Stock Blog!!

A little risk for good returns – Long Butterfly Strategy for Nifty

Venu — Tue, 19 Jan 2010 19:04:18 +0000

Getting good premiums on selling Nifty options have currently become little difficult. Unlike the previous year where every Call or a Put option was highly over valued. The strategy described here will limit your profits as well as your losses provided Nifty stays well within the range that I mentioned in my previous post. For better understanding, a payoff chart and a table based on various Nifty expiration levels is provided for reference.

Strategy:

Sell 1 Put option contract Nifty 5200 PE 25-Feb-2010 at Rs. 127.90

Sell 1 Call option contract Nifty 5200 CE 25-Feb-2010 at Rs. 153.50

Buy 1 Put option contract Nifty 5000 PE 25-Feb-2010 at Rs. 66

Buy 1 Call option contract Nifty 5400 CE 25-Feb-2010 at Rs. 63.50

Total Inflow / (outflow) from the strategy = Rs. 7595

Max. Gain from the strategy = Rs. 7595

Max. Loss Risk from the strategy = Rs. 2405

You would require approx. Rs .50000/- for margin to be maintained in your trading account. Please consult your broker for this information.

This strategy has to be held till maturity for max. gains / limited loss as mentioned in the payoffs. Exiting any one position / the entire strategy mid way before expire (25-Feb-2010) might result in heavy losses. Also note, the trading account would require sufficient margin funding based on the daily closing levels of Nifty. Please read the disclaimer clause on the home page before implementing this strategy.

Strategy Payoff

Payoff Table

Please leave your comments/queries/feedbacks in the comments section.

Range bound derivative strategy on Nifty options

Venu — Fri, 15 Jan 2010 14:07:44 +0000

Nifty has gone nowhere since the start of this series. Lack of some strong economic news and caution among the traders and investors community has lead to fairly muted gains. One of the best option strategy that comes into my mind is the Short Strangle. This strategy is perfect in range bound movements for indices and stocks. I would like to keep this and the future posts limited to Nifty options.

Strategy :

Short 1 Lot Nifty 25 Feb 2010-5200 PE @ Rs. 112.95

Short 1 Lot Nifty 25-Feb 2010-5400 CE @ Rs. 73

Margin Requirement: 2 lots of Nifty Approx. Rs. 50000/-

Payoff:

If Nifty on 25-Feb-2010 settles anywhere between the range 5200 – 5400 then maximum profit made = Rs. 9297.50 (excluding brokerage and other charges)

The strategy will be in a loss if Nifty crosses above 5585.95 or if Nifty breaches the 5014.05 on expiry. Hence the 2 key levels to watch out, for a No-profit-No-Loss zone, are these upper and lower levels. These points are indicted on the graph.

Pay Off from the Strategy

From the graph you can infer the moment Nifty goes below the lower protection or moves beyond the upper protection the loss is unlimited.

All the strategies discussed here are supposed to be held till maturity. The idea is to capture the entire premium you get on selling these options.

Disclaimers: If you are unaware of trading in options then you need to consult someone who has hands on experience trading in options. Option trading entails very high level of risk and hence has to be implemented with proper knowledge. Shorting options involve unlimited downside risk and limited upside potential. I may or may not have taken such a position in this strategy and the decision to implement is entirely yours. No guarantee or assurance is given that anything described here will be successful.

BHEL has 1.3 Lakh cr order book – Can we expect more from this giant?

Venu — Wed, 13 Jan 2010 01:59:00 +0000

Heavy equipment manufacturer BHEL has reportedly missed its delivery targets by 30% and there were other reports that were talking about the Planning Commission expressing disappointment on BHEL’s performance. BHEL has shown some strong QoQ numbers in its last quarter report with sales increasing by 21%. Sales figure might not show us the clear picture considering the low base effect from the previous year’s same quarter. Expected 55000 Cr orders in this quarter will only add on to its delivery woes. However, the future is definitely bright for this giant as the order book has been swelling.
Technically the stock has been in a range of 2100 – 2450 over a 2 month period and currently trading at 2330. Further dip might take BHEL to 2321 and further down to 2287 on weekly closing. Over a period of one month the stock can get back to the levels of 2450 and above.

