Trading on Budget day is fraught with great risk due to the unpredictable volatility

Discussion in 'Traders Corner' started by Michael Gonsalves, Jan 29, 2023.

  1. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Jun 26, 2016
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    Trading on Budget day has great opportunity & risk due to the unpredictable volatility. In 2021, Bank Nifty had surged a mammoth 8.26% on Budget day & 5800 points in the week. An expert has analyzed the data from 2018 onwards & advised what we should do

    Extreme volatility on Budget day can wreck traders

    Ghanshyam has presented data from 2018 onwards to emphasize the extreme and unpredictable nature of the volatility that the Indices witness as the Finance Minister announces the Budget proposals.

    On 1st February 2021, when the Finance Minister made several revolutionary proposals, the Bank Nifty had surged 2523 points for the day. On a weekly basis, the Bank Nifty gained 5089 points.

    "Yeh saal Bank Nifty ka liye Golden era tha," Ghanshyam said.

    In 2020, the Bank Nifty had plunged 1012 points. However, the weekly performance was up with a gain of 1381 points.

    The other years were relatively sedate in comparison.



    Option premiums are very high & disadvantageous to buyers

    Traders desiring to buy a weekly long straddle at the ATM of 40300 will have to shell out Rs 1100. The monthly straddle will cost Rs 2000. These high prices are because the ViX surged 18% to 17.32 on Friday.

    Ghanshyam explained that traders who pay such large sums to buy options will find it difficult to make money because their break even points will be very high.

    Also, as soon as the major proposals in the Budget are declared, the ViX will shrink causing the option prices to reduce.

    An alternative is to buy a long Iron Condor or a long Iron Fly which will mitigate the loss in case the Indices don't surge or plunge in an aggressive manner.

    Assuming one is inclined to sell options, one can create an Iron Fly or an Iron Condor. If the Indices do not surge or plunge too much, one can make a comfortable gain due to the reduction in the ViX. In any event, as these are limited risk strategies, there is not much to worry about if the risk is within tolerance levels.

    Main trade nahin karoonga kyunki event day mujhe suit nahin karta

    Ghanshyam made the surprising announcement that he will not trade at all both during the pre-Budget week and during the Budget day.

    "Jo data maine dekha hai aur mera experience batati hai ke even day pe paisa banana bahut mushil hai. Aap paisa gava do ge," he said (The data and my experience tells me that it is very dfficult to make money on event days).

    "Main even ko play nahin karta hoon. Mujhe event ko play karne nahin aata hai," he said. (I don't play events. I don't know know how to play them).

    However, Ghanshyam asserted that the day after the Budget, i.e. Thursday, would provide great opportunties as a trending day is likely to take place.

    He also advised traders who are very keen to trade on Budget day to do so only after the event is complete and that too with small quantities and with strict stop loss.
    Last edited: Jan 29, 2023