Thursday, May 5, 2016

Trading Idea - May 2016

For the Month of May one can initiate a short put trade on Adani Ports. The stock has corrected sharply in-spite of good results primarily because of unexpected balance sheet expansion and slower than expected volume growth. However the fall is quite sharp and has made implied volatility high.

One can sell 1 lot (1600 shares) of Adani Ports 160 put @ 0.5 for a cash flow of Rs.800 before brokerage and taxes.

Total Return from the trade:

Considering one is able to sell the May PUT option of Adani Ports 160 strike price at current market premium of Rs. 0.5 he/she can generate following return from this trade:

Assuming 1 lot of Adani Ports (1 lot = 1600) 160 put option is sold at Rs 0.5
Total premium collected = 1600 * 0.5 = Rs 800
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 60 per lot = Rs 60
Margin money required: Rs. 45000 (approx)
Total return = 740 / 45000 = 1.65% in 21 Calendar days.

Risk: Since the above trading strategy is naked put writing, if the stock goes below 159.5 and closes below this level then there will be a loss of Rs.1600 for every 1 rupee fall below 159.5

1 comment:

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