*Covered Call Strategy for Aurobindo Pharma;*

*Looks impressive; Max loss 5k Max gain 5k;*

*Buy 1080 Call around 60 Rs and sell 1120 Call around 40 Rs.*

*Debit Initial = 60 -40 = 20 Rs. Max Profit = 1120-1080-20 = 20 Rs.*

*Lot of 250 ; Max gain = Rs 5000/-*

Postings by Zilebi- When its Hot its Really Cool ™ Copyright © 2008-2020. All rights reserved

An analysis of Covered call strategy on Aurobindo Pharma: as of 17th January 2014 closure

Options expiry date: 30th Jan 2014

No of trading sessions left 9 days for expiry.

The catch here is to have approximately Rs.4,00,000 as Margin/Limit. Assuming one can afford such limits the following analysis is made:

BUY FEBRUARY 2014 FUTURES AT 390/-

SELL JANUARY 2014 400 CALL AT 7 RS. * 2 LOTS: january 2014: premium collected is 14 Rs.

(When we sell two lots , one of them is covered up to the other premium. That is one call sold is covered upto 14 Rs, the other call is covered by the underlying future bought position)

Down side we are covered upto 390-14 Rs = 376/-

If January close at: 407 17 Rs profit (407-390)

Lot size = 2,000 So profit = 34,000/-

Exposure 20th jan to 30th jan 2014 = 9 trading sessions

Delta is 35% and Theta is 50 paise per day approx.

Limit required = Total 4,00,000 Rs.

Approximately return 8% pm return = 96% return p. a (approx.) If you go by calendar days its much higher).

Is this achievable?

If market closes at 414 : You make 20,000/- (400-390= 10Rs *2000)

Upto 424/- You are covered. Beyond 424/- for every one point one point loss.

In net below 376 and above 424 Losses Let us see what are the probabilities for this?

Below 375 probability is 35% and above 425 is 15% .

So total probability is 50% We can assume on either side probabilit is 25% .

This means we have 75% probability of being in minimum profit of RS.20K Max profit of Rs.34k.

To be re-analysed on 30th Jan2014 for the factuals

cheers

zilebi

Options expiry date: 30th Jan 2014

No of trading sessions left 9 days for expiry.

The catch here is to have approximately Rs.4,00,000 as Margin/Limit. Assuming one can afford such limits the following analysis is made:

BUY FEBRUARY 2014 FUTURES AT 390/-

SELL JANUARY 2014 400 CALL AT 7 RS. * 2 LOTS: january 2014: premium collected is 14 Rs.

(When we sell two lots , one of them is covered up to the other premium. That is one call sold is covered upto 14 Rs, the other call is covered by the underlying future bought position)

Down side we are covered upto 390-14 Rs = 376/-

If January close at: 407 17 Rs profit (407-390)

Lot size = 2,000 So profit = 34,000/-

Exposure 20th jan to 30th jan 2014 = 9 trading sessions

Delta is 35% and Theta is 50 paise per day approx.

Limit required = Total 4,00,000 Rs.

Approximately return 8% pm return = 96% return p. a (approx.) If you go by calendar days its much higher).

Is this achievable?

If market closes at 414 : You make 20,000/- (400-390= 10Rs *2000)

Upto 424/- You are covered. Beyond 424/- for every one point one point loss.

In net below 376 and above 424 Losses Let us see what are the probabilities for this?

Below 375 probability is 35% and above 425 is 15% .

So total probability is 50% We can assume on either side probabilit is 25% .

This means we have 75% probability of being in minimum profit of RS.20K Max profit of Rs.34k.

To be re-analysed on 30th Jan2014 for the factuals

cheers

zilebi

What a great month January 2014 for Bank of Baroda !

The stock oscillated to the greats of Rs 680+ to 610 ! Nearly 10 percent sweep in a period of a fortnight starting the last week of December 2013.

On January 10th 2014, Bank of Baroda was closing around 613 Rs.

Can there be a strategy found for this despite of these odds ?

We see the following:

560 PUT 4.45 41.61 -0.15 -0.32 0.00 0.32

660 CALL 3.95 30.91 0.18 -0.33 0.01 0.36

The 560 PUT + 660 CALL is having delta neutral of 3 paise with total premium command of 4.45+3.95 = 8.4 Rs. The theta time decay 0s 0.32+0.33 = 0.65 paise per day.

The delta is very low probability is below 20 % for these two events to happen.

Shorting 560 PUT and 660 CALL for January 2014 on Monday 13th January 2014 and exactly winding up on next Thursday say around 23rd January 2014 --> roughly 9 trading sessions should give theta decay of 6.50 Rs. which would mean a gain of 3250/- Rs.

Let us watch this strategy for the next fortnight.

Options Zilebi

The stock oscillated to the greats of Rs 680+ to 610 ! Nearly 10 percent sweep in a period of a fortnight starting the last week of December 2013.

On January 10th 2014, Bank of Baroda was closing around 613 Rs.

