Nifty Bees and Call Options

[rai07]

Dear All

I am suggesting one strategy which requires some huge amount but can provide gud returns.

Strategy:

To buy 500 Nifty Bees and sell call at price higher than average cost of nifty bees and continue with it till the nifty bees goes below the average cost. By doing this v will get each month options premium which may give retrun upto 3% per month. Strategy should be squared off once the nifty bees goes below it average cost

Members pls share some view and risks associated with this.

 

[rai07]

members pls share ur view for this strategy...............................

 

[cool_kk]

Hi Rai

Please post an example of your strategy to understand your concept
Risk Analysis
Gap UP/DOWN
Is it require to sit in front of terminal.(If yes, return is not decent)

All what you can share so one can analyse and comment on it

Thanks
Kaps

 

[Capricorn]

Dear All

I am suggesting one strategy which requires some huge amount but can provide gud returns.

Strategy:

To buy 500 Nifty Bees and sell call at price higher than average cost of nifty bees and continue with it till the nifty bees goes below the average cost. By doing this v will get each month options premium which may give retrun upto 3% per month. Strategy should be squared off once the nifty bees goes below it average cost

Members pls share some view and risks associated with this.

That' s a more expensive way of doing a covered call, why not just buy futures and sell call.

 

[rai07]

Example of the same

1. First in decline manner buy 250 nifty bees suppose ur average price for nifty bees comes at 500 means u have bought nifty at 5000.

2. After buying nifty bees sell a call of next month higher than ur average cost say of 5100 or 5000 in case of 5100 u may get 80 or 90 rs premium

3. Now say at the end of the month if nifty is 5300 nifyty bees will be 530 so u will have profit of rs 30 per nifty bees i.e 30*500=15000 and say u sold call of 5100 so call price will be 200 i.e 5100-5300=200 so loss of rs. 200*50=10000 but u will gain say conservatively 80 rs premium i.e 80*50= 4000
Summary

1. Profit of Rs 30 per nifty bees = 15000
2. Loss on call 200 per call= 10000
3. Profit on premium 4000

Net Profit 9000

Now this profit is at 5300 level profit may be up or down according to market

I will also disclose risk with it

this strategy is best for the rangebound market when the market is upwards u may gain only premium but then also return is very good if u calculate on investment

This strategy works only when the nifty i.e nifty bees is above ur average cost. if the nifty goes down ur average it is very risky to do this strategy

At last i would say in this strategy profit would be somewhat cap in upward market loss would be reduced in downward market and best in rangebound market
Members pls share ur views on the same.

 

[Capricorn]

I still don't understand why u want to put in about Rs 270000 to buy NBEES just to sell a call when you can do the same putting up 10% margin for Nifty futures.

OR better still sell a suitably otm put

 

[rai07]

Dear

I am not telling to purchase nifty bees at current price as the market is too high i am telling to buy in a decline manner like SIP u cant buy nifty futures in a decline manner u have to buy at one shot.

To sell put in opposite direction is very risky as selling both put and call is very risky. It can v profitable in a rangebound market but if the market moves in one direction upward or downward u will have big loss either on call or put

members pls share ur views

 

[Capricorn]

Please read up R/R of CC v/s short put. Analyze the roi of buying stock v/s putting up margin for futures before initiating any such trade.

 

[rai07]

Capricon

Thanks for posting reply

Sir i didnt undt what is r/r and c/c pls tell me

Nirmit

 

[bajajdipesh]

I think r/r is risk reward ratio and CC is covered call strategy.

Actually, what you are suggesting will require huge money. Capricorn is suggesting same thing can be done with the help of buying one lot of nifty future and write a call option. That way margin requirement will be roughly around 60000Rs. but in your case it is approx. 250000Rs.

Capricon

Thanks for posting reply

Sir i didnt undt what is r/r and c/c pls tell me

Nirmit