Profit From Nifty Options

Art Of Doing Nothing

Pramod Kumar
 Copyright © 2021 Pramod Kumar

All rights reserved

The characters and events portrayed in this book are fictitious. Any similarity to real persons, living or dead,
is coincidental and not intended by the author.

No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission of
the publisher.
 This book is dedicated to my wife Aarti, who has been a pillar of support in all the trials and
tribulations of life. She has been steadfast through my idiosyncrasies and far fetched ideas.
When life gave me lemons, she made the lemonade.
This dedication is for being with me and the family at all times.
This one is from the heart.
 Contents
Title Page
Copyright
Dedication
PREFACE
Chapter 1 --- Light A Candle, Spread The Brightness
Chapter 2 --- Let The Ride Begin
Chapter 3 ---- The Fall And The Climb Back
Chapter 4 – Big Move Bigger Profits
Chapter 5 --- The Ride Continues
Chapter 6 ---- Ploughing The Lonely Furrow
Chapter 7 --- The Numbers Looking Good
Chapter 8 --- Blast From The Past
Chapter 9 --- The Road Less Travelled
Chapter 10 --- Art Of Doing Nothing
Chapter 11: Little more of doing nothing – Year 2021 and 2022
Afterword
Acknowledgement
 Profit From Nifty Options – Art of Doing Nothing
About the author

Pramod Kumar is a Civil Engineer by profession. After graduating from

Punjab Engineering College, Chandigarh in 1977 worked in various Public and
Private Sector infrastructure companies. The notable projects have been
Panipat- Jalandhar National Highway Project in North India, Pune – Satara and
Solapur – Karnataka Border Highway in Maharashtra state.
The fascination with stock market and the strong desire to explain Option
Trading in simple terms led to writing on Quora.com, a very popular portal for
sharing knowledge.
The writings there have been appreciated by the readers as confirmed by
more than 14.5 million page views.
He also writes a blog OptionsNext.com which has a decent dedicated
readership and about 2.5 million page views annually.
Profit From Nifty Options – Art of Doing Nothing is an attempt to showcase
the profitability of buying options in the benchmark index NIFTY.
He is currently working on two more books on similar theme which shall be
published within this year.
After bidding farewell to civil engineering life in 2017, he keeps himself busy
reading and writing about the markets and trading.
He lives at Panchkula, Haryana
 PREFACE
NSE (National Stock Exchange of India) is the no.1 exchange in the world in
derivative contracts volume.
Most of the volume comes from NIFTY and BANKNIFTY options contracts.
There is a vast majority of traders who just focus on these two indices for all
their trading plans and strategies.
There is no dearth of trading strategies promising safe and consistent returns
from options trading.
Undoubtedly, some of them work. Some do not.That is the nature of the
market. Failure does not stop new thinking and one is always devising some way
to come out on top in the trading game.
Most experts and traders swear by option writing. According to them, writing
options (selling options in plain language) is the only way to make money.
The main problem with this approach is that we need a margin amount for
writing options. The other problem is that option seller can have only a limited
profit but unlimited (very big) loss can happen wiping out the entire margin
money.
Surely, there are ways to mitigate that risk. One can hedge the trade by
buying another option. Now we are in two trades.
One gets too busy in many trades for small but consistent returns.
Every trader understands the risk, learns how to manage the losses but we
find that the number of successful traders remains around 10% level. This
number has not changed over the years.
This small book is about OPTION BUYING.
And doing it profitably.
Making profit by doing almost nothing.
Experts will not agree.
Many traders will not agree.
We are so convinced by the stated market wisdom about option buyers
always being the losers that we refuse to look at the possibility.
I request the readers to shun the prejudices for the time it takes to go through
these pages.
Seeing is believing and the numbers do not lie.
We need to see with eyes wide open, not with glasses coloured with opinions.
Yes, buying NIFTY options can make profit over a period of time. The results
will be consistent and comparable with any other profitable trading strategy.
I will not glorify plain simple option buying by calling it a trading strategy.
Simple option buying works.
How it works, we shall find in this book.
 Chapter 1 --- Light A Candle, Spread The
Brightness
Trading in stock market is a lonely job.
You are not able to share your joy or sorrow even with friends and family.
When you lose money and need a shoulder to cry on, all you get is a cold
shoulder.
When you share the happiness you achieved through a good profit, all you
get is a dismissive shrug.
There are groups and forums to overcome this problem but those have
become places to just showcase your lucky streak. No solace or advice is
available for those who desperately need it.
It is not my point that this book will solve these problems.
It is also not my point that I have found the holy grail of trading profits.
I have been writing about options trading for quite sometime now and there
are people who have liked what I have written.
I share my trades and trading methods on my blog – OptionsNext.com

Why this book?

I know that I am not the brightest bulb in the room.
But I can brighten my corner of the room.
Surely the light will be good for someone.
I have chosen to share a very simple method of option buying which works.
I will be pleased if it helps the reader in making a profit from their trading.
I will be pleased if they learn that simple things work.

Buddha said:

“Thousands of candles can be lighted by a single candle and the life of the
candle will not be shortened. Happiness never decreases by being shared.”
This book is the small candle lighted by me.
I hope it lights many more and spreads the light far and wide.
 Chapter 2 --- Let The Ride Begin
Making money from option buying seems far-fetched to many people. To do
that while doing nothing is surely something out of ordinary.
Some would think I have gone senile. Those of generous disposition will just
smile and ignore. After all everyone is allowed few eccentricities.
Let us get down to business.
We have a lot going against us. We understand that we have following
challenges to overcome.
(a) Option Buyers do not make money.
(b) Eighty percent of options expire worthless
(c) Derivatives are the weapons of wealth destruction.
(d) Retail traders have no chance in the market dominated by Institutions
and Algo trading.

What do we have working for us:

(a) Belief that options buying can be profitable.
(b) The fact that an option buyer cannot lose an amount more than the
premium paid.
(c) There is potential for big gains if a big directional move actually happens.

Methodology:
If you are reading this, surely you know a few things about options trading.
Otherwise, you could not care less.
The most traded options in India market are NIFTY and BANKNIFTY options.
The underlying is the NIFTY 50 index comprising of 50 top stocks in case of
NIFTY options. BANKNIFTY represents 12 stocks from banking sector.
We trade just NIFTY options.
Volumes are good, slippages are less and the options are cash settled on
expiry.
Simple. We like things that are simple.
We buy deep in the money CALL options in NIFTY. These options will work
almost like futures trades if the index move up. If there is a big fall, the loss is
limited to the premium amount paid.
Yes, you got it right. We buy options which are very costly.
They still cost much less than the margin money for a futures trade and offer
similar profit if the trade goes right.
More about NIFTY gains:
How many times have we heard that over a period of time markets always
move higher?
 Bored to death by the above statement, probably.
NIFTY has gained 62% over last 1 year, 13.8% over 5 years and 11.33%
since inception.

(Image Source – NSE website)

What did we make from our trading?

Zilch, nada.
We are a part of that 90% mass of traders who do not make money.
Those who belong to the profit-making group try too much. There are lot of
option strategies to confuse and confound all of us. There are books full of
theories, formulas and examples assuring a profit from trading.
Still the number of losing traders remains the same year after year.
This small booklet is a humble effort to show that plain vanilla option buying in
NIFTY can be profitable over a period of time.
 Chapter 3 ---- The Fall And The Climb Back
Remember the point about NIFTY gaining 62% over last one year.
I go back some more.
We begin from January 2020 series.
Here when we refer to a particular month of the year, we are talking about the
period from last Thursday of previous month to last Thursday of the current
month.
Last Thursday of the month is the expiry day for the monthly option contracts.
In case that day happens to be holiday, expiry takes place a day earlier.
We shall see how buying CALL options in NIFTY would have worked in the
year 2020.

JANUARY 2020:
NIFTY closed at 12126 on Thursday, December 26, 2019.
Just before closing time, NIFTY CALL 11500 for January 2020 expiry could be
bought for Rs. 700.
Intrinsic value of the CALL is Rs. 626 only but we have to pay some premium
for time. That is cost of doing business for an option buyer.
The cost of buying 1 lot is 75 x 700 = Rs. 52500.
We shall be ignoring the brokerage and associated costs for working out the
profit and loss.
This was January 2020. Covid-19 had not yet surfaced and NIFTY was
making new highs. Life was good for bullish traders.
Markets take a breather at some point of time.
January 2020 happened to be that kind of month and NIFTY closed at 12035
on expiry day.
CALL 11500 had a price of Rs. 535 near to the expiry and one could exit at
this price.
The loss in the first month was (700-535) 165 points which is Rs. 12375.
And I promised you profits.
I promised profit from option buying. On top of that I am suggesting buying
deep In the Money options.
Who buys such costly options?
Well, the money is lost. Brickbats are deserved.
We do not give up.
Try the same thing again in February 2020 series.

