Golden Rules of Trading: note it is called "golden rules" and not "assured return" rules.
If an existing security fails to meet aforesaid continued eligibility criteria for 3 consecutive months, then no fresh month contract shall be issued on that security. However, the existing contracts may be permitted to trade till expiry and new strikes may be introduced in the existing contract months.
जैसा कि आप देख सकते हैं, वार्षिक रूप से गणना की गई आय 11.3% है, जिसकी गणना 22-अप्रैल-1996 को 1000 के प्रारंभिक मूल्य से (लगभग 26.5 वर्ष) एनएसई के 31-अक्टूबर-22 के स्तर पर की जा सकती है। हालांकि, यह एक बड़ा औसत है और व्यक्तिगत शेयरों ने उच्च आय दिया होगा (25% वार्षिक चक्रवृद्धि के रूप में )। As you can see, the return computed yearly is 11.3% which can be calculated based on NSE level on 31-Oct-22 (approx 26.5 years) after initial value of 1000 on 22-Apr-1996. However, this is graand average and individual stocks would have given higer returns (as high as 25% annually compounded).
However, the fact remains valid that over very long time interval, the rate of return reduces as compared to the selective and partially hidden values projected in media over short term (3 ~ 5 years). हालाँकि, यह तथ्य निर्विवाद है कि बहुत लंबे समय के अंतराल पर आय की दर कम अवधि (3 ~ 5 वर्ष) में मीडिया में प्रस्तुत/मुद्रित "चयनात्मक और आंशिक रूप से छिपे हुए" आय की तुलना में कम होती है।A graphical view to demonstrate magic of compounding is shown in the chart below. Notice the impact of Rate of Return (ROR) on the wealth multiplier. Notice how a moderate 10% return compounded annually multiplies your wealth 10-times over 25 years and a 12.5% return ends up growing your money 18 times over 25 years - one should not look beyond this timeframe as explained with an example below. If you extrapolate the data up to 40 years and rate of return up to 15%, the return starts getting to unrealstic levels. The impact of tax and inflation is not reflected here.
No industry or a company can continue growing at fast pace for duration more than 25 years - this is not due to any issue with that particular company but time available for competition to get a foothold is enough to keep the growth of all participants in check. Following example of General Electric shall tell you the story: GE being a pioneer and well-diversified conglomerate has given around 15 fold return over a period of 40 years.
What about those who invested in 1995 or in 2005? There are few (can be many) exceptions though such as Apple which has given return of more than 900 times over the same period (40 years) between 1983 to mid-2023 and Microsoft has given return of over 3400 times over 35 years between 1986 to mid-2023. General Motors (one of the top 3 automotive players in world's biggest automotive market) has note given even 100% return over 12 years during the period 2010 ~ mid-2023.
Virtual Money in Stock Market Valuations: the stock price is not a linear function of number of stock being bought or sold.
Full-market capitalization: includes both active (available for day-to-day trading) and inactive shares (such as locked-in shares, those held by insiders, promoters, and governments).
Free-float Market Cap: method excludes locked-in shares, such as those held by insiders, promoters, and government and is based on shares readily available in the market.
Some data as on 21-Apr-2023 of NSE stocks:
|Name||Shares Total||Shares Free-Float||% Free-Float||Trade Volume||Trade % of Free Float||% Price Change|
Can you draw an inference from this information?
