Budget Strategy:
Many people ask me what strategy we have to do for budget.
Let me give some detailed explanation.
Look at the following problems in last 12 years.
1. Lehman Bros crisis in 2008.
2. Greece on the verge of bankruptcy in 2011.
3. Taper Tantrum in 2013
4. China currency devaluation in 2015.
5. Demonetisation and Trump winning in 2016.
6. Brexit in 2017.
7. Inflation led fall in 2018.
In all these cases, Nifty gap down open around 400 points and Bank Nifty gap down open around 1200 points.
So every one to two years, there have been some big problems and markets fell.
In fact, since Feb 2018, we did not have any problem and this period is the longest in last 12 years without any problem.
When everyone is thinking of Budget, I am thinking of Corona Virus.
Hong Kong markets fell 6% in last two days and Taiwan fell 6% today.
China markets will open on Monday.
There can be some panic selling in China, it is possible, China markets can fall 10%, if the Virus affects more people in the next three days.
In that case, we will have a big problem, like few problems mentioned above.
Coming to budget, BJP can not afford to give one more bad budget.
One bad budget last year, every one know what happened.
FIIs continue to sell, in order to stabilise the markets and hence the Economy, BJP had to take extra ordinary measures like Corporate tax cut from 30% to 22% in one shot.
Remember Mr Arun Jaitley promised to bring corporate tax to 25% from 30% gradually, in 2014 budget, but did not even reduce by 1% in the next 5 years.
They reduced tax only for smaller companies, no smaller companies are listed in stock market.
So, my gut feeling is that, this time BJP can not afford to give a bad budget.
Again people argue that Govt has no room to give good budget.
STT collection is only about Rs 6000 crores, if they reduce STT by 50% or best, if they do away with STT, then markets can fly.
Govt can do something to lift the market sentiment with minimal financial impact. Hence I gave this example.
Ahead of budget, people talk about personal tax cut, DDT, LTCG and nobody talks anything bad measure.
So in my opinion, there can be a good budget or neutral budhget, as far as markets are concerned.
Means either markets will go up or consolidate, the probability of market sell off is very low.
For Option writers, there are two enemies.
1. Huge gap up or gap down.
2. Two way movements.
What I am worried, if budget is good and markets shoot up and then if Corona Virus spreads more and if markets gap down hugely on Monday?
This is a possibility.
Hence if you are a light hearted person, better keep away from markets.
Nothing wrong if we are away from markets for few days.
And if you still insists that you want to take some positions, here are some suggestions.
Strategy 1: Call back Spread
If you are bullish, then Sell 11900CE and buy 2X12100CE in weekly Nifty options.
In this strategy, you will make good profit if Nifty shoots up beyond 12300 and there is nothing to lose if market falls. You will lose in markets trade between 11900 and 12300.
Strategy 2: Put Back Spread
If you are bearish, then sell 12100PE and buy 2X11900PE.
In this strategy, you will make good money, if Nifty falls below 11700 and markets shoot up then nothing to lose. You will lose if Nifty trades between 12100 and 11700.
Strategy 3: Double Back Spread
If you are not sure about the direction, but sure that markets will make significant move on either direction, then do both Strategy 1 and Strategy 2.
Strategy 4: Call ratio spread.
If you are bullish, not too bullish, then buy 12000CE and sell 2X12250CE in monthly options.
Strategy 5: Put ratio spread.
If you are bearish but not too bearish, then buy 12000PE and sell 2X11750PE in monthly options.
So take positions as per your view of the market.
Still I will advise you to keep away from markets until Monday morning.
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