Expiry day option trading : 16 Jan

Expiry day option trading. Taken on 16 Jan 2020. 

ROI (Return on investment) = 0.24%

Margin used = Rs. 1,20,000 

Profit = Rs. 296.25

It was a tough day for expiry day trading. Nifty started with little uptrend and then suddenly started falling. It fell by 60 points in an hour. Then again started climbing. So it was a roller coaster. But something weird happened with Put options. As nifty was on the bottom most of its down trend, all put options premium spiked up by 8-10x. This spike lasted for just a couple of seconds but that was enough for all the stop loses to be triggered. I hit a loss of ~0.55% due to this spike. But by day’s end, I was able to recover it and end up with a profit of 0.24%. Below are my trade details and explanation of my thought process behind placing each order. It also explains how I managed to cap my loses in spite of 10x spike in prices and how I as able to convert a profit by the end of the day.

Below is the 5 minute chart of Nifty on 16 Jan.

Nifty 5 minute chart

Trades

Note: All the options traded had expiry on 16 Jan.

Explanation

  • (1)
    • 0.15 delta option was available only on Put side. On call side, available delta was either too high like 0.25 or too low like 0.07. So sold just one put option at 12300PE which was at 0.15 delta. I will hedge this by selling call option when 0.15 delta call option is available. I kept stop loss to ~3x of the premium collected.
  • (2) & (3)
    • Nifty started rising. Put premium reduced by more than 30%. Modified the stoploss in (3) to the entry price. The trade is in good profits, so i do not want to incur a loss on it, in case the market reverse.
    • Now I sold another put at 0.15 delta which was at 12200PE. The previous put cannot give loss due to the new stoploss, so I entered into a new put trade which I will hedge by selling call option if the market reversed. Since 0.15 delta call option is still not available, no hedge placed for now. I kept stop loss of this put to ~3x of the premium collected.
  • (4) & (5)
    • Nifty further rose. Put premium of 12200PE came down further 30% to 2.05 . Modified the stop loss of put sold in (2) to its entry price. See (5)
    • Since both the Put sold cannot make a loss as their stop loss is modified to entry price, I entered another trade by selling one more put at 0.15 delta which i will hedge by selling call option if the market reversed. Since 0.15 delta call option is still not available, no hedge placed for now. I kept stop loss of this put to ~3x of the premium collected.
  • (6)
    • Market started reversing, one of the put stop loss got hit. I missed seeing this order as I was also working on something else. I saw this after more than 30 minutes. Somehow, my broker app did not send me instant notification also.
  • (7) & (8)
    • Market kept falling. Not Call delta with 0.15 were available. So I sold them to maintain delta neutral position. I kept stop loss to ~3x of the premium collected.
  • (9)
    • Premium of call option sold in (7) reduced by 30%. So modified their stoploss to entry price. This ensures that my handsome profit does not turn into high loss trade. Iit is better to make no profit no loss than incur huge loss. It is very hard to recover huge loses.
  • (10) & (11)
    • Market kept falling, but at the bottom of its downtrend there was a sudden spike in put options. The price soard by 8-10x only for a couple of seconds. Due to this, stop loss market order of my put options got triggered. Since I kept the stop loss to the entry price, i did not hit huge loses. If I had not modified my stop loss from 3x of premium collected to entry price, my loses would have been huge, to the extent to the extent that i might have to exit all my trades for the day. This stoploss change strategy brought down my loss of 2% to ~0.55%. Since these loses were small, I could recover it by the end of the day. Below is the spike that occurred.
Spike in Put option
  • (12)
    • Now i had 2 call options which were at ~0.07 delta each. To hedge them I sold a put option at 0.15 delta at 12250 strike price. I kept stop loss to ~3x of the premium collected.
  • (13) & (14)
    • Minutes after, market started recovering. Premium in put sold in (13) has come down to almost half. So I modified its stop loss to the entry price.
    • Since the put sold in (13) cannot make loss, I sold another put at 0.15 delta in (14). This will keep hedging the call side options in case the market reverse and tight stop loss on earlier put got triggered.
  • (15) & (16)
    • Since call premium of both options came down by 40% , I modified their stop loss to the entry price.
  • (17)
    • I wanted to exit my positions before 3:00 PM as Nifty may give violent movement after 3:00 PM . Nifty was trading at ~12350, so my 12250PE seemed pretty safe. My 12400CE was less than 50 points away. So i decided to exit this position in profit. I decided to keep my put options till expiry to same on brokerage charges.
  • (18)
    • I forgot to convert my MIS order on Put to NRML order. So broker went ahead and squared off my position.

What went good

  • Tightening stop loss on trade that is in good profits saved me from huge loses. Since loses were small, I was able to recover them by the end of the day.

What went bad

  • Expiry day trading needs undivided attention. Prices changes too fast. I could not notice that one stop loss order got triggered for 30 min as I was in parallel working on something else. If I would have noticed that, I could have hedged my position earlier.
  • I forgot to convert the MIS order to NRML, leading to profits cut in brokerage.

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