Future and Options

(Mallikarjun) #1

Have planned to try out Future and Options. Options not able to grasp clearly.

Future trying out in excel, till the derivative segment gets activated for live trade.

Need guidance from Seniors/Valuepickrs who are into F&O..

It will be of immense help if you can guide/caution me regarding Future's and help me out by sharing your experience.



(bala) #2

hi malli,

never found a faster way of destroying account than FnO trading. this i am telling after involving in all different ways of losing money like IPO, FnO, Forex, Commodities, Equity day trading. so simple advice is to stay away and i am trying hard to unlearn my previous experiences

this doesnt mean you cant make money in FnO. it doesnt work for several investors. but there are better ways and look at this forum and understand value investing. you can make lot of money over a period. FnO is like picking peanuts before road roller.

(Manish Vachhani) #3

We(majority members) at valuepickr do not encourage F&O trading, options trading, day trading, speculative trading etc. If you need guidance for F&O, you need to contact directly to the interested/learned members outside the valuepickr site. Admin, please correct me if I am wrong. If I'm not, then please delete this thread.

(Mallikarjun) #4

Bala paaji thanks to Valuepickr forum i am at zero loss even after recent market mayhem.

Have raised some capital.. Thought of raising additional capital from Future's and plough it back to valuepickr stocks..

Thanku for cautioning me

@Manish Vachhani Thanku for being vigilant as ever

Admin please delete the thread..



(Manish Vachhani) #5


This forum is self moderated. While all members are free to post, but certain discipline has to be maintained for the sake of all the members and particularly to safeguard the interest of the new learners.

Personally, I feel you should stay away from F&O. I have read your posts and it seems you have a good grasp of the value investing and hence should invest into the fundamentally good stocks. F&O do generate great profits quickly but the losses too are swift and huge. Also leverage makes it a fast wealth destroyer.

(Mallikarjun) #6



F&O.F&O destroyer.

True Manish..F&O is too sensitive to be tried or discussed when we have new learners.. Even i am a newbie to value investing..

On a lighter note ; Thought of using Future's as a float smile

On a serious note; Guess future's will make it tough to remain alive..

(Manish Vachhani) #7

Better stick to the simple approach to the value investing rather than going with the complicated one. Capital preservation is equally important as the capital appreciation. Risk/Reward ratio is not favourable in F&O.

(Deepak Swamy) #8

Sir, Please Believe me. I did F&O for about six months during my initial days in stock market. I almost tripled my investments only to lose all in just about 3 days! Since then never ever looked into this segment of market.

My belief, and not offend anyone, its gambling and nothing but gambling. (I think its a tool for institutional investors etc to hedge their investment positions in Stocks or something like that which I never bothered to study)

(Mallikarjun) #9

Thanku Deepak and Manish

Will like to quote Buffet to safeguard and to discourage newbies from F&O;

"Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal"



(Sunray) #10

I'm new to VP but would like to hazard one question to the knowledgeable on preserving capital :

Is not using a Put option with a stock purchase a**fundamentally****conservative** approach. Are we not preserving our capital in case of a correction?

The one clear negative to this method would be the tax consequences. However if you are applying it to an opportunistic portfolio (assuming the horizon is less then a year, is it not a careful and appropriatemethodology?



Disc: Never used FnOs for anything.

(Hrishi) #11

I couldn't get any futures related topics, so adding a question here .

What is the risk with futures vs LAS.
I know they are not strictly comparable. But then I can either do LAS or futures. I can buy a lot in futures and keep rolling it vs I can do LAS and buy against the money and pay interest.
What is the better way to leverage for 5% iportfolio cost, without tax consideration .

I am not new to equity but don't know anything about f and o.

(Shan) #12

Futures and options are perfectly good instruments for trading if you know what they are for. If not they'll become weapons of mass destruction.

If you don't understand something pass on, there are better ways to make money.

Plenty of sites to read about them just search.

Two conservative approaches for futures and options are CSPs (cash secured puts) used for buying low and covered calls (selling high). Read them up. And then there's tail risk management using deep out of money puts which is what Spitznagel advises. I suspect Taleb would agree too. I've been a net loser in tail risk hedging so far but you need to be aware that you nearly always lose in tail risk hedging anyway. (It's like insurance you should be happy to never need to get money from insurance)

I strongly suggest that you stay away unless you're really going to put in a lot of effort in understanding everything (especially theta and IV). For most typical value investors - you're better off staying away from F&O and the major reason being these are necessarily trading tools and not investing tools.

(Hrishi) #13

Thanks. I will try to put in efforts to understand but may stay away as in initial reading I found it tougher for my liking.
I had this simplistic thought:
Instead of having all shares in equity/cash, if I buy one lot of each in futures along with my current portfolio and keep the money for daily fluctuations I can have a bigger portfolio at a risk of 5% of overall portfolio value. If I loose it is 5 -10 % but then I can keep much bigger portfolio with rolling over every month.
May be things are not this simple.p

(zygo23554) #14

I am looking to build some capability in F&O primarily to hedge my portfolio & to benefit from fat tail events. Some rules I've set for myself -

1) My actions in F&O will only complement my direct equity portfolio. I will be active with hedging only when I sense the risk in the markets is high, else I am content staring at the screen and not punching in anything

2) I will never ever be an option seller, at any point of time I need to know what I stand to lose at most

