Posts Tagged ‘Reliance Communications


Interesting times ahead..

All the news flow makes case for interesting and tough times ahead. US Dollar Index rose  by 1.7% yesterday (the largest single day gain since Aug’10), resulting in all risk assets falling sharply, including crude oil. Why USD Index rose is a bit confusing for me, since report after report shows that US growth on life support system by QE is slowing. Yesterday, Federal reserve bank of New York manufacturing index dropped to its lowest level since November last year. Part answer of USD Index rise could be trouble in its biggest constituent, Euro (57.6%). It is like a tussule between who is weaker between Euro and US.

Indian market should be happy with commodity sell-off. There might be some knee jerk negative reaction, but if crude keeps falling it should be good news for the Indian market. Another major concern, Interest rates should be nearing its peak after RBI  rate hike of 25 bps today. Is Indian economy slowing down sharply? Yesterday some of advance tax numbers did not give evidence to that. Infact advance tax numbers from top 100 companies in Mumbai region has increased by 14 percent.

As option writer, what does all this news flow means for me. Lot of major stocks RIL, Tata Motors, SBI, Maruti and ONGC are looking weak and they have already come down quite a lot. Its difficult for me to write any OTM calls since premiums are low and also there might be some rebound from oversold zone. Normally I don’t write puts and in this global turmoil I would be very cautious in doing so. Except for some oversold stocks like Reliance communications, I won’t write puts. Can’t do much at this point of time except wait and watch..Anyways for June series all my margin money is blocked in existing contracts.


Dead cat bounce and my dream company: Reliance Communications

Dead cat bounce is an Investor slang, which talks about brief recovery in the price of a falling stock. Small amount of good news might lead to such bounce-back in dead stocks.

MTNL, Punj Lloyd, ADAG stocks are some examples of dead cat stocks in the Indian market. RCom is one among them and my dream company to trade as option writer. Implied Volatility’s (IV’s) always remain high in the range of 70-75% and spike up substantially in case of any adverse news-flow. Option premium always remain high due to high IV’s. Last week, a day before court rejected petition to include Mr. Anil Ambani in the charge sheet filed by CBI, IV’s in RCom puts spiked up sharply. Spot price was 90 and puts  as low as 50 level were open for trading. I looked at 90 call and 90 put, both were trading at Rs.6 odd. It was quite clear to me that the market did not have  any indication what so ever on the verdict. I went ahead and sold 60, 65 and 70 puts. Even if  the verdict was against him, stock tanked 10-15% next day, I doubt if it would have closed June series at those levels. Puts which I wrote were 30-40% away from spot level. Since the verdict went in favor of  Mr. Ambani, puts premium tanked 70-80% next day. My returns from 70 puts were 13.43% in 29 days. There is news about RCom selling its stake in tower company, in case it happens RCom is due for dead cat bounce. Given the levels of debt RCom has on its books, tower sale is extremely crucial for them.

June 2019
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