Your Career vs. The Trading Frenzy

Today’s Market Update

The markets today were really not doing much and actually slipping a bit. There is still some hope as Piyush Goyal and our Finance and Foreign Minister Mr. Jaishankar are in the US holding talks.

Commodities are running hard and, very surprisingly, PSU banks are also running very strong. In fact, the PSU banking index is near a new all-time high. So, there are still some green shoots within the market. Autos have been doing well recently too.

• For the fifth day in a row, the market has shown red. Nifty was down 0.45%

• Nifty Junior saw big cracks, falling 1.2%. Midcaps lost 0.88% and small caps slipped 0.55%. The resistance that we had in June, July, and August seems to be holding again.

• Nifty Bank was also down 0.7% despite PSU banks trying to support it. So, there was red all over the place.

• Gold remained flat at 0.01%, though it has already gone up a lot in the last one month. Even a 5% fall from here would not be surprising. Currently, gold is trading at its all-time high of 11,384 per gram.

Other Market Triggers

• Autos that were running very hard saw profit booking. Private banks were down, some PSU banks also slipped, and Adani stocks that were rallying earlier came under heavy selling.

• IT stocks continued to bleed. Reliance and Bharti were down, ITC lost ground, though L&T managed a small 0.4% gain. UltraTech Cement also fell.

• The Nifty Next 50 saw even bigger cracks. Adani Power dropped a huge 11% today. Adani Green was down 3%, and other Adani group stocks also corrected. DLF lost 3.3% and Motherson slipped 3.6%.

• TVS Motors, HAL, Swiggy, Dr. Reddy’s Lab all declined. Pidilite, however, gained 2% after its split and bonus issue. Canara Bank and Bank of Baroda also managed small gains.

• Adani Power was the mover of the day, but not in a good way. After jumping from 125 to nearly 180 post split, it fell sharply and closed at 144.

• Policy Bazaar also dropped during the day after IRDAI advised insurers to cut commissions and distribution costs, but later recovered a bit.

What to watch next ?

• People are expecting that some negotiations in the upcoming meeting may happen and that is where the current hope lies. But overall, the markets look completely done. There is absolutely no interest to go up right now.

• It is still a lethargic move in the market, perhaps waiting for some clarity on the tariff situation and the H1B impact on IT services.

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What To Read This Week ?

The Rise and Fall of Options Trading by Indian Retail Investors

Today, Let’s delve into the recent trends in options trading among Indian retail traders, drawing insights from data sourced from @V_ranja on X, which in turn references Bloomberg. The provided analysis serves as a stark reminder of market cycles and the dangers of irrational exuberance.

The Rise and Fall of Retail Options Trading

From 2021, the number of options contracts traded by Indian retail investors surged dramatically. The 30-day average went from roughly 50 million contracts to an astonishing 375 million, representing an almost eight-fold increase. This period was marked by a frenzy of trading activity and a significant influx of retail participants into the options market.

However, this exponential growth proved unsustainable. The volume of traded contracts has since collapsed back to nearly 80 million, a sharp reversal that mirrors the initial rapid ascent.

The Inevitability of Mean Reversion

The collapse in trading volume serves as a powerful illustration of the principle that any market mania or frenzy will ultimately revert to its mean. While a single stock going up does not necessarily mean it must come down, any irrational exuberance in the broader market invariably corrects itself. This pattern has been observed throughout financial history.

The Perils of Leaving a Career for Trading

A key lesson from past bull runs is the tendency for individuals to abandon their stable careers to pursue full-time trading. The speaker recounts their experience of seeing people leave fantastic jobs in sectors like telecom, only to be forced to return to them after the inevitable market downturn. Trading is not a foolproof path to wealth, and success during a bull run does not guarantee proficiency in all market conditions.

Key Learning & Takeaways

• Market Frenzies are Temporary: The exponential growth in options trading volume by Indian retail traders from 2021 to 2022 was a classic example of a market frenzy. This "irrational exuberance" eventually corrected itself, with volumes collapsing significantly.

• Mean Reversion is a Powerful Force: This event underscores the historical pattern of mean reversion. While individual stock performance may vary, widespread manias in the market tend to reverse, returning to more sustainable levels.

• Don't Abandon Your Career: Trading should not be viewed as a substitute for a stable career, especially for those without the necessary proficiency to navigate all market conditions. The speaker advises against leaving a job based on short-term gains made during a bull run, as those who did in the past often regretted it.

Meme Of The Day

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