Posts Tagged ‘OTM Call

01
Sep
12

Supreme court defers hearing in IGL-PNGRB case to November..

Yesterday, the Supreme court has deferred the next hearing of IGL-PNGRB case to November. Earlier this year in April, PNGRB had directed gas utility company, IGL to reduce compression charges and network tariffs. IGL had appealed against this order in Delhi high court and the court ruled in IGL favor (https://writingoptions.wordpress.com/2012/06/01/igl-zooms-29-percent/). After this ruling, gas regulator PNGRB went to Supreme court.

I think there was some optimism among some market participants regarding favorable judgement in IGL favor. This was reflected in good premium in OTM calls. It was understandable given the fact that had the decision been in IGL favor, lot of OTM calls would have become ITM. I had no position in IGL prior to the news related to case. But as soon as the news regarding case deferment came, I was selling OTM calls aggressively. I have no doubt in mind that IGL will not cross 300 before November. Yes, there might be QE3 announcement by Fed in its September 12-13 meeting, still IGL will find it tough to cross 280-300.

IGL is also under scanner of parliamentary standing committee regarding higher tariffs (http://www.moneycontrol.com/news/cnbctv18-comments/igl-tariffs-under-par-standing-committee-scanner_749089.html). Yesterday, buy calls on IGL were given by Ashwani Gujral on ET Now and SP Tulsian on CNBC-TV18. How can you give technical buy call on a particular stock just before an important event ? Fundamental analysis by SP Tulsian always leaves a lot to be desired. Given uncertainty regarding regulatory environment, it would be unfair to say that earlier it used to trade at 16-17 P/E and now it can rule at 13-14. I have no doubt that even if PNGRB loses the case in Supreme court, it might not be the end of regulation for this sector. Monopoly days for IGL are over and in some form or other tariff regulation would be there. P/B (Price/Book) ratio is far better valuation multiple for regulated business like city gas distribution.

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03
Jun
12

Auto companies flat May numbers..

Auto companies across the board declared poor may 2012 sales number. Market leader, Maruti Suzuki total sales declined 5% to 98,884 units. It goes without saying that economic slowdown, high interest costs and high fuel prices especially petrol is hurting Maruti. Majority of Maruti current capacity is petrol and after recent sharp petrol price hike, company will take some time to adjust to diesel vehicles growing demand. This fact is corroborated by drop in its mini segment sales whereas diesel versions of Swift and Dzire continued to show sales growth. In fact in June, automaker total sales could drop further more.

Tata Motors domestic sales for May stood at 20,503 units versus 19,401 units last year (growth of 5.68%). But its Medium & Heavy commercial vehicles saw dip in sales. Since JLR contributes more than 90% profits of Tata Motors combined profit, JLR May numbers would be far more important. Luxury automaker numbers would decide whether Tata motors stock would go down below 200 or not. M&M was an exception and its overall may sales registered growth of 26.7% over last year. Tractor sales were again sluggish and rose only 0.3%.

In one of my previous post on Tata Motors https://writingoptions.wordpress.com/2012/06/01/tata-motors-stock-hammered-down/, I had written about being cautious in selling Tata Motors OTM calls. But on Friday, after seeing sluggish numbers I had started selling calls aggressively. I have also sold Maruti 1300 June series calls. Given the sharp breakdown in Maruti stock, I might also sell 1250 calls on any rebound. One thing that has to be kept in mind is possibility of sharp rebound in Tata Motors if market stabilizes. It has fallen very sharply after Q4 results.

12
Jan
12

Infosys flat Q4 guidance drag stock sharply down

Infosys declared its Q3 FY12 results today. As expected, results were good on account of Rupee depreciation. Its Q3 revenues were Rs 9298 crore and Q3 bottom-line was Rs 2372 crore. EPS for Q3 was 41.51  versus 38.51-39.2 guidance. EBIT margins were 31.17% versus 28.16% for Q2. Overall Q3 numbers were good on most parameters. Q3 performance allowed the IT giant to increase FY12 EPS guidance to Rs 147.13 versus Rs 143.02-145.26 earlier.

Key problem was with the FY12 dollar revenue guidance to 16.4% versus 17.1 -19.1% growth earlier guidance. This guidance factors in flat Q4 revenue growth QoQ. It looks like Infosys management has given extremely conservative guidance to tone down market bullish expectations. But it acted as big dampener and stock closed down 8.4%. It will take some time for Infosys stock to stabilize and move higher. I was active today in selling OTM calls. If stock falls sharply further from these levels then I would be a buyer.

02
Jan
12

Happy New Year..

