Tuesday, May 5, 2015

Options activity in MAY 2015

Action Taken
Short PUT (Sold) INFY 1800 @ 6.80 expiring on 28-MAY
Short PUT (Sold) CANBK 350 @ 5.00 expiring on 28-MAY
Bought 16 shares of ANDHRA BANK from the profit earned last month @ 76 a piece.
Long PUT (Bought) CANBK 310 @ 3.60 to hedge my position

Status (3 days to go)
INFY spot @ 2020; option @ 0.10 {1800} [ last closing @ 0.10, probability of profit: 100% ]
CANBK spot @ 335; option @ 16.50 {350} [ last closing @ 7.50, probability of profit: 0% ]

Sold @ 0.50
CANBK spot @ 335[ last closing @ 0.30, probability of profit: 5%]

Assumptions & Analysis
As discussed in last month's blog, wanted to explore growth stocks which were beaten down like TCS, Infosys. With next earnings reports 3 months far, these stocks are going to operate in narrow range. Another major advantage with IT stocks is that they are going to benefit from depreciating rupee.
Benefiting from CANBK good returns due to high volatility which is carried over to this month, selling 1 SD from mean strike at high premium of INR 5.00; also 350 is a fair value for the stock, which in worst case breached is a good point to go long on stock. I would buy 1000 shares of CANBK at settlement price. I can then short strangle (Sell 1 OTM Call and Sell 1 OTM Put) thereby collecting double the premium.
Since CANBK stock price down really close to strike price, I wanted to buy lower strike option  to hedge my risk. So I wanted to Long (Buy) 320 PUT, but due to low liquidity and huge gap in ask/bid price, could not buy the option at fair price (Rs 2 - 3); Hence my idea of doing a VERTICAL PUT SPREAD strategy is not going to work even in future because of unavailability of lower strike PUTS to buy. I am planning for another strategy to hedge my risk during deep sell offs.
Anyways have placed a bid to buy 310 PUT @ 0.20 which according to me won't trigger.

Getting ready for next month
With fed set to increase interest rate which will cause dollar to gain strength thereby reducing rupee strength, all IT companies will benefit from this. Planning to sell INFY 1900 PUTS next month.

Total: 84,336 INR (Invested/locked in amount)
Max Profit:
5.00 * 1000 = 5,000 - 30 (commission) = INR 4,970
6.80 *   125 =   850 - 30 (commission) = INR    820
Unlimited on CANBK PUT 310 (This might expire worthless)

Max Loss:
Unlimited on INFY PUT
Since I bought CANBK 310 PUT, max loss is limited to Rs. 40,000


  1. Hello Vineeth

    After longtime i am seeing a blog on option selling. We hardly find option sellers blogs or info.

    I appreciate your effort in putting more details.

    I also started recently selling options. In APR 3rd week i sold MAY puts.
    Ashokley 65 PUT MAY 8000@ 1.50 and 70 PUT 8000@3.20 When equity price 70.

    But market has fallen and ashokley came down upto 63. But i sold one more lot of 65@3.20 and 70@6

    Now my position is in control.

    I have set couple of rules.
    I follow 3/13 EMA crossover for stock to follow trend direction.


    Have a backup plan always.
    High Implied Volatility
    Find Stock which has fallen recently
    Find options that expires 4-5 or 5-6 weeks from entry trade
    Sell OTM PUT
    Dont milk trade for full premium. take profits early and close position.

    I have a problem in choosing a stock. I mean which stock to choose for writing options. And which strike price and at what premium.

    I could not find which is best volatility percentage to write options.

    Please share your thoughts on above.


    1. Hi chenna, thanks for amazing write up; very good info. As you mentioned above, I chose CANBK which is beaten down; which is now already in the money; PUT is trading @ 18. Now I am confused whether I should sell or buy 310 PUT. If stock slides to 320 by expiry, I am planning to long on stock; buying 1000 shares of CANBK. I can then do COLLAR or COVERED CALLS for June. What do you feel about this approach?

    2. my thoughts on your questions
      1. Choosing stock
      Right now I am targeting Fundamentally strong stocks, which gives me cover from stock free fall. I chose Banking stock because this sector is beaten down badly due to various factors and these stocks do not just collapse as they are PSU. As you mentioned, it is hard to choose a good stock for option selling, that is why, I choose a stock which I am fine holding. I do not mind
      owning the stock for which I sell PUT.

      2. Choosing the right strike
      I sell stock 1 standard deviation away from mean price of the stock. So I look at bollinger bands for the stock. When I sold CANBK, mid band for CANBK was 380 which was the mean. 1 Standard deviation price away from mean is 350. Reason for chosing 1 SD away strike is because they have 84% chance of winning for a seller (only 16% of option buyers are profitable)

      3. Choosing right premium
      I use a simple option premium calculator and have found this has close correlation with options traded in india.

      4. To know volatility of PUT
      Volatility is high on growth stocks and usually low on dividend stocks. For example, INFY, TCS should ideally have high volatility
      as compared to LnT, Banking stocks. But due to macro economic turbulence, we are seeing high volatility on banking stocks which is the reason I sold those PUTS.

      More info

    3. Thanks for detailed response.

      Even I prefer holding one lot size of stock and play in options. Your approach in CANBANK looks good

      How you interpret IV 20%, 40-50% 60-65% etc. especially different percentages. for any option?

    4. You can check CANBK

      Slow stockastic and RSI moving towards buy mode.

    5. Thanks chenna, this chart helps!

  2. Another site i follow for trend is https://jusnifty.wordpress.com/

    1. I registered to wordpress, but I believe admin has to give access to view above link.

  3. Hello Vineeth

    How was your option selling in May 2015?

    I made good profit in Ashokleyland and DishTV and booked limited loss in JPAssociate.

    So far i did not find any attractive option in June series.

    Please let me know if you find any good option for writing.