Do you want to be a FULL TIME trader?

 My 2 cent advice from the little experience I have.

Making money in any profession is an art. One needs to be in the right place, with the right knowledge, with the right people, and have the guts to encash the opportunity that is in front of you. Lastly, luck is one major ingredient. It is not the icing on the cake. Luck is the cake. One should be really lucky enough for all the stars to align and work in your favor. Huge money is made when the art is either difficult to pursue by a normal person or is known to a few people. When the art is known to a few people, then it's just a matter of time when everyone knows, and that art will lose its significance. It's no more a secret if everyone in the world knows it, right? One cannot use the same technique to make money for a long time.

Coming to stock markets, making money in options, especially options selling was a no-brainer 5-6 years back. The reasons were
  1. Only nifty and banknifty monthly expiry.
  2. Not much retail participants compared to today
  3. No weekly expiry
  4. Margins were ultra low. With a good broker contact, you could sell 1 lot(lot size 40) of banknifty for 25k. Today to sell 1 lot of banknifty (lot size 15) you need almost 1lk. Yes, one would say that by buying another OTM, the margin is reduced. The problem that I see here is, now the premiums are low(compared to the movement). So, you will have to go to closer strikes in order to get a better spread which increases the risk significantly.
  5. Intraday leverage was unlimited. I used to trade on expiry days with leverage of 20x in Kotak securities.
  6. 5% returns per month was a cakewalk. With little more effort and risk, one could make 8-10%.
  7. You just had to identify the strike with the highest OI for the month and sell options outside that. The chance of you winning and making a killer moolah was very, very high.
  8. The premiums were also fantastic, even though the VIX was low.
  9. 100% margins could be given with collateral. If you had 10lk worth RIL shares. Let's say the collateral haircut was 10%. You could use the entire 9lak for options trading.
  10. Not much difference in the margin for long-term options as well.
  11. Nifty would hardly make a movement of 400 points in a month. Today, nifty makes intraday movement of 200 points. Yes, I agree that nifty back then was below 12k and today it is close to 20k. Even then if you consider the % movement also, it is more now.
  12. Option selling is not some skilled art. I always say it's a fool's game. You don't have to be super intelligent or creative or hard-working to do that. You just needed to open the option chain, see the strike that has the highest OI, and sell outside that. Anyone could do this. The reason it worked back then was that not many knew this. It was a secret known to the few. Today with YouTube, Telegram, Snapchat etc, it's an open secret. If everyone owns Lamborghini then Lamborgini will lose its value, right? The law of nature is, not everyone can make money easily. If that was the case then money will lose its value.
So, one could think of becoming a full-time trader even with a capital of 10lak. One could even think of borrowing money and trading(which I did back then). 5-10% profit would give him 50k-1lk which was decent money for a full-time professional. More importantly, it was stress-free where it was like guaranteed money. It was like, money was fallen on the street waiting for you to pick it up.

Back then, I used to wonder, why people were doing other difficult jobs, and businesses when money was readily available here? Now looking back, I am able to connect the dots. I was just lucky to have started early before the crowd entered. I don't give credit to my intelligence, knowledge, guts etc. It was just luck for which I can't thank enough.

What changed today?
As they say, all good things come to an end. In any business, generally, all the participants of the supply chain should make satisfactory returns. If there is someone who is making too much then that causes an imbalance in the business and if not corrected then eventually that business will fail.

We know that there was a huge retail participation after covid(2020). Most of the retailers were lured to options trading. Thanks to the finfluencers who made them believe that one can make crores in options trading.
Now regulators were also interested in this, and the exchanges also were interested in this.
Things that changed
  1. Regulators wanted to reduce the participation of retailers as 90% of the traders lost money. Regulators asked brokers not to give leverage.
  2. Exchanges introduced a lot of instruments like finnifty, midcapnifty. Now every day is an expiry day. BSE who was not actively involved in options also introduced Sensex and Bankex options. With this the money is distributed which reduces the demand/supply, thereby impacting the premium. So one will have to sell closer strikes, which thereby increases the risk.
  3. Exchanges introduced weekly expiry for indices. Expiries increased, instruments increased. Thereby trading becomes challenging.
  4. Exchanges increased the margins. 1 lot of banknifty(lot size 40) needed 25k 5-6 years back. Today 1 lot of banknifty(lot size 15) requires almost 1lk. Before, brokers could fund the SPAN margin. That's why the margins were 25k. SEBI told exchanges that the entire margin should now come from the client which increased the cost. Remember, the options premiums did not increase significantly after all these.
  5. SEBI told exchanges to use only 50% of the collateral margin They made 50% to be given in the cash component.
  6. The probability of neutral strategies has reduced as the movement in the indexes has increased rapidly which was not the case before.
  7. Now one needs to be directional to make huge returns. But how to identify the direction? This is a million $ question. You might be right 10 times. But 1 bad day can wipe all 10 days of profit in directional trade and the probability of that 1 day happening is not very rare.
  8. Today you are a good trader if you are making 2% ROI per month. You will need at least 50lk to think to be a full-time trader. This should be your money and not borrowed money. It's very difficult to borrow money for interest and be profitable(after taxes, and charges).
  9. You will be walking on a knife edge with no cushion if you borrow money to trade in this market. You will be under a lot of stress and pressure to be profitable if you bring loan money. Not worth doing. 5-6 years back it was stress-free trading where loan money could have been used.
  10. Now, exchanges are planning to increase the market timings. If that happens, then you will have to be glued to your system(if you are a full time trader) from morning to night. If exchanges decide to go 24/7 then god alone should help.
  11. Remember that the government nor banks do not support this business. The reason is, that this is not a nation-building business. Governments allow cigarette, and alcohol manufacturers, even if it is bad for people who consume it. Governments also support them by giving loans, and subsidies etc as they generate employment, contribute to GDP, help in the circulation of money. Trading does not do anything. Traders may argue that we pay tax, brokerage, incometax etc. The fact is, the government is not interested and you are termed as a gambler. Do you think governments don't know how to take money from people?? A simple increase in fuel price by 1rs will give more money than all the things traders argue. If a person is trading with 10cr then it is that person alone who is benefitting. Imagine if there was a factory setup with 10cr, there would be at least 100-200 employees who would have been working. They would get a salary and they would in turn spend that money and the chain/circulation of money continues, right?
  12. Banks don't give you a loan of Rs 10 even if you have made 100cr profit in trading as they consider this as speculative income.
  13. So considering all odds that are stacked against you, DO YOU STILL INTEND TO BE A FULL-TIME TRADER?