Sun Pharma poor Q1 FY16 – Ranbaxy integration blues

Sun Pharma announced its Q1’FY16 nos. post market hours today. As expected, they were bad on profitability front on account of Ranbaxy integration charges. On account of Ranbaxy integration issues the drug major had already issued profit warning on 20th July. Net profit fell 60 percent YoY to 479 crore in Q1. Although revenues grew 6.7 percent YoY and EBITDA margins at 27.5 percent were also better than what market expected. Last quarter margins were disastrous at 14.5 percent. All in all, it was a mixed quarter for Sun Pharma. Ranbaxy continues to be the pain point for the drug major. Market already knew about the poor results on account of profit warning issued by company last month. So stock should not react in a big way tomorrow.

I had entered into ratio spreads in Sun pharma in July – Bought one lot of 940 call and sold 10 lots of 960 & 980 calls August series. Looks like tomorrow will be the right time to square off these ratio spreads.

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

Options in Cairn India

Couple of weeks back Vedanta group decided to merge Cairn India with Vedanta Ltd. It didn’t come as a surprise and it was only a matter of time before the group went along with a merger. I guess since the acquisition of Cairn India in 2010, Vedanta group had their eyes set on the cash of Cairn India.

I am not a big fan of Vedanta group corporate governance standards. But to be fair to group, sharp crude oil price fall in last 8-9 months coupled with Rs 20k crore demand from IT department had suppressed Cairn India valuations. So in the changed scenario, proposed merger might even benefit Cairn India shareholders. On the other hand, only pure play oil E&P company in India would be saddled with metal assets. Some shareholders might not like it. One of the biggest institutional shareholder LIC has opposed the merger on valuations front.

Given the sharp share price fall in Cairn India it makes sense to sell some puts of July series.

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

Election strategy for USDINR

Given the binary outcome of 2014 General elections I have also decided to take positions in USDINR options. Election outcome is extremely crucial. Clear mandate for NDA which is perceived to be business friendly will be positive for Equity & Currency markets. Any fractured outcome or BJP tally of less than 180 seats will be extremely negative for markets. NDA tally of 250-260 plus will be extremely positive. Volatility will be the central theme.

I have bought USDINR 60.5 straddle (60.5 call & 60.5 put) and sold 61.5 call & 59.5 put. I need movement of 1.6 per cent to make money. USDINR should see the movement more than 1.6 per cent and break its current range of 60-62 on either side. If NDA comes to power with resounding majority than INR will appreciate below 60 and fractured mandate will lead to sharp INR depreciation. In case of fractured mandate, India’s sovereign  credit rating might be downgraded. But on the other side if INR appreciates sharply RBI might intervene and slow the pace of appreciation. One thing is certain, current USDINR range of 60-62 is about to be broken on 16th May and we are in for some exciting times rest of May.

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.

Update: Election strategy on Nifty

Continuing with the theme of increasing volatility after completion of the last phase of polling on 12th May, I have bought further strangles on Nifty. I have bought May series Nifty 6500 put & 7000 call. Although Implied Volatility (IV’s) is already high at 34-35 but it should go further north after 12th May. One thing is absolutely clear, Options are the way to play for elections rather than Futures. Also, I want to avoid taking one sided position because I don’t have clue which way results will pan out on 16th May. Given the unexpected outcome of 2004 & 2009 General elections and violent market reaction I don’t want to be caught on wrong foot with one sided position.

I might square off these strangles before 16th May if there is significant increase in IV’s.

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.

Election strategy on L&T..

In my previous post I had written about strategy on Nifty (https://writingoptions.wordpress.com/2014/05/02/election-strategy-for-nifty/). Volatility should increase after last phase of polling on 12th May. With this thought process I am thinking about initiating similar strategy as in Nifty on Larsen & Toubro. Capital goods giant had a good run till last couple of weeks when it started correcting from its high of 1388 on NSE. Correct way to put it would be to say stock witnessed some profit booking ahead of an all important event on 16th May.

