I have been doing some calculations to make a strategy in Nifty and got an idea which i would like to share here and know whether it has any shortfall.. Pls guide me, any constructive criticism is welcome!!!

Here goes my thought:

Step 1: Buy Nifty futures for the near month say now Nifty 31Aug 2012 @ 5265

Step 2: Sell "in the money" option say 5200CE 31Aug2012 @ 165

Thats it!!! Whenever market falls below 5200 sell nifty and once it comes back to 5200 buy it!! In this way once the contracts expires we will be getting the time premium of 100 points (say nifty closes @ 5400 on 31st Aug, sell the futures which will be @5400 giving us a profit of 135 points and buy the 5200CE @ 200 which has a loss of 35 points) earning Rs.5000 per lot giving you a profit of 30% in 50 days. We can do the same for 6 times in a year which will give u a profit of 30,000 p.a on a capital of 16,750 i.e 180% returns!!!

The capital required will be say 25,000 - 8250 (50*165) = 16750 per lot!!! One more advantage is that when the market goes up u will be credited with the MTM as well!!!

As it looked very simple to me am confused whether i have left any loopholes here!!! Pls guide me if there is any loop holes left!!!

(One loophole i thought is tat if market goes gap down from 5220 to 5150, i might not be able to sell nifty futures @ 5200, but still i have 100 points on which i can lose 50points and still earn decent profit and a gap down over 50-70 points is rare)

Thanks in advance!!!

Regards

Giri