Various tabs allow for the assessment of yearly performance summaries. The sharp unrealistic rise in the NIFTY model is attributed to altered market dynamics following the lot size change.
We Don’t Backtest.
The broker account is interconnected with the Google Sheet, which utilizes Python and the GSpread module to synchronize positions. By exploring various tabs, you can evaluate the yearly performance summaries.
This manual variant of the model is now deprecated.
Initiated by Amit and later managed by Theta students like Navneet and Gurkamal, it initially boasted a high win ratio with manual handling.
- Option Pricing Model – Over time, we devised our own option pricing model, initially rooted in Open Interest theory, aligning well with our price action-based support and resistance levels. We then separated the OI-based models and employed a Hidden Markov Chain model on the price action to derive the current model.
- Probalistic Framework – The Hidden Markov Chain model, employed in our refined strategy, excels at delineating intricate price patterns by statistically dissecting historical price transitions through a sophisticated probabilistic framework.
This nuanced analysis, capable of capturing underlying market dynamics, facilitates more precise anticipation of price movements and substantially enhances our model’s predictive accuracy and overall performance metrics. We transitioned from the manual model to this automated one on 18 October 2023.
The previous model boasted a high win rate, however, it suffered from significant losses. In contrast, the updated model exhibits a moderate win rate, yet greatly reduces the maximum drawdown, showcasing reduced volatility i.e. improved stability.
SEBI (Securities and Exchange Board of India) has issued several circulars regarding changes to margin requirements over the past few years. Here are some of the notable changes and their respective dates based on the circulars:
- May 10, 2022 Circular: From August 1, margin calculations were changed to be based on fixed Beginning of Day (BOD) margin parameters, moving away from the previous method of calculating margin requirements four times a session.
- March 1, 2021 Changes:
The upfront margin requirement was increased to 50% from 25%, impacting trading volumes. SEBI planned to further increase this limit to 75% by the end of August and then to 100% by September.
- July 20, 2021 Circular:
SEBI decided to defer the new margin rule to May 2, 2022, following requests from various stakeholders. This circular was initially aimed to come into force earlier, but the timeline was extended.
- July 20, 2020 Circular:
Trading members and clearing members in cash segments were mandated to collect upfront VaR (Value at Risk) margins and ELM (Extreme Loss Margin) from the clients.
- Other Circulars:
SEBI also issued circulars on December 16, 2021, and other dates, continuing to adjust margin requirements and related regulations over time
Upon launching the model in 2017, it was possible to sell 1 lot each of PE and CE with a margin of 1.5L, further leveraged in intraday trades to 10 lots each within the same margin. This added leverage initially exacerbated execution error issues.
Back then, the lot size was 40.
Now, with a reduced lot size of 15, selling a total of 45 quantities, or 3 lots, requires approximately a 3.5L margin, effectively more than doubling the margin requirement.
Initially, When it was launched in the forum of Unofficed, Nearly 200 clients signed up using Zerodha. Now, after running successfully for few months, Zerodha stopped allowing people to sell at deep OTM strike price.
SEBI regulations mandate an upper limit on the OI of each F&O contract at every broker, set at 500 crores or 15% (whichever is higher) of the total OI for that specific contract across the market. As Zerodha has a considerable number of active users trading index options, there are restrictions on buying OTM (Out of the Money) options for specific strikes to maintain OI limits within the allowed ranges.
Previously the selling was not allowed. Later they allowed deep OTM selling.
Around 80 of our clients have been impacted due to execution errors. Given the strategy lacks an inherent buy leg, it’s exposed to unlimited loss if the broker freezes, which has occurred multiple times.
- There are lots of cases when trades are taken with high leverage in the account intraday, the broker had a sudden freeze causing the legs to stay open and causing a 20% loss in a single day in a small account like 1.5L. Now, it used to take 5-6 months again to recover that single loss!
- Beginning mid-2022, our risk management has been pre-empting such volatility, as broker terminals tend to freeze during volatile events. It significantly de-leverages positions well before major events. Moreover, for smaller accounts with less than 10 Lakh, it entirely liquidates the positions.
A client who suffered a loss and hit an absolute drawdown faces a steep uphill battle to regain capital, often leading to self-intervention.