Since I am not sure which way election results would pan out, I am not initiating one way position and seeking to benefit from increase in volatility. I am planning to buy L&T 1260 straddle (1260 call & 1260 put) and sell 1400 call 1120 put. You need movement of 7.7% in L&T stock to make money from this strategy. Given the fact that stock had corrected from its recent high of 1388, it looks very much possible that L&T will go beyond 1400 on favourable outcome on 16th May. L&T is high beta and proxy play on Indian economy so its stock would react violently in negative direction in case market doesn’t get what it thinks as favourable outcome.

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.

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.

Good Infy Q2 FY14 nos..

Infosys has posted good Q2 FY14 numbers. Biggest positive was dollar revenue growth of 3.76 percent (constant currency growth of 4.2 percent). EBIT Margins were also in line with estimates at 23.6 percent (Maybe the only slight disappointing part in result). FY14 dollar revenue growth has been revised from 6-10 percent to 9-10 percent. There is no doubt that management is conservative in not revising upper end of dollar revenue growth of 10 percent. It is highly likely that it will be in the range of 11-12 percent for full year. In my previous post (https://writingoptions.wordpress.com/2013/10/06/infosys-stranglestraddle-q2-fy14/) I had mentioned about not doing anything in Infy options before results. Now I will be comfortable in selling Infy puts. More than upside, cap on downside has been placed.

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.

Infosys strangle/straddle – Q2 FY14

Infosys will kick start Q2 FY14 result season on 11th October this year as usual. In past several quarters, Infosys stock has moved violently one way or other on result day.

If you end up on the right side you make it big otherwise, you lose it big. Since Q1’FY14 result on 12th July, Infy stock has moved up 7.6 percent. INR depreciation has obviously been the tailwind for all IT stocks and Infy has also benefited from it. But key trigger for IT stocks has been improving demand environment in key market,US.

Last quarter, Infy had heavy option buildup and IV’s were as high as 90-100. IT major options had built-in 20 percent stock movement on result day. Lot of people had bought strangle and straddle to benefit from sharp movement. But it turned out that Infy stock moved 10.91 percent and strangle/straddle buyers lost money. This time also option buildup has started in Infy. On put side maximum buildup is in 2500 and 2600 strikes whereas on call side maximum buildup is in 3100 and 3500 strikes. As of now, put side buildup is more than call side. Maybe because of the fact that in the past several quarters Infy has disappointed investors and a lot of expectations are built in with Narayan Murthy’s return in active role.

Last quarter looking at the IV’s, I had sold strangles. But this quarter I have not decided what to do in Infy options as of now. IV’s in Infy options this quarter are still low (55-60). May be I will sell call options but not now.

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.

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.

Will Nifty make new all time high ?

It’s been a roller coaster ride for Indian markets since last month. From its lows of 5120, Nifty has rallied more than 1000 points. How often you see this kind of movement in Index in a short span of 20 days ? Now we are near all time highs and as usual debate has started about scaling of new highs of 6339 on Nifty. Lot of market participants are still skeptical of this rally and feel it is liquidity driven rally and fundamentals don’t support new high on Nifty. In fact it would be bit ironic if we make new highs on Nifty given the decade low Q1 GDP growth of 4.4 percent. But who can argue against the force of liquidity ? Indian markets along with all emerging markets have been receiving large inflows. FII’s have bought around Rs 11000 crore in Indian market in September alone.

US Fed had also decided not to proceed with QE taper in its September meet. It was a hugh sigh of relief for all countries running current account deficit. All these countries have been given time to set their house in order before funding deficit becomes difficult some months down the line. RBI played party spoiler in its policy review by increasing policy rate (repo rate) by 25 basis points to 7.5 percent. Market was expecting status quo on repo rate from RBI. More than increase in policy rate, RBI sounded hawkish on inflation front and further increase in repo rate this year cannot be ruled out. With both key events out of way, Market will now start focusing on Q2 results which are expected to be bad.

Nifty is just 5-6% away from its all time high so new high cannot be ruled out all together. But more important question is that will market sustain at those elevated levels ? Normally I prefer trading in options but if Nifty crosses 6300 and beyond, I will be tempted to go short on it via futures. Given macro backdrop, I don’t think those levels will be sustained. But before going short one need to watch FII inflow/outflow numbers carefully.

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.