Weekly Strategy, October Week 1 | Stocks and Commodities

P R Sundar, Aditya Trading Solutions

Strategy:

Sell Nift December expiry 4500 Put option. Then wait for the markets to turn higher. If it turns higher and December 7000 Call option is trading more than Rs 25, sell it, otherwise leave 4500 put option naked.

Rationale:

1. Nifty closed below 200 day moving average on Friday 27th September. 
2. Also US markets fell. SGX Nifty closed about 50 points lower from Friday's closing here.
3. US Debt ceiling talk is still going on and there seems to be no compromise on either side.
4. So the markets will be bearish in the short term.
5. Dec 2013 expiry Nifty 4500 Put option closed at Rs 25 on Friday, which should be trading Rs 28 to Rs 30 on Monday.
6. With so much bearishness in August, Nifty did not break below 5100.
7. Now Syria problem is over and hence crude is stable, Currency is also stable now, so the market will not go below 5100.
8. Debt ceiling talk will come to an end as US Govt. can not be shut forever.
9. Once that happens, markets will turn higher.
10. If the markets turn higher and if December 7000 Call option is trading more than Rs 25, then sell it, otherwise leave the 4500 Put option naked.
11. Market will close between 4500 and 7000 by the end of December.

Maths behind the strategy:

1. Dec. 4500 Put option will be trading at least Rs 28 tomorrow. Just for simple calculation, we take yesterday's close of Rs 25. Premium collection will be Rs 1250 per lot. Span margin will be Rs 10,000. This gives a return of 12.5% for three months period. This gives an anuualised return of about 40%. Considering the very low risk, this return is very good.
2. In case if market goes higher and 7000 Call option is sold then also the return remains the same as we are suggesting to sell 7000 Call option only if it crosses Rs 25.

Follow Up of Last Week Strategy:

1. Last week we suggested to sell December expiry Nifty 5000 Put option and 7000 Call option for a combined premium of Rs 76. Now the combined premium is at Rs 65. There is a profit of Rs 550 per lot.