INSUBCONTINENT EXCLUSIVE:
Market analysts are advising a call ladder on April 30 expiry Nifty options on anticipation of a short-term bounce of the bellwether index
This came after PM Narendra Modi extended the lockdown from April 14 through May 3, removing traces of lingering uncertainty.
The ladder
comprises buying a 9,000 call and selling a 9,400 and 9,800 call each
the 9,000 call costs Rs 392 a share (75 shares make one lot)
The 9,400 call and the 9,800 are worth a combined Rs 293 a share
The sale enables the trader to reduce her outgo to Rs 99 .
The maximum loss the trader bears is Rs 99 in case the Nifty closes at or below
9,099 by expiry, or the time frame the trader has chosen to execute the strategy
Unlimited loss begins if the Nifty crosses 10,101, which analysts such as Chandan Taparia of Motilal Oswal and Rajesh Palviya of Axis
Securities believe to be an unlikely event
Both advise booking profits at 9400 levels as any bounce could be potentially short-lived.
The maximum profit is Rs 301 a share
This happens if Nifty expires at 9,400 or 9,800
Profits accrue anywhere from 9,099-9,800
At 9,400, both the sold 9,400 and 9,800 calls expire worthless
At 9,800 expiry, the 9,000 call is inthe-money (ITM) by Rs 701 (adjusted for Rs 99 debit)
The sold 9,400 call is Rs 400 ITM
After paying the 9,400 call buyer, the trader is left with Rs 301 .
From 9,800 till 10,101, the profit of Rs 301 reduces steadily
After 10,101, unlimited losses begin unless the trader puts a stop loss
That is because of the sale on an extra call at 9,800.
At 10,101, the 9,000 call is ITM by Rs 1,002
The sold 9,400 call is ITM by Rs 701 while the sold 9,800 call is ITM by Rs 301
After paying the entire Rs 1,002 received from the purchase of the 9,000 call the trader is left with nil.
