Election strategy for Nifty

Outcome of 2014 general elections is one of the most keenly awaited event this year. Gross mismanagement of the economy by the present Congress government has resulted in strong anti-incumbency this time. It’s anybody’s guess whether that anti-incumbency will result in NDA government led by Mr. Narendra Modi or it will be a Third front government. We will get to know on 16th May who is forming the government at centre. But one thing is certain that there will be high volatility with the end of last phase of polling on 12th May. Exit polls will also be aired on news channels starting from 12th May evening.

Indian markets also reacted violently after 2004 and 2009 general election results. But the big question is will there be such big reaction after election results on 16th May ? I doubt if market reaction is going to be any different and we are headed for another roller coaster ride beginning 13th May. If you take position and get it wrong then you will have tough time digesting those losses. I don’t want to take any one-sided position. With this thought process I have initiated spreads on Nifty. I have bought 6700 straddle (6700 call & 6700 put) and sold 6200 put and 7200 call. You can argue why I need to sell OTM call & put option (7200 call & 6200 put) ? I am confident about increase in volatility but also trying to reduce the cost of trade. In case the event does not pan out as I expect, my losses will be reduced. In this strategy I need Nifty movement of 5% from current spot levels of 6700 to make money.

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.


7 Responses to “Election strategy for Nifty”

  1. 1 sarath
    May 7, 2014 at 10:40 am

    Hi i am newbie , looking to master option trading.
    I can understand the 6700 straddle , but did not get idea of selling 7200 call and 6200 put . How does that reduce your cost and preserve your capital.

    • May 7, 2014 at 11:15 am

      Hi, underlying premise in this strategy is volatility one way or other. But I don’t expect volatility like 2004 or 2009 election results. When markets had hit upper circuit. This strategy reduces your cost because there is inflow from selling 7200 call & 6200 put. In case markets don’t show any volatility then you will lose less money in this strategy as compared to plain straddle buy.
      I hope I have answered your question.

      • 3 sarath
        May 7, 2014 at 3:50 pm

        thanks for the clarification. I am kind of confused about my path since there is too much info on the net . Could you suggest a way forward. Not looking for tips. My goal is to develop a few simple strategies to generate a decent income.

      • May 9, 2014 at 9:06 am

        Tough question 🙂
        My advice to you would be to take it easy don’t set targets for yourself. Give yourself time to understand dynamics of market. It’s a learning process for everybody. Read as much as you can – slowly and gradually you will develop your own strategies.
        Don’t follow any analyst advice blindly.

  2. 5 sarath
    May 9, 2014 at 11:47 am

    Hi could you help me with some info.
    Is there a way, site software where i can accurately calculate the option price

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