But things changed after he suffered a loss of Rs 19 lakh in 2019.
Since then, the Mumbai-based seller in Nifty and Bank Nifty options who runs Scalium Invest with four other partners has a simple trading mantra – Be afraid and not greedy.
“I moved to the risk-first approach from the return-first approach. From that day, I trade with maximum loss in mind. If the maximum loss hits, I exit,” says Jain. The 43-year-old algo trader is a mechanical engineer by training who ran a successful digital marketing business before getting lured to the world of options trading.
Edited excerpts from a chat with Jitendra Jain:
What brought you to the stock market from digital marketing? Was it the urge to make more money or you were not enjoying your work?
My brother-in-law told me about options trading four years ago. He showed me how he was doing well by using covered calls. I got intrigued and learnt about it. I liked the maths part about it. After seeing some trade videos, I learnt the basics and got started. I was enjoying my work, but this looked more interesting. It was the greed factor that told me that I could make more. The variable pay made it like a game.
How did you zero down to trading in index options?
In September 2018, I got stuck in one position. I had PC jewellers Call (CE) short around 100% away from the spot, and stock rallied. I had to cut the Re 1 call at Re 16. The reasons were my poor risk management skills and inexperience with stock options. Also the illiquidity of stock options. Stocks are too sensitive to news, the options are illiquid. Thus, I decided to move to index options. Another reason was the weekly expiry in Bank Nifty. Brokers used to give lots of leverage.
Please take us through some of the biggest successes and drawdowns that you have seen on a particular day.
The biggest success was when Nirmala Sitaraman announced tax cuts for corporations. I had to buy calls, and they went up. I made around 20% of my capital in a single day. I kept rolling calls, and they kept rising.
The worst day was in May 2019. I was trading on expiry day with huge leverage, and options froze due to sudden movement in Bank Nifty. I lost 30% of my capital in a single day. Sl orders jumped, and the orders were cancelled. The Rs 10 option opened at Rs 300. I had to take a huge loss.
I slowly started trading again, recovered a little loss, and added some more capital.
After 4 months again, I lost 15% of my capital due to the sudden movement of Bank Nifty. That was my last day of expiry trading without risk management in place. Got an expensive lesson from the market.
I took a break for a few days and consulted a few friends, and moved to the risk-first approach from the return-first approach. From that day, I trade with maximum loss in mind. If the max loss hits I exit. It is as simple as that.
Instead of asking the market for profits, I tell the market about my max loss. So instead of being greedy, being afraid has helped me a lot.
Trading is otherwise a lonely job, but you have a team. Tell us about them and what is the rationale behind Scalium Invest. Are you trying to build something like a proprietary trading firm?
Trading is a lonely job as we have to work independently and make decisions without the help of others. While analysing data on our own, decision-making is not an easy job.
Trading can make good money if you treat it like a business which means it has to follow rules.
I was lucky and found my team on Twitter, I met a few people, and we clicked, and the team was formed.
We soon realised that the team had its own advantages like:
a) Diversified skill set and experience.
b) Better decision-making: More perspectives help, it also helps me in avoiding any biases I have.
c) No more rash decisions: Trading as a team has helped in avoiding rash decisions. We don’t let each other stray.
d) Shared workload: A lot of times, a person can’t trade due to many reasons. The team helps, and the workload is shared too.
In the future, we envision ourselves to be a prop firm trading across the board with many team members.
Tell us something about your trading strategy on a typical day.
We have a small discretionary arm, and one is a systematic arm. We also have a technical team which analyses data and runs backtests.
A typical day looks like this:
At around 8 am, we get ready for the day. Before the market opens, we look at global cues and SGX Nifty. We get technically ready, like everything is on and working, and check our redundancies, if they are working or not. We match everything according to our trading checklist. The team WhatsApp group gets buzzing.
As the market opens, we trade as per the plan. I usually trade straddles with stop losses on each leg, popularly known as 920 straddles. I trade a combination of these at various time frames and stop losses.
One thing we do is dynamically decide which stop losses to use or which strikes to trade as per market open, gap, straddle premiums and day.
We constantly review our positions in terms of MTM, max loss, open positions, and profit levels.
We might dynamically adjust these parameters as the day goes by. For example, if we see some event happening, we might square off positions, or if we are in a huge profit, we might partially book profits and make new positions.
As the market closes, we discuss what happened, and compare it with peers on Twitter.
In the evening, the team connects once again on a phone call or zoom (if someone is working from home) and we discuss what can be improvised, were there any niggles in trading, and how is the global market shaping up.
Do you find algo trading less stressful than discretionary? Does it also give you an edge over other traders?
There is no definitive answer as to whether algo trading has an edge over discretionary trading, as it depends on a variety of factors.
Algo trading is based on pre-defined rules and devoid of human emotions, but it is not flexible to changing conditions and misses intuition-based decision-making.
In our team, we have discretionary traders as well as algo traders. I am an algo trader for the following reasons:
a) Algos execute better than manual traders. It helps when the market is moving fast, and every second counts.
b) Algos are precise. For example, if I have to choose a 500-point away strike and the index is at 43249, the algo will choose to strike faster as compared to a human.
c) Algos can execute complex strategies which are impossible to do manually. For example trading in multiple instruments, multiple time frames etc.
d) Algos can manage risk better than manual trading. You can precisely decide when to exit.
e) Algos also save a lot of costs by reducing slippages, and fewer people are involved.
Algos have their issues, like technical issues, over
on technology, etc.
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