How not to make Rs 38 lakh in options trading MY FUND MANGER SPEAKS The basics of options trading include buying calls, selling puts, strike price and hedging
How not to make Rs
38 lakh in options trading MY FUND MANGER SPEAKS
The basics of
options trading include buying calls, selling puts, strike price and hedging
When
I was in Singapore a few months before, the local investors association had organized
a workshop on options trading. A broker-cum-trainer explained the basics of options trading such as buying calls, selling puts, strike price and hedging. He explained how option traders
can make steady, almost “risk-free” income by taking “calculated risks” for
individuals. These market evangelists have the knack of turning you into a believer
in a couple of hours.
With the whole world — from the finance minister
to corporate leaders and pink paper analysts — conspiring to further bring down
the meager interest income my meager savings
sitting in bank accounts are earning, the greedy part of my mind started
suggesting, “Buy the call, sell the put and pocket the difference. What are you
waiting for?”
Adding fuel, over the past few weeks ‘options
trading’ has popped up in conversations with people who one could least relate
it with. One was a banker friend in Chennai, who told me about his colleague
who made a return of five per cent per month from options trading. He even
offered my friend a profit sharing formula to help him out in the initial
stages. “You take positions on both sides. Bet higher on the side you think the Nifty will move and a smaller one on the opposite as
stop-loss. Simple,” my friend was told. He's still deciding.
Then, I heard the story of an MBA graduate, who
had a corporate job with a neat salary, refusing to go back to work as he
claimed he had learnt the trick of making money from home. “I make more in
options,” he is said to have told bewildered people at home. That’s 2-0 in favor of my plunge into the hunky dory world of
options.
The real scary story of the options mania that
seems to have gripped the country amid the largely one-way movement the market
has seen over the past year came from a railway stationmaster in Karnataka. In
September, Vijayendra Rao received
texts from a company, offering to
help him make handsome profits through options trading. He was offered a 70:30
deal, wherein he would get to keep the bulk of the profits; the advisory
company would keep the rest.
Lured by the big money promised and pushed by
his own difficult financial position, Rao bit the bait.
While the advisory asked for a minimum
investment of Rs 1 lakh, Rao said he was a ‘small investor’ and requested for a
relaxation.
He was first asked to pay a service charge of Rs
15,000 to ‘make profits.’ In two further instalments, he paid Rs 40,000 more.
By the end of October, he was informed he had made Rs 7 lakh of profits in the
trading and was asked to remit the service tax amount of 12.33 per cent. That’s
when Rao realised the con. Subsequent phone calls threw up conflicting
responses, with the last being that his profits had swelled to Rs 38 lakh and
he had to remit the corresponding tax amount. Rao wants his capital back.
His options today range between knocking the
doors of a multitude of enforcement agencies which are already loaded with
several unsolved multi-crore scams to a wild-goose chase across the country.
With fear now firmly taking over my mind from
greed, my only option seems to be to pray that Governor Rajan doesn’t succumb
to the convoluted theories floated by cut-mongers and stays put on rates.
