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. 

Pre July 2012 (the lockout month) the stock made closing high of 1397 in mid May. 52 week high for the stock is 1428 which is just couple of percentage points from the current levels. Now the issue of Manesar lockout is no longer their in the price and the stock will have to move based on the fundamentals of the company and sector. Auto in general is seeing sluggish demand due to weaker consumption trend and markets are worried about the sales post festive season. 

So considering the sharp run-up in stock price and uncertainty over post festive demand outlook, the option traders can sell 1500 call option at the current market premium of Rs.10 as the stock is not expected to cross 1500 levels in October series.

Total return from the strategy

Assuming 1 lot of Maruti (1 lot = 250) 1500 Call is sold at Rs 10.00
Total premium collected = 250 * 10 = Rs 2500
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs 50
Margin money required: Rs. 52,500
Total return = 2450 / 52,500 = 4.66% in 15 trading days

Risk: If the stock moves above 1510 and closes above this level then there will be a loss of Rs.250 for every Rs.1 beyond 1510.


Amit Agarwal said...

The premium went up to Rs.12 after recommendation but eventually the stock has given up it's gain and the premium also has come down to Rs 1.8, the above call is expected to expire worthless on 25th Oct.

Congratulation to those who took position based on the above idea. It turned out to be one of the best short term trading ideas recommended at InvestorZclub.

Thanks and Regards

Amit Agarwal said...

The premium has come down to 0.05. The option will expire worthless tomorrow.

Congrats once again to those who took position based on this. This was special as it generated more than 4.5% return in 15 days.

Best Regards

Post a Comment

Do you like my blog?

If you enjoy reading InvestorZclub blog, please help spread the word by sharing this site with your friends.