Happy New Year to everyone. Hope 2012 brings in some sanity in equity markets after 2nd worst performing year in last two decades. Last year brought in lot of negatives from Euro zone countries and more so from our own government. India’s fiscal deficit for current financial year is all set to exceed its budgeted estimates of 4.6%. But 2011 has been such a bad year that 2012 might turn out to be positive year for equities. ECB might finally relent and buy european countries bonds in a big way. Expectations are also so low from Indian government that some action on reform front might act as signal and trigger decent rally.

One of the biggest positive that almost everyone is negative on markets and it always happens that market surprises everyone on opposite side. I remember in 2011 also lot of analysts used to say second half of the year should turn out to be better than first half. In fact, markets went into tailspin in second half. For 2012 also there are similar kind of predictions that 1st quarter will be bad and later part of year should be better. I made money in 2011 by selling OTM calls, but selective stocks and market in general has come down to such levels that I am little bit cautious on selling calls now.

23
Oct
11

Short Strangle in Crompton Greaves

Crompton Greaves does it again in Q2 2011. Net Profits were down 46% YoY to Rs. 116.6 crore, Top line grew 13% YoY to Rs 2705.53 crore. High depreciation and higher tax rate pulled bottomline numbers down, which were below street expectations. Order inflow growth remains muted, which is the key concern across  the capital goods sector. Even L&T showed 21% YoY drop in order inflows in Q2 results yesterday.

After Q1 FY12 results also I had written one post on the company poor performance and corporate governance, https://writingoptions.wordpress.com/2011/07/22/crompton-greaves-new-opportunity/. Before announcing Q2 results, Crompton stock had formed base around Rs. 140 and had moved to 165 odd levels. Management  bought some shares around that level and the company also decided to sell its Rs 270 crore aircraft after large investor protests. Crompton stock closed 12.33% down after its results. I have formed short strangle in Crompton Greaves, sold 110 put and 170 call. Apart from this strangle, I have also sold OTM calls. It will be quite a while before company stock will stabilize. As per new estimates, Crompton will report Rs 9 EPS for FY12. At 140, stock trades at 15.5x its FY12 per share earnings. I don’t think you will buy Crompton at 15x in this market. I mean there are better stories in  the market, trading at lower multiples than Crompton at 15 PE. Although I have sold Maruti OTM calls, but automaker is trading at lower multiples than Crompton and given a choice I would buy Maruti than Crompton.

09
Sep
11

Coal India News Update..

In some of my previous posts, I had written about selling Coal India 420 and 440 calls. Recently, there have been some news regarding increase in domestic coal price to align with international price (http://www.business-standard.com/india/news/plan-panel-for-raising-coal-prices/448331/). Planning commission argues that Indian coal prices are significantly lower than the international prices, which should be done away with over the next 2-3 years. This would have significant positive impact on Coal India. But recommending increase in prices is one thing and implementing the same, is different. There have been several panel reports on diesel price deregulation, but still nothing has been done. In this high inflation scenario, I don’t think government will have the courage to increase coal prices.

There have been some news report about decline in Coal India output decline in last month (http://www.livemint.com/2011/09/01152408/Dengue-takes-toll-on-Coal-Indi.html). These are operational issues which do come up during rainy season.

CAG report on Coal India was released recently (http://www.moneycontrol.com/news/business/cil-operates-239-mines-without-environmental-clearance-cag_583851.html). It says Coal India is operating large number of its mines without environmental clearance. I don’t think this will have significant impact on PSU stock. All of us have seen what happens to CAG reports ? Government and the Ministry involved question the assumptions, and opposition parties blame the government. End of the day nothing happens and report bites dust.

Given all this news environment, I still think Coal India will find it tough to cross 410-420 level in September series. But I have bought one 400 call to protect my sold 420-440 call options.

30
Aug
11

Coal India follow up..

In one of my previous post https://writingoptions.wordpress.com/2011/08/20/coal-india-indias-most-valuable-company/ , I had written about selling Coal India 440 call. On Friday, I sold PSU 420 calls. In the last few days, there have been some negative news around Coal India. Twenty two mines of Coal India’s subsidiary Bharat Coking Coal Limited (BCCL) mines were banned by Jharkhand Pollution Board. Apart from mining ban, Coal India is also negotiating on the wage issues. Workers are demanding wage hike in excess of 100% whereas management and analysts had built-in 30% hike expectation. On Friday, the Supreme Court banned mining in two districts of Karnataka. This also had a negative sentimental impact on Coal India. Given all this news environment and weak market, I don’t think Coal India can cross 400 in this series.




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