Posts Tagged ‘Option writing (Option selling)

04
Oct
13

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.

18
Aug
13

Opportunities in Titan Industries..

Titan Industries has been big wealth creator for its shareholders for past decade. Company had a dream run for last several years under Mr. Bhaskar Bhat and successfully created brands like Fasttrack and Tanishq. Titan is trying to model itself as lifestyle company and trying to build other brands in different product categories. Its Jewellery division is the major contributor to both topline and bottomline. But with recent regulatory changes, company is facing the heat and stock price fell sharply on Friday. As per RBI Wednesday circular, Jewellers like Titan have to make full payment for import of gold. Earlier Titan was buying gold on lease rather than payment full upfront amount. Now titan will have to take price risk and in case it chooses to hedge, it will have to incur some costs. Moreover its working capital requirements and interest costs will increase and return ratios like ROCE will come down. Titan balance sheet is clean and doesn’t has much debt so taking on extra debt shouldn’t be a problem. But in the short term, RBI measures to control INR slide has added another uncertainty factor for Titan shareholders to cope up with apart from consumption slowdown in the economy.

I was selling Titan Industries calls before RBI Wednesday circular. I had sold 310 & 300 calls aggressively. But after Friday’s fall I have squared off 300-310 calls and moved down to 280-290 calls. For protection, I have also bought 250 call. It’s a ratio spread – for every 250 call bought, I have sold ten 280-290 calls.

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.

18
Aug
13

Dream market for option writers

It’s a dream market for any option writer like me. It is extremely bipolar market where sectors like IT, Pharma & FMCG continue to see strong out-performance and everything else is under-performing. In fact, current Nifty levels are held due to strongly performing sectors otherwise rest of the market is below 2008 lows. Although now even these strong sectors are coming in for some selling. Accident continue to happen with heavily indebted companies like JP Associates and its group companies. There is carnage across mid-cap stocks. Infra major like L&T continue to struggle and report poor results. Capex cycle and new projects have completely stalled or postponed. Rupee continues to remain under pressure and RBI continues to douse fire over it. Indian Economy is in shambles and with each passing day , new data point continues to confirm that. Recent HSBC Services PMI also point towards contraction. May be it is just confirming the already known trend. I would be extremely surprised if GDP growth rate for FY13-14 is more than 5 percent.

After L&T quarterly results I had aggressively sold its call options. I have squared off these options and now moved onto other stocks like Titan, Ambuja cements and Power grid. Return wise August has been my best series till date.

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.




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