Derivatives are financial instruments that allows taking higher exposure in a security by paying lesser. The beauty of this product lies in the fact that it allows pre-defined risk/reward ratios that one wants to be exposed to in their portfolio. Derivatives are usually used for hedging and trading. It is like having a Ferrari – you can drive at its full speed (which is risky) or drive it at 30 KMPH and play safe.

This is perhaps the most important part for you to understand. As explained earlier, using Derivatives is like driving a Ferrari at 30 KMPH. Most people cannot drive so slow.  Human emotions & behaviour play a very important role in this. Market needs the two extreme emotions for you to fail – GREED & FEAR.

 

The key skill needed to extract Alpha using Derivatives is DISCIPLINE. Most people do not go by the rule book and end up writing naked options i.e. calls and puts and lose money.

If you have pre-defined rules and stick by the rules no matter what, you will earn. The WEP strategy is designed in such a way that even extreme shocks to the markets (due to global events, political events, etc) will not result in significant losses. MAXIMUM LOSS WILL NOT BE MORE THAN 1% of your capital in a month.

We have an expert team handling the execution of strategies and are highly experienced in Option trading (Know our team) Between us, we have a total of more than 25 years of experience.

  • Life is full of assumptions & probabilities. Let’s say someone asks you, what is the probability of rain on 20th December in Mumbai, you would say ZERO. How about probability of rain on 20th July? More than 50%, right? If someone was to offer you Rs.100 in each case it rains on these days – for which you need to pay Rs.50, then one would logically pay in December but not in July.Same way, with options you can take a position with less probable events and even if they occur, you lose only 1% with our strategy. Our assumption in WEP Strategy is that NIFTY will not RISE sharply 6% in a month. A steady rise works fine. Any downside in completely protected.

As per SEBI regulations, Mutual Funds & Portfolio Managers (PMS) are not allowed to use limits against their securities to take higher exposure. SEBI does allow Category 3 Alternative Investment Funds (AIFs) to use derivatives for high exposure but with a limit of 2 times only.

Individuals who trade on their own account are free to take higher exposure without any restrictions. We capitalize on this flexibility to generate Alpha for our clients.

No, it is not a loan against your shares or MF.

Whenever a person takes a derivative position, he/she needs to pay margin to the exchange. However, the margin is lower than the value of the position. For example, if you were to buy 1000 Infosys at Rs. 700  per share, you need to pay Rs. 7,00,000 to the exchange. In case of derivatives if you take the same position, the margin blocked will be much lower than 7 lakhs. Moreover, you can also pay a part of the margin by using limits against your existing holdings of:

  • Fixed Deposits
  • Open Ended Mutual Funds
  • Equity Shares
  • Bonds

If you have any of the above, then you can still take a derivative position in your trading account without paying liquid cash. Two examples to better understand this:

Let’s say you have mutual fund holdings worth Rs. 50 lakhs purchased through your friend who is a MF Distributor. You intend to keep these MF for long term. You can generate additional 6% p.a. on your existing holding of MF, over & above your MF returns.

To use the limits against your holdings, it is necessary that you dematerialize these MFs. You need to open your demat and trading account for this. Once dematerialized, you can start taking derivative positions in your demat account.

Now, as explained earlier say for example, you have taken derivative positions worth say 30 lakhs. This means you need to pay margins of 30 lakhs to the exchange. No need to worry! You do not have to pay any funds to the exchange. The Exchange will accept your mutual fund units as margin! Whatever profits you earn on this limit of 30 lakhs will be your income!

  • There is no interest charged on these limits of 30 lakhs. It is as simple as keeping your money at home in locker (which won’t earn anything) v/s keeping your money in bank (which will earn you basic rate of interest). You had kept your mutual funds dormant and waited for it to grow. Here, you are putting that to use and earning extra out of it!

No. As per guidelines of the National Stock Exchange (NSE), limits are not available on the following securities:

  • Close-ended Mutual Funds
  • Units of Equity Linked Savings Scheme (ELSS)
  • Certain bonds
  • Certain small & mid cap stocks

Even on securities where limits are available, it is never 100%. NSE deducts a pre-specified percentage (hair cut) from the value of the holdings. The hair cut varies for each security and can be anywhere between 7.5% to 50%.

There is no lock-in for using WEP Strategy. You can sell your holdings any time you want. You will have to inform us, and we will exit your positions and then you may sell your holdings.

No. Even after you convert your MF holdings into demat account, the ARN Code of your existing distributor will be retained. They will continue to earn their commission from respective mutual funds.

As per the SEBI norms, client will need to deploy some percentage of the portfolio value as funds in your trading account. This amount is used for Mark-to-Market (MTM) margins.

For the derivative trades, client will be charged brokerage, STT and other basic minimal charges by the broker.

 

The external independent advisor will charge advisory fees to the client which is linked to returns generated by the WEP Strategy. Hence, theirs is a performance based fees.

The first step is to open a demat and trading account.

If you have a fixed deposit and you wish to generate alpha on the same, you need to submit the fixed deposit receipt with the broker. Post that, the broker will give a limit on the same and we can start advising you to generate alpha.

If you have physical MF units, the broker will initiate the process to transfer the physical units to demat form. Our team will help you do this.

If you have dematerialized MF units, Stocks, Bonds, then you need not worry. You are already one step closer to achieving your goals faster!

Once your demat and trading account is opened and units transferred to your demat account, you will be able to see it online. You will get a login and password from the broker. By logging in to your account, you will be able to see all the details of your transferred MF or stocks or Bonds. Please note, when you are transferring your physical MF units to dematerialized form, they get transferred from the Asset Management Company (AMC) to your personal demat. So, there is a possibility that mails from AMC may stop.

However, you will be able to view your portfolio by logging in to your demat account, or in CAS statement of NSDL or by downloading your portfolio from CAMS.

Once the advisor recommends you the strategy and should you choose to execute it through a broker, you shall get mails and messages from the broker. You shall get a login ID and password from the broker and you can view your stocks, MF, bonds and profit and loss on trade on real time basis.