Sell DLF 220 Call Option

DLF has moved up sharply from the 140 odd levels since the beginning of March 2014 to 180 as on 12th March 2104 mainly due to short covering. Due the sharp up-move in the stock on 11th March on very low delivery volumes and short covering, the IV's in the strike prices of the counters has gone up substantially. One can utilize such high IVs to sell far out of the money call which are adequately safe.

Valuation wise DLF is trading at around 16 times EV to EBIDTA of current financial year which is quite expensive in the context of slowdown in realty sector in India. Also the majority of debt reduction exercise is over which means all the good news in terms of debt reduction is discounted in the price. Technically the stock seems to be highly overbought at current levels and is also up more than 25% since the Feb 2014 closing. Hence there seems to be limited upside (if at all) from current levels. Hence one can sell 220 strike call @ 0.95 or higher which is highly safe as movement towards 220 will imply almost 50% move from the Feb close.

Total Return from the trade:

India's Top Wealth Destroyers 2008 - 2013

Under the category of 5000 crores plus market value, DLF and RCom has topped the chart of wealth destroyers since 2008. DLF, which had a market cap of over Rs 1.8 lakh crore in 2008, has seen three-fourths of it being eroded. It is now valued at Rs 47,000 crore.

Similarly from a peak market capitalization of over Rs 1.5 lakh crore in 2008, ADAG group company Reliance Communications has seen an erosion of over 90%. It's currently being valued at around 12000 crores. Other group companies such as Reliance Infrastructure, Reliance Power and Reliance Capital, too, have, during this five year period, seen their valuations take a huge beating.

Sell DLF FEB 300 CALL Option at 1.00

Here is a quick trading idea that can deliver 2.26% return in 4 days equivalent to 206% annualized return. The idea is to sell DLF 300 Call which is trading at 1.00 premium.

DLF has had massive run up from 248 level to 281, an appreciation of more than 13%, in 1 week on the back of short covering. The stock touch 52 week high as well. However, considering the PE for the current year and the enterprise valuation of around 70,000 crores, further sustainable upside seems difficult from current levels. 

Based on the above theory one can sell DLF 300 Call at 1.00 premium assuming that the stock will not close above 300 in this series. The trade is for 4 days only as we have the expiry on 28th of Feb.

Veritas Research Report on RCOM, DLF: PDF

Veritas Investment Research, a Canada based equity research firm has pegged the actual worth of India's largest real estate company DLF and Anil Ambani owned second largest telecom company  Reliance Communications (RCOM) at Rs. 100 and Rs. 15 respectively.  

Veritas dubbed India’s largest realtor ‘a crumbling edifice’ in its March 2012 report and on 19th June 2012 the equity research firm, which torn apart Kingfisher Airlines’ financials last year — well before the world woke up to the reality of the doddering airline, has snubbed RCOM numbers and has recommended sell  on the stock with a target price of Rs. 15.

DLF Annual Report FY 2010 - 2011: PDF

DLF, India's largest real estate developer, has published the annual report for the fiscal year ended March 2011.

Download the PDF version of the annual report using the following link:

DLF Q2 FY 2011 - 2012 Result Analysis

DLF Ltd, India's largest real estate developer, has reported a consolidated net profit of Rs 372 crore in the second quarter of FY12, a fall of 11% as compared to Rs 418.4 crore in the corresponding quarter of last fiscal., due to slowing sales, high interest rates and rising costs.

Consolidated net sales of the company increased 6.9% to Rs 2,532 crore versus Rs 2,369 crore during the same period.

The stock has been an outperformer in the past 3 months and have been moving in an upward trending channel (as shown below). The upmove was confirmed after it crossed the strong resistance area of 210. Considering the fact that interest rate cycle in India has topped out, the stock can perform well in coming months.