How to Play Brexit, Part 2 | Stocks and Commodities

June 23, 2016
Time: 8 am

How to Play Brexit?

1. Yesterday I have discussed three strategies to play Brexit.
2. Yet I received a query from one of the readers whether he can buy 8100 Put and 8300 Call.
3. of course, he can do, but must understand that there is a possibility of entire money being lost, if Nifty stays between 8100 and 8300.
4. Though the probability is low for this, we can not sure of anything in the markets.
5. Markets may move violently, so the option buyer not only time the markets while entering but also should time the markets while exiting.
6. For example, if the Brexit is favourable, Nifty may go to 8400 but then in the next few days it may fall below 8300.
7. So mostly retail people take right decision in entering but exiting is where they make lot of mistakes.
8. This is not only for option buyers, also for buyers in equity and futures.
9. So you need to see what is your financial capability and risk taking ability and take a call accordingly.
10. In one of my clients account, I bought 8100 Put at Rs 65 and sold 8000 Put at Rs 35 and 7900 Put at Rs 25. Effectively I have collected Rs 5 per share, which is Rs Rs 375 per lot.
11. But I had to pay a margin money of Rs 40,000.
12. So I am getting about 1% return if markets move higher.
13. If markets move lower, between 7900 and 8000 (that is my expectation in case if Brexit goes against the market), then I make Rs 7500 per lot as profit for an investment of Rs 40000.
14. If markets fall below 7900, then my profit will start moving down, but then I will pump in more money and manage the positions.
15. In simple words, if you take a view and if that view is correct you make lot of money and if that view goes wrong, how much money you are prepared to lose?
16. That is a big question which normally retail people do not think much about it.
17. In another account, I made some profits in the last few weeks by selling Put options. So I decided to buy 8350 Call option at Rs 35. I plan to sell 8600 Call option if it crosses Rs 5 today to partially offset the buy price.
18. In another account, I just bought 8350 Call and financed the buy by selling December 9500 Call option.
19. The recent opinion poll say that Brexit "In" leads by 8 points.
20. After this news Dow futures shot up and now trading 80 points higher.
21. In Indian time, Brexit poll starts at 2.30 pm today and ends at 2.30 am tomorrow morning.
22. Around 4 am, we will get the data about no of people who participated in the poll.
23. The more participation means "in" people are likely to win.
24. Around 5 am, first trend will kick in.
25. Around 8 am to 9.30 am tomorrow morning, about 80% of the results will be known.
26. So markets will be volatile for the first one hour tomorrow.
27. By 11.30 am tomorrow, the complete results will be out.
28. No newspaper has arranged for Exit polls.
29. But some large Hedge funds have arranged for their own Exit polls, so the trend unofficially will be reflected in the US markets tonight.
30. Exit poll results can be announce by 2.30 am tomorrow, but I do not know if any of these Hedge funds will declare the results.
31. They will try to make money for themselves without declaring the results.
32. So the markets action will be intense for the next 24 hours all over the world.
33. We are in a situation where if "In" Nifty will test all time high of 9110 in the next few months and if "Out" Nifty will test the recent low of 6825.
34. We will see what happens by tomorrow morning.