Safest of Safe Trade !!

[vibhor]

Buy 1 lot qty any blue chip shares in EQ which one are trades in F&o ... Example : RELCAPITAL

If you purchase 1 lot at cmp : 520.00 * lotsize 500 = 2,60,000

Investment = 2,60,000

In every month expiry day just write one lot in the money call option (next month )

for example : Dec 2014 contract 520 call option cmp : 25.50

you will get premium : Rs.12750.

If you continue next 12 months this like trades...Yes you will get aprox 40-50% return...

you can back test this strategy..Nse website have a historical options EOD data...

Hi santosh ji,
I have a confusion. If reliance capital stock fall 200 points in this expiry. Then we get only 12750. But our stock value will be down by 1 lac.
And i have back test BHEL from 26-07-2013 to 26-12-2013. It has overall given a huge loss.
Kindly clear my confusion. May be i am not understanding your strategy.
Thanks

 

[jetking]

Hi santosh ji,
I have a confusion. If reliance capital stock fall 200 points in this expiry. Then we get only 12750. But our stock value will be down by 1 lac.
And i have back test BHEL from 26-07-2013 to 26-12-2013. It has overall given a huge loss.
Kindly clear my confusion. May be i am not understanding your strategy.
Thanks

u figured it right dear........

the options are a good money making tool,but it is a double edge sword....

if u do not know/understand what u r doing, than,u will only harm yourself

options are not like equity trading,where u can do away with BUY,SELL and S/L

options are all about "how best u can manage them"

for ex in above strategy,as mkt is in bull run,buy stock and sell near OTM call and also buy OTM PUT,to limit your loss,
and in case stock goes down ,you can sell another OTM call,if stock,goes down,say, by 50 points.
and if stock keep going up,u can cover your call and sell another near OTM call

but as i said earlier,u should know and understand what u r doing,before taking any trade in options
good day

 

[mmca2006]

Buy 1 lot qty any blue chip shares in EQ which one are trades in F&o ... Example : RELCAPITAL

If you purchase 1 lot at cmp : 520.00 * lotsize 500 = 2,60,000

Investment = 2,60,000

In every month expiry day just write one lot in the money call option (next month )

for example : Dec 2014 contract 520 call option cmp : 25.50

you will get premium : Rs.12750.

If you continue next 12 months this like trades...Yes you will get aprox 40-50% return...

you can back test this strategy..Nse website have a historical options EOD data...

probably RELCAP is not the right choice for covered call, stock like ITC/ HDFCBANK may be good for covered call , However rolling up/ rolling down should be done to get good profit / minimize loss.

 

[aryabhatta]

Santoshji even i could not understand what you have written can you please explain

 

[santhosh2010]

Santoshji even i could not understand what you have written can you please explain

I have some work... I will give you full details with explanations in coming sunday ... (Last weekend i plan to prepared ,But last week i went Tirupati balaji dharsan,just came to sunday afternoon)..So wait some days.. I will update full details...

 

[aryabhatta]

I have some work... I will give you full details with explanations in coming sunday ... (Last weekend i plan to prepared ,But last week i went Tirupati balaji dharsan,just came to sunday afternoon)..So wait some days.. I will update full details...

No problem we will wait sir ... thank you

 

[vinagra]

Hi santosh ji,
I have a confusion. If reliance capital stock fall 200 points in this expiry. Then we get only 12750. But our stock value will be down by 1 lac.
And i have back test BHEL from 26-07-2013 to 26-12-2013. It has overall given a huge loss.
Kindly clear my confusion. May be i am not understanding your strategy.
Thanks

There is no confusion; selling covered calls will make money most of the time lose money relatively fewer times.

The problem is - the gains will be small and limited (premium-only at max) and losses are potentially unlimited and will be huge once in a while.

On an average, including brokerage and taxes there is a guarantee of loss if your strategy is merely to buy the underlying and sell a call every month (frankly if this had any chance of working the profits could be zoomed by buying the future and selling the call every month).

Frankly this "covered call" is no different from selling a naked-put if you draw the profit-vs.-price graph. If this could work you could have sold the put and made money on an average.


Since the "strategy" seems so devilishly simple if there is any money to be made large players would already be selling the calls till a profit-neutral price is reached (exceeded in fact).


My own back-testing on a lot of stocks as well as indices indicates that there is guaranteed loss even before accounting for brokerage and other costs.




A better way which can make money is to arbitrage put-call disparity in options. Any put can be converted into call and vice versa (e.g. long future + short call = short put) so if the cost of "buying" the "synthetic put" is more/less than the price received from selling a naked put, you can enter a three way trade and make money.

This strategy has two problems - (1) lack of opportunity; you are not the only one looking for such opportunities so while they do occur from time to time they last minutes at best (2) lack of decent returns from the opportunity when they do exist - my calculations have repeatedly indicated that the return is less than interest received on FD even assuming that one could consistently run this strategy.