FEBRUARY 2020:
On expiry day on January 30, 2020 while NIFTY is about to close for the day,
we buy NIFTY CALL 11400 for February 2020 expiry.
This ITM CALL was priced at Rs. 594.
 That is Rs. 44500.
Throwing good money after bad or investing in NIFTY in an indirect way, we
shall find out soon.
In this month, Union Budget was announced and it had a dampening effect on
the market. Covid -19 too was in the air but not very prominent.
The dull month of February 2020 came to a close on February 27 with NIFTY
at 11633.
CALL 11400 ended up at Rs. 233.
The loss in this CALL – 461 points which is Rs. 34575.
This loss is bigger than the loss sustained in the previous month.
Two months gone and we are down by Rs. 46950.
Let us keep the sad story of February series short and move on to March
2020.

MARCH 2020:

Anyone who does not remember what happened in the market in March 2020
has no business being known as a trader.
Covid -19 pandemic hit the world, hit the financial markets everywhere and
stocks went crashing down. It was a free fall like of which was not seen since
October 2008.
Every portfolio was taken to cleaners.
What could happen to our kind of ITM CALL in such a month?
NIFTY was at 11633 at February expiry when NIFTY CALL 11000 could be
bought for Rs. 660.
That is another Rs. 49500 spent in the hope of making a profit.
How wrong could one go?
NIFTY crashed to 7511 but recovered to end the March 2020 series on March
26 at 8641.
CALL 11000 moved from Rs. 660 to 0.
Rs. 49500 went down the drain.
We look for some consolation in this disaster.
NIFTY lost 2992 points in this series.
Our loss could not be more than 660 points.
Those traders who were in Futures trades in NIFTY would have felt the heat
of MTM loss and margin calls. No such worries with option buying but a loss still
hurts.
What began purportedly as a formula to make money was a complete
washout at the end of three months.
The loss over 3-month period is Rs. 96500.
 March 2020 was the pits. Climbing out was yet to come.
Who said option buyers could make money?
The results of these three months should convince one to quit.
That is what most traders do. And we know what is the status of most traders
in the market.
We are into it for a long run. Three months is not long run.
With bruised ego and battered balance sheet we move on to April 2020.
APRIL 2020:
Markets became extremely volatile by end of March series. Option premiums
went through the roof and hit the sky.
We have seen that in previous months we paid some small amount as time
premium.
For April 2020 series, we look for NIFTY CALL 8000 while NIFTY was nearing
8641 on March 26.
It was priced at Rs. 1155.
Actual value being just Rs. 641, rest was premium for time and volatility.
Option buying is just not a good business.
Fortunately, NIFTY chose this month for recovering from the doldrums. The
trend was worldwide. On expiry day in April, NIFTY closed at 9859.
A very significant gain for the index.
Our benefit was not so much as CALL 8000 was bought at a very high price.
Last traded price was Rs. 1864 and we use it for our calculations.
Profit for the series – 709 points = Rs. 53175.
At last, some relief.
Four months gone. There is no profit to show for the effort.
What effort are we talking about? The deal was about doing nothing and yet
making money. Nothing of the sort happened so far.
What are we doing?
Just buying one CALL option in a month and watching it go whichever way it
goes.
Is it trading?
Maybe it is or maybe it is not.
We shall find out after few more months.
At the end of four months, we are still losing money. The loss is Rs. 43275.
Time for May 2020 series.

MAY 2020:

I am fond of saying that trading is profitable when it becomes dull and boring.
We might have seen lot of action in the market in last four months but as far
as trading is concerned it was dull and boring. If that was the only condition for
being profitable, we should soon be raking in the money.
If wishes were horses, beggars would ride.
On April 30, NIFTY CALL 9200 was priced at Rs. 752.
 Cost of trade – Rs. 56400
Our tale of woe did not end as NIFTY moved lower in May series and closed
at 9490 on May 28.
CALL 9200 was at Rs. 290.
The loss in this trade – 462 points = Rs. 34650.
Loss over 5-month period = Rs. 77925
We have now lost money in 4 out of 5 months while buying CALL options.
Whatever happened to the saying that markets move higher over a period of
time.
Surely it is not this period of time.
We take what the market gives or is it the other way round.
We give what the market takes.
While licking the wounds inflicted by the losses so far, we set up the trades for
June series.

JUNE 2020:

Month begins with a loss of 77925 and NIFTY at 9490.

We look for CALL 8800 for June 2020 series which was priced at Rs. 715
near the closing time on May 28.
That is another investment of Rs. 53625.
June series proved good as NIFTY moved higher to close the series at 10288
on June 25.
CALL 8800 was at Rs. 1493 near the closing time.
Profit in June series – (1493 – 715) = 778 points = Rs. 58350.
A good month indeed.
At the end of 6 months in the year 2020, we are still not seeing any profit,
though loss has come down.
Total loss after six months is Rs. 19575.
Let us not forget that the year was a disaster for most of the bullish traders till
later in the year.
NIFTY began the January 2020 series at 12126 and closed at 10288 in June
2020 series. That is a loss of 1838 points.
We cannot make a profit from NIFTY CALL trades with NIFTY being down
1838 points.
Over the same period our loss is just 261 points (Rs. 19625).
One of the benefits of buying options is that the loss is limited. We have not
made a profit in these six months but options have kept the loss under control.
With most of the loss now covered, we move to July 2020 series.

JULY 2020:

July 2020 series began with NIFTY at 10288 on June 25.

ITM CALL to be bought at this stage is NIFTY CALL 9500.
 Price of this option around 3:30 pm on June 25 was Rs. 844. That is an outlay
of Rs. 63300.
July happened to a good month for the index and NIFTY closed at 11102 on
July 30.
CALL 9500 on June 25 – Rs. 844
CALL 9500 on July 30 --- Rs. 1605
Profit – 761 points = Rs. 57075.
At long last, we see some profit.
After 4 losing months and 3 months of profit, we are looking at a small profit of
Rs. 37450.
The profit may look small but it is welcome.
The important point is that we are trading just 1 lot of NIFTY CALLS.
A profit of Rs. 37500 in 7 months is quite reasonable with such a small trade
size.
Another point worth mentioning here is that NIFTY closed at 11102 on July
30, which is 1000 points lower than where it began for January 2020 series.
This small profit has come from CALL trades while NIFTY is still 1000 points
down from 12126 level on December 27, 2019.
Getting back into profit is a big relief and we approach the August 2020 series
with some hope and confidence.

AUGUST 2020:

With NIFTY at 11102 on July 30, we go for NIFTY CALL 10500 for August 27,
2020 expiry.
Call was priced at Rs. 677 (Last traded price)
The month was sedate and upward and NIFTY closed at 11559 on August 27.
LTP of CALL 10500 = Rs. 1060
Profit – 383 points = Rs. 28725.
We have now seen a profit over a three-month period. It is quite a contrasting
experience from the first three months which all ended up in a loss.
In this method (If we can call it a method) everything is left to the market. Our
job is to take a trade and come back on expiry day.
Profit at close of August series --- Rs. 66225.
Looks like good times are back.
We move on to September 2020.

SEPTEMBER 2020:
Come September was a great musical hit of the year 1961.
September 2020 came.
There was no music.
There were only jarring notes of mourning a loss as NIFTY moved down from
11559 to 10805.
CALL 11000 was priced at Rs. 646 (LTP) on August 27.
 At close on September 24, it was worthless at Rs. 0.
Loss for the month – Rs. 48450
Profit after 9 months --- Rs. 17775.
Once again, the market decided to test our belief and patience.
We make money if the market moves higher. That did not happen in
September. Not music to our ears but life goes on.
Over to October 2020.

OCTOBER 2020:

The series began with NIFTY at 10805.

NIFTY CALL 10000 price on September 24 – Rs. 901.
A very costly option at Rs. 67575.
NIFTY resumed its upward march in this month and moved up to 11670 on
expiry day.
Such a month was really needed.
Price (LTP) of NIFTY CALL 10000 on October 29 – Rs. 1666.
Profit – 765 points – Rs. 57375.
With this, profit for the 10-month period comes to Rs. 75150.
NIFTY at 11670 was still at a level lower than 12126 at the beginning of
January 2020 series.
Anyone invested in a NIFTY ETF in January 2020 would be still looking at a
small loss but buying ITM CALL options has come into profit.
In 10 months, profit and loss months are equal at five each.
We move on to November 2020 series.

