I am planning to implement a weekly covered call strategy
I will buy SBI-ETF NIFTY
Presently it is quoting @ Rs 155.25
My broker gives margin Collateral keeping 10% cash
For one lot Nifty call it requires Rs 116000/- margin
So if I buy 1500 ETF I will be investing Rs 234000 ( 1500 x 156 ).
I will get Rs 210600 margin from my broker
I can sell one lot of Nifty call at Rs 116000 margin
I will sell every Friday Next expiry Option (if current expiry is 18.02.21, next expiry will be 25.02.21).
I worked out Nifty weekly move since 04-07-2019. Out of 88 weeks, move above 10% is 1 time, above 8% 2 times and above 5% 6 times.
Hence I will sell 5% away Strike. If current Nifty is at 15100, 5% away stwill be 15900.
Premium for 25-02-2021 will be around Rs 26.
So one lot will fetch me Rs 1950/-. I predict next friday 50% of this premium will erode.
That is I can pocket Rs 13/- i.e. Rs 975/-.
That will be about 0.42% per week, 0.42 x 4 = 1.68% per month, 20% per year return.
This is better than Bank Deposit.
If Nifty gains 5% in a week, Nifty-ETF will also gain 5%, I can liquidate ETF and squareoff Call. There will be no loss.
If Nifty crashes, No issue sold call will be profitable. I can continue to sell Call.
This strategy looks fine for me.
I am unable to find problems in this strategy, hence please help.
Please inform what are the risks I can face and what can be remedy.
I will buy SBI-ETF NIFTY
Presently it is quoting @ Rs 155.25
My broker gives margin Collateral keeping 10% cash
For one lot Nifty call it requires Rs 116000/- margin
So if I buy 1500 ETF I will be investing Rs 234000 ( 1500 x 156 ).
I will get Rs 210600 margin from my broker
I can sell one lot of Nifty call at Rs 116000 margin
I will sell every Friday Next expiry Option (if current expiry is 18.02.21, next expiry will be 25.02.21).
I worked out Nifty weekly move since 04-07-2019. Out of 88 weeks, move above 10% is 1 time, above 8% 2 times and above 5% 6 times.
Hence I will sell 5% away Strike. If current Nifty is at 15100, 5% away stwill be 15900.
Premium for 25-02-2021 will be around Rs 26.
So one lot will fetch me Rs 1950/-. I predict next friday 50% of this premium will erode.
That is I can pocket Rs 13/- i.e. Rs 975/-.
That will be about 0.42% per week, 0.42 x 4 = 1.68% per month, 20% per year return.
This is better than Bank Deposit.
If Nifty gains 5% in a week, Nifty-ETF will also gain 5%, I can liquidate ETF and squareoff Call. There will be no loss.
If Nifty crashes, No issue sold call will be profitable. I can continue to sell Call.
This strategy looks fine for me.
I am unable to find problems in this strategy, hence please help.
Please inform what are the risks I can face and what can be remedy.