Recommendation:
Buy BHEL at 2325 with Stop Loss at 2314 and target of 2342 and 2360. Keep trailing your stop losses (2 days)
Disclaimer: Stock market investments are risky. They don’t provide fixed returns and past performance doesn’t guarantee future results. All securities investments entail the risk of great and sudden financial loss. Returns vary and you may have a gain or loss when you sell your securities.
No assurance is given that anything described here will be successful.
Note: Don’t forget to follow strict stop losses.

RIL sold 3.5 Cr shares from its treasury stock

Venu — Tue, 12 Jan 2010 00:49:00 +0000

Reliance Industries Ltd (RIL) does it again second time. It had earlier at the start of the 1st week of the new year sold 2 cr shares from their treasury and now the 2nd tranche of selling has taken place. RIL is trying to raise funds for its new acquisition interest in Lyondell Basell (LB), a US-Dutch based, one of the largest Polymers, petrochemicals and fuel company. RIL’s earlier bid for a controlling stake in LB was at USD 12bn in the month of November with a view to fund the deal with their existing cash reserves of USD 4bn and selling their treasury stock of USD 8bn. RIL increased the offer to USD 13.5bn and the extra cash would be funded through some leverage which has not been decided yet. The acquisition will keep RIL in a sweet spot as the revenues expected from the combined entity will be manifold. Who knows we might just see one of the biggest acquisition in the Indian history.
RIL’s shares reacted well with the acquisition news and on the charts technically RIL looks ready for an up move. For the year 2010 RIL is a candidate to look forward to and if Nifty has to make newer highs this year then contribution from RIL goes without saying.

Recommendation: (Weekly Closing basis)
Buy RIL above 1092 with a stop loss at 1033. Target of 1161 in 4 weeks and can further head towards 1220.
Disclaimer: Stock market investments are risky. They don’t provide fixed returns and past performance doesn’t guarantee future results. All securities investments entail the risk of great and sudden financial loss. Returns vary and you may have a gain or loss when you sell your securities.
No assurance is given that anything described here will be successful.
Note: Don’t forget to follow strict stop losses.

Long Hiatus

Venu — Sun, 10 Jan 2010 13:15:00 +0000

After a long hiatus I am back to blogging. Blogging took a back track due to my over involvement with various things.
Alright, lets get back straight to our stock markets. Nifty and Sensex performed extraordinarily well in the year 2009. A startling 80% returns if you would have gone long on the Nifty from Jan09 to Dec 09. Auto was the sector that had stellar performance with likes of Maruti, M&M, and especially Tata Motors. Other sectors like Infrastructure, IT, Banking and FMCG despite monsoon woes also gave an outstanding performance. Sectors that gave average returns were Real Estate and the worst performing was attributed to Telecom sector. India Inc was shining in the year of recession and it was mainly due to the stimulus provided by RBI. Commodities was the other bunch specially gold and metals that did exceptionally good.
2010 looks promising for the India growth story with the finance minister talking about a 7% GDP growth for the year. It will interesting to see how RBI decides on the withdrawal of the stimulus and interest rate hikes.
Personally, I have learnt a lot as a trader during the past year. Emotion free trading is the name of the game. Whenever I got married to a position I ended up getting divorced in a dismal way! Worked hard on understanding on how to read technical charts and also understand the economy as whole. 2010 raises lot of expectations within myself. Lost a lot of money and also made money during the ups and downs. Learnt on improving my analysis and stuck to a wider horizon for better and bigger returns. This year has started off with greater confidence and self belief. Hope to carry this belief till the year end.
Nifty is now above the 5250 mark and is looking comfortably placed with its nose head high towards the 5400 levels. Who knows we might end the year with a new Nifty level above the 7000 mark and that looks plausible.

Hoping to see a better year of trading and better things for the stock markets. Happy New Year!

