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
Assuming 1 lot of Titan Industries (1 lot = 1000) is sold at Rs 0.95
Total premium collected = 1000 * 0.95 = Rs 950
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs 50
Margin money required: Rs. 35,000
Total return = 900 / 35,000 = 2.6% in 20 days
Risk: If the stock moves past 250.95 and closes above this level then there will be a loss of Rs.1000 for every point above 250.95.