- there was a big positive announcement for PSU Banks yesterday evening by Finance Minister - On charts, we see SBIN trading near channel top levels
given the set up, one may consider a Bear Call Spread strategy
Sell 480 Call option currently around 8.6 Buy 510 Call option currently around 3.5
Net receivables in strategy Rs 7650/- per lot (yield potential of 11.5% on Margin requirement till 30 Sept expiry) More importantly the strategy has inbuilt loss protection for a rise in stock price up to 485.10 on 30 Sept
Quite simple analysis which have its own beauty.
Do you mind telling why you choose these specific strikes? and what were the margin required for this particular position? Thanks
The channel top on 30 Sept comes at 483.25
So that is the risk that has to be managed.
The strategy to sell 480 Call option at 8.6 would have given protection for a rise in stock price up to 488.60 on expiry day however, it being a naked position the margin required per lot would have been approximately Rs 225000/- per lot (max yield potential would have been 5.7% on margin)
By buying 510 Call Option the position at 3.5 my net receivables has come down from 8.6 per lot to (8.6-3.5 = 5.1) per lot so my max profit potential has come down to Rs 7650 per lot till expiry however since the strategy becomes a hedge position now my margin requirement reduces drastically to just around Rs68000 per lot ( a few 1000 Rs here and there depending on your broker). Alothough profit looks less, on a percentage terms yield potential is better.
The strategy does provide protection for a rise in stock price up to 485.1 which is a tad more than channel top.
The idea is to understand and manage your risk first give yourself scope to be wrong and thereby look to increase your probability to stay profitable 🙂
Aim for the best.... Plan for the worst!!!
Hope that answers your question
architk
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@indiamarketoutlook, Thank you for replying. This Really helped clearing my doubt.
keep up the good work.
cheers
indiamarketoutlook
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@architk, good that you asked question and happy to know that it brought clarity to you.
Do you mind telling why you choose these specific strikes? and what were the margin required for this particular position? Thanks