NOVEMBER 2020:

November is generally the month of Deepavali festival. Festival of lights is

also associated with worship of Goddess Lakshmi, the goddess of wealth. The
day is auspicious for the markets too and special trading session is conducted on
this day in the evening.
In November 2020, the goddess of wealth showered her blessings on the
market in abundance.
At the end of October series, NIFTY was at 11670.
NIFTY CALL 11000 was available at Rs. 756 (LTP).
As the month went on, NIFTY gained in a big way and closed at 12987 on
expiry day on November 26.
NIFTY CALL 11000 LTP on Nov 26 --- Rs. 1991
Profit – 1235 points – Rs. 92625.
Such months are rare but they happen.
When they happen, we have to be in the trade. We stay with the trades when
they go wrong. By the same token, we stay with them when they go right.
Profit at the end of month 11 --- Rs. 167775.
 NIFTY had moved higher than the 12126 level of January 2020.
So did the profit from the ITM CALL trades.
Time to move on to December 2020 series.

DECEMBER 2020:

December 2020 series began with NIFTY at 12987.

Multiple new highs were already made by the index and more were to come in
this series.
It appeared that Covid-19 which impacted the world markets so badly in
March 2020 was just a bad dream. Markets moved higher and higher with or
without reason.
Traders do not have to look for a reason. They have to just accept the market
moves.
With NIFTY at 12987, CALL 12200 was available at Rs. 895.
At expiry on December 31, 2020, NIFTY had moved to 13981.
Once again, a big up move.
If March 2020 was the pits, December 2020 was about scaling the crest.
NIFTY CALL 12200 ended up at Rs. 1782.
Profit --- 887 points = Rs. 66525.
With this, the story of the year 2020 comes to a close.
Profit for the year --- Rs. 234300.
Unbelievable, but possible.
Possible by simply being in the trade.
Possible by doing nothing after taking the trade.
Possible by believing that market will do what is right for you.
I understand that we got lucky. But then all who bought the stocks after March
2020, they too got lucky. They did not employ any special skill sets to get their
profit.
We get lucky only if we stay with the trades.
Still, there is lot of analysis to be done for this extraordinary profit. We shall do
that in next chapter.
 Chapter 4 – Big Move Bigger Profits
In Chapter 3, we have seen that year 2020 was exceptionally good for buying
CALL options.
Profit for the year at Rs. 234300 is equal to 3124 points of NIFTY.
Someone who bought NIFTY ETF at the beginning of January 2020 series at
Rs. 12126 would have ended up at Rs. 13981 at the end of the year.
After going through the big fall of March 2020 and the subsequent recovery,
the profit on NIFTY would have been 13981 – 12126 = 1855 points.
Investment would have been Rs. 909450.
Return on investment – 15.29% for 1 year.
It is in line with the average NIFTY yield over last 5 years as mentioned in
Chapter 1.
In our method of ITM CALL buying, we had to bring in money over first 4-5
months as the losses came right at the beginning. At the end of March 2020, the
loss was Rs. 96500 and money was required to buy the option for April series.
The volatility was at its peak in April and CALL 8000 came at a very high price.
Maximum draw down was at Rs. 183125.
We add some more cushion and consider the capital requirement as Rs.
300000.
Profit of Rs. 234000 works out to be 78% for the year on a capital of Rs.
300000.
In a good year when NIFTY moved up by 15.29%, buying CALLS delivered a
profit of 78%.
Should we ask for more?
Why not do it with ATM CALLS?
Traders are greedy and traders are fearful.
When we see something good, we become greedy and try to find ways to
squeeze in a little more profit.
Buying slightly In the Money CALLS would have worked equally well in 2020.
It would have given same 5 months of losses and 7 months of profits. Total profit
would have been 2873 points instead of 3124 points what we worked out.
A very good result considering the lower capital outlay.
We are not looking at instant gratification. We are not concerned about just 1
year’s result. We want something which works over a period of time.
ATM Calls would have worked in 2020 but not at other times.
We shall come to that when we analyse the results for other yearly periods.

How the profit came?

Market does not move in a linear manner.

In 2020, there were big moves in both directions.
 When the move was upward, we got good gains. That is what an option buyer
is always looking for.
When the market tanked big in March 2020 as NIFTY fell 2992 points, our
loss was limited to 660 points.
Option buyers have limited loss.
The limited loss limit (premium paid) was in a way our stop loss every month.
Year 2020 was not a standard kind of year. We may not see such wild swings
for quite some time in future.
Advantage of big moves is that options make more money in a favourable
move and lose less when things go wrong.
That worked best in 2020.
Year ended with 5 losses and 7 profits.
We may see this trend not holding in other years.
We can now say that option buying made money in the year 2020.

Will there be profit every year?

We are working against the market wisdom.
The market wisdom is that option buyers do not make money.
When you make money, you just got lucky.
When option writers make money, they are geniuses. You will find number of
articles on financial websites singing praises of these traders.
In my view, they too just get lucky.
When they fail, the fall is very steep.
When an option buyer fails, the loss is not too big. One can get up to fight
again.
Only we should not be looking for a profit in every trade. Leaving it to the
market works nicely at most times. Our intervention in a trade will mostly reduce
the profit market was willing to give us in that trade.
We have started with the theme of – DOING NOTHING to make money from
option buying.
Let us stay true to that theme.
We shall make few losses along the way. Losses are inevitable. We have
them capped. Profits are left to the market.
That standard phrase about time in the market and not timing the market will
work for option buyers too.
All we need is firm belief in what we do, some capital and little luck.
The story continues.
We shall move on to year 2021 in the next chapter.
 Chapter 5 --- The Ride Continues
We saw how good the year 2020 was for buying ITM CALLS.
Are we getting wise after the event?
The saying about the hindsight always being twenty-twenty.
Back testing of data is always comfortable. Actual trading is not. Back testing
would show that the losses eventually turned into profit.
In real trading, going through the losing period is a hellish job. While going
through that time, we tend to lose belief, make mistakes and stop doing what we
need to do.
And do not get the results which would have come by doing nothing.
We now examine the NIFTY moves over the 5-month period in 2021 and how
ITM CALLS would have worked.

Year 2021:

January 2021:

The first month of the year saw NIFTY moving down a little. The series began
with 13981 on December 2020 expiry day and ended at 13817 on January 2021
expiry.
CALL 13200 --- Buy Price – Rs. 868 Sell Price – Rs. 613
Loss – 255 points = Rs. 19125.
The 164 points down move caused a loss of 255 points.
This is something option buyers have to live with month after month. This is
the price we pay for time and hope.
The first month of the year was a loss.
Time for the February series.

February 2021:

Union Budget was presented on February 01, 2021 and market went into
overdrive from that day.
Bulls were dancing throughout the month.
February series saw NIFTY going higher and higher. The series began with
NIFTY at 13817 and closed with NIFTY ruling high at 15097.
CALL 13200 --- Buy Price 765 Sell Price – 1901 would have resulted in a
profit of 1136 points.
That is Rs. 85200.
Option buyers do get lucky sometime. Nobody will ever give them any credit
for anything, when they make money, it is luck.
 We need all the luck and do not argue with the market when the going is good
for us.
The loss of January is quickly forgotten and we move to March 2021.

March 2021:
March was just like a normal month for option buyer.
As NIFTY moved lower from 15097 to 14324, CALL 14400 priced at Rs. 876
kept losing value and ended up worthless at expiry.
Loss for the month = 876 points = Rs. 65700.
We were lucky in February. Agreed.
By the same logic, we were unlucky in March. People are not so generous.
They will tell you that option buying is a loser’s job. Nobody ever made money
from option buying, how do you think you are different. You would be termed
foolish or stupid or something similar.
Who said life was fair?
At the end of March, we were in profit by just Rs. 375.

April 2021:

In April series, NIFTY moved up 570 points.

As it happens, our profit is always less than the market moves in absolute
numbers but looks better in percentage points.
CALL 13500 moved from Rs. 1034 to Rs. 1398 giving a profit of Rs. 364.
With a profit of Rs. 27300 added for the month, things start looking better.
Moving on to May 2021.

