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Thursday, December 29, 2011

Review of Dec 4700 PUT @ 68 dated: Dec 10,2011

Lets review the short term call given:
Recommendation Date: Dec 10,2011
Recommendation: Sell NIFTY 4700 PUT @ 68 on Monday Dec 12,2011. Buyback the PUT @ 2 on Dec 29,2011. Earn 12% return in one month.
Dec 29,2011 NIFTY-4700-PUT-Dec closed @ 53.85

Actual Result:
Profit: ((68-53.85)*50)-307.50 = 400
Returns: 400/25,000 = 1.6%
Well so that's it folks.. as we can see.. expectations are different and reality is a lot different. We expected 12% return in reality we got 1.6% but lets dig a little deeper..

Here is the price movement of NIFTY-4700-PUT-Dec from Dec9,2011 till the date of expiry (Dec 29,2011)

As we can see NIFTY-4700-PUT-Dec has moved from lowest price of 10.05 (Dec 27,2011) to a high price of 180.55(Dec 19,2011) giving us opportunities (10.05) and also some scary moments (180.55)

Conclusion: On Dec 9,2011 NIFTY was @ 4866 and Dec 29,2011 NIFTY @ 4646  a drop of 4.5% 
but we still got to close the month with a profit of 1.6% ..
Option "Selling"  Its an opportunity to get higher returns but not without potential losses.. everyone has to take a call ..
should I sell at 10 or wait for 2,
should I book losses at 180 or sell 1 lot  NIFTY-4500-PUT-Dec @ 50.50 (Recommended on Dec 16,2011)

This is not a one shoe fits all.. my current recommendation for NIFTY-JAN-4600-PUT @ 76.50 has been executed by "My own world...In my own Words" @ 87 which is at a great price.. So find your own battles.. (entry and exit points)
its recommended to take the final call yourself.. 
- Do not take bets which you cannot afford to loose..
- Always keep extra cash just in case you get margin calls

Another strategy is: Straddle from both sides..
- SELL NIFTY-JAN-4600-PUT @87    and
- SELL NIFTY-JAN-4900-CALL @ 40.40
Investment 50,000 you make (87+40.40) *50 -600(Transaction cost) = Rs 5770 i.e. 11.54% return.

This is only if NIFTY Closes between 4700 and 4900 by end of JAN 2012 Expiry ..your earnings will drop but your profits are protected till 127 points on either side i.e. you will not make losses till 4573 and 5027 in NIFTY..
(personally I would not recommend this as NIFTY @ 4646 is still closer to the bottom rather than at the top..)

Happy New Year!!
=Happy Investing

Wednesday, December 28, 2011

12.5% monthly return:SELL NIFTY JAN-4600 PUT @ 76.5

This is next leg of recommendation for short term.. 12.5% till end of Jan 26,2012. in 29 days..

4600 PUT available at 76.5 can be sold at current levels.. buyback at 2 or less..

Return 76.5-2 =74.5 x 50 = 3725-600(transaction cost) =3125 on investment of 25,000

that is a return of 12.5% in 29 days..

NIFTY 4700 PUT will be a sell tomorrow (Dec 29,2011) at any price below 10 or wait for target buyback Rs 2/=
PN: suggestion is only for one lot of NIFTY PUT. One can also select these options..
NIFTY-4600-PUT JAN @ 76.50 make 3125 on investment of 25,000 return 12.5%
NIFTY -4500-PUT JAN @ 55  make 2050 on investment of 25,000 return 8.2%

Wednesday, December 21, 2011

The rise of the US Dollar

Everybody is flummoxed by the strength of the US Dollar. Look at the facts.
Oct 2008 Monetary base for US was: 1.129 Trillion Dollars.
August 2011 Monetary base for US was: 2.658 Trillion Dollars

So ideally speaking with the excess dollars floating around in the market ..the value of dollar should fall. but we are seeing the rise of the dollar.. what's the reason?

The reason is simple. the excess dollars is not in circulation in the market. The excess dollars are parked with the federal reserve as excess reserves.

how much of excess dollars are held in Federal Reserve:
Oct 2008: -ve 381 Billion Dollars
August 2011: 1.57 Trillion Dollars.
As of Dec 14,2011: 1.52 Trillion Dollars.

How much dollars are in circulaton in the market:
Oct 2008: 1.46Trillion
Aug 2011: 1.00Trillion
Dec 14,2011: 1.1Trillion

So actually the dollars in circulation in the market right now is 350Billion Dollars less than what it was on Oct 2008 and hence we are seeing this rise in Dollar strength.

from Jan1975 the banks have always held "minimum required" reserves with the fed

The question in our mind is why this sudden rise in "Excess" dollar deposits with the federal reserve?
Well the Federal Reserve bank changed the policy on Oct 6, 2008. That starting Oct 6,2008 the Federal reserve will start paying interest on reserves and excess reserves to the big banks.. (link) [Read carefully the original implementation date was somewhere in Oct 2011]

Surprisingly I just found that the stock market decline also started from Oct 2008.. (Link) coincidence??

Conclusion: The current strength of the dollar is cooked.. Cooked by the world famous chef "Fed". The stock market crash 2008 and subsequent market volatility is also driven by the withdrawl of "Credit" from the system. keep a close watch on FED action.. live within your means.. banks are going to feel the brunt of credit squeeze ..

Historical data of FED Reserves(Total, Required & Monetary Base)
Old blog article which started it all Bill Gross's interview in bloomberg
Old blog article where I misinterpreted the FED Data and suggested fall in dollar

PN: these are my personal views about publicly available information. I could be wrong in understanding the information.. Please do your own deep dive before making any investment decision.

Saturday, December 10, 2011

NIFTY Option: 12% Return in 1 Month Dec 2011

Well the year is coming to an end and here is a chance to make 12% return in 1 month in NIFTY Options.

Sell NIFTY 4700 PUT  One lot.
Current Market Price: 68
Investment: 25,000

Buyback on Dec 29,2011.or before NIFTY 4700 PUT at Rs 2  or less.
NIFTY has not fallen below 4700 till Nov 3,2009  (chart below)

Current price of NIFTY 4700 PUT is 68.15

Sell One lot "NIFTY 29Dec 20114700 PUT" at 68.15 and buy back at Rs 1-2 on Dec 29,2011
Price difference: 68.15-2 = 66.15
1 lot: 50 units so Profit: 66.15x50 = 3307.50
you need to have 25,000 in your option trading account to sell one lot.

Considering 307.50 as transaction cost Net Profit: 3000/=
Investment is: 25,000
Profit Percentage: 3000/25,000 = 12%
investment time period: 18 days..
Caution: If nifty Falls below 4700 additional margin will be required. If NIFTY closes below 4640 or below on Dec 29,2011 you will be making losses. hypothetically if NIFTY closes at 4600 your estimated loss will be around 40-50 per share ie 50*50 = 2500

If nifty closses at any price above 4700 you will stand to gain Rs3000/= on an investment of 25,000

Other trading strategies are:
- Sell NIFTY 4600PUT Dec292011 at 44.90 and make a profit of approximately 2000 on an investment of 25,000  ie 8 % in 1 month
- Sell NIFTY 4500PUT Dec 29,2011 at 29 and make a profit of approximately 1150 on an investment of 25,000 ie 4.6% in one month.

Please note this is free advice.. I donot stand to profit from your trading in this options.. This is an advice for selling only ONE LOT (50) trading in more than one lot is not suggested. Please do your own deep dive before investing.