Why Is It Necessary to Bank Gains in Options on a regular basis?
In this post, I thought of sharing with you why it is necessary to exit Long Options in certain situations and bank gains. This is based on the trades that i had actually taken and is not a backtest story that I am sharing.
HDFC BANK 1580 CE
A few days ago [as highlighted by the arrows in the chart of HDFC BANK], I bought HDFC BANK 1580 CE when the spot was at 1567. The intent was to ride it as long as I can and preferably till it reaches 1600 psycho resistance.
The exit basis was based on the premise that I had picked up the trade using a good basis and the price at that time was in the zone.
However, man wishes and the market disposes of the plan out the window!
I soon realized that the underlying was not having enough strength and it was highly unlikely to cross even 1580, leave aside reaching closer to 1600. HDFC BANK has the tendency to quickly slip a few points and in such a case, my Option would come near cost and I would end up letting the gains evaporate.
In view of this, I exited the long in good gains in terms of ROI % which is how I measure my trades as I do not trade with a big size as I have learned those lessons the hard way in the past. I was content with the trade and was expecting that the scrip may retest the area from where it had bounced.
And something similar happened and without blinking, I went long on the same Option and interestingly, this time I could get it at a better price by 10 paise. On an HDFC BANK Option, even this small difference could well take care of all the charges so I was happy. And I waited for the price to test the earlier level from where it got rejected and as the scrip approached the level, I simply exited without thinking about a What if it goes beyond the resistance line?
My exit was justified and then the scrip rolled down.
I was happy that just by observing the price action and not really referring to any indicators, I was able to make 2 good trades. Or should I say - the market was kind enough to grant me these 2 good trades?
[n Conclusion:
The above highlights the fact that while trading in Options, observing the price of the underlying when in momentum is essential and as soon as the trade is on, the exit plan should be in place. This can be done either by placing an SL order or a target order. I keep these levels in mind and exit as and when either of these are approached.
When in a bull market, when a price retraces back to a support area, a good trading opportunity appears as in the case explained above.
Taking a re-entry at the same or around the same price level is easier when there is already a profit cushion from the earlier trades so the not only the mental state is stable and positive, but the confidence while pressing key is also at the required level.
Please let me know if this helps and if you would like me to share some of my trades [including those that go wrong] with you and I will do so whenever possible. As you can see from the chart, the trades mentioned above were taken a few days ago before HDFC BANK tested lower levels.
Happy Money Making!
Umesh
18-9-21
Note - I am not a SEBI Regd analyst and the views expressed here are purely for educational and informational purposes only. Please perform Due Diligence at your end before taking any trades as only you know how to manage your money.
HDFC BANK 1580 CE
A few days ago [as highlighted by the arrows in the chart of HDFC BANK], I bought HDFC BANK 1580 CE when the spot was at 1567. The intent was to ride it as long as I can and preferably till it reaches 1600 psycho resistance.
The exit basis was based on the premise that I had picked up the trade using a good basis and the price at that time was in the zone.
However, man wishes and the market disposes of the plan out the window!
I soon realized that the underlying was not having enough strength and it was highly unlikely to cross even 1580, leave aside reaching closer to 1600. HDFC BANK has the tendency to quickly slip a few points and in such a case, my Option would come near cost and I would end up letting the gains evaporate.
In view of this, I exited the long in good gains in terms of ROI % which is how I measure my trades as I do not trade with a big size as I have learned those lessons the hard way in the past. I was content with the trade and was expecting that the scrip may retest the area from where it had bounced.
And something similar happened and without blinking, I went long on the same Option and interestingly, this time I could get it at a better price by 10 paise. On an HDFC BANK Option, even this small difference could well take care of all the charges so I was happy. And I waited for the price to test the earlier level from where it got rejected and as the scrip approached the level, I simply exited without thinking about a What if it goes beyond the resistance line?
My exit was justified and then the scrip rolled down.
I was happy that just by observing the price action and not really referring to any indicators, I was able to make 2 good trades. Or should I say - the market was kind enough to grant me these 2 good trades?
[n Conclusion:
The above highlights the fact that while trading in Options, observing the price of the underlying when in momentum is essential and as soon as the trade is on, the exit plan should be in place. This can be done either by placing an SL order or a target order. I keep these levels in mind and exit as and when either of these are approached.
When in a bull market, when a price retraces back to a support area, a good trading opportunity appears as in the case explained above.
Taking a re-entry at the same or around the same price level is easier when there is already a profit cushion from the earlier trades so the not only the mental state is stable and positive, but the confidence while pressing key is also at the required level.
Please let me know if this helps and if you would like me to share some of my trades [including those that go wrong] with you and I will do so whenever possible. As you can see from the chart, the trades mentioned above were taken a few days ago before HDFC BANK tested lower levels.
Happy Money Making!
Umesh
18-9-21
Note - I am not a SEBI Regd analyst and the views expressed here are purely for educational and informational purposes only. Please perform Due Diligence at your end before taking any trades as only you know how to manage your money.
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