In this newsletter read my view on Nifty and how Options strategies can make 3% a month consistently. A real traded example.
Merry Christmas to all readers.
I had indicated at a bounce in Nifty, in last week's newsletter. Nifty has given an upmove from low 7551 to 7852. Global markets traded mixed in last week. Since the FED announcement about rate hike was already discounted by most world markets, there was no much reaction after the actual announcement on 16 Dec.
Let's try to understand where Nifty is heading!
Technical Overview: Last week Nifty made high of 7852 and low of 7551. A range of 301 points with a longish green candle. This weekly candle has formed a Piercing Pattern along with last week's candle. This pattern suggests a possible trend reversal for short term.
Moreover, Nifty has also formed a Double Bottom on daily chart. Bottoms of 8 Sep and 14 Dec have reacted from same level.
Let's understand the broader scenario. Major trend in Nifty is down. But Nifty is trading near its support. This support is now formed near low of 7550. For Nifty to resume its downtrend, need to break this support. Nifty has resistance near 7922-7979 and 8231-8336. For Nifty to start a new uptrend it need to cross resistance at 8231-8336 with conviction.
Here is my view: I fee Nifty will remain range bound for some period, say a week or two. This range is between support at 7550 and resistance at 7979.
Areas are marked on chart given below
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An Options strategy that can make 3% consistently month on month.
This was traded on 2 Dec 15
Major trend in Nifty was down. However Nifty saw a pull-back rally from 7730 to 7979.
On 2 Dec Nifty was trading near 7930 at closing hours. There was good resistance to Nifty in the range of 7950-8000. My analysis with the help of Demand Supply theory convinced me that Nifty can see some dip from this level (bearish view).
I took this trade:
Sell 8100 Call @ 65.40
Buy 8200 Call @ 38.60
(In this case instead of selling ATM call I went slightly OTM for higher safety)
The premium received (Credit) for one lot of Nifty is as follows:
Premium Received @ 8100 Call= + (65.40*75)= +4905
Premium Paid @ 8200 Call = - (38.60*75)= -2895
Net Premium received = 4905-2895= 2010
As expected Nifty moved down.
On 7 Dec Nifty was trading near 7775.
I felt that I should close the trade as it was making profits of around 3%
Lets see the profit calculations when trade was closed on 7 Dec:
Options prices were as follows:
8100 Call @ 23.30
8200 Call @ 11.80
8100 Call Profit (Which was sold) = (Sell Price - Square Off price)* Lot Size= (65.40-23.30)*75 = 3157.5
8200 Call Loss (Which was bought) = (Buy Price - Square Off price)* Lot Size=(-38.60+11.80)*75 = -2010
Net Profit= 3157.5- 2010= 1147.5
Net premium paid for this pair was 36000 (approx)
% Profit for one lot = 1147.5/36000= 3.18%
This trade has earned 3.18% in only 5 days.
I run a advisory portfolio based on Options Hedging strategies in Nifty and Banknifty. Name of this portfolio is Index Options. This portfolio is designed to earn comparatively conservative returns of 2-5% per month.
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