Its ONGC again..

In some of my previous posts, I had criticized government for pursuing FPO programme. But it seems that with lagging behind schedule on divestment programme, government is keen to dilute stake in ONGC. PSU giant filed for RHP with SEBI yesterday. As per reports, issue is expected to open on September 20 and close on September 23. Issue proceed will help government to do some patchwork with its Fiscal deficit. Clarity on subsidy sharing formula could have helped fetch better FPO price, but government has political compulsions.

Due to FPO overhang ONGC share price had range bound movement for past several months, 290-295 being the upper limit and 260-265 was the lower limit. At the start of September series, I had sold ONGC 320 calls. But now with FPO scheduled to come in next 15 days, its share price movement should be restricted between 240 and 280. I have sold ONGC one 240 put and two 280 call (in 1:2 ratio). Not exactly strangle and I am not sure what would you call this strategy. In this strategy, I will make loss below 232.5. I am expecting FPO price between 240-250 with 5% discount to retail investors. I am confident ONGC share price will not cross 280 in this series but I am not sure about lower limit. FPO price will decide lower limit. In case FPO price is less than 240, I will go long and buy its future.

ONGC FPO Option strategy

Overall I am bullish on ONGC. In case of any sharp fall in market across the world, crude will also fall and PSU will benefit from it. It is difficult for me to imagine ONGC falling substantially from current levels. Among all the analyst tracking ONGC, not even one has sell rating and overwhelming majority (more than 80%) has buy rating on it (average price target more than 300).


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