It is always (with some exceptions) desirable to have a source of passive income to enable and individual follow the course he wishes to. However, such sources are not easy to put in place or scale in terms of value. Some of such options with associated constraints are tabulated below. यह हमेशा वांछनीय होता है (कुछ अपवादों के साथ) की निष्क्रिय आय का स्रोत होना हर उस व्यक्ति के लिए आवश्यक है जो अपना जीवन अपनी शर्तों पर जीना चाहता है। हालांकि, ऐसे स्रोतों को मूल्य के संदर्भ में जगह देना या मापना आसान नहीं है। संबंधित बाधाओं के साथ ऐसे कुछ विकल्प नीचे सारणीबद्ध हैं।
|S. No.||Description||Competition or Entry Barrier||Required Skills||Required Infrastructure||Expecte Return or Recurring Income|
|001||Invest in share market, bonds||None||Selection of stocks||Demat account and investible cash||15% annualized on long term (> 5 years) basis|
|002||Tuition to kids, Ebooks, create and sell courses||Crowded market||Handling kids and their attention||Teaching material, hand-outs, videos, online streaming tools, Ebooks can have just 30-50 pages||-?-|
|003||Webinar on niche topics||Big tech companies already present||It is difficult to get a these which make you stand-out||Presentations, hand-outs, videos, online streaming tools||-?-|
|004||Make Reviews of Books||Requires solid credendtials to get noticed||Experience in writing essays||Time to read and think||Low volume, low income|
|005||Write Articles for Webpages (blogging)||Crowded segement||Requires solid credendtials to get noticed||Minimal: internet connection and laptop||High volume, low income|
|006||Make Product Reviews||Crowded segments||Needs to know multiple products||Minimal: internet connection and laptop, video recording devices||High volume, low income|
ये इक्कीसवीं सदी में सूचना प्रौद्योगिकी और तेजी से बदलती प्रौद्योगिकी के युग के सैकड़ों विकल्पों में से कुछ उदाहरण हैं। इनमें से कई में पूर्णकालिक नौकरी के बराबर बहुत अधिक ऊर्जा और समय की आवश्यकता होती है और इसलिए वे निष्क्रिय स्रोत बिल्कुल नहीं हो सकते हैं। या तो आप पहले ही काम दे दें या अपने पिछले काम को अपने लिए पैसे कमाने दें। कुछ उत्पाद, कुछ पाठ्यक्रम, कुछ ईबुक निष्क्रिय आय के स्थिर स्रोत का व्यवसाय नहीं बन सकते हैं। These are some of the examples of hundreds of option available in twenty-first century dominated with information technology and era of fast changing technology. Many of these require lot of energy and time equivalent to full-time job and hence they may not be passive source at all. Either you give work upfront or let your past work earn money for you. Few of anything such few products, few courses, few ebooks does not make a business of steady source of passive income.The Public Provident Fund fetches 7.1% return in 2023 and this is exempt from income tax irrespetive of the tax rate and income value. This is equivalent to also 10% of income subject to tax. However, the constraint is limit of INR 1,50,000 per year per person. The return from dividends from listes companies in India is approx 1.0% of current market price. The rental income of a house value market value of INR 1.0 crore is maximum in the limit of 4.8 lakh per month. This income is taxable in normal tax bracket. Thus, the yield turns out to be approx. 3.0%. As can be seen from these examples, the return from a passive source of investment is nominal and sometimes falls below the inflation limit. However, the brighter side of such investments lies in the large accumulation over a period of time in high value of portfolio.
Rate of Return and Risk-Reward Ratio: How many trades you need to earn a pre-defined monthly income? Refresh page to clear the data. Or update inputs and click Submit to re-calculate. ROCE = Return of Capital Employed
|Description||UOM||Option - 1||Option - 2||Option - 3|
|Monthly Income Expected*||INR|
|No. or Trading Days**||No.|
|Willing Risk per Trade||INR|
|Planned Risk-Reward Ratio||-|
|Likelyhood: % Winning Trade||%|
|% ROCE per Trade||%|
|Number of Winning Trades||No.|
|Number of Losing Trades||No.|
|Profit from Winning Trades||INR|
|Loss from Losing Trades||INR|
|Ave. DAILY Trades Required||No.|
|Daily Capital Required||INR [Lakh]|
|Click on 'Submit' button to update the table|
Beware of Propaganda and Half-Truths Hidden in News: Broking firms, institutions and individual market experts who cannot sense brewing issues in a particular bank say Yesbank in India or SVB in USA will suddenly turn into a maverick fortune-teller and self-proclaimed expert on entire banking industry and its immediate outlook. Just think the propaganda: An obscure and unknwon bank (SVB) suddenly became the biggest bank failure in USA history! When the price of a share corrects more than 50% from its peak, the so called market expert shall start advising investors to exist. Try to make a chronological history of the buy/sell recommendations by these "market experts" with the spot price of that share and the sheer propaganda to lure retail investors will become clear.
Economic Propaganda: Profit = Plunder - in reality Profit ≠ Plunder, Inequality = Poverty - in reality Inequality ≠ Poverty. Propaganda: Equality of Opportunity = Equality of Outcome, in real life - Equality of Opportunity ≠ Equality of Outcome. Forecasts: verify key assumptions, key variables considered, moeny trails, political and/or institutional affiliation of the group making forecasts. Myth: Governments do not need to repay the debts, they need to only service the debt. In reality, one generation or few consecutive generations of tax-payers have to bear the brunt when government chose to waive off the loans. Myth: Government can raise tax revenue. In reality, governments can only raise tax rates, tax brackets and range of taxable items & services.