May 2021:

If the description is looking repetitive and boring, that reflects the reality of this
method of trading.
What we are doing is repetitive and boring. Where is the excitement is just
taking a trade at the beginning of the month and DOING NOTHING after that?
Let us ask ourselves – are we in the market for excitement or entertainment?
We must accept the dull and boring.
In May 2021, NIFTY moved from 14894 to 15337, a gain of 443 points.
CALL 14000 moved from Rs. 1024 to Rs. 1359, a gain of 335 points.
That is a profit of Rs. 25125.
The first 5 months of the year gave a profit of 704 points or Rs. 52800.
So far, the year has been good as NIFTY has moved higher.
When it takes a step back, we shall be on the losing side for a while.
That has happened in the past and will surely happen in future. Losses are
part of the plan.
 We have to go through the rest of year 2021 and see how the results work
out.
Here is the summary for the 5 months in 2021:

NIFTY NIFTY ITM Buy Sell Profit Profit

Series
Open Close Call Price Price Points Rupees
Jan 13981 13817 13200 868 613 (255) (19125)
Feb 13817 15097 13200 765 1901 1136 85200
Mar 15097 14324 14400 876 0 (876) (65700)
Apr 14324 14894 13500 1034 1398 364 27300
May 14894 15337 14000 1024 1359 335 25125
Total 704 52800

We know that the kind of moves seen over last 17 months are not likely to
continue forever.
Market may correct from here or we may see a sustained bull run.
Will this plain option buying work in any and every market condition?
We need to examine the numbers for few previous years to arrive at some
sort of conclusion.
We do that in next chapter.
 Chapter 6 ---- Ploughing The Lonely Furrow
We have seen how buying deep in the money CALL options would have
delivered very good profits in the extremely volatile but overall bullish market in
2020 and 2021.
Market pundits are of the firm opinion that option buying is a sure way to
disaster.
No amount of profit over any period will convince them.
You get a profit over one year --- you got lucky.
You get a profit over two years --- you got very lucky.
You show a profit over three years – how lucky you can get. You are sure to
lose it all.
Somebody backed by huge amount of money, making small profits every year
will be hailed as a great trader. Business channels on TV will praise them sky
high. As if someone invented the holy grail of trading.
We have no complaints.
Let us plough the lonely furrow.
When something grows, we shall enjoy the harvest. Maybe share that too.
It is time to examine whether this pursuit of option buying is worth the trouble.
We go back three years.
We begin on the expiry day of December 2016 series for setting up of
January 2017 trades.
These are back testing numbers. Hence, few clarifications are in order:
Last traded price (LTP) is considered for the purpose of working out the profit
and loss.
Trade is considered taken at the LTP on expiry day for the next series.
Similarly closing is taken at LTP on current series expiry.
After taking a trade, we do nothing. Either the trade makes some money or
makes some loss.
Our policy remains the same at all times – Do Nothing.

YEAR 2017:
Year 2017 was a very good year for the market. The benchmark index NIFTY
50 had closed at 8103 at December 2016 expiry.
After the sustained bull run over next 12 months, NIFTY was at 10477.
A gain of 2374 points (29.29%) is surely something to be remembered.
It is expected that CALL buying results for such a year will be good.
How good, that remains to be seen.
The table below gives the numbers.

Series NIFTY NIFTY ITM Buy Sell Profit Profit

 Open Close Call Price Price Points Rupees
Jan 8103 8602 7500 623 1092 469 35175
Feb 8602 8939 8000 616 940 324 24300
Mar 8939 9173 8400 560 774 214 16050
Apr 9173 9342 8500 678 842 164 12300
May 9342 9509 8800 545 702 157 11775
Jun 9509 9504 9000 500 501 1 75
Jul 9504 10020 9000 522 1018 496 37200
Aug 10020 9917 9500 574 410 (164) (12300)
Sep 9917 9768 9400 545 364 (181) (13575)
Oct 9768 10343 9200 593 1143 550 41250
Nov 10343 10226 9800 573 422 (151) (11325)
Dec 10226 10477 9600 682 881 199 14925
Total 2078 155850

There was a profit of 2078 points or Rs. 155850.

A very good performance by the CALL trades.
Still, everybody and their uncle tell me that option buying does not work.
In 2020 results, we had seen that anyone beginning the trades from January
2020 series would have faced 3 straight losses.
No such problem in 2017.
There were 8 continuous profitable months if we count the Rs. 75 profit of
June 17 in that category.
One could have made a god amount of money at the cost of just one option.
This will not happen every time. It is prudent to have more funds available.
We consider the funds as six times the requirement of one trade.
The cost of first CALL option was Rs. 46725.
Six times of this amount is Rs. 280350. It would be safe to have Rs. 300000
as available funds to meet any draw downs.
In 2017, these trades lost money in just 3 out of 12 months.
Options expiring worthless did not happen even once.
These numbers refute the sayings about 80% of options expiring worthless
and not making profit etc.
It is not the time yet to argue with another school of thought because the
results next year could make us eat our words. That is never a pleasant
experience.
So, we stay tight lipped, keep on taking our trades, stay small and invisible
and try to be profitable.
There will be problems on the way. We just ignore them. The method is
defined. Either we get a profit or a loss.
 Why worry so much? Worrying never made money.
Let us have a look at the year 2018 now.

Year 2018:
Market has a mind of its own.
It does not care two hoots for what we wish. Many pretend to be experts in
predicting the market action but that is just guesswork disguised as analysis.
In 2018, market mood was subdued.
NIFTY made new highs in January 2018 but that was followed by two losing
months in February and March.
Rest of the year was not great shakes though there was a very good gain in
November.
Each way moves throughout the year made NIFTY move up from 10477 to
10779 by the end of the year.
When NIFTY moves just 302 points in a year, there should be absolutely no
expectation of profit from CALL buying trades.
This can be said at the end of the year. We had no way of knowing it when
the year began.
A trader has to go through the process living with the hope that market will
reward the effort at some point of time.
Does not look like a plan, so be it.
We know about the well laid plans of men and mice and what happens to
them.
Market does not care for anyone’s plans.
Let us see how the trades performed in this year when NIFTY did nothing.
January series began with the index at 10477 and moved up nicely to 11069
by expiry of this series.
February saw the index fall very sharply to 10382. The fall continued in March
series which ended at 10113.
Ups and downs continued throughout the year with no clear trend emerging at
any time.

Here are the results:

NIFTY NIFTY ITM Buy Sell Profit Profit

Series
Open Close CALL Price Price Points Rupees
Jan 10477 11069 10000 518 1063 545 40875
 Feb 11069 10382 10500 598 0 (598) (44850)
Mar 10382 10113 9800 593 311 (282) (21150)
Apr 10113 10617 9600 567 1014 447 33525
May 10617 10736 10000 633 737 104 7800
Jun 10736 10589 10200 523 389 (134) (10050)
Jul 10589 11167 10000 589 1159 570 42750
Aug 11167 11676 10500 716 1161 445 33375
Sep 11676 10977 11000 742 0 (742) (55650)
Oct 10977 10124 10400 670 0 (670) (50250)
Nov 10124 10858 9500 740 1352 612 45900
Dec 10858 10779 10300 645 475 (170) (12750)
Total 127 9525

After the heady feeling of 2017, results of 2018 are a disappointment.

We have to take bad with the good. Profits and losses were evenly spread in
this year. 6 profits and 6 losses finally resulted in a small gain.
We have now examined how buying ITM CALLS could have been profitable
over a long period of time. Positive results are seen for 2017, 2018, 2020 and 5-
month period of 2021.
A look at the results of 2019 will fill the gap and we can then work out the
profitability over a 53-month period. That is long enough time span to arrive at
some conclusions about the working of this method.
Year 2019:
In 2019, NIFTY moved from 10779 to 12126.
This is a gain of 12.49%. This number is in line with the normal rate of NIFTY
growth over the years.
The year can be called a normal year for the index, nothing spectacular or
otherwise about it.
Normal years are not good for buying options. For CALL options to make
money, we need sustained up move.
What we need is something different than what the market gives us. Market
verdict is final and has to be accepted.
Here are the numbers for the year 2019:

NIFTY NIFTY ITM Buy Sell Profit Profit

Series
Open Close CALL Price Price Points Rupees
Jan 10779 10830 10200 644 628 (16) (1200)
Feb 10830 10792 10300 587 482 (105) (7875)
Mar 10792 11570 10200 703 1374 671 50325
Apr 11570 11641 11000 686 641 (45) (3375)
May 11641 11945 11000 807 947 140 10500
Jun 11945 11841 11400 609 432 (177) (13275)
Jul 11841 11252 11300 630 0 570 (47250)
Aug 11252 10948 10700 621 249 (372) (27900)
Sep 10948 11571 10400 636 1170 534 40050
Oct 11571 11877 11000 670 877 207 15525
Nov 11877 12151 11300 656 853 197 14775
Dec 12151 12126 11500 702 627 (75) (5625)
Total 329 24675

This year was better than 2018 but no patch on 2017.

