Posts Tagged ‘Covered Call


Opportunities in Power grid..

Power-grid is about to come with its FPO shortly. PSU is expected to issue fresh 15 percent equity and 5 percent equity would be divested by Government of India. After 2010 FPO, it would be another equity raising by the company. Power grid is in capital-intensive business and it requires constant equity infusion. But should you buy Power grid in FPO ? Power grid is a kind of annuity business which is assured of constant ROE by Government. It is currently trading at reasonable valuations of 10-11 X of earnings. As a shareholder you might feel it moves very slowly and given the fact that last FPO price in 2010 was 90 and current price is 100, its return are below annual bank fixed deposit of 9 percent. I am expecting FPO price of closer to 100 but I won’t be a buyer in FPO. I am not a fan of PSU companies and they are never a part of my long-term portfolio. They have never generated consistent long-term wealth for shareholders. These can be trading bets from oversold levels but not long-term bets. Power-grid is my favorite trading stock. I keep selling Power-grid calls and buy covered calls in it (buy future and sell call). Given FPO overhang and 15 percent equity dilution I don’t expect share price to rise sharply in near future.

Disclaimer: 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.


ONGC FPO deferred ???

If some news report are true then it looks like on account of pricing difference with i-bankers, government has decided to defer ONGC FPO by 15 days. Government wanted FPO price band to be closer to 280 whereas i-banks were saying price of 240-250. I don’t know what will change in the next 15 days. Everything has been turned into a joke by this government. ONGC FPO has been deferred several times. In this volatile market, who will buy ONGC at Rs 280 ? I guess only LIC and Public Sector Banks (PSB’s). If government wants so, they can do private placement as well. I guess there are better stories in market than buying ONGC at 280. First of all you, can’t decide on subsidy sharing formula and continue milking company as per your whims and fancies. Arbitrarily you change subsidy burden of upstream companies from 33% to 38.8% and expect market to pay top dollar for issue. May be government is expecting that market will realize true potential of ONGC in the next 15 days and they will be able to price issue at 280 rupees.

I was positive on ONGC issue at 245-250 rupees and at that price it was a compelling long. In fact, I am long on ONGC (bought one November future) and was planning to build further long positions after FPO price band is declared. I also sold ONGC 280 call (thankfully I have not written any naked call). It’s a covered call strategy. But surely I won’t buy ONGC shares at 280 rupees. Hope better sense prevails in Delhi and the issue is priced attractively.

February 2019
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