Going Short!

Going short! you might have come across this term a lot. What really is it? A majority of people can’t wrap their heads around the concept of short selling. In this post, I am going to talk about “going short”

Taking a short position is nothing taking advantage of falling prices of stocks and they can be taken various ways, which I will get to in a bit. Now, How I do explain this to a layman? Well, here it goes. Suppose you see the stock of Reliance Industries and you feel that the results of this quarter are not going to be that great and it will fall after the results are announced. Reliance is now trading at Rs.1000 and you feel that from here on it will start falling. You sell the Reliance shares at say Rs.1000 and the results are announced, as expected the results are poor and the stock is falling from Rs.1000 it has come down to Rs.950. You decide to book your profits and you buy it back at Rs.950 and pocket Rs.50 as profit even if you do not really own the stock(yes!you do not have to own the stock). That is the power of short selling.

Now there are different ways to take advantage of falling prices, here they are:

• Plain short selling: Sell the stock high and buying the stock at low prices like the example I gave above. But this can be done on an intraday basis only as you cannot carry on the position to the next day as you do not really own the stock.
• Buying a put option: Buying a put, you can take advantage of the falling prices by paying very little money for the option, which gives you leverage. This is how leverage works on an option, say you buy a put option for Rs 10,000 which gives you the right to control 500 shares which would have cost you Rs 5,00,000.It means you have 50 times leverage. So if Reliance stock moves up 1% you investment moves up 50% that is the power if leverage. But beware if the stock goes up your Rs.10,000 will vanish in thin air.
• Selling a call option: If you want to get a little adventurous or you are an advanced trader you can always short a call and take the premium but remember that if the stock rallies you are subject to unlimited risk.
• Selling a future: Selling the future is a good way to profit but it is like a stock is on steroids, again you are using leverage to gain from the bearish movement in the stock, but remember if the stock goes against you, you are subject unlimited losses.

To sum it up, you can always take advantage of the stock going down but you cannot do that without understanding the pitfalls of short selling. There are various methods to profit from a bearish stock or index, one can choose any or all of them depending on his/her capacity and risk appetite.

Till my next post, happy trading!

 

 

 

 

Financial Freedom

Are you really financially independent when you say that you have a job? Think again! A lot of us think that we have a good job and all your benefits are getting taken care of like your medical insurance, a fixed pay, etc. by your employer.What most people don’t realise is that they are not financially independent(apne pairon pe khade hona), they are dependent on the employers for all these things and they are completely oblivious to the fact that the employers can go bust someday(Now, I am not saying all of them are going to go bust) but don’t forget Lehman Brothers. Now financial freedom is something I am going to talk about today in today’s post.

What is financially freedom really? It is nothing but being independent of anybody for your livelihood, not even your employer. Like I said earlier, your employer might go bust, there may be a layoff or worst of all, you might get fired. The likelihood of these things happening might be low but they are not impossible. They can be huge eye openers. Have you ever asked yourself if any of these things come true what I am going to do? chances are you have not. It is a hard question to answer but an important one.

I am not saying you quit your job right now, that is not the wisest thing to do but create more than one source of income to support you even when you are not working. They say that most millionaires have at least 5 sources of income but you have start with one. Now the important question, how are you going to create another source of income? There one million ways to make 1 million.

It is ok to take a loan to buy a house and rent it out but it is not a very wise decision to consume or stay in the house because if you stay in it, it will not generate any income and you will have to depend on your salary to pay the mortgage and if something untoward happens  you will find yourself in a soup.When you take a loan to consume you basically become a slave of your employer and the bank that you have borrowed from, both of them control you, same for cars bought on loans. I have made mistakes myself and I have learnt from them, there is no shame in admitting it. I was always worried about paying EMIs and I hate paying them and I am sure you hate it too.

To create another source of income, start with anything you like(legal) and anything you are passionate about. It can be anything from investing in real estate, trading in stock markets(with proper knowledge), investing in a business that does not require you to be present all the time. You are going to retire from your job one day, what after that? Nobody knows the answer.

So start early, make all the mistakes early so as time progress, you will have made all the mistakes and learnt from them. If you don’t, you are trapped with your employer. Think about the job like this, If you leave your job today what is the downside of it? suppose you make 6 lacs p.a or may be more and you leave your job what is the downside? 6 p.a- 20% or 30% or maybe 0 but that is all you lose but what is the upside? infinity, you can have all the money in the world. Sticking to just one job will give you limited growth and you will be at the mercy of your employer.

So, whenever you say “I am financially independent” think twice. let me share a video where a Goldman Sachs trader shares view on financial free.

Key Takeaways:

1. Create more than one source of income.
2. Do not take loans to consume but to invest.
3. Freedom is a precious asset, do not trade it.
4. Set a goal, decide a timeframe and work towards it one step at a time.

Till the next blog, bye!

P.S: Here is the link https://www.youtube.com/watch?v=4a51wQAOGR4&t=3881s

 

 

 

Options: Why trade it? is it risky? or safe?

For years, there has been a myth that options are risky, or it is the easiest way to lose money or it is just another way of gambling in the market.

Now, what makes options risky? or rather what makes stock markets risky in general? There is primarily only one reason for it, there are more reasons to it but I couldn’t emphasise more on this reason, and that reason is nothing but LACK OF KNOWLEDGE. I will get to the other reasons too but let’s focus on the primary reason here.

Lack of knowledge of the stock markets: Most people underestimate the value of proper training before actually trading with real money in the market. People go to the stock markets thinking that they will make it big overnight but they realise it is the big mistake they made by losing thousands, Lakhs and in some cases Crores. It is really sad to see people lose money in the markets in this fashion. Still, people do not realise this and either blame the markets for it or they blame their luck, they blame everybody else but themselves. Why don’t they ask themselves had I taken proper training before entering the market or even read a book on basics of trading would I lose so much money? They end up calling it a gamble and never come back to it again. Stock markets are nothing but a goldmine, with the right tools and knowledge it can serve you for a lifetime.

A little about Options, “Options are derivatives which get their value from an underlying instrument, in layman terms, it is a right but not an obligation to buy or sell the underlying instrument at a certain price at a certain date.” Most people trading options lose money because they buy an option thinking that it is limited risk instrument but little do they realise that the probability of making a profit is also low. It is the options writer who ends up making money. Always remember, when you write an option, you trade like an insurance company, when you buy an option you buy a lottery ticket. Now you are smart enough to understand who makes money in reality.

Now what are the other reasons people end up losing money, they are as follows

• Lack of Money management(they have no clue how much money they need to put in one trade)
• Lack of risk management(No stop losses or hedging, most do not know what hedging or a stop loss really means)
• Lack of emotions management(this is an important one, falling prey to fear and greed)

Trading is more a game of mind than numbers, once you get the mind right everything falls into place.

My aim of writing this post is to spread awareness among people about the benefits and pitfalls of trading in the market and how to avoid the pitfalls and focus on winning and learning.

I also teach people to trade options using High probability Low-risk options trading strategies. I personally believe having peace of mind while trading is of utmost importance. You can always email me on santosh.bhat85@gmail.com or options.masters20@gmail.com

I will be happy to hear from you.