It all started on the worst year we have ever seen..2020. After many years of trading derivatives and learning, I devised a strategy. A strategy that works as an investment. Similar to the covered call, or it is the covered call itself but in a different format. It can also be referred to selling naked puts. The strategy was perfect. It was working as planned seamlessly even during the volatility during the budget announcement. All was good and then the virus hit hard. I had a Bank Nifty Futures buy @30500 and then the market sell-off happened.

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Let me explain it clearly. For a covered call strategy, we need to have enough number of shares as the lot size of the underlying and then we sell calls of that scrip and make money. That is, for Bank Nifty of lot size 25 and assume it currently to be at 30,000, I should have 30000*25 = Rs. 7,50,000/- worth of Bank BEES and then sell a call of the higher strike price.

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Instead, I bought a Bank Nifty Future with just Rs. 75,000/- margin and sold a higher strike price call. I had around Rs. 3,00,000/- as a cushion to face the volatility. Due to the coronavirus triggered sell-off, as you already know, Bank Nifty fell up to 16,000. For that, I would need to have Rs.2,80,000/- as a buffer in order to not get my position squared off. But as I didn’t have that money, I had to exit my position when Bank Nifty is at 24000 and realized my loss at approx. 1.5 Lakh. I exited because of the overall scenario and the fact that I need to have money to be in the game. I did not want to be knocked off.

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That thing affected me a lot. Even when Bank Nifty is at 16,000, I could not dare to enter a new position. And then with a week, BN is at 18,000. It struggled there but soon it is at 23,000. It is climbing. During this time, SEBI came with new margin rules. It increased margin for naked positions and drastically reduced them for hedged positions. My math now changed. My strategy is riskier as I have naked call sell and naked future buy. I want to take advantage of the new system and shifted to Nifty completely.

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I added new legs to my strategy with Nifty and slowly started getting profits as market moved up. By March end, my P/L is

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It was a devastation. I was lost and depressed. I was not sure if I should go on with my strategy. I waited, I thought, then I remembered that holding on to the market in a downturn will give good profits in the long run. And I continued. In April, it is

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In May, it is

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I changed my strategy now and in June it is

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At this point of time, I got a call from my bank offering me a loan. I took a loan of 1.5 Lakh and added that fund to my broker account and started trading with that too. By July end, my P/L is

 

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Finally in August, thanks to the market move, my overall P/L is at

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So from lost hopes to full confidence I went from a loss of 1.5 Lakh to profit of approx Rs. 25,000. I don’t know if my strategy can hold a huge down fall. But I am very sure, with the increased VIX, there wouldn’t be much to be afraid of.

 

See, when markets are down, if you can hold quality, it will give you good returns later. Like they say "Bears win wars but Bulls win the battle"

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