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
