Reasons Why Sensex, Nifty are Sinking

1. Lower-than-expected GDP data
one of the main reasons behind today's sharp fall in Sensex was the lower-than-expected GDP growth figure.
Data released by the Central Statistics Office ( CSO) on Monday showed the Indian economy grew by 7% in the June quarter, slower than the previous quarter's 7.5% expansion. Growth in the June quarter of 2014-15 was 6.7%.
While the 7% growth rate matches the June quarter growth of China and still places India in the league of fastest growing economies in the world, economists said more measures are needed to step up the acceleration.
2. Foreign investors sell record amount of Indian shares in August
Foreign investors sold a record amount of Indian shares in August, offloading even more than in the midst of the global financial crisis, as turbulent markets in China led many funds to reduce their holdings in riskier emerging markets.
Foreign institutional investors sold a net 168.77 billion rupees ($2.55 billion) in Indian shares in August, more than the previous monthly record of 153.47 billion rupees in October 2008, according to data from National Securities Depository Limited.
The sales helped push the Nifty down 6.6 per cent in August, its worst monthly performance since November 2011.
Analysts said the sales were largely a result of the overweight positions in India by foreign investors, who have been heavy buyers since 2012.
Foreign investors had been net buyers as early as July when India was seen as benefiting from outflows from China. They remain net buyers of 275.2 billion rupees this year.
3. Rate cut by HDFC
Banking and financial stocks led the decline after reports of HDFC Bank's steep base rate cut on Monday sparked fears that other lenders will be able to match it only at the cost of margins.
HDFC Bank cut its base rate by 35 basis points to 9.35 per cent from September 1 in a move to capture wider market share, according to media reports on Monday.
The move stoked fears that pricing pressure would lead to other banks taking a hit on their net interest margins as most banks would have a base rate of 35-65 basis points higher than that of HDFC Bank.

HDIL OPTION STRATEGY

Buy HDIL 70 CALL @ 3

Buy HDIL 50 PUT @ 2.2

COST=5.2

TOTAL RISK  = 10400

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=75.2

LOWER BREAK GIVEN POINT=44.8

Pay off table:

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Long Call Butterfly

Long Call Butterfly is one of the sideway strategies employed in a low volatile stock. It usually involves buying one lower strike call, selling two middle strike calls and buying one higher strike call options of the same expiration date. Typically the distance between each strike prices are equal for this strategy.

Combining two short calls at a middle strike and one long call each at a lower and upper strike creates a long call butterfly. The upper and lower strikes (wings) must both be equidistant from the middle strike (body), and all the options must have the same expiration date.

You may also execute the Long Butterfly strategy using all puts options. When all puts options are used, it is referred to as the Long Put Butterfly strategy. As to whether a butterfly strategy should be executed using all calls or all put options depend on the relative price of the option. The premium of both puts and calls option should be taken into consideration to achieve the optimum trade

Market Outlook

 Neutral around Strike

Summary

This strategy generally profits if the underlying stock is at the body of the butterfly at expiration.

Breakeven:

· Upside Breakeven = Higher Strike less Net Premium Paid

· Downside Breakeven = Lower Strike add Net Premium Paid.

Advantages and Disadvantages

 

Advantages:

·         Ability to make profit from a range bound stock with relatively lower cost outlay.

·         Limited risk exposure compare to Short Straddle strategy when the underlying stock moved beyond the breakeven point on expiration date.

Disadvantages:

·         The profit potential only come from the narrow range between the 2 wing strikes.

·         Bid/Ask spread from the various option legs may adversely affect the profit potential of the strategy

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TATAMOTORS STRATEGY UPDATE:HOPE YOU BOOKED PROFIT

TATAMOTORS 350 PUT BOOK PROFIT NEAR 6
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Total risk=4800
Total returns=8000(4800 COST+3200 RETURNS)

TATAMOTORS STRANGLE STRATEGY :410 CALL BOOKED

TATAMOTORS 410 CALL BOOKED FULL PROFIT @ 10 PROFIT IS 2550 @ 1 LOT
CONTINUE TO HOLD 350 PUT
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OPTION STRATEGY UPDATE :BOOK PROFIT IN CALL

 OPTION STRATEGY GIVEN YESTERDAY  (06-08-15)
TATAMOTORS   410 CALL BOOK PROFIT NEAR 9.8-10

TATAMOTORS STRANGLE STRATEGY FOR AUGUST 2015

BUY 1 LOT TATAMOTORS 350 PUT @ 4.7

BUY 1 LOT TATAMOTORS  410 CALL @ 4.9

COST=9.6

TOTAL RISK  = 4800

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=414.9

LOWER BREAK GIVEN POINT=346.3

Pay off table:

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Advantages of Options

Options can provide these advantages to your portfolio
Cost Efficiency Options have great leveraging power. As such, an investor can obtain an option position that will minimize a stock position almost identically, but at a huge cost savings.
Higher Potential Returns you don't need a calculator to figure out that if you spend much less money and make almost the same profit, you'll have a higher percentage return. When they pay off, that's what options typically offer to investors.
Flexibility Options can be used in a wide variety of strategies, from conservative to high-risk, and can be tailored to more expectations than simply "the stock will go up" or "the stock will go down."
Hedging Options allow investors to protect their positions against price fluctuations when it is not desirable to alter the underlying position.
Volatility The use of options also allows the investor to trade the market's "third dimension" Options allow the investor to trade not only stock movements, but also the passage of time and movements in volatility. Most stocks don't have large moves most of the time. Only a few stocks actually move significantly, and then they do it rarely.

 

 

BULLISH TRADING STRATEGIES

Bullish Trading Strategies

Bullish strategies in options trading are employed when the options trader expects the underlying stock price to move upwards. It is necessary to assess how high the stock price can go and the timeframe in which the rally will occur in order to select the optimum trading strategy. 

Very Bullish

The most bullish of options trading strategies is the simple call buying strategy used by most novice options traders.

Moderately Bullish

In most cases, stocks seldom go up by leaps and bounds. Moderately bullish options trader usually set a target price for the Bull Run and utilizes bull spreads to reduce risk. While maximum profit is capped for these strategies, they usually cost less to employ.

Mildly Bullish

Mildly bullish trading strategies are options strategies that make money as long as the   underlying stock price does not go down on options expiration date. These strategies usually provide a small downside protection as well. Writing out-of-the-money covered calls is one example of such a strategy.

 

 

 

OPTION STEATGEY : BULL CALL SPREAD

Bull Call Spread

• In a bull call spread strategy; an investor will simultaneously buy call options at a specific strike price and sell the same number of calls at a higher strike price. Both call options will have the same expiration month and underlying asset. This type of strategy is often used when an investor is bullish and expects a moderate rise in the price of the underlying asset.
  

  

  
  

• Bull call spreads can be implemented by buying an at-the-money call option while simultaneously writing a higher striking out-of-the-money call option of the same underlying security and the same expiration month.
  

OPTION CALLS TYPE

Short-Term Call Options

When an option trader buys a call option, trader has the right to buy the underlying at strike price before expiration. Keep in mind that just because the option trader has the right to buy the stock, doesn’t mean that trader has to necessarily do so. The call option just like a put option can be sold anytime up until expiration for a profit or loss

Bull Call Spreads

When implementing a bull call spread, an option trader purchases a call option at one strike and sells the same number of calls on the same stock at a higher strike with the same expiration date.

By implementing a bull call spread, traders can hedge their bets limiting the potential loss. This is the advantage when comparing to purchasing a call outright. Remember that there are no sure-fire ways to make money by using options. However, knowing and understanding the strategy is a good way to limit losses.

Long-Term Call Options

The long call option strategy is the most basic option trading strategy whereby the options trader buys call options with the belief that the price of the underlying security will rise significantly beyond the strike price before the option expiration date.

HOW TO TRADE IN OPTION CALL & PUT

Definition of option

The right, but not the obligation, to buy or sell specific amount of a given stock,  index, at a specified price  during a specified period of time.

The price of the option depends on the price of the underlying, plus a risk premium.

Medium of exchange for options contracts allowing the holder the right to sell or buy an underlying commodity on an open market. The option contracts define the trading limitations of the market, including the option type and the expiration date.

Options are derivatives, which mean their value is derived from the value of an underlying investment. Most frequently the underlying investment on which an option is based is the equity shares in a publicly listed company. Options are traded on securities marketplaces among institutional investors, individual investors, and professional traders and trades can be for one contract or for many. Fractional contracts are not traded.

PAIN VANILLA SAIL OPTION STRATEGY

OPTION STRATEGY:  BUY SAIL 60 CALL @ 1.8

TOTAL INVESTMENT=7200

Butterfly Spread

All the strategies up to this point have required a combination of two different positions or contracts. In a butterfly spread options strategy, an investor will combine both a bull spread strategy and a bear spread strategy, and use three different strike prices. For example, one type of butterfly spread involves purchasing one call (put) option at the lowest (highest) strike price, while selling two call (put) options at a higher (lower) strike price, and then one last call (put) option at an even higher (lower) strike price.