We employ custom wrappers over the broker’s APIs. While Zerodha charges 2000 and Upstox used to charge 500 (now free), our API endpoints mimic the terminal for quicker order execution.
Despite having a sophisticated multi-API, multi-broker terminal for streamlined risk management, sporadic issues affecting random clients have caused operational disruptions.
Under SEBI’s recent margin model, the practice of selling option spreads while capping risk reintroduces an older leverage framework regarding margin, albeit with associated costs.
Consider a strategy that nets 2L profit with a 50K brokerage in a 2.5L account. In a 10L account, instead of an expected 8L profit, the fixed 50K brokerage significantly magnifies the returns. This setup underscores how the stock market can further strain individuals with lesser capital.
Initially, a 1.5L capital was chosen due to the simultaneous emergence of three startups: Minance, SquareOff, and ReturnWealth, each starting with similar capital.
While Anurag Bhatia of Minance had a reputable trading acumen, his reputation soured when he fell victim to a scam, losing nearly a crore over undelivered unlisted Paytm shares. Anurag, acting as an intermediary, was branded a scamster by the individual awaiting delivery, with his communication lapses leading to Minance’s collapse akin to a house of cards. Earlier, I had invested in Minance for six months, only to exit upon recognizing their technological infrastructure inadequacies.
The individual from SquareOff turned out to be fraudulent, as revealed by a leaked Zerodha 60-day challenge log from mid-2018. The low entry barrier in this field emboldens individuals, lacking basic mathematical skills, to masquerade as fund managers. The operations of ReturnWealth remain unclear.
The scenario was relatively favorable, barring execution errors, thanks to substantial intraday leverage initially. High leverage could rectify a mishap swiftly, but now, it’s akin to a direct fall! Consequently, accounts exceeding 50L capital are prospering.
With a capital of 50L, diversifying it into 10 strategies with a 20K drawdown each allows a maximum 2L drawdown. In the worst-case scenario, if one strategy depletes its 10L, another quadrupling its 10L can offset the loss. Additionally, portfolio volatility can be remarkably reduced by employing long-short strategies—shorting overvalued stocks while going long on undervalued ones, thereby neutralizing the market’s overall directional bias.
LAVANIA +ARCHIMEDES MODEL🌙
The Theta model blends the Positional Strategy, termed Lavania, with an Intraday strategy called Archimedes, forming a comprehensive approach to navigate different market conditions.
Positional Strategy – Options spreads are sold in such a manner that the breakeven point falls between the preceding Support and Resistance levels, as delineated by the Price Action theory on a daily timeframe. The strategy initiates a position on the day following the expiry and subsequently closes the position on the day of the next expiry.
Expiry Strategy – On the day of expiry, theta reaches its peak. Therefore, if the Positional Strategy is profitable, a trade is initiated on the day of expiry after closing the Positional Strategy. This approach employs a narrower range and more stringent risk management measures.
Additional RMS and Rebalance
For risk management and rebalancing, several factors are taken into consideration:
- Fundamental Events (e.g., speeches by the Prime Minister or Finance Minister, interest decisions, Supreme Court decisions, important AGMs, GDP announcements, results, major events, etc.).
- Option Greek Anomalies.
- Open Interest Data.
- Certain Statistical Conditions.
Typically, various rebalancing systems are employed based on the account’s past profit, which often leads to deviations from the projected graph.
The Lavania model was started in 2017. It’s the flagship product of Unofficed having more than 8,023 investors invested happily.
In fact, the name, Lavania comes from an investor’s surname! It had a unique sound, or can be said aesthetic appeal. Over time, it evolved to symbolize a ‘rising wave’ metaphorically, reflecting the model’s prowess in adeptly navigating the market’s volatility waves.
Initially, the model began with 1 Lot, but as the Lot size and margin varied over time, it’s currently impractical to proceed with 1 Lot due to the fixed per-order brokerage cost, especially given the reduction in quantity from 40 to just 15.
Subsequently, NIFTY was incorporated into the weekly options strategy. Currently, even though Bankex, MidcapNIFTY, and FINNIFTY have initiated weekly options, they are markedly illiquid.