Friday, May 17, 2013

Sell ITC 360 Call Option at 1.60 premium

With ITC Q4 result out which was largely inline with market expectations, the stock has shown muted reaction. The stock offcourse is very expensive trading at 35 times forward year EPS and is having huge market valuation of 2.66 lakh crores.

Considering the recent price action and overall valuation of the stock once can easily sell May series ITC's 360 call option at the current market premium of Rs 1.30.

Total Return from the trade:

Considering one is able to sell the May Call option of ITC 360 strike price at current market premium of 1.30 he/she can generate following return from this trade:

Assuming 1 lot of ITC (1 lot = 1000) 360 Call option is sold at Rs 1.30
Total premium collected = 1000 * 1.30 = Rs 1300
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs 50
Margin money required: Rs. 50,000
Total return = 1250 / 50000 = 2.5% in 9 trading days.

Risk: Since the above trading strategy is naked call, if the stock goes above 361.30 and closes above this level then there will be a loss of Rs.1000 for every Rs.1.00 above 361.30

1 comment:

  1. Trade went successful, as expected ITC closed below 360. However unlike our expectation ITC has shown sudden movement on last of the expiry and gone up to 355 from 342 levels.

    Congratulation to all our consultancy subscribers and readers who executed this trade on our recommendation


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