LEARN FUTURE & OPTIONS POST ELECTORIAL STRATEGY

Too Many Moving Parts (Contd.)

Last week post the exit polls rally I wrote you about too many moving parts in the economy right now. So, while the exit poll results clearly brought a cheer in the markets, worries continue to act as head winds. More interestingly it became like buy on rumors sell on news scenario.

The rally post the exit polls had priced in a large part of the possible rally. The only thing markets seemed to be waiting for was a confirmation of the exit poll numbers. The good part about it is that the incumbents are back with a thumping majority, something which was lower in the overall probability expectations. So, markets initially started with a positive note.

But like last time when Nifty started with a bang but eventually gave up the gains so was the story this time. Because, it is was very much a repeat telecast. Exit polls told the correct story and so what gets priced in has little returns to offer. The heavy call build up at 12000 strike which held on post the exit polls made it clear the sell the election result bounce was the strategy.

Again, such volatile times, when 100 points move in Nifty is a matter of minutes needs a better tool to manage and what better than options. While my initial reactions were surely happy one as the incumbents were back in power the move above 12k in Nifty was indicative of profit booking in offing. While I scanned through the option strikes which still looked a bit pricey, I felt a spread strategy would be good.

While on buying side I was clear about picking up 12000 Put strike the selling strike was a slightly a challenge. But, safety first, I picked 11500 Put strike. The net cost was nearly INR 150/-. The upmove continued for a while. Nothing much one can do on such days- pick a low risk strategy with appropriate size and sit tight. Second half saw a gentle glide in the market. This went on till day end, till Nifty slipped in to negative. This was more than what I expected and the spread was now worth INR 270/-. Worth an exit!!

Certain days seem to be not appropriate for individual participants with reasonable risk taking capacity. But the fact is those days the swing can make a big buck, but for that the choice of instrument and proper risk management is critical.

Happy Trading.

Cheers!!!