When markets are moving the prices keep changing fast thus creating opportunities to make money fast and with relatively more confidence. However in a volatile markets, it is difficult to judge the direction. On one day markets goes up and on another day it falls.
In such markets, I commonly hear few words from traders like “You cannot make money in stock markets”, “Large players will not let you make money”, “I am a long term investor”. It is interesting to see that as soon as position gets into loss, several traders becomes long term investors. But the point is whether it is possible to make money in such markets and if yes then how.
Let us see few of the techniques
Trading in ranges
I have seen several stock which keeps them in a range almost for the entire year. Simply buying at bottom of this range and selling at above average rates helps you keep the returns coming. Say for example NTPC which is moving within the range 150 to 180 from quite some time. Have observed that it comes down and goes up atleast 4-6 times in a year. So buying between 150-160 and selling between 170-180 roughly books a 10% of a return on Investment. Even if you are able to book this for 4 times in a year, it will yield 40% ROI.
Selling Options
Any option price comprises of two components Intrinsic value and time value. As such, premium or the price of options will move due to change of price in the underlying security and other factors like time to expiry, volatilty, interest rate scenario etc.
To make money simply sell Options and capture the time value. However, the movement in stock prices can deplete your gains so you can take a counter position say if you have sold a call option, then buy a future or if you have sold a put option the sell a future. Now future prices themselves will have cost of carry (difference of price from cash market) but generally what I have observed that in the periods closer to expiry, time value in options falls faster that cost of carry in options. As such you reap that opportunity then.
However, I always try to do it without such hedge to get more gains.
Play with corporate actions
Normally stocks where management is intending to come with an corporate action like results, dividend, splits, bonuses etc shows a clear trends. Participation in such action gives you good returns.
FPOs
Generally FPOs offers 5% discount to retail investors which may be a good return in a period of about 20-25 days. Applying through ASBA will also give you saving bank interest on most of your amount which is not utilized in FPO.
Avoid Midcaps/small caps
In volatile markets, stock prices moving up and down is a usual phenomenon. However, generally I have seen that various goes down with the markets but don’t come back with the rising markets. Thus I make a point to look for only index stocks and nothing else. Play in midcaps/small caps is a bullish market strategy which I don’t believe to work in volatile markets.
Remember, its your money and be very sure of your strategy before you enter. Do not compromise with you thought process and if you are little less confident, then exit the positions and think again. Always compare the investments and choose for putting money.
Anyone advising you including myself may have positions in the stocks that they recommend.
