Weekly Strategy, March Week 3 | Stocks and Commodities

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March 16, 2014
Time: 10 am

Weekly Strategy: Sell Auro Pharma 470 Put option and 570 Call option

1. Auro Pharma hit all time high of Rs 545 on 5th of March 2014.
2. Since then it has been on correction mode.
3. Not only Auro Pharma, since the markets broke out, rate sensitives took the centre stage and defensives like IT, Pharma and FMCG stocks went for correction.
4. But during the correction, Auro Pharma did not go below Rs 480.
5. Earlier also Auro Pharma took very good support at Rs 480 a number of times.
6. In fact after crossing Rs 500 on February 6th 2014, it has not gone below 480, except one day.
7. Now after a good correction, entire Pharma sector has turned.
8. Since Rs 480 is a very strong support, so it is safe to sell 470 Put option, keeping another Rs 10 for safety. 
9. At the same time it is finding very strong resistance in the range of 540 to 550.
10. Also since the markets firmly in the bull mode, Pharma stocks are likely to take back seat.
11. So it is safe to sell 570 Call option.
12. On Friday 470 Put option closed at Rs 2.20 and 570 Call option closed at Rs 3.30.
13. The market lot is 2000. So the total premium is Rs 11000.
14. The span margin is around Rs 1,50,000.
15. Since there are only 8 trading sessions for this month, the return on this investment is about 7%, which is extremely good.

 Note:

1.  On Tuesday markets will react to Russia - Ukraine problem.
2. So do not create the positions in the morning itself, wait for the markets to settle down.
3. Auro Pharma is a highly volatile stock and hence this suggestion is only for those who take high risk for high reward.
4. In case the stock move violently, you need to sell additional put or call option for delta hedging for which you need more margin money.
5. Thanks to all those who commented on my last week strategy, that post got the highest hit so far in my blog.
6. So we wish more people express their views so that this blog becomes two way communication.
7. Despite so many different views, last week strategy has given very good profit. 
8. In fact what I did, the Bank Nifty rose on Monday and instead of selling 10800 Put, I sold 11000 Put option.
9. While writing the blog last week, Bank Nifty calls were trading upto 13100, and 13100 Call was not liquid.
10. So I suggested selling 13000 Call option.
11. But on Monday, Calls were opened upto 13500, so I sold 13500 Call option.
12. So the positions gave better profit with higher safety.
13. So instead of following my blog blindly, you need to study all these changes between Sunday and Monday in order to reduce the risk and get better profit.