Trading Idea - June 2016

This months trading idea is a contra call on Nifty which has seen very sharp up-move of 500 points in a week. But with every rise the valuation of Nifty is getting richer which is already expensive at 8200.

Trading Idea - May 2016

For the Month of May one can initiate a short put trade on Adani Ports. The stock has corrected sharply in-spite of good results primarily because of unexpected balance sheet expansion and slower than expected volume growth. However the fall is quite sharp and has made implied volatility high.

One can sell 1 lot (1600 shares) of Adani Ports 160 put @ 0.5 for a cash flow of Rs.800 before brokerage and taxes.

Total Return from the trade:

Trading Idea: Sell Nifty 6300 put

After a long while trading idea section is being restarted. Will try to publish one trading idea per month going forward. 

For the month of March 2016, one can sell Nifty 6300 put 1 lot (75) at Rs.15 thereby generating decent return on investment. Since 6300 is a very strong support area, it is highly unlikely that Nifty would close below that level in March series. Implied volatility at 6300 strike is quite high due to budget round the corner.

Total Return from the trade:

Considering one is able to sell the March PUT option of Nifty 6300 strike price at current market premium of Rs. 15 he/she can generate following return from this trade:

This stock could generate 10% return in a week

In this super boiling market where people are busy scouting for stock that can pop up 10% or even 20% in a day, and why not this has been the trend since past one week, it is very lethal to buy stocks for ultra short term but expecting superb gains. On repeated requests from my readers, clients and friends, though I stay away from the concept of buying stock for a week or so, I think people can put their bet on Punjab Sind Bank at Rs.63 for last week of this month (26th to 30th). 

Few quick reasons for why this stock...

1. Public sector banks are flavor of the month and even elephants (SBI, BOB)  are dancing with 10%, 20% moves in a single day. SBI, having market value of over 2 lakh crores is up 90% from it's low of Rs.1450. PSB is just 67% from it's low till date. Union bank, OBC, BOB, PNB, Indian Bank are up anywhere between 120 - 200% from it's 52 week low.

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:

Sell Indian Oil (IOC) 180 put at 1.10

With all the buzz and fuzz about Indian Oil Corporation divestment to meet the fiscal deficit target, IOC stock has been under continuous pressure for quite long. But with all the news flow it appears that govt. wants to sell the stake but at higher price. At current market price of around Rs.197, the stock is a bargain buy and available at a fraction of it's replacement cost. The stock is also trading near 3 year low. Hence there is high possibility that govt. might not go ahead with IOC divestment until price recovers.

Considering all these factors one can sell 1 lot (1000) IOC 180 put at current market premium of Rs 1.10 or higher to generate a return of 4.17% in 15 days. Even if the divestment happens now it is highly unlikely that the price will be set below 180.

Total Return from the trade:

Sell Tata Steel 370 Call Option at a premium of Rs 0.90

With Tata Steel stock up more than 21% in October alone and up around 73% (Price as on 21st Oct Rs 337) from the August low of 195, the rally has been more than justified and the stock is no longer attractive on valuations front. High debt and soft commodity prices will continue to put pressure on company's earnings in coming quarters. Technically 100 week average for Tata Steel is around 370 and 20 month average is around 360.

Hence option traders can sell 370 call option of Tata steel of October expiry at current market premium of 0.90 thereby generating a return of more than 1.6% in 8 days.

Sell Nifty 5750 Put Option of Sep expiry at 7.00

Considering the setup of options data on Nifty where in the maximum open interest of around 10 million shares are built at 5900 strike, it seems Nifty is likely to close between 5850 to 5950 in September expiry. Put call ratio of 1.07 at 5900 strike all suggest equilibrium of perception at this level. Accommodating the margin of safety one can write 5750 put option of Nifty at current premium of 7.00 thereby generating a return of around 1.5% in 2 days. 

Sell Tata Steel 310 Call at 0.60 premium

Tata Steel has moved up sharply from the lows of 195 (7th Aug) to 180 (23rd Aug) due to short covering and improving fundamentals of steel domestically. However a 44% rise has been too steep in short period of time and hence might face significant resistance going forward. As on 29th May 2013, the stock started it's steep fall from 322 odd levels to a low of 195, and technically a 61.8% Fibonacci retrenchment ends at 275 odd level which could broadly be a big supply zone. 

Valuation wise Tata steel is trading at around 6 times EV to EBIDTA which is expensive compared to Arcellor Mittal Valuation which is trading at around 5.6 times EV to EBIDTA based on FY-14. Considering all these factors once can sell 310 call option of Tata Steel at current premium of 0.60 and generate 1.2% return on margin amount in 4 days.

Total Return from the trade:

Considering one is able to sell the Aug Call option of Tata Steel 310 strike price at current market premium of 0.60 he/she can generate following return from this trade:

Sell Infosys 1700 Put Option of July series at 6.50

With Infosys q1 result scheduled on 12th July, the Implied Volatility across deep in the money Puts and far out of the money calls are very high resulting in reasonable premiums for even 1700 Put or 3200 calls which are almost 30% away from current market price of 2540.