Following entries can be used to calculate delta for up to 5 strike prices for a given spot-price. The default values are: Rate of Interest (ROI) = 5.0% per annum, Implied Volatility = 20 [%] and Dividend Yield = 0 [%]. In order to omit calculation in any row, specify lot size = 0. As an option trader, most of the money is earned through time decay and hence one should try to be delta neutral with only small bias in the anticipated direction of price movement.
|Spot Price:||Days to Expiry (days):||ROI:|
|IV:||Option Type||Lot Size||Trade Type||Delta Values|
In todays  days, most of the brokerage service providers have online tools to calculate Greeks and Margins for options trades. Few screenshots are shared below to show the impact of far OTM covered position on margins required for writing [selling] options.
The example above is for naked option short position and the example below is for covered call position.
Note that a deep In-the-Money [ITM] option has very pool liquidity [not many buyers/sellers are available] and most of the time trade at discount. Hence, carrying forward such position is like an NPA and should not be traded.
One should know how to place Limit Orders, Stop-loss Orders, Trailing Stop-Loss Orders and Bracket Orders. If a limit order is partially executed, do not modify and re-order. The new modify order will maintain the original quantity and discard the partially executed quantity. For example, you place limit order to buy 10 numbers of a stock, 5 numbers were bought and then modifing that trade will result in total purchase of 10 + 5 = 15 numbers.
If you are used to place naked options, try to make a rule to place orders in pairs. Specify the limit prices 2-3 Rupees higher or lower (as per the order type) so that both the orders get executed instantly. Check the 1 minute or 5 minute chart to ensure prices are not oscillating much on lower timeframes.
Following table gives an idea on interest rate and time required for money to double (100% return) and triple (200% return). The information can be used to benchmark the return from an stock market.
|Rate of Interest||Time (in Years) to DOUBLE when compunded||Time (in Years) to TRIPLE when compunded|
T-Bill is a money market instrument to finance the short term requirements of the Government of India (GOI). The returns on T-Bill instrument shall be difference between the par value and issue price / traded price. T-Bills are issued at discount in primary auction conducted by Reserve Bank of India (RBI). Negotiated Dealing System - Order Matching (NDS-OM) is a platform provided by RBI to trade T-Bills in secondary market. Yield is the income (return) on an investment usually expressed as a % annual return. Yield can be quoted as Yield to Maturity (YTM) = [Par Value - Market Price] / [Market Price] x 365/[Actual Days] or Discount Yield (DY) = [Par Value - Market Price] / [Par Value] x 360/[Actual Days].Excerpts from a news article: In Treasury markets, the gap between five-year notes and 30-year bonds fell below 100 basis points after the Fed policy statement to the lowest level since July 2020. A narrower gap could indicate factors like economic uncertainty, easing inflation concerns and anticipation of tighter monetary policy.
FII-FPI trade data: refer to NSDL website at www.fpi.nsdl.co.in/web/Reports/Latest.aspx.Since FII and FPI may trade on both NSE and BSE, the turn-over data from NSE may not be sufficient to estimate what fraction of trading volume is contributed by FII/FPI. Refer to the following data for trades on 31-May-2019.
As reported, total trades value by FII/FPI is 7,552 + 5,480 = INR 13,032 Crores which is 33% of total traded value in equities on NSE.
The turnover data on NSE for stock futures is INR 59,013 Crores where the FII/FPI contribution is 24,387 + 23,362 = INR 47,749 Crores which is almost 80% of the total trades. Similarly, the turnover data on NSE for index futures is INR 32,151 Crores where the FII/FPI contribution is 8,208 + 5,986 = INR 14,194 Crores approximately 40% of total traded value.
Candlesticks: Work only at Support / Resistance Level and reflect 'personality' of a stock - back test is a necessity! Long candles = buy/sell pressure, short = consolidation.
