Saturday, 15 July 2017

Zero Risk Option Trading Strategy for BATAINDIA

Today I am sharing with you zero risk or very minimum risk and high reward option trading strategy for BATAINDIA stock.

Lets first have a look at its chart and try to see what exactly is going on there.


As you can see, prices are range bound between level 590 and 510-520 since May 2017.  If we expect the prices to remain in this range in near future, it is possible that prices will now test lower range extreme, i.e. 520-510 level after getting rejected from upper range extreme of 590.

With this information, now lets create a option strategy to benefit out of this price move from CMP to 520-510 level with very minimum risk or zero risk.

Bear Put Spread:
The option strategy is bear put spread where we need to,
SELL 1 lot of current month 520 Put @ 1.10 and BUY 1 lot of current month 530 Put @ 1.15.
Here is the snapshot of this strategy with expected profit/loss potential.


As you can see, with this strategy the maximum expected profit is 9700 to 10900 and maximum possible loss is 1155 on or before expiry date which is just 12 days away.  Risk reward of roughly 1:10 or potential return on capital of around 10% in next 12 days.  Isn't it just amazing?

Capital required for this strategy is around Rs. 90000 (less than 1 lakh).

Now if you do not want to take the risk of Rs. 1155 and want to make it zero risk strategy, you can buy 37 shares of BATAINDIA at CMP of  558.  So if the prices go to 590 level instead of 520 the loss of Rs. 1155 will be taken care of gains by the shares that you buy (37*32=1184 at 590 level).

Only issue here is the liquidity as very few option contracts are traded in this stock at those strike prices.

Let's observe this strategy, how it performs in real time till expiry date.  If it works well, we can try it on more liquid stock options.  I will update all of you again after the expiry and produce the final results of this strategy.

Your views and suggestions are most welcome!

(please do not trade with this strategy.  It is for learning purpose only.)


0 comments:

Post a Comment