In our view  1700 Put option is highly safe considering the current valuation of the company and expectation from N. Murthy. 

Traders can sell Infosys 1700 put at current premium of 6.5 thereby earning a return of almost 2.5% in 14 days.

Total Return from the trade:

Considering one is able to sell the July Put option of Infosys 1700 strike price at current market premium of 6.50 he/she can generate following return from this trade:

Make 1.25% return in 5 days

Japanese Stock Market fall of more than 7% and quick appreciation of Yen vs USD on the back of fear of inflation in Japan has led to a very high conviction trade that can generate more than 1.2% return in 5 days.

The trade is to sell 1750 May call option of Maruti at current market premium of 3.2 expecting that Maruti should not cross 1750 levels in next 5 days.The recent month closing high for the stock was around 1742.

Total return from the strategy

Sell ITC 360 Call Option at 1.60 premium

With ITC Q4 result out which was largely inline with market expectations, the stock has shown muted reaction. The stock offcourse is very expensive trading at 35 times forward year EPS and is having huge market valuation of 2.66 lakh crores.

Considering the recent price action and overall valuation of the stock once can easily sell May series ITC's 360 call option at the current market premium of Rs 1.30.

Total Return from the trade:

Considering one is able to sell the May Call option of ITC 360 strike price at current market premium of 1.30 he/she can generate following return from this trade:

Sell Infosys 2000 PUT at 6.40

With so much noise about Infosys having delivered pathetic set of numbers, here is an opportunity to pocket quick 1.7% return in 8 trading days by being just contrarian and selling Infosys 2000 put at CMP of 6.40. 

The stock had fallen 25% in two days and is approaching very attractive valuation levels. At 2000 Infosys will be valued at 11.5 times FY-14 EPS, above that cash based buyers will get at least 45 bucks as dividend next year and 27 bucks this year which is total dividend of 72 bucks in 1 year time frame. Also 2000 should act as very strong psychological support. Apart from that with 22000 crores in cash the company is available at an enterprise valuation of just 1,05,000 crores which is almost 2 times FY-14 sales.

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.

Sell Reliance Industries JAN 960 CALL Option at 3.70

RIL posted good Q3 numbers which received positive response from the investors. However the stock seems to be getting tired at upper levels as it has already run up significantly from 840 odd levels to 920. Fundamentally the stock seems to be reasonably valued at current levels. Also the buyback program is over which was earlier supporting stock at lower levels. Hence considering all these factors one can sell 960 CALL option of the stock at current market premium of 3.70

Considering one is able to sell the JAN CALL option of RIL 960 strike price at current market premium of 3.70 he can generate following return from this trade:

Sell Sesa Goa 170 Dec Put option at 0.50 Premium

This month's trading idea could generate around 1.9% in 10 days or 69% annualised return and has huge probability of success considering the buoyancy in the markets and the developments happening around iron ore mining in Goa. 

Even after Supreme Court's ruling the stock refuses to go below 180 which indicates stronger long term hands might be accumulating stocks as things can go only better from current situation as far as iron ore mining in India is concerned.

Sesa Goa was our investment pick as well in November when we recommended buy on the stock in the range of 165-175.

Sell Maruti 1500 Oct Call Option at 10.00 Premium

This months trading idea is on a stock which is being loved by the street these days but the trade idea is on the contra side. The incremental set of good news, after the lockout at Manesar was lifted, has played it's role and the stock went up from the low of 1080 in mid July 2012 to 1390 as on 4th October 2012, an appreciation of almost 30% in 2.5 months time frame. 

Sell RCom 42.5 put of Sep expiry at 0.15

There seems to be nothing going right as far as Reliance Communications is concerned. All sorts of bad news have engulfed the stock whether its very high amount of debt or inability to sell stakes in infratel and flag telecom or loosing 20 million subscribers in a month. But since everything has a price, it seems that enough battering is done in the stock and the stock could find good support at lower levels. 

After two days of loosing the stock bounced back sharply in today's trade (11th sep 2012) from 48 levels to 52 on the back of huge volumes. 

Considering these factors options traders can sell Rs.42.5 PUT at the current market price of Rs.0.15 or higher as the stock is not expected to break below 42.5 level in September expiry. 

Total return from the strategy

Buy Cipla for trading and short term investing

Short term investors and traders can go long on Cipla Ltd. as the stock has hit new 52 week high supported by increased volumes on the back of news of the company winning a patent case against Roche in Delhi high court. The company has also reported very strong July quarter numbers which is creating positive sentiment for it's stock. Valuation wise the stock is expensive but one of the cheaper stocks among large cap pharma names listed on Indian bourses which is triggering the fresh buying interest in the stock.

Sell Titan Industries 250 Call of August Expiry

This month's trading idea germinates from the market favorite Titan Industries. The company reported disappointing result for the first quarter of the current fiscal due to slowdown in jwellery business. The company is trading at expensive valuation of around 30 times based on FY-13 EPS which limits any substantial upside for the stock in the short term. Hence option traders can sell 250 call option of august expiry at the current market premium of 0.95.

Total return from the strategy