|Candlestick Type||Next Verification Candle||Probability||Anticipated Move|
|Hammer||Gap-up opening next day ending in a Marubozu||High||Bullish Reversal after significant downtrend|
|Morning Star or Abandoned Baby (Evening Star)||Very potent as combination of > 2 candles||High||Reversal after significant trending market|
|Three White Soldier (3 Black Crow)||Doji or Bearish (Bullish) Engulfing||High||Early phase of trend reversal|
|Piercing Candle||First bearish candle with large body, high EOD volume||High||Bullish Reversal after significant downtrend|
|Dark Cloud Cover||Heavy volume during opening of 2nd day||High||Reversal after significant uptrend|
|Long Marubozu / Belt-Hold||Short Marubozu or Spinning Top||Moderate||Trend Reversal / continuation|
|Harami or Petrifying pattern||Gap up near bottom or gap down near top||Moderate||Decrease in momentum|
|Doji||Gap-down opening or formed after long candle||Moderate||Trend interruption / slowing momentum|
|Shooting Star||Gap-down opening next day ending in a Marubozu||Moderate||Bearish Reversal after significant uptrend|
|Bullish (Bearish) Engulfing||Volume on 2nd day, more potent if left stick is a Doji||Moderate||Reversal in trading market|
Probability in trading: We all need to guess the market direction and the impact of news on stock prices. From technical analysis perspective, an "informed guess" is analogous of estimating the probability. A key caveat about 'probability' that it is not probability calculus. Instead, it is the ability to think of uncertainty as a thing that can be quantified at least in principle. This means that we can and should be able talk about uncertainty as if it were a number: numbers can be compared ("is this event more probable than that even") and they can often be measured. Measuring probabilities is difficult and not unique method exists: we usually need many observations about a phenomenon to draw conclusions. However, by systematically collecting data, we can critically evaluate probabilistic statements, and our numbers can sometimes be found to be right or wrong. In other words, the key lesson is that uncertainty is not beyond the scope of rational thinking and discussion, and probability provides a systematic way of doing just that.
Elaboration by example:A pattern analysis forecasts that the price is is going to increase by 2% with 75% probability tomorrow but the day turns out to be drop in price by 1%. Can it be concluded that the forecasting capability of this particular method is not good?
We can't conclude that the forecast was wrong based on only single event. The forecast said stock price is going to increase with 70% probability, which means price may drop or increase by lesser percentage with 25% probability or in one out of 4 days. It is reasonable to accept that the day in question was the 1 in 4 event. Concluding that the probability 75% was correct would also be wrong because by the same argument, we could then conclude that 50% chance of price increase by 2% was also correct and both cannot be correct at the same time.
The dialemma of long term investing is clearly visible from following chart.
Historical data of NIFTY50 stocks and description of some MS-Excel based tools are summarized below.
Technical analysis works, but market does retreat to some levels governed by fundamentals specially earning ratios. Combined "price earning ratio" of the stocks comprising the index is one such variable. In very simple terms, if you get 5% interest on your fixed deposits (FD), the PE ratio of your FD is 100/5 = 20. Similarly, if a stock is trading at 1000 Rupees and it generates profit of 20 Rupees per share in a year, its PE ratio is 1000/20 = 50.NIFTY PE trading above previous year highs and a retracement is very likely.
There are only following 8 basic purposes of any option trade. One of these will be appropriate depending upon market conditions.
|Option Type||Trade Type||Purpose(s)|
|CALL||Buy|| Speculation: |
| Hedging: |
|CALL||Sell|| Speculation: |
| Hedging: |
|PUT||Buy|| Speculation: |
| Hedging: |
|PUT||Sell|| Speculation: |
| Hedging: |
|Option type||Position type||δ|
change in option premium = δ × change in stock price + 1/2 × Γ × (change in stock price)2
It is rate of change of the option price (premium) with respective to the passage of time. Following two tables and charts demonstrates the variation of premium (rather the decay in premium) normalized by difference between spot and strike prices. You may visit this link to calculate theta value for a given condition.
Application of greeks. In practice the interaction or trade-off between these parameters is required to correctly estimate the premium and take benefit of expected change in option price.
