Weekly Strategy, December Week 3 | Stocks and Commodities

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December 15, 2013
Time: 7.15 pm

Weekly Strategy: Sell Nifty March 2014 Expiry 5000 Put Option and 7200 Call Option.

1. As we have explained in "Dalal Street Week Ahead", markets are expected to be volatile and will swing few hundred points either way due to key events.
2. But after the key events are over, volatility is likely to go down and hence the option premiums.
3. Due to expected high volatility, it is not advisable to sell and option at a near distance.
4. So we choose 5000 Put option and 7200 Call option expiring in March 2014.
5. Even the most bullish expectation is that Nifty will touch 7000.
6. So selling 7200 Call option is safe.
7. Due to optimism on the political front and strengthening US economy, Nifty is not likely to fall below 5000 also.
8. So selling 5000 Put option is also safe.
9. Nifty March 2014, 5000 Put option closed at Rs 18.10 on Friday.
10. Nifty March 2014, 7200 Call option closed at Rs 31 on Friday.
11. This gives a return of about 3% per month on a span margin of Rs 20000.
12. This is a good return considering the low risk.