Once again, results for the year were positive.
We sum up the three years here:
2017 --- 155850
2018 --- 9525
2019 --- 24675
Analysis of these numbers and more – in next chapter.
 Chapter 7 --- The Numbers Looking Good
Let us do some number crunching to make sense of the data available for the
53-month period from January 2017 to May 2021.
The results are for just 1 lot of NIFTY.
We buy a deep in the money CALL to avoid the time premium part of the
option price. We try to keep it as low as possible but liquidity of that strike is also
to be considered.
This option will work almost like a future buying trade. There will be no
hassles of mark to market adjustment or margin calls in case of trade going
wrong.
Nothing is to be done after the trade is entered. We take whatever profit or
loss comes out of that trade. Same process is to be repeated every month.
We look at the numbers now.
Year Profit Months Loss Months
2017 9 3
2018 6 6
2019 5 7
2020 7 5
2021 (5 months) 3 2
Total 30 23

Out of 53 months, 30 ended up with a profit.

These results confirm that some options do make money. All of them do not
expire worthless.
Out of 53 CALL trades, 7 actually ended up worthless.
CALLS being in the money saw to it that full loss happened in case of very big
falls only.
Profit Numbers:
2017 – 2078 points
2018 – 127 points
2019 – 329 points
2020 – 3124 points
2021 – 724 points (5 months)
Total – 6354 points in 53 months.
6382 points translate into a profit of Rs. 478650.
We now look at the significance of these numbers.
NIFTY ETF:
At the end of year 2016, cost of 1 NIFTY lot was 75 x 8103 = Rs. 607725.
 By end of May 2021, NIFTY moved to 15337.
1 lot now has a value of 75 x 15337 = Rs. 1150275.
Anyone who bought NIFTY ETF (exchange traded fund) and stayed with it
would be sitting on a profit of Rs. 542550 which is 89.27% of the invested
amount.
A very good return over 53 months because of the recent up move.
ITM CALLS:
Going against the conventional wisdom, we tried to make money through
buying NIFTY CALLS over the same period.
Failed to make money in 23 out of 53 months.
And ended up with a profit of Rs. 478650.
Did NIFTY ETF give better return?
The answer is no.
We did not put in Rs. 607725.
Year 2017 began with a CALL buying trade worth 46725.
There were consecutive profitable months after that and the money kept
coming in.
Do we consider Rs. 46725 as our capital to work out the percentage gains.
That would be stretching it too far.
We could have faced few losses right at the beginning. Someone starting
similar trades in January 2020 would have faced 3 quick losses one after the
other.
We take 5 times of the first trade amount as the trading capital. That will make
it a fair comparison.
5 x 46725 = Rs. 233625.
We further enhance this amount to Rs. 250000.
Now we can compare the profit.
Our trades made a profit of Rs. 478650 on a deployed capital of Rs. 250000
in 53 months.
This is 191.4%.
How does it compare with NIFTY gain of 89.27%?
I hope your answer is same as my answer.
CALL buying is much better method of making money from NIFTY than
investing passively.
While buying CALLS also, we are very passive. We are doing nothing except
for entering and exiting the trades on expiry day.
Remember the promise at the beginning --- we have to make money by doing
nothing. Well, almost nothing.
By now we have seen how CALL option buying would have done much better
than buying the index. The profit is almost double in percentage terms.
Those interested in knowing monthly returns (traders love to talk about these
numbers even while majority of them are not making any money at all) can see
that it made 3.61% per month on average.
Who does not love 43.3% annual return from a stupidly simple method?
 I would like to think that it is now established that this method works. We have
the numbers to support our thinking.
I wish life of an option buyer was so easy.
Even with these numbers people are not going to believe that simple things
work.
Doubters will say that these are the results of just 53 months. Can we have a
look at three years prior to 2017?
If I show those results, they will ask me to go back another 2-3 years.
I have already got messages from people asking about the results of year
2015 when the market went down sharply after NIFTY making the then all time
high of 9119 on March 04, 2015.
I agree that there will surely be a loss in some year.
So what?
Are all traders making profit every month by doing whatever they are doing?
This is one question to which I have not found the answer in so many years. I
do not think that there is an answer.
People refuse to believe in something which is so simple.
Simplicity in trading hurts the ego.
We have been on the losing side of trades for so long trying this, that and
what not. All those trials and efforts did not make money.
How do we believe that something as ridiculously simple as buying a
CALL will make money?
That too by doing nothing. Not even trying to cut the loss in a trade that
was going wrong.
This must be a joke.

If trading was so simple then how were we losing money?

We refuse to believe even when the numbers are in front of us.
One can not convince those who do not want to be convinced.
I will not bother with that but convincing myself is something I would surely
like to do.
We shall go back and see the numbers for 2016, 2015 and 2014 also. We
shall see if there is any kind of trend that emerges from these numbers.
The quest continues.
 Chapter 8 --- Blast From The Past

In the previous chapter we discussed the results of 53 months from January

2017 to May 2021.
By all counts the results are good. No one expects profit from option buying
trades (I do not know why?) and the simple act of buying an ITM CALL every
month delivered a profit of 43.3%.
Too much goodness is difficult to believe.
In order to convince myself that these results are not a flash in the pan, I go
back to the year 2012.

Year 2012:

UPA government headed by Sh. Manmohan Singh was in the middle of its
second term. Telecom scam and Coal Mines allocation scams were coming out.
Government was hard pressed to contain the corruptions charges that were flying
thick all around.
Market makes its own judgement of the situation and moves higher or lower.
In 2012, it moved higher.
From 4646 at the end of December 2011 series expiry, NIFTY had moved to
5870 by end of December 2012.
This translates into a gain of 26.34%.
A fantastic year for the index and the market.
Since we are looking back at the data from the past, we know that 2017 was
another year with similar gains.
We have seen the CALL buying results of 2017.
Something similar should result for 2012.
NIFTY contracts had a trading lot size of 50 (Fifty) in 2012.
Value of index was at about one third of the present NIFTY values. So, the
trade sizes were really small.
1 lot of NIFTY at the end of December 2011 cost only Rs. 232300.
Index has come a long way since then. It is necessary to view the previous
results with proper perspective.
A look at the chart tells us that it was a very good year.

Nifty Nifty ITM Buy Sell Profit Profit

Series
Open Close Call Price Price Points Rupees
Jan 4646 5158 4400 306 761 455 22750
Feb 5158 5483 4900 302 582 280 14000
 Mar 5483 5178 5200 382 0 (382) (19100)
Apr 5178 5189 4900 366 282 (84) (4200)
May 5189 4924 4900 340 19 (321) (16050)
Jun 4924 5149 4700 275 449 174 8700
Jul 5149 5043 4900 270 143 (127) (6350)
Aug 5043 5315 4800 297 509 212 10600
Sep 5315 5649 5100 244 547 303 15150
Oct 5649 5705 5400 302 306 4 200
Nov 5705 5825 5500 270 320 50 2500
Dec 5825 5870 5500 373 376 3 150
Total 567 28350

A profit of 567 points or Rs. 28350 looks small but is not small.
By the present NIFTY values 567 points will become around 2000 points.
Multiple will also change from 50 to 75.
Hence this smallish number is in fact quite a handsome profit.
Once again, we have gone back, tested the data for 12 months of a particular
year and found that profit could have been made by buying CALL options.
We check the numbers for 2013 now.

