Making money in stock market -III

This is part III of the article, Making money in stock market -I. Please read the article from part I before continuing with this one

Then, here is an excerpt from the interview of Sujata:
QUOTE:
How much have you deposited with all these brokerage companies?
As I told you earlier, my total deposit with all the three brokers is Rs 15 lakhs. Using this amount I buy Call Options within my overall limits. There is no concept of margin money in options. Whatever money I have earned till now is only through Option trading. You can do risk-less trading in Options using a small amount.
As a safe strategy I never write a Put Option. Put Options are very risky. That way I am a very safe trader. In Puts I can even make 50 per cent a month on my investments; but then I can lose the same amount too. My principle is if I make money I make it; I shouldn't lose money at all.
I usually write a Call Option on the Nifty. I am always long (buying first and then selling at a higher price to make profit) on the markets and whenever the market is too overbought I wait for the markets to cool down.
UNQUOTE:

Have a look at the statement in RED fonts: You can do risk-less trading in Options using a small amount.
Well, well, well, I don’t know of any single money making RISK FREE product. Remember my first tutorial on options trading – the point I highlighted is that RISK FACTORS are always more than the factors affecting returns.

I trade heavily in options. I too make good amounts of money. But the risk is nowhere less. I can get wiped off completely in a matter of few hours, if the stock market go down significantly. Fortunately, since the day I started trading, I’ve never seen a bear market. I’m just lucky (and so are the so called successful traders)

Then, from the above quote: “As a safe strategy I never write a Put Option. Put Options are very risky. That way I am a very safe trader.”

I just don’t know how can a trader make a claim like this. Either it is a mistake of the rediff interviewer while recording the interview, or Sujata’s information is not very comprehensive about the options business or she is doing the right thing – not telling the actual trading strategies to everyone :- )

Another one: “I usually write a Call Option on the Nifty.” Writing a call option may be extremely risky. You may loose more money than what you have invested in.

I’m getting the impression that there are only 3 possibilites:
• Either the interviewer from Rediff did not record the interview correctly (as it was a telephonic interview)
• Sujata is doing nothing but taking bets in the stock market – In that case, she is lucky to have made good profits – just because of the bull market
• She is extremely intelligent – not willing to share any secrets with anyone, using concepts of hedging her positions and regularly cutting the losses, if any.


I’m not sure what is the real truth – but I’m more concerned about publishing of such articles on popular sites like rediff.

In my previous article, I’ve already explained how sites like rediff and moneycontrol are experts in putting up a HIGHLY BLOATED picture of something, and all the readers end up getting a completely wrong picture. As metioned previously, read the comments from readers on the article on Nalin Pasricha – Nobody knows him, no one has any records of his performance, no one has seen how his system will work in a bear market, yet hundreds of Richest of the Rich, NRIs are willing to give the money to him. It only takes a story to be published and people get fascinated about it. GREED is the driving word, and no body thinks about the risks.

Please note that I have nothing against Nalin or Sujata. Nalin is highly qualified, has significant experience in finance for a long time. Sujata also has fought against all odds and have developed a skill of making money from the markets. Hats off to both of them and I wish them good luck.

The only problem that I want to highlight is about such interviews and articles, that end up misleading the common ignorant individuals like you and me. Many claims in these article/interview are false, as explained above. After reading such articles, ignorant investors will think about jumping into the options business. Add to it the way “Safe Investment” is described - “As a safe strategy I never write a Put Option. Put Options are very risky. That way I am a very safe trader.” Individuals will never worry about risks involved in “I usually write a Call Option on the Nifty.”

At the first place, they would hardly understand the meaning of “Writing an Option”, yet, after reading such articles, they will be willing to jump in with their money.

I am working continuously on the next parts of options tutorials. The things I’ve mentioned above will become more clear once we cover next few parts of the tutorials.

Thanks Sankar for bringing this article to my notice.

Please read the comments and post your views and queries in the comments section which helps in open discussion and avoids duplicity of questions.

You may be interested in reading my previous articles. Here is the link to Table of Contents in a chronological order.