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Sunday, Nov 22, 2009
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Business Daily from THE HINDU group of publications Sunday, Nov 22, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Stock Markets Investment World - Derivatives Markets Markets - Investments Srividhya Sivakumar The coming week being the derivative expiry week promises to showcase a lot of volatility. So even though the overall bias is positive, traders may have to brace themselves for wild swings in option premiums. A risky proposition and hence best avoided by those with little risk appetite. That said, option trading during such times though laden with many a risks, often provides the best moneymaking opportunities. For the coming week, we expect markets to rise driven by short covering. Traders can consider buying a Nifty Nov 5,100 call, which closed at Rs 44. Traders can also look at bringing down the cost of purchase by selling Nifty Nov 5,200 calls, which closed at Rs 14. This bull spread will cost you Rs 30. The cost of the spread would also be the maximum loss you can suffer. Note that your spread will become profitable once it breaches the breakeven point at 5,130. The maximum profit zone would be reached once the underlying moves past 5,200, with the maximum profit being limited to Rs 70. But do note that this being the expiry week, option premiums would tend to lose value at a faster pace, and most of the times irrespective of how the underlying index fares. So, before you set the spread, have internal stop loss levels fixed and remember to exit the spread as soon as these levels are breached. Alternately, you can even consider phasing out the exits. If the markets do move up as anticipated and option premiums don’t, exit the long call first. The short call can be kept open so as to lap up the entire premium availed at time of selling it. More Stories on : Stock Markets | Derivatives Markets | Investments
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