Year 2013:
Year 2013 spelt more trouble for the UPA government. There were dissents
and protests all around.
In this year, there were no big gains but eventually NIFTY moved to 6278
from the 5870 level of December 2012 closing.
A 7% gain in a year is normal, specially coming after a spectacular year.
For us the NIFTY gain does not matter much.
We make money if the index makes a big up move in a particular month.
We lose it if it goes down sharply in any month.
Combination of these ups and downs results in our profit or loss.
Trading could not get simpler than this.
These are the numbers for the year 2013:

Nifty Nifty ITM Buy Sell Profit Profit

Series
open Close Call Price Price Months Rupees
Jan 5870 6034 5600 342 436 94 4700
Feb 6034 5693 5800 278 0 (278) (13900)
 Mar 5693 5682 5400 350 277 (73) (3650)
Apr 5682 5916 5400 330 516 186 9300
May 5916 6124 5700 238 421 183 9150
Jun 6124 5682 5900 246 0 (246) (12300)
Jul 5682 5907 5400 331 508 177 8850
Aug 5907 5489 5700 276 0 (276) (13800)
Sep 5489 5887 5200 278 682 404 20200
Oct 5882 6299 5600 397 700 303 15150
Nov 6299 6091 6000 351 86 (265) (13250)
Dec 6091 6278 5800 385 470 85 4250
Total 294 14700

With just 7% up move in NIFTY, buying ITM CALLS resulted in a profit of 294
points or Rs. 14700 in this year.
Numbers have stacked once more to show that profit could be made by this
method.
On 3 occasions, CALLS expired worthless. There were 5 losing months in the
year. Gains were more than the losses.
Our theory held its ground for yet another year.
We are now ready to check the data for the year 2014.
Year 2014:
Signs were clear in the beginning of the year that Lok Sabha elections in May
2014 will see a change in the government.
Market move began even before the election notification was issued.
On December 2013 series expiry NIFTY was at 6278.
Elections and swearing in of the new BJP government sent the market into a
bull run and after 12 months NIFTY was at 8174.
A gain of 1896 points which is 30.2%.
This is by far the biggest annual gain we have seen in our exercise.
Such a year should have been good for buying the CALL options.
Yes, it was.
The year began with a losing trade in January 2014 series.
This one loss was followed by 7 months of consecutive profits as market
rallied before the elections and continued the up move after the new government
set about its business.
Next losing month was September.
There was profit again in October and November. The CALL trade of
December 2014 expired worthless bringing up the number of losing months in
this year to 3.
The numbers for the year were good.
Very good when compared to the results of 2012 and 2013.
 Thus, the CALL buying trades were profitable for three years in succession.
And people tell me that option buyers do not make money.
Why should I believe them?
Should I trust the data which I have checked diligently or just take anybody’s
word for it?
People also say that money is the root of all evil.
That does not stop us from trying to earn money.
Why then we care about what is spoken about option buyers?
This is a never-ending argument. We shall get back to it again.
Presently we look at the numbers of the year 2014:

Nifty Nifty ITM Buy Sell Profit Profit

Series
Open Close CALL Price Price Points Rupees
Jan 6278 6073 6000 358 71 (287) (14350)
Feb 6073 6238 5800 327 434 107 5350
Mar 6238 6641 6000 287 642 355 17750
Apr 6641 6840 6400 315 440 125 6250
May 6840 7235 6600 370 635 265 13250
Jun 7235 7493 7000 309 486 177 8850
Jul 7493 7721 7200 370 510 140 7000
Aug 7721 7954 7500 277 454 177 8850
Sep 7954 7911 7700 301 208 (93) (4650)
Oct 7911 8169 7700 312 463 151 7550
Nov 8169 8494 7900 312 596 284 14200
Dec 8494 8174 8200 362 0 (362) (18100)
Total 1039 51950

From November series NIFTY lot size was reduced to 25.

We have continued with the previous lot size assuming that 2 lots of 25 were
traded.
The success over three years would make us think that making money from
option buying was the easiest thing in the world.
It is not that we have not seen the option value falling to zero. We have seen
frequent losses but profits from the better months could take care of those
losses.
That is how trading should be.
Too much of a good thing is never good. Occasionally, we should get a reality
check.
Market is a very good teacher. When you are flying high, it brings you down to
earth. Staying grounded is the lesson taught.
 I have mentioned earlier that some people have specially asked me about the
year 2015.
As if the loss in that one year will prove that this way of trading is not right. Do
we ignore 7-8 years of profit because of one loss?
Before we take a view on that, numbers have to be seen.

Year 2015:

Year 2014 was the honeymoon time for the new government. Nothing could
go wrong. Market took everything into its stride and moved higher and higher.
Soon the charm began to wear off.
Market returned to its normal mode. It had a lot of weight to shed. That was
done in big chunks in 2015.
In absolute numbers, the fall was not much.
From December series expiry in 2014 to same month in 2015, NIFTY moved
down from 8174 to 7946. A loss of just 228 points.
The fall actually began on the same day when NIFTY made the then all time
high of 9119.20 on March 04, 2015. After making the new high, the day had
ended with a loss.
From that day the fall till the end of the year was 1173 points.
This looks worse than the 228 points for the year.
Options have a shelf life.
The contracts expire within a time frame.
If the desired directional move occurs within this time, life is good, we get a
profit.
If the move goes in the other direction, we get a quick loss.
Some people like to have a stop loss in such cases. Some part of the loss can
be salvaged. I consider the entire premium paid as stop loss. I know that is the
maximum amount which can be lost.
2015 was not a good year as the chart below will tell us.

Nifty Nifty ITM Buy Sell Profit Profit

Series
Open Close CALL Price Price Points Rupees
Jan 8174 8952 7800 498 1148 650 32500
Feb 8952 8683 8600 430 83 (347) (17350)
Mar 8683 8342 8300 480 40 (440) (22000)
Apr 8342 8181 8000 485 177 (308) (15400)
May 8181 8319 7800 475 520 45 2250
Jun 8319 8398 8000 367 400 33 1650
Jul 8398 8421 8000 461 414 (47) (2350)
Aug 8421 7949 8100 392 0 (392) (19600)
Sep 7949 7868 7600 445 269 (176) (8800)
 Oct 7868 8111 7500 460 612 152 11400
Nov 8111 7883 7800 382 73 (309) (23175)
Dec 7883 7946 7500 462 446 (16) (1200)
Total (1155) (62075)

Our way of trading met its waterloo in 2015.

A defining moment after the profits in 2012, 2013 and 2014.
The chain of three years was broken.
It is a cause of concern.
Do we abandon the method?
No, it is not right to ditch something after one failure. We had three successful
years prior to this failure.
We know that there are no sure fire strategies for making profit from option
trading. Every method needs some adjustment.
Adjustment for this method is to keep patience. What goes wrong will come
right at a time of market’s choice.
One more point – From October 2015, NIFTY lot size was increased to 75
from 25 earlier. We have worked out the profits based on NIFTY lot size as 50.
In the above table, modification has been made in the numbers for last three
months for new lot size.
We take a look at year 2016 now.

Year 2016:

January series of 2016 commenced with NIFTY at 7946.

At the end of the year, NIFTY was at 8103.
A small gain of 157 points in 12 months.
The first talking point of the year was the budget presentation on the last day
of February 2016.
March 2016 saw NIFTY moving up smartly by more than 10% in a month.
Then there was BREXIT.
Experts were predicting doom if Britain moved out of European Union. Britain
did move out. The event proved a damp squib. Market continued to move higher.
After that focus shifted to US Presidential election. Trump was the dark horse.
Once again there was talk of market finding a new bottom if Trump came to
power.
We had a double whammy on the day of US Election results.
Prime Minister had announced demonetization of currency notes of Rs. 1000
and Rs. 500 values.
Election results and this news were supposed to hit the market badly.
In the great scheme of the market, expert predictions do not figure at all.
Let us see what happened at that time.
 (Image – NSE website)
On November 09, NIFTY opened with a big gap down and was at a low of
8002.25 (Down 541 points) before recovering to 8432. From next day, it was
business as usual.
Once again, all the experts had to eat crow.
So much for the predictions.
We come back to our trades only to find that this year was a nothing sort of
year. That is keeping in line with NIFTY performance over this period.

Nifty Nifty ITM Buy Sell Profit Profit

Series
Open Close CALL Price Price Points Rupees
Jan 7946 7424 7600 371 0 (371) (27825)
Feb 7424 6970 7100 385 0 (385) (28875)
Mar 6970 7738 6600 465 1137 672 50400
Apr 7738 7847 7400 441 447 36 2700
May 7849 8069 7500 417 571 154 11550
Jun 8069 8287 7600 495 685 190 14250
Jul 8287 8666 7800 538 866 328 24600
Aug 8666 8592 8200 508 387 (121) (9075)
Sep 8592 8591 8100 542 490 (52) (3900)
Oct 8591 8615 8100 575 509 (66) (4950)
Nov 8615 7965 8200 468 0 (468) (35100)
Dec 7965 8103 7500 532 604 72 5400
Total (11) (825)

The loss was not too big to cause any concerns. On the other hand, these
results provide the right perspective to look at the efficiency of the method.
Getting profits over many years continuously is a statistical impossibility.
The picture gets more realistic with these results in the bag now.
 .
Summary of 5 years:

2012 ------- 567 points

2013--------294 points
2014 -------1039 points
2015 -------(962) points from January to October
2015 -------(193) points from October to December
2016 -------(11) points

Total for 5 years --- 734 points.