COVERED LONG HEDGE WITH OPTION STRATEGY

Today we offer you Sbin Long Future strategy covered with long Put.In light of expected RBI policy we believe this strategy will give you high upside potential with limited down side risk.
You buy stock because you’re bullish and expect the stock's price to go up. Since you’re bullish, chances are you aren’t too preoccupied with the downside. But as we all know, markets can shift quickly. Puts are a handy tool to help lock in profits on your existing positions in the event of a sudden reversal. This is the strategy which is ideal in this case.  
1ST LEG 

"Buy SBIN Future Jun @ 280"

2ND LEG

"Buy SBIN Jun 280 Put @ 10"

REL INFRA CALL ROCK..!!!!!!!! ACHIEVED 1ST TGT

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OPTION (CALL & PUT) FREE CALLS FOR MONDAY 18 MAY 2015

BUY VEDL 200 PUT @ 2.80 TGT 4.90/6.70 SL 1.20

BUY REL INFRA 440 CALL @ 8.40 TGT 12.90/16.40 SL 5.2

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The calendar spread refers to a family of spreads involving options of the same underlying stock, same strike prices, but different expiration months. They can be created with either all calls or all puts.  Also known as time spread or horizontal spread.

Call Calendar Spread

Using calls, the calendar spread strategy can be setup by buying long term calls and simultaneously writing an equal number of near-month at-the-money or slightly out-of-the-money calls of the same underlying security with the same strike price.

The idea behind the calendar spread is to sell time, which is why calendar spreads are also known as time spreads. The options trader hopes that price of the underlying remains unchanged at expiration of the near month options so that they expire worthless. As the time decay of near month options is at a faster rate than longer term options, his long term options still retain much of their value. The options trader can then either own the longer term calls for less or write some more calls and repeat the process.

BANKNIFTY OPTION STRANGLE STRATEGY

BUY BANKNIFTY 17000 PUT @ 118

BUY  BANKNIFTY 18500 CALL @ 145

COST=263

TOTAL RISK  = 6575

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=18763

LOWER BREAK GIVEN POINT=16737

Pay off table:

Covered Call

Aside from purchasing a naked call option, you can also engage in a basic covered call or buy-write strategy. In this strategy, you would purchase the assets outright, and simultaneously write (or sell) a call option on those same assets. Your volume of assets owned should be equivalent to the number of assets underlying the call option. Investors will often use this position when they have a short-term position and a neutral opinion on the assets, and are looking to generate additional profits (through receipt of the call premium), or protect against a potential decline in the underlying asset's value.

WHAT ARE OPTION ? AND TYPES OF OPTION

OPTION

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.

CALLS AND PUTS

The two types of options are calls and puts:

A call gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires.

A put gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.

Participants in the Options Market

There are four types of participants in options markets depending on the position they take:

·              Buyers of calls

·              Sellers of calls

·              Buyers of puts

·              Sellers of puts

People who buy options are called holders and those who sell options are called writers; furthermore, buyers are said to have long positions, and sellers are said to have short positions.

Why Use Options?

There are two main reasons why an investor would use options: 
Speculation 
speculation as betting on the movement of a security. The advantage of options is that you aren't limited to making a profit only when the market goes up. Because of the versatility of options, you can also make money when the market goes down or even sideways. Speculation is the territory in which the big money is made - and lost. The use of options in this manner is the reason options have the reputation of being risky. This is because when you buy an option, you have to be correct in determining not only the direction of the stock's movement, but also the magnitude and the timing of this movement. To succeed, you must correctly predict whether a stock will go up or down, and you have to be right about how much the price will change as well as the time frame it will take for all this to happen.

Short Butterfly

The short butterfly is a neutral strategy like the long butterfly but bullish on volatility. It is a limited profit, limited risk options trading strategy. There are 3 striking prices involved in a short butterfly spread and it can be constructed using calls or puts. 

SHORT BUTTERFLY CONSTRUCTION

Ø  SELL 1 ITM CALL

Ø  BUY 2 ATM CALLS

Ø  SELL 1 OTM CALL

Short Call Butterfly

Using calls, the short butterfly can be constructed by writing one lower striking in-the-money call, buying two at-the-money calls and writing another higher striking out-of-the-money call, giving the trader a net credit to enter the position.

OPTION PLAIN VANILLA SBIN STRATEGY :UPDATE

BOOK PROFIT IN SBIN 285 CALL  @12.50 CALL WAS GIVEN@4.45  IN  POST
TOTAL INVESTMENT =5562
NET RETURN=15625