In the past few weeks, many screenshots of the FREAK TRADES are doing rounds on the social media.
Lets understand what causes freak trades and how to dodge them!
What is a Freak Trade: 👹
• Freak trade is a trade where the price of the underlying is being traded at a significantly abnormal price for a brief period usually micro seconds & thereafter the underlying again starts trading back to its normal levels
Example of freak trades:
• On Sep 7, 2021, BNF 36000 PE Sep 9, shot up suddenly to ₹750
• The option finally closed at ₹53.65.The option’s day low was 35.25.
• The underlying Bank Nifty Index opened at 36,559, hit a high of 36,686 and low of 36,152 before closing at 36,469
Few Recent examples:
Why such freak trades high does get recorded in the charts at few instances?
• Remember freak trades takes place in micro seconds
• The reversal to normal happens within a few seconds
• Hence it may or may not get captured on the charts 📊
What is TER & how it works?
• Under trade execution range (TER), whenever the actual price is outside the trade execution range, no trade can be executed until the exchange increases the execution range manually
• NSE found it challenging to have a dynamic execution range so no trade could be executed unless the exchange increases the execution range manually
Why Freak trades are a regular phenomenon now?
• The exchange scrapped the TER in mid-August 2021
• NSE decided to follow other global exchanges & removed the restrictions
• To allow demand and supply to determine the price at which a trade gets executed
• Leading to sudden rises and falls in prices triggering the stop loss market orders set by Traders
Who are benefited?
• Large whales who place orders in automated manner
• HFT (high frequency traders) usually institutional firms which are into algo trading
What are the possible solutions?
• Entry using limit orders instead of market
• For exits, avoid placing Stop Loss Market (SL-M) orders
• Better to opt for Stop Loss Limit (SL-L) orders
• SL-L order if triggered wont have high impact cost due to freak trades the way SL-M has
• If you opt for spreads (proper spread and not for leverage) then SL is not required
Final take, stay safe and dnt fall prey to such whales 🐋by opting for any of the solutions mentioned above
Hope you enjoyed reading this thread! 🤠
Will be posting more such curiosity-inducing threads 🧵
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Sep 1, 2021, fresh month starts with a challenge i.e. introduction of Peak Margin rules by SEBI
Time for a 🧵
Lets demystify the Peak Margin rules and try to find solutions for the option sellers!
Peak Margin by SEBI:
• 100% upfront margin for intraday trades in the derivative segment
• Effectively MIS orders = NRML orders, as both will attract same margin in the derivative segment
• Minimum margin for equity intraday trades will be 20% of trade value i.e. 5X leverage
How things used to operate erstwhile?
• Until last year there were no standardization of leverage
• Brokerage firms used to offer their clients intraday leverage of 5x, 10, 15x, 20x etc. as margin reporting was done on EoD basis
Time for a Thread🧵On yesterday’s “F&O Pe Charcha - Diary Of An Option Seller” with @Mitesh_Engr by @Paytm Money
Why Gain/loss ratio is important that the batting average
• More than the Win Loss ratio check the total Gain /loss ratio
• If your avg loss is 1% and avg gain is +5% then even if you are losing in 7 positions and winning in 3 out of 10 still you will be net profitable
Treat Trading as a business:
• Stick to a single strategy. Eg: A restaurateur usually wouldn’t be changing his recipe on a daily basis
• Mitesh Sir only works on BO or BD strategy, as he is a versatile trader
Time for a🧵
Mitesh Sir's EXPIRY Option Selling 101:
• What to look for?
• Strike Selection & Ratios
• SL mgmt
• Avoiding freezes
• Monthy Expiry
• Event days
• How he would have traded last expiry?
Edward de Bono says intelligence is like a🚗 Automobile
“A powerful car may be driven badly. A less powerful car may be driven well. The skill of the car driver determines how the power of the car is used.”
What @Mitesh_Engr Sir looks at for Expiry Trading:
• Technicals of BNF
• Individual Heavyweight stocks of BNF
• Support/Resistance of BNF on weekly TF
• Also has Superb SL management
• When it comes to adjustments, he is always on toes