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:
Assuming 1 lot of Nifty (1 lot = 75) 6300 put option is sold at Rs 15
Total premium collected = 75 * 15 = Rs 1125
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 60 per lot = Rs 60
Margin money required: Rs. 38000 (approx)
Total return = 1065 / 38000 = 2.8% in 40 Calendar days.
Risk: Since the above trading strategy is naked put writing, if the index goes below 6285 and closes below this level then there will be a loss of Rs.7500 for every 100 points fall below 6285.