Reasons I am looking to understand this better -

1) We continue to be in a era of unprecedented policy action. We've seen QE, FX manipulation, ZIRP, negative rates so far; next step in my opinion will be fiscal easing. We will continue to be in uncharted territory for some more years, markets will react to unexpected events and volatility will re appear in bursts every once in a while

2) My equity portfolio is small/micro cap based and has gotten hammered on days when unexpected global events happen (China fall in 2015, Brexit this year). While the stocks will recover and go on to do well once things stabilize I need to figure some mechanism to benefit from a large market fall so that the "portfolio reset" can be cushioned to some extent

What I've learnt so far, hardly 3 months of seeing option prices daily -

1) At the beginning of an expiry period you just need to get the broad direction right, accuracy does not matter. As we go closer to the expiry date you need to get both direction and accuracy correct - this is a suckers game where strike rate will be very low

2) Theta kicks in big time 8-10 days before expiry date, once TV is taken off unless you are on the right side of the trade you will lose > 50% of the option premium value

3) A value investing mindset will work against you in Option buying, if you keep buying options that are cheap you will lose money regularly unless you get lucky

4) Options utility is highest when you have large macro events on the horizon, one should have an event calendar handy and play it accordingly. Basing the option hegde on market valuations levels is very unlikely to work

5) One needs a solid macro economic framework and understand interplay of prices in equity, bonds, commodities, FX across the world to improve strike rate in options. Unless one has this already in place the chances of staying neutral (forget making money) are minimal

6) I have some time to go (at least 18 months) before I can articulate my hedging strategy to myself, leave alone others

In short a lot of work to do!

(nitin.verma) #15

Hello zygo,
Wondering if you can recommend some books on options?
Thanks in advance.

(zygo23554) #16

Nothing specific that comes to mind. Most of the basic fundas I learnt during my MBA days, after that am just relying on practical experience. Am still a beginner though, try messaging Nirav Parikh (Nirav8)- he might be able to give you some guidance

(reacher) #17

2012 to 2014 I used a combination of LAS and futures - I was relatively more immature then (I now realize this ) . I used money from LAS to fund the F&O margins.Very stressful since the stock went against me and went down about 40%.The money I finally made got reduced significantly by interest paid out on LAS,Cost to carry forward the futures longs every expiry for about a year and finally 30% tax payable on profits made out of futures.Also since I used to borrow incrementally on LAS to fund the M2M margins the financier started to charge me slightly more interest than was originally contracted on the incremental loans.Net Net I came out making money much more than I had ever made till then on long term investing but the entire exercise made me quite shaken and nervous and anxious though the learning is tremendous once you have skin in the game.In early 2015 I said good bye to both LAS and to derivatives (futures as well as options) and also to intra day trading.I disabled the derivative option in my trading account and closed my LAS account.

My advice is not to get frightened of derivatives as a hedging tool but to use it once you are in the market for 2-3 years and have some experience of swing trading and intra day trading in cash segment.So the trajectory advised is first long term investing in cash and then a small part of portfolio in inter day equity trading and then graduate with strict SL based approach towards intra day equity trading and then finally dip one's feet in put and call options(only buying of puts or calls and not selling ) and finally small exposure to derivatives.I will avoid taking naked selling of calls or puts without corresponding hedge either in cash or in futures.

For majority of readers of this forum i would guess about 98% this entire exercise is going to be just academic and not a money making exercise.For the balance 2% it can be rewarding either economically or at least to get to know the human behaviour element of investing which long term buy and hold value investors consider as nice to know but not as essential.

(Shan) #18

For options, strongly suggest going through all articles and videos on tastytrade.com and that should be a great start

(saitks99) #19

How can change in open interest of a particular day be less than volume traded on that particular day for an options?

I am new to options trading and I learnt that open interest change can occur only upon a transaction. But here, the change in open interest is less than volume traded during a day. Am I understanding something wrong ?

(zygo23554) #20

Some thoughts on CY2017 from an F&O perspective -

  1. Extremely bad year to be short! People have gotten canned for being short, this year would have created some naive traders who ended up making money just by being long all the time. There were hardly 2-3 months where one could have gone short with conviction, most long/short fund managers I know have been losing money on their hedges through the year, needless to say their investors are unhappy due to their under performance. Years like CY2017 are not a good benchmark to evaluate oneself in terms of results, but probably the best years to evaluate your own temperament - especially if you are a person looking to mostly hedge

  2. Once again one needed to have a very good overall macro and sentiment evaluation model to be able to decide when to play the hedging game. I turned in a slight positive return for CY2017 only because of one trade that went right - I hardly made 6-7 trades through the year and lost money on most of them. The trade I got right was when my thought process was crystal clear and had carefully studied all scenarios for a week before initiating this

  3. Clustering tendencies continue to affect me, I make mistakes in clusters. So if I get something really wrong, I tell myself that my pulse isn’t on and that I got to step back and stay away for the time being.

  4. I have better idea of when to be in the F&O market and when to stay out after CY2017. That is probably my biggest learning so far, will save capital in the long run and help me bet with conviction when I make trades

What I liked most about my approach through the year was that I continued to display above average levels of patience in spite of a sequence of misses. I still haven’t figured this out yet but I seem to be doing the basics right and staying the course.