The optimistic sentiment on which the August series started has since lost steam as we approach the end. But, nevertheless, the series has seen more activity as compared to the last few series. The rollover to the September series has already started and we have seen some of the momentum counters already witnessing increased open interest in the September series.
The average cost of carry is not very high, which is another reason why we are witnessing higher rollover to the next series. This week we have seen the addition of 21 stocks to the derivative series. While it may be too early to say that these stocks are going to see healthy volumes in the option segment, there are early indications that these options are likely attract higher volumes than some of the earlier additions.
For this week, there are various strategies which investors may look at for the coming two weeks. But here is a point of caution for traders who are looking to make a quick buck by writing calls or using other strategies. Normally, the strategies which are initiated in the first week of a new series start yielding decent returns only at the start of the third week of the month. So, if you are writing a strategy on this Tuesday (August 26, 2008), expect returns only after September 17, 2008.
The first strategy as far as Nifty is concerned would be to sell a call option of the September series at the strike price of 4,700 and collect a premium of Rs 36.55. At the same time, sell a put option of the same series at the strike price of 4,100 and collect a premium of 95.90. The total premium collected would be Rs 132.45 and the investor would incur no loss until Nifty moves below 3,968 level. In case of an upward movement, the investor would not incur any loss until the index crosses 4,832.
In case Nifty moves below 4,100 level, the trader may sell a call option at the strike price of 4,400 and collect the prevailing premium. This additional selling of a call at 4,400 should be done without disturbing the existing equation of 4,100 put and 4,700 call. The logic behind selling the additional call at 4,400 is that if Nifty breaks the bottom of 4,165, than a strong technical sell signal would emerge and the probability of Nifty moving above 4,400 becomes even lesser. This will allow the investor to collect more premium and increasing his risk cover beyond 3,968.