What was looking fantastic till 2014 was looking ordinary by the end of 2016.
Getting profit from option buying is a big deal. Calling it ordinary is something
which we are doing in the light of results previously seen.
More Numbers:
Year Profit Trades Loss Trades Trades Worthless
2012 8 4 1
2013 7 5 3
2014 9 3 1
2015 4 8 1
2016 6 6 3
Total 34 26 9

There were 34 trades out of 60 which earned a profit.

This is a success rate of 56.66%.
More than 50% success is likely a deliver a reasonable profit. The question is
how to get that kind of success in option buying?
The answer is staring at us through these numbers.
We need to acknowledge that answer.
By DOING NOTHING.
The worthless options were at 15% -- 9 out of 60.
A lower number would have made the results better but we are not given a
choice in the matter.

How to keep the loss low?

I got a work sheet from a friend for back testing done for the year 2015 and
2016.
As per those results, the loss was much lower.
How could that be?
 If we had gone for ITM CALLS which were deeper in the money, the profit in
the right trades would have been higher because of the lower time premium
values.
In that case, cost of buying the CALLS would be higher.
We are checking the data from the past. We do not have to mould it to suit
our assumptions. We have to arrive at the conclusions based on the numbers as
they exist.
My results will differ from the results obtained by anyone else. Not because of
any factual errors but because of different strike price selection.
The fact of the matter is that just buying an ITM CALL every month was a
profitable method of trading over a 60-month period from January 2012 to
December 2016.
Five years is a long time.
We go further and add the data available with us for next 53 months.
That should help us to form a definite opinion.
We do that in the next chapter.
 Chapter 9 --- The Road Less Travelled
We now have the data for 113 months from January 2012 to May 2021. By
any logic, this is a long enough period to have seen all kinds of up and down
moves in the market.
It will not be wrong to say that whatever method worked in this period has a
fair chance of success in future too. There are no guarantees of immediate and
certain profit but we can safely assume a positive return over next few years.
Investors wait for the returns.
Most of the traders do have some money in mutual funds. They wait for the
returns from these funds for years.
From trading they want instant success which does not happen.
It leads to frustration and search for different strategies.
We end up chasing a rainbow to find that there is no pot of gold.
Why not make patience a part of the method?
We have seen that it works.
Complete set of numbers now at one place:

Profit Loss Worthless Profit

Year
Trades Trades Trades Points
2012 8 4 1 567
2013 7 5 3 294
2014 9 3 1 1039
2015 4 8 1 (1155)
2016 6 6 3 (11)
2017 9 3 0 2078
2018 6 6 3 127
2019 5 7 1 329
2020 7 5 2 3124
2021 3 2 1 724
Total 64 49 16 7096

We had profit in 64 trades out of 113.

16 out of 113 trades expired worthless. At 14.15% this number is normal.
Option buying trades are not known for consistent returns. It is the occasional
windfalls which makes buying options worthwhile.
We have reduced the possibility of huge gains by going for deep in the money
CALLS but have increased the chance of getting higher number of successful
trades.
What should be the yardstick for comparison?
NIFTY, of course.
We are indirectly investing in the index by buying ITM CALLS. The returns
from these trades should deliver results comparable with the gains in NIFTY.
Does the gain look too meagre?
Let us get real.
People do invest in the index funds. They are happy with whatever return the
index gives.
Option buying mostly delivers losses. Here we are getting a profit and
worrying about it being meagre.
NIFTY PROFIT:
In these 113 months, NIFTY moved from 4646 to 15337.
Looking at these two numbers tells us that investing in NIFTY resulted in a
profit of 230%.
Not a small number.
It works out to 2.035% per month or 24.42% on annual basis.
No compounding is considered.
Traders are simple people and are happy with simple calculations.
Here we need to go back and work out some more detail.
From January 2012 to October 2015, the lot size was 50. Even when it was
25 for some period, we have worked out the details with 50.
After October 2015, lot size became 75.
One unit of NIFTY would have cost 4646 x 50 = Rs. 232300 in December end
2011.
By September 2015 close, NIFTY had moved to 7878.
Value of 1 unit of NIFTY became Rs. 393900. Profit = Rs.161600
To buy 1 unit for October series, money required would be 75 x 7878 = Rs.
590850.
That means additional money – Rs. 196500 was required to continue with 1
lot of NIFTY.
Thereafter NIFTY moved from 7878 to 15337 by end of May series in 2021.
This gain of 7459 points added Rs. 559425 more to the NIFTY profit.
Capital Used = 232300 + 196500 = 428800
Profit = 161600 + 559425 = Rs. 721025
After adjusting for NIFTY lot size increase, we see that investing in NIFTY
delivered a profit of Rs. 721025 on investment capital of Rs. 428800 deployed in
two parts.
This works out to 168% but can not be said to be accurate as part of the
capital was deployed much later.
We just use absolute numbers for comparing.

CALL OPTIONS PROFIT:

Now we test the results of our CALL buying trades.
 The first trade for January 2012 series was at a price of Rs. 306.
Cost of the trade – 50 x 306 = Rs. 15300.
We make allowance for drawdowns and consider our capital requirement at
six times the cost of first trade. That would be Rs. 91800. We round off this
number and take Rs. 100000 as the capital deployed in December 2011.
We need to work out the profit till September 2015 before we proceed further.
Combined profit for 2012, 2013 and 2014 was Rs. 95000 as worked out in
earlier chapters.
Loss from January 2015 to September 2015 was Rs. 49600.
Net profit from the CALL trades from January 2012 to September 2015 – Rs.
45400.
Initial Rs.100000 became Rs. 145400.
To take a trade for October 2015 series, the amount required was Rs. 460 x
75 = Rs. 34500.
This amount is more than covered by the available funds.
But the funds are short of six times cover. That would be Rs. 207000.
It would be prudent to consider additional capital of Rs. 62000 for adding to
the available amount of Rs. 145400.
Profit in the period is easy to work out. We multiply the profit points with 75
and get the number.
Points from October 2015 to May 2021 = 6188
Profit = 6188 x 75 = Rs. 464100
Total Capital Deployed = 100000 + 62000 = Rs. 162000
Profit = 45400 + 464100 = Rs. 509500

