Covered Call Option Strategy on Andhra Bank
Andhra Bank is quoting around 62.50 per stock.
The option lot is 4000 shares. This would mean an out lay of about 2.5 lakhs for a 4000 shares to buy.
Assuming we bought this Stock we would have invested 2.5 lakhs.
Is there any good strategy available for us to get some returns on this investment ?
The December 2013 Call option of 65 Rs of Andhra Bank is quoting around 1.35 Rs. If we short a Call option of Rs.65 @ Rs.1.35 we collect a premium of about Rs.5000/-
Assuming the stock closes any where above 66.35 Rs. we would get maximum profit of 66.35 - 62.5 = Approximately 16,000/- Rs. (on an outlay of Rs.2.5 lakh for one month funds lay out).
If the stock closes at 65 We get premium collected 5,000/- + stock appreciation of 2.5*4000 = 10,000/ Rs.
Looks quite attractive is not it ?
What if our stock moves below 62.50 ? Because of premium coverage of Rs.1.35 we get covered loss of stock value up to 62.5-1.35 = 61.15 Rs approx. This would mean still a better deal for it would make us having bought the stock at 61.15 Rs.
So let us watch this stock movement for December 2013.
There is another strategy that could be played as well.
Assume we are happy to buy Andhra Bank Stock at 62.50. We can sell the put option of 62.50 which is quoting around 2.5 Rs per stock and collect 2.5Rs.*10,000/- premium
At the month end option expiry if the stock does not go below 62.50 we have got Rs.10,000/-
Assuming it had gone to 60.00, we can still buy it at 60.00 stock. which would mean we pay out Rs.10,000/- collected and are able to buy the stock at a lower price.
Hope you enjoyed reading this article.
Cheers
Zilebi
Andhra Bank is quoting around 62.50 per stock.
The option lot is 4000 shares. This would mean an out lay of about 2.5 lakhs for a 4000 shares to buy.
Assuming we bought this Stock we would have invested 2.5 lakhs.
Is there any good strategy available for us to get some returns on this investment ?
The December 2013 Call option of 65 Rs of Andhra Bank is quoting around 1.35 Rs. If we short a Call option of Rs.65 @ Rs.1.35 we collect a premium of about Rs.5000/-
Assuming the stock closes any where above 66.35 Rs. we would get maximum profit of 66.35 - 62.5 = Approximately 16,000/- Rs. (on an outlay of Rs.2.5 lakh for one month funds lay out).
If the stock closes at 65 We get premium collected 5,000/- + stock appreciation of 2.5*4000 = 10,000/ Rs.
Looks quite attractive is not it ?
What if our stock moves below 62.50 ? Because of premium coverage of Rs.1.35 we get covered loss of stock value up to 62.5-1.35 = 61.15 Rs approx. This would mean still a better deal for it would make us having bought the stock at 61.15 Rs.
So let us watch this stock movement for December 2013.
There is another strategy that could be played as well.
Assume we are happy to buy Andhra Bank Stock at 62.50. We can sell the put option of 62.50 which is quoting around 2.5 Rs per stock and collect 2.5Rs.*10,000/- premium
At the month end option expiry if the stock does not go below 62.50 we have got Rs.10,000/-
Assuming it had gone to 60.00, we can still buy it at 60.00 stock. which would mean we pay out Rs.10,000/- collected and are able to buy the stock at a lower price.
Hope you enjoyed reading this article.
Cheers
Zilebi
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