Nifty Strategy: Long Volatility

Earlier Posted trade of Buy-nifty-5400 call as well as put has gone in the money in just 2 days. Today with Nifty going down to 5300 the combined option premium is now 184 (44+140), just few days back the same was trading at 150. With transaction charges of 4 rs. total profit comes to 30 per lot of 50! That too for a market neutral trade!

Nifty Option strategy:

In last two months the implied as well as realised volatility of Nifty has fallen alot.

This leads to attractive long volatility strategies like straddle.

Trade idea: Buy 5400-Nifty April Call and Buy 5400-Nifty Put. The total option premium for the trade is arround Rs. 150 (Rs. 60 + Rs. 90)

The breakeven for the trade would be nifty ending lower than 5250 or higher than 5550.

The implied volatility for both trades is arround 14% p.a. and 13.6% p.a. These levels of implied volatility look very attractive since just few months back the levels were above 30%.

Techically nifty closed today at 5366 after remaining sticky at the resistance level of 5360. Month end view of Nifty would be atleast +-200 points, inline with the long volatility trade.

Nifty Option Strategy

Today I just unwound the stratgey mentioned earlier in my blog: Nifty Back in Action

The analysis was about resistance level of 2980 on the Nifty. The March 3000 calls were as cheap as Rs. 5 when the strategy was posted. I was holding March calls with strike 3000 and 3050.

Today after the market was looking like not holding up the 3000 level I liquidated my position. 3000 call at Rs. 45.9 and the 3050 call at Rs. 14.3. At the end of the trading session the 3000 call had gone down to 15 rs. and the 3050 call to 8 Rs. Luckily was able to sell the 3000 call at intraday high but missed out the 23 Rs. level on the 3050 call (I had placed the limit order at 25)

  

Corus Repurchasing Debt

Corus which was recently acquired by Indian Tata Steel is offering a share repurchase worth 800 million euro due in 2011. The company would buy back these bonds at 101% of the face value of the bonds. This means that they will be paying 101% + 1.375% (accumulated interest) for these bonds. The investors showed negative reaction to this because the face value of the bonds was at 106.5%, much lower than what was offered by Corus. Due to this the five-year credit default swaps on Corus rose 10 basis points to 133 basis points on the news. Credit default swap is a type of insurance where in case of default by the borrower the swap buyer will end up paying for the debt, which was unpaid. The credit derivative market is concerned that the credit default swaps would be useless if the investors redeem the underlying debt.