Monday, March 31, 2014

ANYTHING CAN HAPPEN

There is a fictional story of a deer who got death trapped once in forest.A hunter covered him with one side and a lion is on the opposite side of the deer.The other two sides are covered with river and fire.So, it was a death spiral for him on that moment.But something unexpected happened on that moment,it was a rainy season and suddenly a bright light occurred in the sky which diverted the target of hunter and he misfired the lion. So deer ran away safely.

All the odds were against his life but still he survived, so we can say anything can happen. But exact opposite could also happen with someone, when all odds of success are with you but even after you could lose.

  We had a similar experience a few days ago in our trading,when all odds of success were with us, yet we lost money.

We made a bull spread in BankNifty (Buy 12400 call and sell 12800 call) expecting the BankNifty to rise. Well, BankNifty rises 100 points in next 2 days but even after that we get a loss in our spread. This was unexpected. We took our loss quickly and move out of the trade.

Spreads are the strategies made to reduce the risk or for safe profits.Suppose,

--We bought an in the money call and sold an out the money call of BankNifty hoping the BankNifty will rise. We expected  premium of in the money call will increase more rapidly then the out of the money premium. We will have an safe profit.
-->If BankNifty falls,then we will have minimum loss because when it will happen then the premium of out of the money call will also decrease which will cover our loss.
But there is no 'sure thing' in the market. The premium of out the money call increased more rapidly than the in the money call. The implied volatility of the out of money 12800 call increased and led to a sharp increase in its price.

Well it happens in trading sometimes and we have to accept it, rather than fighting with it.All we can do is to have proper risk management, cut the losses quickly and learn from our mistakes. We should always keep in mind that anything could happen at any time in life,and we should always prepare ourselves according to it. As i always say hope for the best and prepare for the worst.

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