Weekly Strategy, June Week #3 | Stocks and Commodities

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June 15, 2014
Time: 4.30 pm

Weekly Strategy: Sell Bank Nifty 14000 Put option and 16500 Call option.

1. Bank Nifty fell by more than 500 points from intraday high on Friday.
2. Hence implied volatility shot up in Bank Nifty.
3. But such a big fall was a knee jerk reaction to Iraq news.
4. This Iraq news has already been factored in by the markets and hence markets are not likely to fall much from here.
5. This is evident from tha fact that both FIIs and DIIs did not sell on Friday.
6. Also US markets traded positive throughout Friday.
7. So by considering all these factors, Bank Nifty is not likely to fall below 14000.
8. At the same time, caution will prevail for next few days.
9. Bank Nifty has been finding strong resistance in the range of 15600-15700 range.
10. So Bank Nifty is not likely to rise above 16500.
11. So we suggest selling Bank Nifty 14000 Put option and 16500 Call option.
12. Bank Nifty 14000 Put closed at Rs 33 and 16500  Call closed at Rs 14.50 on Friday.
13. The total premium is about Rs 1180. Span margin is around Rs 20000.
14. This works out to be a return of more than 5%, if Bank Nifty trades between 14000 and 16500.
15. Since there are only none trading sessions, time value will work in favor of option sellers.