Festive time is back

Festive time is back. Generally, it is this time of the year when spirits run high, as it is festival time. People are in a joyous mood and look forward to meeting their dear ones. Shopping and feasting is at its peak. It brings one more thing, holidays.

While activity in consumer markets is high, it tapers down in stock market. With holidays after every few days, the sense of ease prevails. This month there are 3 trading holidays. Also, during Diwali week activity is expected to slow down. With all this there are a lot of chances of volatility to ease off.

The beauty of financial markets is that you keep making money on holidays as well. Like interest on you F.D. or other debt instruments go on. That’s why they say, “Let your money work for you”. In case of equities we may not feel that but markets are constantly churning information and news flows and reflect all of it on the day it opens after a break. So, the impact in case of equities is not linear as in case of debt market instruments.

For options, this is even more interesting. Such breaks have an impact almost every important Greek. The news flows impact the Delta, Gamma and Vega, while the passage of time impacts the Theta. So, as an option trader one should clearly place himself on a particular side of the Greek.

If you think, the holidays are going to be non-events, then one can simply Short options and benefit from the Time Decay. Till the possibility of a non-volatile session outweighs the chance of a volatile session the strategy makes sense with varying levels of hedging. Also, with the availability of weekly options, one can take small and measured trades which will take care of the risk management to a large extent.

However, if one feels that the Global markets are going to be volatile (they would be on while we have holidays back home) or there are local events which can make markets go volatile than its better to pick up Long options strategy. In this case, there are chances of you being on the correct side of Delta. Also, volatility will be on your side. The only downside being if the events don’t fall out as expected the Theta impact can be very sharp. To manage this, you can use spread strategies, thus managing cost, impact of non-event and risk.

So, this festive season try to give yourself a goodie by trading it right on a holiday.

Happy Trading.

Cheers!!!