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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.

Strategy:
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..
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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.

17 comments:

Kalpesh said...

hey man long tim...
you r real brainy...too good...do post such kind of strategies..

Also didnt get the 25000 invest??how come whn i will receive the premium...is it the margin??

also y do ppl trade in nifty put level of 7000..8000+ levels that too only puts any strategies there ???

What'sUp Prahalad said...

Kalpesh:

Generally we Buy Options and then Sell when prices rise..

Now options are always quoting at a premium and with each passing day the time value of the option is eroding..

We are twisting the strategy on its head .. instead of buying options and selling at a higher price taking the risk of time value.. we will sell the option first and then buy back at a lower price.. with each passing day the time value will work in our favour... and by the end of the option period we will be able to benefit from the time value...

Now 25,000 is the amount of cash required to "Sell" an option..

This 25,000 money is kept on "hold" and when you Sell you collect the premium immediately ie.. in our example we will get 68.15 x 50 = 3407.50 (minus transaction cost) when we buyback the option (at a ower price hopefully) say at Rs 2.. then 2x50 = 100 + transaction cost will be deducted from your trading account..

At the end of this your 25,000 will be released as well as you would pocket the difference 3407.5-100-(transaction cost) = approximately 3000.

Since initial investment is 25,000 and profit is 3000 (considering the hypothetical buyback price of rs 2) profit percentage is 12%

in approximately 30 days..

I hope I got your question right and answered it to your satisfaction.. 25,000 is the margin money to be deposited.. but it gives you access to the time value part of the option you are trading..

=happy investing
whatsup-indianstockideas.bogspot.com

Kalpesh said...

awesome man man ....u have a gr8 thinking.....yaa u answered it all right....;)

Aseem Kumar said...

Hi Prahalad.. why is trading in more than one lot not advised for this strategy, if it is so optimistic?

amitjd said...

What happens if we don't square-off and let the option expire? In this way we can save on the transaction cost to repurchase.

What'sUp Prahalad said...

AseemKumar:

generally what I have observed.. is if you are too greedy.. things turn out to be just the opposite..

so the market might close below 4700 by date of expiry..

this is playing with the big boys .. who have enough to sustain themselves.. while we just might loose everything..

so its adviseable to stay within limits of losses you can sustain..

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Amitjd:

if you dont buyback.. then I think it takes more time for the money to be released..

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

As we can see.. the index has fallen below the 4700 level.

even at 4651.. we are safe if the index closes at 4651 on Dec 29,2011.

Well Considering we have just one 4700 PUT..

This is a good time to "SELL" a "NIFTY 4500 PUT" quoting at 50.50 per share.. (one lot)

Everything else being the same.. we can plan to buy it back at 2 or less..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

hi,
This s surya!!!!!!!
I really respect ur posts and appreciate ur resarch!!!!!!!!
what's ur view of biocon and tata chemicals for Long term sir???Will it be a good buy for 3 yrs???

What'sUp Prahalad said...

Anonymous/S Surya:

the fact is we need to look at a zero growth scenario.. at a worldwide levels..

so I would say.. wait for some more time for biocon..

since this is a low for biocon.. its good to invest some amount.. now and then again if it falls lower..

but stagger over a longer period..

Tata chemicals is also great company . but wait for some more time..

unfortunately companies like biocon and tata chemicals.. have a very large investor base so the probability of a fall is also pretty high..

liquid detergents donot use caustic soda.. so in India caustic soda consumption could be more towards glass rather than washing soap in the future..

unfortunately stocks always fall when I say buy.. so always take advice with a pinch of salt..


=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi,this s surya,
I really respect ur every posts ur such an awesome person respecting people to a gr8 extent..I pray u should live long!

Sir abt tata chemicals u have mentioned abt causic soda but i couldnt understand tat properly..But i hope u would have said postive abt both biocon and tata chemicals.I just wanted to know whether the company fundamantals r good for long term say 3-5 yrs????

What'sUp Prahalad said...

Anonymous/S Surya:

Yes tata chemicals and Biocon are good companies for long term and worth investing in.


Pls. Note: I have no investments in Tata chemicals and biocon.

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi sir,
Do u think telecom sectors will be having good growth in long term than Banks or auto sector say 4-5 yrs????Becoz sectorwise rotation happens in stock market!!!!!
By surya

What'sUp Prahalad said...

Anonymous/Surya:

My take is energy prices rae increasing which will make growth difficult..

Telecom is the base for ICT.
Information, Communication and Technoogy...

going forward telecom and ICT will be the energy efficiency driver for industry..

look at all mutual funds,brokerages and corporates. they are no longer sending annual reports and monthly updates by physical mail.. its all being done by email..

So the sectors to look at are:
Telecom (Tata Communications), Public transportation, Railways, Zero energy companies (companies which have captive energy plants - like GAEL from biogas from corn residue) Crude Alternatives (Jayant Agro - castor to plastics, fertiliser) Power Generation from renewable resources(NHPC)

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Dear Whatsup, Can you give your comments on Godawari Power and Ispat? Stock has corrected to 75 levels with very low PE ratio and good book value and earnings. Insider buying and Mutual fund buying is happening for the past few months.Is the stock purposefully beaten down to accumulate? Thanks and regards- Senthil

What'sUp Prahalad said...

Anonymous/Senthil:

Consolidated ..Godawari power has more than 100Cr as interest and financial charges per year..

GPIL has debt of 915Cr sales of about 2000Cr.. Per annum
GPIL has about 12Cr of forex losses which have not yet been booked..
GPIL also has 7.58Cr of contested cross subsidies which the Chhattisgarh State Power Distribution company Limited is demanding.. and no allocation has been made for this exceptional expenditure..

All said and done I dont see its a good idea to buy into this company.. We might see a drop in dividend payment..

Pls note this is just looking at the financials of the company.. I have not done a deep dive and if there are any hidden assets then I cannot say.. but looking at what I see.. its not cheap.. Cause it has 915Cr debt..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Dear Whatsup , thanks for the response on GPIL. regards, Senthil