Posts Tagged ‘OTM Put

03
Dec
11

Coal India news update..

In Today’s BS there was a news article on Coal India selling higher amount of coal at e-auction prices (http://business-standard.com/india/news/coal-indias-profit-earning-strategy-turns-aggressive/457427/). This has obviously helped Coal India limit revenue loss despite its inability to ramp up production in first half of current fiscal. Although, the PSU giant has been able to ramp up production in November and will hope to maintain the same in December (http://www.thehindubusinessline.com/companies/article2675260.ece), I am not sure if sixth pay commission wage revision issues have been sorted out between workers and Coal India management. If not, then this issue will limit upsides in share price. Also there is increased risk that workers can go on strike if issue is unresolved.

If Indian government has its way, Coal India will be robbed off of its cash reserves very soon. GoI has been trying hard to find ways to generate Rs 40000 crore divestment target and 4.6% fiscal deficit. Coal India with its large cash reserves becomes a soft target. I don’t think this is right and it should not be allowed to happen. Coal India should be using its cash for making acquisition and buying overseas assets at a time when it is not able to ramp up its production. But as always, government does what it wants to do.

During 3rd week of November along with Nifty, Coal India also fell to its 52 week low. I had sold some December series 260 puts. It was absolute panic time. I have started covering my puts. In case Nifty rallies some more from here, then I might think of selling some Coal India calls. But as of now it is wait and watch in case of Coal India.

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06
Oct
11

SBI rating downgrade and opportunities..

SBI was downgraded on Tuesday by Moody’s over capital adequacy and deteriorating asset quality. More than poor SBI, credit for this downgrade can be claimed by congress intellectuals at centre. Government has been dilly-dallying over capital infusion for past several months. Being largest shareholder at 59% of country’s largest lender, government will have to fork out its share of required capital. In budget speech, our FM had said that all Public Sector Banks (PSB) will be recapitalized by Rs. 6000 crore. SBI alone would require more amount than that. But one thing to note is that it is not composite rating downgrade, rather it is downgrade of a segment of the bank’s debt instrument that is the perpetual tier- I bond.

Finance Ministry officials have been fuming over the downgrade (http://articles.timesofindia.indiatimes.com/2011-10-05/india-business/30246586_1_sovereign-rating-state-bank-sbi). Some of the things pointed by them makes a lot of sense and you can not avoid, but pointing out rating agencies of bias. Most of the western countries take AAA credit rating as their birth right. Despite having poor fundamental than lot of emerging countries, European Nations continue to enjoy higher credit rating. But in SBI case, it has to be pointed out that its fundamental has worsened over past few quarters. NPA’s have increased and if capital infusion does not happen soon, it will impact the growth prospects of SBI in FY13.

Should you invest on the basis of company ratings ? I don’t think so and rating never tells you about future performance of the company. SBI share price corrected sharply post this rating downgrade. Options data of SBI tells you that even 1300-1400 puts are open.  It also tells you the kind of panic and fear of capitulation which is prevailing in market. For me, it is an opportunity. IV’s are at high and I have sold some lower level puts. Obviously one has to be careful while writing options in current market scenario.

20
Aug
11

Coal India: India’s most valuable company

Coal India became India’s most valuable company by overtaking Reliance Industries. Four years ago RIL became M-cap leader by toppling ONGC. Coal India had announced its Q1 results on August 12. Results were above estimates with consolidated PAT increasing by 64.1 percent to Rs 4144 crore. After Q1 result, Coal India rallied sharply to 400 odd levels.

I saw this as an opportunity to write Coal India calls. In this volatile market environment, PSU giant stock has been rock steady and acted as a defensive. But to think that Coal India will move another 12% from current levels would be too much. New draft mining bill, according to which coal producers would have to share 26% of profits with local people, will continue to be an overhang on Coal India stock. Although some of this would be passed onto buyers as price increase. With this thought I wrote September series 440 call. This call will yield 11.36% in 41 days. I am not saying that Coal India will fall from these levels nor will it increase substantially. I can write puts as well but in this volatile market I shall refrain myself from writing naked puts (When I wrote Nifty puts, I bought protection through higher level puts).

10
Aug
11

Finally markets will rebound today..

Finally, there was some green across asian markets today after several days of hammering. It goes without saying that markets were oversold on technical charts and bounce was round the corner. Fed yesterday said that it will keep its benchmark rates at near zero levels for extended period of time.

Till yesterday, I was on wait and watch approach. But yesterday on expectation that markets might rebound today, I sold a lot of OTM puts. I bought 4700 put and sold 4600, 4500, 4300 and 4200 puts. For every one 4700 put bought, I sold five 4200 put. With bounce around the corner and IV’s at historical high it made sense to sell puts. I also bought 5400 call. I will square off sold puts today. It’s prudent to take profits in these volatile markets.




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