something like picking your form, picking your cheque to be deposited in your account, providing you a relationship manager etc.  So they will charge higher brokerage compared to normal. We have seen a broker charging even Rs 100 per lot of option on each leg. Now, with this kind of brokerage , it really becomes difficult for an option trader to make positive returns from the market because first you will earn something like 2 to 3 % for your broker and then you will earn anything for you.


Another set of brokers which have entered in the market since last few years are Discount Brokers. They will offer you discounted brokerage like Rs 20 per order (any number of lots), Rs 750 /- per month for unlimited number of trades  , etc etc.  Theses Discount brokers are mainly available online for all the services, such as printing of your form , trading on their online platform , sending them forms through courier and most of them operate with one or very few branches. Also, they will charge you for orders place over phone which will be over and above the brokerage charged.

Even the so called normal brokers may charge you for the orders placed by you over phone.

Now, with this kind of scenario, what should we do ?

It depends on the type of trader you are. Honestly, broker is hardly adding any value to your trade and almost all are equally safe ( as all are guided by same regulations).

If you are somebody, doing lot of trading, better to go for discount broker as it will save you lot of cash outflow on brokerage. But, if you are somebody, who doesn't trade frequently, you can stick to same broker although it may not make any prudent financial reason.

How come discount broker gives you per ORDER kind of trade ?

Here is the catch. All brokers, in addition to brokerage are charging transaction charges in the trades done by you. These charges are over and above the brokerage and taxes like STT etc. AND they vary from broker to broker.

So , broker can claim that he is giving you BROKERAGE FREE trade, but the fact of matter is , he will be charging you higher transaction charges. So, ultimately , a FREE brokerage plan can cost you more than a normal plan also.

So, a final checklist before deciding on the broker :-

A. What is the brokerage charged ? - If you are a trader with good volumes, ask for per order brokerage rather than per lot. If not per order, anything more than Rs 10 per lot is on higher side and you should try to get it reduced. EVERYTHING IS NEGOTIABLE.

B. What are the transaction charges ? Ask upfront. Ask to provide these details in writing and check with the charges charged in your contract note.

C. What is the margin blocked on positional trades , specially when you are selling options ? In Nifty, this can range from 25 K to even 60 K for one lot. Many times they will block much higher margin and hence your overall profitability ges drastically reduced. Why we broker do that ? - OK, we will discuss it next time.

D. What will be the charges if I place my order over phone ?

E. What is the process for withdrawal of my money ? Is it online or do i need to place telephonic request ? My money shoul be credited in my account within 24 hours.


OK, once you talk on these lines, rest assured , most of the things will be taken care.

Additionally, some more precautions will be shared in next post.

Feel free to comment, suggest and ask.

www.theoptionschool.in

www.masterstrategy.in

Daily View On Nifty

18.03.16 / 12:50

Intraday huge support at 7400 and some resistance at 7650. Lot of writing in puts seen even at 7500 level indicating 7500 will also provide support to the market. Off late market is getting hugly manipulated and we are observing reversal of trends in the last one hour.

Long term range now shifting to 7400 - 7700 shows upside bias. But lets wait for todays close to see what is in store for this series expiry.

Next week is a short week with Thursday and Friday being holidays, and we can see build up for expiry trades in next week trading.