Can there be a strategy found for this despite of these odds ?

We see the following:

560 PUT 4.45 41.61 -0.15 -0.32 0.00 0.32

660 CALL 3.95 30.91 0.18 -0.33 0.01 0.36

The 560 PUT + 660 CALL is having delta neutral of 3 paise with total premium command of 4.45+3.95 = 8.4 Rs. The theta time decay 0s 0.32+0.33 = 0.65 paise per day.

The delta is very low probability is below 20 % for these two events to happen.

Shorting 560 PUT and 660 CALL for January 2014 on Monday 13th January 2014 and exactly winding up on next Thursday say around 23rd January 2014 --> roughly 9 trading sessions should give theta decay of 6.50 Rs. which would mean a gain of 3250/- Rs.

Let us watch this strategy for the next fortnight.

Options Zilebi

Starting from 16th December 2013 there are exactly 5+4 = 9 days of trading sessions for Stock Options expiry date of 26th December 2013.

Let us see if we get an option strategy for the trading period 16th December 2013 open and close 19th December 2013 - 4 days position open.

We analyze the PUT and call details of Bank Baroda :

BANBAR ---> ANALYSIS AS OF 14TH DECEMBER 2013 Current Market Price of Bank of Baroda as of 13th December 2013 close is about Rs.660 /- approx.

700 CALL 6.65 40.64 0.24 -0.68 0.01 0.37

720 CALL 3.25 40.15 0.14 -0.47 0.00 0.26

640 PUT 9.70 40.64 -0.30 -0.64 0.01 0.42

620 PUT 4.90 41.61 -0.18 -0.50 0.01 0.31

660 PUT 16.20 37.23 -0.48 -0.63 0.01 0.48

680 CALL 12.40 40.64 0.38 -0.85 0.01 0.46

The 640 put + 680 call have positive delta of 0.08 paise on 680 Call side. This means for every one Rs price hike the position will move up by 8 paise . If the price moves by Rs. 20 the option 680 call will move up by 1.60 Rs.

The total theta decay on this sums to 1.49 (0.85+0.64) Rs. This means in a trading session of 5 days the decay is approximately 1.49*5 = 7.5 Rs.

To cover the decay of 8 Rs in 5 trading session the price has to oscillate 5 times 20 Rs variation that is about 100 Rs variation from 660 to 760 or 660 to 560 on down side.

Here we can take this position sell 640 PUT + 680 CALL and wait for 4 trading sessions (ie., till 19th December 2013 on 19th December 2013 volatility likely to be high ) and wind up the position on 19th December 2013 which would give roughly 1.49*4 = 6.00 Rs. multiplied by 500 stock lot which is about Rs.3000/- Net gain on this position.

Let us see the outcome of this position on 19th December 2013 and take review of the same

Position open 16th December 2013 640 PUT + 680 CALL totaling to Rs. roughly 21-22 Rs per stock.

Wind up on 19th December between 22-6 = 15 or 16 Rs.

cheers

zilebi

Let us see if we get an option strategy for the trading period 16th December 2013 open and close 19th December 2013 - 4 days position open.

We analyze the PUT and call details of Bank Baroda :

BANBAR ---> ANALYSIS AS OF 14TH DECEMBER 2013 Current Market Price of Bank of Baroda as of 13th December 2013 close is about Rs.660 /- approx.

700 CALL 6.65 40.64 0.24 -0.68 0.01 0.37

720 CALL 3.25 40.15 0.14 -0.47 0.00 0.26

640 PUT 9.70 40.64 -0.30 -0.64 0.01 0.42

620 PUT 4.90 41.61 -0.18 -0.50 0.01 0.31

660 PUT 16.20 37.23 -0.48 -0.63 0.01 0.48

680 CALL 12.40 40.64 0.38 -0.85 0.01 0.46

The 640 put + 680 call have positive delta of 0.08 paise on 680 Call side. This means for every one Rs price hike the position will move up by 8 paise . If the price moves by Rs. 20 the option 680 call will move up by 1.60 Rs.

The total theta decay on this sums to 1.49 (0.85+0.64) Rs. This means in a trading session of 5 days the decay is approximately 1.49*5 = 7.5 Rs.

To cover the decay of 8 Rs in 5 trading session the price has to oscillate 5 times 20 Rs variation that is about 100 Rs variation from 660 to 760 or 660 to 560 on down side.

Here we can take this position sell 640 PUT + 680 CALL and wait for 4 trading sessions (ie., till 19th December 2013 on 19th December 2013 volatility likely to be high ) and wind up the position on 19th December 2013 which would give roughly 1.49*4 = 6.00 Rs. multiplied by 500 stock lot which is about Rs.3000/- Net gain on this position.

Let us see the outcome of this position on 19th December 2013 and take review of the same

Position open 16th December 2013 640 PUT + 680 CALL totaling to Rs. roughly 21-22 Rs per stock.