|Outlook||Description||Buy||Buy||Sell||Sell||Remark||L:Lim/U:Unlim, Time Erosion||Profit Probability||Vega Strategy, Desired IV Level||Debit / Credit|
|Bullish||Naked Short Put||-||-||Put||-||ITM / OTM||L / U ! ++||High: >90%||- Vega | High||Credit|
|Bull Put Spread||OTM Put||-||ITM Put||-||Put credit spread||L / L ! -||High: >90%||- Vega | High||Credit|
|Long Combo||OTM Call||-||OTM Put||-||U / U ! -||Med: ~50%||- Vega | High||-|
|Synthetic Long Call||Stock / FUTR||Put||-||-||Protective put||U / L ! -||Med: ~50%||+ Vega | Low||Debit|
|Synthetic Long||-||Call||Put||-||same strk/maturity||U / U ! -||Med: ~50%||+ Vega | Low||-|
|Bull Call Spread||(ITM) Call||-||(OTM) Call||-||Vert. Bull Spread||L / L ! +||Low: <10%||+ Vega | Low||Debit|
|Call Backspread||(Hi Strk) Call||(Hi Strk) Call||(Lo Strk) Call||-||Ratio Call Spread||U / L ! -||Low: <10%||+ Vega | Low||Debit|
|Naked Long Call||Call||-||-||-||ITM / OTM||U / L ! --||Low: <10%||+ Vega | Low||Debit|
|Bearish||Naked Short Call||-||-||Call||-||ITM / OTM||L / U ! ++||High: >90%||- Vega | High||Credit|
|Covered Put||-||-||Stock / FUTR||OTM Put||L / U ! -||High: >90%||- Vega | High||Credit|
|Synthetic Long Put||Call||-||Stock / FUTR||-||L / L ! -||Low: <10%||+ Vega | Low||Credit|
|Bear Call Spread||OTM Call||-||ITM Call||-||Call Credit Spread||L / L ! +||Low: <10%||- Vega | High||Credit|
|Bear Put Spread||ITM Put||-||OTM Put||-||Vert. Bear Spread||L / L ! -||Low: <10%||+ Vega | Low||Debit|
|Naked Long Put||Put||-||-||-||ITM / OTM||U / L ! --||Low: <10%||+ Vega | Low||Debit|
|Put Backspread||(Lo Strk) Put||(Lo Strk) Put||(Hi Strk) Put||-||Ratio Put Spread||U / L ! -||Low: <10%||+ Vega | Low||Debit|
|Neutral||Short Straddle||-||-||Call||Put||same strk/maturity||L / U ! ++||High: >90%||- Vega | High||Credit|
|Short Strangle||-||-||OTM Call||OTM Put||same strk/maturity||L / U ! ++||High: >90%||- Vega | High||Credit|
|Long Call Butterfly||ITM Call||OTM Call||ATM Call||ATM Call||L / L ! +||High: >90%||Neutral||Credit|
|Short Call Butterfly||ATM Call||ATM Call||ITM Call||OTM Call||L / L ! +||High: >90%||Neutral||Credit|
|Iron Condor||ITM Call||OTM Call||ITM Call||OTM Call||L / L ! +||High: >90%||Neutral||Credit|
|Covered Call||Stock||-||OTM Call||-||Covered Write||L / U ! +||High: >90%||- Vega | High||Debit|
|Long Straddle||Call||Put||-||-||same strk/maturity||U / L ! --||High: >90%||+ Vega | Low||Debit|
|Long Strangle||OTM Call||OTM Put||-||-||same strk/maturity||U / L ! --||Low: <10%||+ Vega | Low||Debit|
|Covered Strangle||Stock / FTR||-||Sell Call||Sell Put||Stock b/w call/put||L / U ! -||Low: <10%||+ Vega | Low||Debit|
|Collar||Stock / FUTR||Put||Call||-||L / L ! +||Low: <10%||+ Vega | Low||Debit|
Type of Shares in US MarketClass-A Shares: traded as common stock with 1 vote/share, Class-B: Founders and other insiders hold them - not publicly traded - 10 votes/share, Class-C: publicly traded but no voting right. Insiders: senior management, board members, people/entities having > 10% of company's stock.
Dirty Money MarketSaudi Arabia’s Saudi National Bank invested about $1.4 billion for a 10% stake in Credit Suisse in late 2022, making it Credit Suisse’s largest shareholder. March 2023: Switzerland’s regulatory authorities allowed the takeover of Credit Suisse by UBS without the shareholder approval of either entity. Credit Suisse has two anagrams: Credit Issue and Suit is Cursed. Even frauds are made a respectable activity - this company used to in list of Forbes and Fortune 500 company for many years. 2012: rank-204, 2018: rank-373.
The magic of compounding
|Number of Years||ROR||Return (Numer of Times)||ROR||Return (Numer of Times)||ROR||Return (Numer of Times)||ROR||Return (Numer of Times)|
Note how the value gets multiplied when rate of return is 15%
Land Measurement System1 decimal = 1 deci-acre = 1,361 square feet
1 kattha / कट्ठा = 3.1247 decimal [deci-acre]1 acre = 4,047 [m2] = 43,561.5 [ft2] = 1.60 bigha / बीघा
1 bigha = 400 [square dhur] / वर्ग धुर = 20 [square kattha] = 27,220 [ft2]1 hectare = 10,000 [m2] = 1,07,639 [ft2] = 3.954 bigha / बीघा = 79.1 कट्ठा
The content on CFDyna.com is being constantly refined and improvised with on-the-job experience, testing, and training. Examples might be simplified to improve insight into the physics and basic understanding. Linked pages, articles, references, and examples are constantly reviewed to reduce errors, but we cannot warrant full correctness of all content.
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