Short strangle in BPCL

Oil marketing companies (OMC) are untouchables for me especially in investment portfolio but not in trading book. Optimists will always point out that these companies are value buy and it is difficult to replicate their distribution network. But how can any company make money when they are forced to sell their product below cost of production ? In this case Government & upstream companies (ONGC and Oil India) subsidizes OMC to fund the deficit between sale price and cost price.

But all this does not mean that one can not trade in OMC’s. Last week Oil Minister said that one time diesel price hike is off the table and political compulsions given impending assembly elections it doesn’t look likely. 40-50p/L monthly hike in diesel price is what OMC’s will be able to pass on despite 13-14 Rs/L under-recovery in diesel. This means that upside is restricted for OMC’s as of now. I have sold 390 and 400 calls in BPCL.

INR has recovered quite a bit from closer to 69 levels. Brent crude oil price has also come down from elevated levels of 117 $/barrel few weeks ago on geopolitical concerns in Syria. But easing of both these concerns has allowed OMC’s to breathe easy. Export parity pricing remains a concern but that is more or less factored in share price. Given all these factors I have sold BPCL 270 & 280 puts. In a way I have sold strangles in BPCL (270 put & 410 call, 280 put & 400 call).

Disclaimer: These are my personal views and you should do your own due diligence before acting on anything written in this blog. Please take reasonable care while trading in options, especially while selling. I am not advising anyone to sell or buy options. My purpose of writing this blog is to highlight my trading strategies.


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