Wind up on 19th December between 22-6 = 15 or 16 Rs.

cheers

zilebi

Capturing Theta - A Delta Neutral Theta Decay Strategy - Experimentation on NIFTY

This experiment is recorded for the purposes of checking the principle of capturing theta decay if possible by making a Delta neutral strategy.

The experimental index taken up for this purpose is NIFTY which is trading around 6180 points per unit as of close 29th Nov 2013 (November month end close).

The various Option Greeks for this NIFTY index are observed as below for a 6100 put and a 6400 Call for December 2013 Option expiry

NIFTY : Quoting around 6180 as of close of November 29th 2013:

SALE OF THIS STRATEGY:

PRICE VOL

ATILITY Delta Theta Gamma Vega

6400 CALL 65.60 20.70 0.32 -3.00 0.00 5.75

6100 PUT 87.95 22.64 -0.35 -2.03 0.00 5.88

By writing a 6100 PUT and a 6400 call we gain a Theta of 5 Rs approximately per day.

DECAY PER DAY: 5 Rs. Delta is 0.03 paise Neutral;

10 day decay = 50 Rs. To make 50 Rs. As delta combo is 0.03 paise to make 1 Rs Delta it has to move by 33 points so to make Rs 50 gain index has to move by 1500 points ? Is this possible in 10 days? So selling this strategy in 10 days should give approx 2500 Rs. ?

Assuming the above strategy is executed on 2nd December 2013 by collecting premium of 65+85 = 150 Rs approx. and 10 days down the line we should be in position to close out this position at Rs. 100 approx.. This would give 50 Rs gain which for a lot of 50 gives a gain of Rs.2500/-

So this article is written down here to see update on 12th Dec 2013 how it works out.

cheers

zilebi

This experiment is recorded for the purposes of checking the principle of capturing theta decay if possible by making a Delta neutral strategy.

The experimental index taken up for this purpose is NIFTY which is trading around 6180 points per unit as of close 29th Nov 2013 (November month end close).

The various Option Greeks for this NIFTY index are observed as below for a 6100 put and a 6400 Call for December 2013 Option expiry

NIFTY : Quoting around 6180 as of close of November 29th 2013:

SALE OF THIS STRATEGY:

PRICE VOL

ATILITY Delta Theta Gamma Vega

6400 CALL 65.60 20.70 0.32 -3.00 0.00 5.75

6100 PUT 87.95 22.64 -0.35 -2.03 0.00 5.88

By writing a 6100 PUT and a 6400 call we gain a Theta of 5 Rs approximately per day.

DECAY PER DAY: 5 Rs. Delta is 0.03 paise Neutral;

10 day decay = 50 Rs. To make 50 Rs. As delta combo is 0.03 paise to make 1 Rs Delta it has to move by 33 points so to make Rs 50 gain index has to move by 1500 points ? Is this possible in 10 days? So selling this strategy in 10 days should give approx 2500 Rs. ?

Assuming the above strategy is executed on 2nd December 2013 by collecting premium of 65+85 = 150 Rs approx. and 10 days down the line we should be in position to close out this position at Rs. 100 approx.. This would give 50 Rs gain which for a lot of 50 gives a gain of Rs.2500/-

So this article is written down here to see update on 12th Dec 2013 how it works out.

cheers

zilebi

Refer to my article on October 24th.

So here we have November 2013

The option strategy to be executed on November 21st (Thursday) and to be wound back on Tuesday 26th November 2013 (As options expire on 28th November 2013- Thursday)

*The market is always a mystery so we see how well the strategy works!. Review to be done on 26th Nov 2013.*

Can there be an options strategy for this last week?

*Let us see how it can work;*

*Bank of Baroda is trading currently around Rs 625-630 . ***Writing** a put options at 600 and call option at 660 at the same time can give a total premium collection of about 11 Rs which equates to Rs.5500/- for one lot of BOB which is 500 stocks.

*Exactly on next Tuesday(26th November 2013) this trade should be wound up for loss or gain. Gain could be roughly 2500 to 3000/- for an outlay of 4 sessions.*

*How did the Bank of Baroda perform between Thursday of the penultimate week of options expiry to the Tuesday before the option expiry day of Thursday for the past one year ? Its something like below ! What is significant of this chart ? *

*Update on 22 Nov 2013:*

*On 21st Nov due to heavy volatility in the market the 600 put was quoting at 8+ rs and 640 call quoting around 6+ rs. Combined together writing this combination of sell 600 put and sell 640 gives a option premium collection of 14 Rs so lot of 500 stock = 7,000/- *

*To be seen on 26th Nov 2013 Tuesday how to wind up the position.*

*cheers*

*zilebi*

*(Zilebi are you sleeping? *

*We cant make head or tail out of the above!) *

So here we have November 2013

The option strategy to be executed on November 21st (Thursday) and to be wound back on Tuesday 26th November 2013 (As options expire on 28th November 2013- Thursday)

Can there be an options strategy for this last week?

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