Investing in NIFTY --- Profit Rs. 721025 on an investment of Rs. 428800

Trading ITM CALL options – Profit 509500 on a capital of Rs. 162000
One does not have to be a financial genius to know what worked better in
these 113 months.
Even with all these numbers telling us in no uncertain terms that option buying
can be profitable, if we remain bound to our unfounded views about option
buying, nothing can be done about it.
I agree that most of the profit has come from the recent bull run.
But NIFTY gains are part of the same bull run.
Mutual funds which are singing songs of spectacular performance over last
one year have not done anything of note. All are riding on the same NIFTY wave.
This method has made money in 10-15% gain type of years too. Naturally
with the index on a high, option profits will be very good.
I often wonder why people are critical of this aspect of option buying. They
say that you made money because a big move happened.
Strange thoughts really.
Making money when the big move happens is part of the plan. Rather, that is
the plan. All other time we lie in wait looking for those few trades which give big
returns.
Waiting is the plan.
Patience is the plan.
One trade per month works.
It is up to us to have the belief to stay with the trades and get the profit.
Option Buying is the route to profit.
Not many people take this route.
This is the road less travelled.
We reach the destination without the traffic hassles.
Can we do anything else?
More in next chapter.
 Chapter 10 --- Art Of Doing Nothing
In the previous chapters we have seen how the simple act of buying 1 CALL
option every month for a long period would have resulted in a wonderful profit.
What more is left to say after seeing that it was possible?
There are few things to be said.
Every market wisdom needs to be tested.
Every saying is not always right.
You and I may not be able to climb Mount Everest. That does not lead to the
conclusion that nobody can climb Everest.
On the other hand, if you and I are somehow able to make it to the summit, it
will be fair to conclude that almost everybody can climb Mount Everest.
This method shows that almost everybody can make profit by this simple
method.
It is simple but not easy.
Sitting idle while the trade is going wrong is not easy.
Sitting idle while the trade is going right is not easy.
Taking just one trade and not doing anything is not easy.
It should be easy but we make it difficult for ourselves.
Some people ask the question --- What if we get the 2015 kind of results two
years in succession?
Answer is simple – we lose some money.
Market makes random moves. We try to find a pattern only to find that it does
not repeat. Or repeats too quickly, when we do not anticipate it.
We have seen that these trades worked out in the year like 2020 where an
initial crash was followed by a sustained recovery. They worked out equally well
when there was one way up move like in 2017.
Who knows when the market will turn bearish or continue with the new highs?
It is all randomness.
As famously said by Nassim Nicolas Taleb:
“Bullish or bearish are terms used by people who do not engage in practicing
uncertainty, like the television commentators, or those who have no experience in
handling risk. Alas, investors and businesses are not paid in probabilities; they
are paid in dollars. Accordingly, it is not how likely an event is to happen that
matters, it is how much is made when it happens that should be the
consideration.”
― Nassim Nicholas Taleb, quote from Fooled by Randomness: The Hidden Role of Chance in Life and in
the Markets
We do not know when our trades will go right. We do not know how much profit
they will make. But when the trades are going right, we let them go.
Surviving the lean period or losing period is a difficult task. It leads to doubts and
even lack of self-esteem
I write a blog where I share my option buying trades.
In 23 months, those trades showed a profit of Rs. 1245000 starting with an initial
capital of just Rs. 200000.
Over next 14 months, there have been number of losses and the profit is reduced
to about Rs. 730000.
It is still a good profit but everyone is focussing on the current loss. The fact that
despite the current run the trades are still very profitable is very conveniently
ignored.
Had it been a slow profit adding up to Rs. 600000 without a continuous losing
streak, nobody would have found fault.
When we make money, we are just lucky. When we lose it, the method must be
wrong?
We have to ignore this type of thinking.
I know I made good money from my trades because of randomness. The same
randomness is now denying me profit. It would be foolish of me to think that I am
a great trader. Market made me look like that for a while.
Over a short period of time, effect of randomness can be very exciting or very
depressing. Over a long period, results fall in line with the normal.
We accept the normal by having a long-term approach to trading.
Investors make money in the long term.
Why should traders be any different?
Option buying will never get a nod of approval from the market experts. They
wear glasses coloured with vision of option writing.
We do not need the approval.
A small trader does not have the resources for option writing. We have to take
our chances with what we know and what we can do.
We have to learn the art of DOING NOTHING.
Hopefully this booked helped learning that to some extent.
We are now ready to ride the NIFTY train to Profitland.
All the best.
 Chapter 11: Little more of doing nothing –
Year 2021 and 2022
The book was released with the previous 10 chapters. Those chapters showed
the results for buying a NIFTY CALL option which is deep in the money and then
do nothing after that month after month.
The results show that a good profit could be made from this simple act.
This chapter is being added to show the results of the same process up to
October 2022 expiry of F&O contracts.
We shall just look at the profit numbers in NIFTY points as there was a change in
the NIFTY contract size from July 2021 series when it became 50 from earlier 75.
Chapter 9 has all the details of comparing the profit with NIFTY ETF etc and I
trust that the readers are capable of doing the exercise themselves.
Year 2021:
NIFTY NIFTY ITM Buy Sell Profit
Series
Open Close Call Price Price Points
Jan 13981 13817 13200 868 613 (255)
Feb 13817 15097 13200 765 1901 1136
Mar 15097 14324 14400 876 0 (876)
Apr 14324 14894 13500 1034 1398 364
May 14894 15337 14000 1024 1359 335
Jun 15337 15790 14500 952 1292 340
Jul 15790 15778 15000 892 782 (110)
Aug 15778 16636 15000 836 1637 801
Sep 16636 17618 15800 880 1824 944
Oct 17618 17857 16700 990 1160 190
Nov 17857 17536 17000 978 535 (443)
Dec 17536 17203 16700 958 505 (453)
Total 1973

In the earlier chapters, we have considered the results of year 2021 up to May
expiry when Nifty closed at 15337.
As Nifty made good progress from May to December, profit from ITM Call option
too went up from 704 points to 1973 points.
A good show for the year though no match for the results of the year 2020.
We do not grudge any profit and 1973 points for the year is a very decent
number.
Year 2022:
The year is not yet over. Ten months are gone with no profit to show. It may
become profitable in next two months or we shall see another losing year.
NIFTY NIFTY ITM Buy Sell Profit
Series
Open Close Call Price Price Points
Jan 17203 17110 16300 1017 813 (204)
Feb 17110 16247 16200 1069 47 (1022)
Mar 16247 17464 15400 1260 2068 808
Apr 17464 17245 16600 1048 645 (403)
May 17245 16170 16400 950 0 (950)
Jun 16170 15780 15300 1024 480 (544)
Jul 15780 16929 15000 853 1932 1079
Aug 16929 17522 16000 1004 1521 517
Sep 17522 16818 16600 1046 217 (829)
Oct 16818 17736 16000 948 1736 788
Nov
Dec
Total (760)

The year has not been great for the index.

Last year Nifty had closed at 17857 in October Series. In 2022, October series
came to an end at 17736.
In 12 months, Nifty is actually down 121 points.
Out of 10 months of this year, there has been a loss in 6 of them. The 4 profitable
months could not generate enough profit to make up for the losing months.
Combining the two years 2021 and 2022, there is a profit of 1213 points.
It is a long haul and has shown profitability since beginning of the year 2012.
Once again, our simple premise of buying a ITM Call option and doing nothing
after that has worked.
Some questions and doubts:
When the book came out in June 2022, it received a good response.
One of the frequent questions was – How deep in the money the CALL option
should be?
I had thought it was obvious from the numbers.
We have to see that the time premium part of the price is as little as possible.
Also, there should be enough liquidity for trading. Otherwise, the price will not be
a fair price.
It is observed that a 5% ITM CALL usually meets these requirements.
We avoid options with 50 points strike difference and go with rounded strikes like
17200 and not for 17150.
Another question was – If the CALL option keeps on gaining, do we change the
strike price to a higher level to avoid losing money in case of a reversal?
Well, that can be done.
Just ensure that time premium part of the new strike should not take away a big
part of the booked profit.
The results shown here are based on DOING NOTHING.
Changing the strike prices would mean that we are doing something. It is a
choice to be exercised but I see nothing wrong with it.
Possibly, profit will be higher by doing so.
Summary of 130 months:
Year Profit Trades Loss Trades Worthless Trades Profit Points
2012 8 4 1 567
2013 7 5 3 294
2014 9 3 1 1039
2015 4 8 1 (1155)
2016 6 6 3 (11)
2017 9 3 0 2078
2018 6 6 3 127
2019 5 7 1 329
2020 7 5 2 3124
2021 7 5 1 1973
2022 3 7 1 (760)
Total 71 59 17 7605

Year 2022 – 10 months – January to October

There was profit in 71 months out of 130. That is 54.61%.
There were 17 worthless trades which lost the entire premium amount. We would
like this number to be low but it is for the market to reward or punish the trade.
Though the results of the year 2022 have taken away the sheen from earlier
performance, yet there is a profit since our last summary of these trades done in
May 2021.
Market is forever. Ups and downs are part of the market moves. And the moves
are random. Option buying can give the best reward in case of a decent move. At
the same time, it ensures that the loss does not exceed a fixed known amount.
With this we conclude the new chapter in this story which has already been
read by many.
I hope and wish that more and more readers will enjoy the story.
My favourite author Nissim Nicolas Taleb said:
“Ideas come and go. Stories stay.”
Let this story stay with the readers forever.
----------------------------------------------------------------------------------------------
Disclaimer:
Derivatives trading should not be done without knowledge of the actual and
implied risks. Trading should be done within the limits as losses can be huge.
Take advice from certified financial expert before entering the trades. Examples
shown here are from the data of previous years and similar performance in future
is not assured.
The author has made the efforts to keep the data as accurate as possible. No
responsibility is assumed for any inadvertent errors in the data.
 Afterword

Thank you readers for reading this humble effort at demystifying options trading.
This was also an attempt to dispel the myth that option buyers never make
money.
If you liked the book please leave a review on the Amazon product page.
Good ratings attract more readers.
Like I wrote in the first chapter -- Let us spread the light.
 Acknowledgement

I would like to thank Tarun and Praxal for support while writing. The idea of
making profit from buying options did not sound strange to them.
My thanks to Vishal and Shrinivas Reddy for acting as sounding boards for the
content.
And many many thanks to all my readers on OptionsNext.com and Quora who
made this book finally a reality.