Friday, July 1, 2011

Trading Idea - Sell 6000 Nifty Call at a premium of Rs.8

With market movement indecisive and a sharp rally that has occurred in past few trading session it seems difficult to bet on any single stock for quick trading flip. We at InvestorZclub believe that instead of betting on single stock one can trade in the options market to get some return on your existing stocks. 
All brokerages provide some margin on your stocks. One can utilize this facility to get some trading gains. However it must be remembered that brokerages only provide margins on A group stocks. Please check with your broker on the extent of margin you will get on your stocks before executing this strategy.
Strategy: Sell 6000 Nifty 28 July Call at Rs.8 or above and let it expire.

Logic: Assuming you sell 2 lots of Nifty 6000 call. The amount of margin to be kept is roughly Rs. 30,000. The return is 100 (2 lots) * 8 = Rs. 800. The market has already rallied more than 300 points on nifty and seems to be a little bit tired at this point of time. Closing above 6000 nifty level for this month seems to be difficult considering the macro economic headwinds to deal with. Also the market might be nervous ahead of the RBI policy in July. Hence there is reasonable degree of cushion in this trade as the market is still away 375 points from 6000 levels. The loss in this trade will only occur if market closes above 6008 levels in July.

Benefit: Assuming your brokerage & other cost at 50 per lot. Your neturn on this trade is 800 - 100 = 700.

This provides an approx yield of 2.3% on your existing shares worth 30,000.
Imp: It must be remembered that the above trade can provide huge losses if market rallies significantly above 6000 levels. Hence traders should keep a stop loss as per their appetite and then execute the strategy.


  1. The trade has already become profitable. The premium has come down to Rs. 3.3 yielding a profit of Rs.4.7 on the recommended premium price of Rs. 8.

    Wait till 28th july and let the contract expire to yield full profit as mentioned in the strategy.

    Happy Investing!!

  2. Trade executed successfully. Since nifty couldn't pass 6000 the entire premium became 0 at settlement and hence yielded a profit of more than 2.3% on invested amount.


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