Posts Tagged ‘OMC


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.


Petroleum products price hike

Finally, government bit the bullet and increased diesel, kerosene and LPG cylinder prices on Friday evening. It was long overdue though. Market gave big thumbs up to government oil price hike. It looks like suddenly market has woken upto Oil marketing companies (OMC), Oil PSU’s like ONGC. Lot of upgrades are coming in with buy and overweight rating. Oil prices fell sharply last week by 8%, mainly on account of release of strategic oil reserves of 60 million barrels over next 30 days by members of IEA. This sudden fall in price is also helping OMC cause. As things stand now, OMC’s are not losing any money on petrol sale. Loss on other oil products like diesel, kerosene has also been reduced by price hike and duty rationalization.

But, I feel more confident about ONGC than OMC’s. I think ONGC has seen its bottom at Rs. 248 this year. Although an irony, but its a fact that in current scenario, oil price fall benefits upstream company like ONGC more than its rise. ONGC suffers from adhoc subsidy sharing formula of government. In case, government gives some clarity on subsidy sharing, share price should easily move past Rs. 300. Follow on Public Offering (FPO) also remains overhang on the stock. Its scheduled date was July 5, but note sure if less than 300 is the fair price and government should go ahead with it.

It looks like ONGC is having its way in Cairn-Vedanta deal. Royalty payments will be made cost-recoverable which will be positive for ONGC.

I wrote few ONGC July series 240 puts yesterday. These puts will yield 5.81% in 32 days. Considering all the scenarios, I don’t think ONGC share will fall below 240 in July series.

July 2018
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