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

Assuming 1 lot of RCom (1 lot = 4000) 42.5 Put is sold at Rs 0.15
Total premium collected = 4000 * 0.15 = Rs 600
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs 50
Margin money required: Rs. 23,800
Total return = 550 / 23,800 = 2.31% in 16 days

Risk: If the stock moves below 42.35 and closes below this level then there will be a loss of Rs.4000 for every Rs.1 below 42.35.

1 comment:

Amit Agarwal said...

The stock has shot up to 57 levels... Congratulation to all who took position based on this reco.


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