With Infosys q1 result scheduled on 12th July, the Implied Volatility across deep in the money Puts and far out of the money calls are very high resulting in reasonable premiums for even 1700 Put or 3200 calls which are almost 30% away from current market price of 2540.
In our view 1700 Put option is highly safe considering the current valuation of the company and expectation from N. Murthy.
Traders can sell Infosys 1700 put at current premium of 6.5 thereby earning a return of almost 2.5% in 14 days.
Total Return from the trade:
Considering one is able to sell the July Put option of Infosys 1700 strike price at current market premium of 6.50 he/she can generate following return from this trade:
Assuming 1 lot of Infosys (1 lot = 125) 1700 Put option is sold at Rs 6.50
Total premium collected = 125 * 6.50 = Rs 812.50
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs 50
Margin money required: Rs. 30000 (14% of total value)
Total return = 762.5 / 30000 = 2.54% in 14 calendar days.
Risk: Since the above trading strategy is naked put, if the stock goes below 1693 and closes below this level then there will be a loss of Rs.125 for every Rs.1.00 below 1693.
Congrats to those who took position on this. As expected Infosys has gone up instead of going down. The Put option of 1700 strike price will expire worthless by the expiry.
ReplyDeleteWonderful analysis and tip.
ReplyDeleteI recently did a put write on TCS, but I never did it based on results. Infosys result expectation and volatility have made option attractive.
BTW I have two quick questions.
Which broker do you use? The brokerage of Rs.50 per lot seems cheap. I know that Kotak charges Rs.100 and taxes are extra.
The margins required are 25% for INfy. And for any blue chip stock the min. margin is 16.66%. Let me know again if some broker/trading platform is providing 14%. Thanks.
Sridhar
Option brokerages are as low as 10 bucks in some good broking houses provided you can negotiate and assure certain volume. Rs 50 you can easily get at Religare, ABM, Geojit etc
ReplyDeleteUnder span margin the margin required for most of the blue chip stock is 12-15%. During very high volatility it might go up but becomes normal in subsequent days.
Hope it helps.
Thanks Amit for answering my question. Looking forward to more option strategies.
ReplyDeleteI'm eagerly looking forward to more options trading calls from you. Or is this a bad time to be doing option trades given the unpredictable volatility and turbulence ? Some advise or suggestions will also be valuable. Thanks.
ReplyDelete