Thursday, December 22, 2011

Opportunity to make 2.5% in 5 days

Considering the recent development in IT sector and the technical setup of IT stocks, there is a good opportunity to make 2.5 percent return in next 5 days using the following trade:
Trade: Sell TCS Dec 1200 call at 5.00 premium
Lot Size of TCS: 250
Total premium collection: 250 * 5.00 = Rs. 1250
Brokerage and other costs: Rs. 60
Net Earning = Rs. 1190
Margin required (in cash or stocks) for 1 lot= Rs. 42,000
Total return: 1190/42000 * 100 = 2.83%
Risk: The trade will result in loss beyond 1205. For every rupee rise above this level there will be a loss of Rs. 250 on each lot.

Justification of the trade:
1. The recent development on anti outsourcing of call centre jobs from US will continue to put pressure on Technology stocks. Overseas the share of Cognizant, Accenture and others have corrected 5% or more in one trading session.

2. The check on rupee depreciation and the dampening of the sentiment by RBI that rupee could move beyond 55 levels, has started putting pressure on Technology stocks, particularly TCS and Wipro, which has started under performing the index in past couple of days.

3. TCS Q3 results are expected to be bad due to huge amount of outstanding hedge . Also Q3 is a seasonally weak quarter.

Hence it is highly unlikely that TCS will move past 1200 levels in next 5 trading sessions. As a result the trade is likely to give return of 2.5% plus in 5 trading sessions.
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1 comment:

  1. Congratulations to all the traders who indulged in the above recommended trade. Though there was small hiccup when the premium shot up to Rs.8 next day due to short covering in the counter but as expected the stock is closing well below the 1200 mark. Hence all the premium received would be the profits.


    Amit Agarwal


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