A Volatile Monday

Venu — Mon, 27 Apr 2009 22:30:00 +0000

I told you the expiry is around the corner and during that period we have a great volatile session. I was banking on Suzlon (again!) and went short on it in the early trade with a SL of 67.5. Fortunately my SL din’t trigger as the day high was 67.2. The first half in the morning saw Nifty posting strong gains which earlier in the day opened 30-40 points lower. After 12.30 there was a free fall in the market and Suzlon too fell by 2 bucks giving my target for the day! Today my gain was about 4%. Tuesday will be another unpredictable session as the US and Asian markets have fallen due to fears of Swine Flu effecting many people. India may turn to global cues today or may take its own path. Fingers crossed.

Last week was fantastic

Venu — Sun, 26 Apr 2009 22:03:00 +0000

You don’t get a week where you have made profits on every single trading day. Last week’s gain was 27% and that’s a fantastic return considering just 5 days! The outlook for this week will be very volatile due to expiry on the Apr 29th and also because of a trimmed week. May 1st is a trading holiday and I am still not confirmed whether 30th April will be an off because of the election day. That will effectively turn out to be only 3 days. The global markets look calm and Indian markets will move according to global cues.

Continued gains for the next 2 days..

Venu — Thu, 23 Apr 2009 22:27:00 +0000

Trading on the 22nd was a beauty. As I said Suzlon zindabad in the last post, Suzlon again gave me another day of high returns. I was waiting for Suzlon to make the day’s high and I was looking to go short on the stock. It was a bulls eye when I shorted the stock at the day high! Imagine, the stock went to 63(apparently this was the highest for day) and then fell down to as much as 58.60. I had trailed my SL to a stage where I had captured in Rs. 3.5 gain (per share) on suzlon.

23rd was a subdued trading day personally. I made a gain in the early few minutes and then I had to exit trade as I was held up with personal work and I couldn’t risk the money in the market without my presence.

Today the asian and US markets look very quiet. Nifty might open positive but cannot guess which direction it can head towards. Wait and Watch is the call for the day

Bang on target!

Venu — Tue, 21 Apr 2009 14:13:00 +0000

One of the very few trading sessions I can cherish for a long time. Though I was carrying a big risk of being short on Suzlon from the previous day, but thanks to the negative global cues which worked in favour and I exited trade within the first few seconds of market opening. I recovered all the loss from ISPAT and made substantial profit over the day. I need to be little more careful while shorting in this market. However sometimes there are opportunities which can be converted to your advantage being short. I’ll have to evaluate the trade for tomorrow. Nothing planned as of now but again I am looking at Suzlon. Suzlon zindabad!!

Before ending let me tell you about short selling. It’s a piece of cake and you will get a better understanding by simply applying the logic of “Buy Low & Sell High”. While you go long on any stock you simply mean, buy at a price and sell it when the stock reaches a price higher than your buy price. If you simply reverse the funda you get the concept of shorting, without holding any stock in your kitty you have sold the stock (of course you must be confident enough to believe that the stock is going fall in the due course of time) and buy the stock at a lower price. Is’nt that very simple? Here you follow the logic “Sell High & Buy Low” ultimately the principle remains the same.

There you go, the stock gyan for the day.. Till tomorrow adios then…

17th & 18th April Trading days

Venu — Mon, 20 Apr 2009 23:08:00 +0000

After the previous day’s loss in ISPAT, I decided to dedicate 17th for recovery. I traded in Suzlon for the day. I had a good chance of recovering the loss during the high point of Suzlon but greed creeped in and I waited for another one rupee gain in the stock and eventually ended up losing what I was getting. I went on to hold the position for the day and ended up adding more to the loss made from ISPAT. 20th turned out much better I atleast got back what was lost in Suzlon, but still I am waiting to get back what is lost in ISPAT. Come 21st, I am just hoping for recovery and profit booking for the day.

I couldn’t blog for 2 days, I was travelling back to Mumbai. Today (21st Apr) I can see all the global indices in red. US, Asia are all down close to 4%. Expecting Nifty to open at least 50 points below previous close.

I have to make my strategies, will post today’s developments. Till then have a good day.