We all do want to trade in Rs. 50,000,00.00 account.
But that isn’t possible for all.
Nevertheless, you can convert a Rs. 5,000,00.00 to a bigger one.
Definitely, there are limitations to trading in small account. But ain’t less of opportunities.
- 1 Trading a Small Account
- 2 Span Margin Only Trading Account
- 3 Risk in a Small Account
- 4 Volatility
- 5 Trading Weekly Options
- 6 Strategies for Small Account
- 7 Managing Loss
Trading a Small Account
Trading a small (Under Capitalized) is naturally tough than trading a large account.
You got a lot of option in a large account.
Your mistakes can be easily absorbed.
Options trading adjustments are possible using Greek Management. The option is limited to trading low margin requirement products or strategies.
For example, if you have a Rs. 25000.00 in your account and your next trade makes a loss of Rs. 30,000.00 you account becomes untradeable until and unless it is recapitalised.
Don’t focus on making money, focus on protecting what you have.
Paul Tudor Jones
The pressure of making a profit remains a consistent phenomenon.
If the trader handles pressure will make all the difference.
Look at it as an opportunity by selecting the right strategies, controlling losses and trading cautiously.
Span Margin Only Trading Account
Look for a stock broker who can give you span margin only trading account.
This will enable you to deal with more number of contracts.
If you are holding stock in your account.
I know where I’m getting out before I get in.
Then put them to your use by taking leverage against the stock for trading in a futures account.
The leverage made available to you can be put to multiple uses.
- Hedging your Stock Holding
- Taking Additional Option Strategies
- Adjusting Option Strategies with Greek Management.
Risk in a Small Account
Strategies selected to trade in option account should only risk limited capital.
Understand the myth of Trading in selling naked options.
Rs. 2000.00 risk for a Rs. 2000,00.00 is only 1% whereas the same risk for Rs.50,000.00 account calculates to 4%.
The risk is just the starting point managing the risk is as well important.
Option traders always keep a watch on volatility.
This has a major impact on their earnings.
Usually, higher Vix gives you more premium when compared to lower Vix.
Using time spread and longer days to expiry options will increase the significance of volatility.
Trading Weekly Options
Weekly options give additional trading opportunities.
However, weekly trading comes with its own risks. Naked trading of weekly options is not advisable.
Especially for a small account using of Spread is recommended.
With high volatility, it might become impossible to trade in small account with weekly options.
Strategies for Small Account
Here is a list of Option Trading Strategies for Small Account Holder.
- Long Call
- Long Put
- Bull Call Spread
- Bull Put Spread
- Long Straddle (High Volatility)
- Long Strangle (High Volatility)
- Bear Call Spread
- Bear Put Spread
- Covered Call
- Protective Put
- Covered Put
One can easily use the above strategies as and when the opportunities arise.
Attaching a large amount of your buying power in a losing trade for options adjustment strategies could also lead to larger losses.
Adjusting option trade using Greeks is important but it is also important to understand when one has to exit a losing trade without any further delay.
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