Posts Tagged ‘Strangle (options)


Volatile week ahead..

What a sharp bounce-back we had from the Nifty lows of 5120 couple of weeks back! May be, it was oversold markets bounce or Dr. Rajan effect or may be a combination of both. INR along with other emerging market currencies has also bounced back from its lows of 68.8. But there are two key events ahead which will decide further course of direction for Indian markets. US Fed will take decision about QE tapering which will have huge bearing on Emerging markets including Indian markets. Last week Non-farm payroll data was below market expectations and it might force Fed to go light on taper. In case Fed tapering is aggressive than US $ 10 billion per month, emerging market assets might sell-off again. After Fed decision, RBI monetary policy on 20th September will also be key for markets. There are a lot of expectations from RBI new Governor to announce growth oriented measures.

Implied volatility (IV’s) in option market are at 12 month high given the expectations of market movement either side after these two important events next week. Delta neutral hedge may be one of the strategy if you have underlying asset and sell options to benefit from higher vols. I have done the same in L&T. But apart from that I don’t have any other position in market currently and waiting for these events to pan out and then take a call. Buying strangle can be one more strategy to benefit from these events but given higher vol. I won’t do that.

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.


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, 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.


Short strangle in Sun TV

I entered into short strangle in Sun TV with selling 180 Put and 400 Call for June series. It simply means that I don’t expect Sun TV to move beyond 400 and below 180 during June. Strangle is a simple option strategy where one hold position in both a Call and Put of same series but with different strike price. Normally this strategy is useful when you expect large movement in underlying but not sure of its direction. Short strangle is when you sell Call & Put whereas Long strangle is when you buy Call & Put. Apart from price movement in case of short Strangle one is also bearish on Implied Volatility(IV’s).

Payoff diagram for short strangle in Sun TV (sold 180 put, sold 400 call):

My returns from this trade are 5.61% in 28 days. Upside looks far more capped in Sun TV, hence I have also sold three 380 Call for June series.

July 2018
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