Bangalore: Armed with all the latest tools, courses, mentors and chart reading techniques, around 90% of options traders in India nevertheless end up losing money. So let us look at how one of the top traders in the elite 10% club has been minting money in the F&O segment.
In this interview with ETMarkets on the sidelines of the Traders Carnival, Bangalore’s star trader Sivakumar Jayachandran explains the key fundamental principles that help him make money within a small window of just 3-5 minutes as an option scalper in Bank Nifty.
Siva, as he is popularly known, shuts down his trading terminal once he has achieved his target of making a 1% profit and then starts training other newcomers in the market.
Edited excerpts from a chat:
What made you quit the comfort of a well-paid job in the healthcare industry and play along with the vagaries of the stock market?
I was one of the four senior managers in a healthcare startup, which was growing rapidly at that point of time in Bangalore, when I saw my juniors making money in the market during the bull run from 2006 to 2008. I was making money but wanted some passive income to retire at the age of 40. I got lured into the market at that time, thinking that if these guys, who were working under me, could make so much money, then why can’t I?
But I didn’t have any basic knowledge, and when I started investing, the market started falling. My Rs 10 lakh portfolio came down to Rs 1 lakh, and I sold it. As any novice trader would do, once you lose money in stocks, you want to explore the F&O market. From 2013-14, I was consistently losing money till I started learning how to play the game.
So what was the revelation that changed your trading journey?
After understanding how options work, I realised that scalping would work best for my trading style. Scalping is all about taking a position and holding it for two-three minutes. We try to close the position within 15 minutes. You make quick money and get out of it.
The only problem is that as a scalper, you may not be able to scale up. The reason is you have to punch in your orders and get an exit also within 3-5 minutes. You may not be able to put in maximum quantities as the sellers, who can hold their positions for days and weeks together. That is the only disadvantage for a scalper, but your advantage is that all your actions happen within 15 minutes. All your emotions will be completed, whether joy or sorrow, within 15 minutes. There’s no risk of carrying overnight positions. You can spend the weekend with your family without worrying about how the market will open on Monday.
Once I decoded this, I started scalping from small capital and gradually increased it. If I made a 1 per cent return in a day, I would stop trading.
What are the key principles that you follow as an options trader?
1) I use the previous day’s profit as a stop loss. Imagine you made Rs 1 lakh yesterday, and today your stop loss is at Rs 1 lakh, then you won’t have any major risk while entering the market today. If you lose your capital, it always hurts more. But if you lose your profit, then you can always make that money again. This principle has really transformed me.
2) I also do not put all eggs in one basket. I split my capital in five different accounts. After making money in one account, I close it and move on to the next one, thinking that I am starting the day afresh. That way, I protect my profit, which I made in the other account. This has helped me build my psychology to be a better player in terms of how I can improve my success rate. Now compared to the past, probably 90-95% of my trades are doing positive, and the remaining 5% are in loss. But due to the risk management, which I have followed, I can easily make 15% in a month.
3) I know my limitations as an option buyer. I cannot keep scaling it up. With a capital of Rs 1 crore, if I can make Rs 1 lakh in a day, I do not require more than that. Where will I spend so much money? We need to keep telling ourselves where to stop. Some people just want to keep compounding and then lose everything one day. That makes a lot of difference.
So what do you do after those 3-5 minutes of trading are over?
For the rest of the day, I focus on other elements like building my platform OI Pulse and conduct mentoring and training programmes.
How big can your drawdowns be in options?
It can be a maximum of 10% of the capital deployed. Normally, I do not deploy over 30% of my capital in one trade, which means that the overall risk is around only 3%.
Is it that easy to make money in just 3-5 minutes?
The challenge is how quickly you can see all the data around you and execute it. It is a game of fastest finger first. You need to be good at understanding and analysing the data. F&O is all about speculation. You need to speculate before someone speculates that. You know that only 10% of the community makes money, and the remaining 90% end up in a loss.
Why do you choose to buy options and not sell?
It is a myth that option buyers do not make money. We are trying to break that myth. Imagine if there are only sellers in the market, do you think the market could survive? You can’t keep selling the product if there is no buyer.
If you are doing naked selling, then you have unlimited risk. Even if you are doing a naked buying, you have a risk related to the option premium. Both buyers and sellers have equal opportunities, but sellers do have an edge.
