Strategy:
Buy one lot of futures and sell two lots of call just above call strike
Considered: Aurobindo Pharma for analysis Futures February 2014 390 and January 2014 Call 400/-
An analysis of Covered call strategy on Aurobindo Pharma: as of 17th January 2014 closure
Options expiry date: 30th Jan 2014
No of trading sessions left 9 days for expiry.
The catch here is to have approximately Rs.4,00,000 as Margin/Limit. Assuming one can afford such limits the following analysis is made:
BUY FEBRUARY 2014 FUTURES AT 390/-
SELL JANUARY 2014 400 CALL AT 7 RS. * 2 LOTS: january 2014: premium collected is 14 Rs.
(When we sell two lots , one of them is covered up to the other premium. That is one call sold is covered upto 14 Rs, the other call is covered by the underlying future bought position)
Down side we are covered upto 390-14 Rs = 376/-
If January close at: 407 17 Rs profit (407-390)
Lot size = 2,000 So profit = 34,000/-
Exposure 20th jan to 30th jan 2014 = 9 trading sessions
Delta is 35% and Theta is 50 paise per day approx.
Limit required = Total 4,00,000 Rs.
Approximately return 8% pm return = 96% return p. a (approx.) If you go by calendar days its much higher).
Is this achievable?
If market closes at 414 : You make 20,000/- (400-390= 10Rs *2000)
Upto 424/- You are covered. Beyond 424/- for every one point one point loss.
In net below 376 and above 424 Losses Let us see what are the probabilities for this?
Below 375 probability is 35% and above 425 is 15% .
So total probability is 50% We can assume on either side probabilit is 25% .
This means we have 75% probability of being in minimum profit of RS.20K Max profit of Rs.34k.
To be re-analysed on 30th Jan2014 for the factuals
cheers
zilebi
Buy one lot of futures and sell two lots of call just above call strike
Considered: Aurobindo Pharma for analysis Futures February 2014 390 and January 2014 Call 400/-
An analysis of Covered call strategy on Aurobindo Pharma: as of 17th January 2014 closure
Options expiry date: 30th Jan 2014
No of trading sessions left 9 days for expiry.
The catch here is to have approximately Rs.4,00,000 as Margin/Limit. Assuming one can afford such limits the following analysis is made:
BUY FEBRUARY 2014 FUTURES AT 390/-
SELL JANUARY 2014 400 CALL AT 7 RS. * 2 LOTS: january 2014: premium collected is 14 Rs.
(When we sell two lots , one of them is covered up to the other premium. That is one call sold is covered upto 14 Rs, the other call is covered by the underlying future bought position)
Down side we are covered upto 390-14 Rs = 376/-
If January close at: 407 17 Rs profit (407-390)
Lot size = 2,000 So profit = 34,000/-
Exposure 20th jan to 30th jan 2014 = 9 trading sessions
Delta is 35% and Theta is 50 paise per day approx.
Limit required = Total 4,00,000 Rs.
Approximately return 8% pm return = 96% return p. a (approx.) If you go by calendar days its much higher).
Is this achievable?
If market closes at 414 : You make 20,000/- (400-390= 10Rs *2000)
Upto 424/- You are covered. Beyond 424/- for every one point one point loss.
In net below 376 and above 424 Losses Let us see what are the probabilities for this?
Below 375 probability is 35% and above 425 is 15% .
So total probability is 50% We can assume on either side probabilit is 25% .
This means we have 75% probability of being in minimum profit of RS.20K Max profit of Rs.34k.
To be re-analysed on 30th Jan2014 for the factuals
cheers
zilebi
Review on 31st Jan 2014:
ReplyDeleteWhat a great month for Aurobindo Pharma. It swinged up to 450+ Rs !
Volatility was so high that some brokers even stopped allowing forward futures.
The above strategy would have resulted into break even of 424 beyond and would have resulted into 50,000 loss.
However during the course of action there were possibilities for cutting losses for example when futures were stopped for a while short sales where curtailed and it was trading in spot market with delivery positions which brought the stock to 415 levels as well. Around this point cut loss on options could have been taken.
All in the game of stocks and shares!
By the way the last week of January was really a worst week for banking sector stocks as they have plummeted down quite extensively.
Especially Bank of Baroda went down nearly 20% !
zilebi