Covered Call

A covered call consists of two trades, first a purchase of stocks and second selling an out of the money call for a marginal profit. The break even gets reduced by the written call's value. The maximum profit gets capped at the sum of written call's strike and its value. The profit above the written strike's value is sacrificed. The strategy under performs above the maximum profit value.

To take an example, TCS is purchased at the current market price of 2191. The break even for the shares alone would be 2191. On selling a 2300 call for 30, the break even is now 2161 and the max profit is capped at 2330. Over 2330, the strategy under performs.

Sample trade:

TCS
Lot Size = 125
Share price = 2191
Share Value = 273875
2300 CALL = 30
Margin to write CALL = 39520.81
Amount received on writing the CALL = 3750
Break even = 2191 - 30 = 2161
Max profit = 2300 + 30 = 2330
Total invested amount = 313395.81
Profit  (==2191) = 3750 / 313395.81 = 1.19%
Max profit (>=2300)= 17375 / 313395.81 = 5.54%
Annualized profit range = 15.34% - 91.07%
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TCS & SUNPHARMA

TCS formed a support on 2000, then 2100 and gave the first white candle after 5 days of black candles yesterday. Since 18th the stock has hardly moved. I bet that the stock will move upwards.

Sunpharma made a black doji on top of a big white candle. It should fall today. Expecting a black candle.

INDIAVIX and Natenberg - Update

The 7300 Call was sold at 104 and 6500 Put was sold for 109, for a total of 214. The break even points are 6286 and 7514. A range of 1228.

The prices today are 54 for the Call and 125 for the Put. That is a sum of 179, a profit of 35.

To continue the trade, the plan is to buy back the call at 50, for a profit of 54 and sell the 7100 call for 102.
Now 109 + 102 is 211 and the booked profit of 54 added gives a margin of 264 on both sides.The break even points now are 6236 and 7364. A range of 1100.

INDIAVIX and Natenberg

INDIAVIX closed at 33.35 on 21 April 2014. The implied volatility for 6800 call was at 31.51 when the NIFTY is at 6815. Natenberg would say to sell option outside the money. I expect the volatility to drop to 20. The trade is
SELL 7300 CALL @ 103

SELL 6400 PUT  @ 105

NIFTY can move between 6200 and 7500 without a loss.

Amadeus Trading - Business Plan 2

The details for Business Plan 2 are given below:

Invested amount - INR 500,000
Vehicle - Stocks
Split up - 10 investments of 50,000 each
Time -
1 month - 7%
15 days - 4%
1 day - 2%
Reentry - Stocks can be reentered at levels below the first buy price
Stop Loss - 5% or 1 month
Cool off period - 15 days since the beginning of last trade
Max profit - 100% over a year
Max reduction - 30% of portfolio

Trade Sample 1:

Trade this pattern with options. Enter on fourth candle of support.

Paper Trades - Positions

-----Bought on 14-Feb-2014----------
Sell SUNPHARMA 630 Call @ 6.05 for 500 lot size, IV is 28.66
 Currently @ 2.50
 Book profit for 1775
Sell HCLTECH 1440 Put @ 9.35 for 250 lot size, IV is 29.32
 Currently @ 1.1
 Book profit for 2062.5
-----Bought on 18-Feb-2014----------
Sell 1 lot of Nifty 5800 MAR PUT @ 26.30 for 1315
 Currently @ 21.65
Sell 1 lot of Nifty 6400 MAR CALL @ 18.75 for 937.5
 Currently @ 13.15

 Total profit is 3837.5

Paper Trade - Positions

-----Bought on 14-Feb-2014----------
Sell SUNPHARMA 630 Call @ 6.05 for 500 lot size, IV is 28.66
 Currently @ 4.75
Sell TATAMOTORS 380 Put @ 4.25 for 1000 lot size, IV is 31.04
 Currently @ 2.0
 Book profit for 2250
Sell HCLTECH 1440 Put @ 9.35 for 250 lot size, IV is 29.32
 Currently @ 7.25
-----Bought on 18-Feb-2014----------
Sell 1 lot of Nifty 5800 MAR PUT @ 26.30 for 1315
 Currently @ 21.75
Sell 1 lot of Nifty 6400 MAR CALL @ 18.75 for 937.5
 Currently @ 17.3
Sell 1 lot of BHARTIARTL 320 FEB CALL @ 2.3 for 2300
 Currently @ 0.5
 Book profit for 1800
Sell 1 lot of IDEA 140 FEB CALL @ 0.9 for 1800
 Currently @ 0.5
 Book profit for 800

 Total profit is 4850