June 2019 — We Buy Options — Day 05

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RBI Monetary Policy Committee came up with the expected 25 basis point reduction in lending rates.

This news was already factored in and market reacted to it with a massive thumbs down.

A loss of 177 points, the biggest one day fall of the year 2019. From this one can surmise that the volatility is not just going away. We live in an exciting times in the market, it is another matter whether we make money or not.

The big down move badly hurt our CALL in LT and the gains in other PUTS could just about balance the loss in this trade. Overall, the day did not give us anything except raising hopes that we may see some profits if the reversed trend continues.

BIOCON PUT 520 could be taken at Rs. 7.50 and then it went lower. Finally recovered a bit and closed near to the buying price. Strangely, the stock did not move into negative zone on such a day when NIFTY fell so sharply. Equally strangely, it had made the low of Rs. 508.50 on May 23, 2019, when market was making the then all time high.

Here is our position at close yesterday:

We can just rue the loss caused by LT trade but there would be no point in that. We take what the market gives.

Trade for the Day :

We have a very simple method of trade selection. Look for 30 day and 7 day strength or weakness. That would suggest a CALL or PUT trade.

Sometimes, this method gives 3-4 trades in a day and I settle for one or two of them depending on my familiarity with the stock price movements. Sometimes, one particular sector is weak like Pharma currently. In such situation, the method will give us a prospective trade in almost every Pharma stock. Again, we chose to stay with the one where we know the price movements better than other stocks.

I have stated here many times that whenever I am having difficulty in framing a trading idea, there is always an IDEA.

So one again, it is IDEA.

The relentless fall in the stock has been arrested lately but it is showing signs of weakness again. In last one year, the high was Rs. 39.67 and the low was at Rs. 11.50 on May 22, 2019 a day before election results.

Stock is weak over 30 days as well as 7 days.

Last traded price yesterday was Rs. 13.45.

We go for IDEA PUT 13.00 @ Rs. 0.40.

If it moves towards the previous low, good for us. Otherwise we know the maximum risk. Lot Size is 19868, Maximum Risk — Rs. 7947.

Trade cautiously, trade profitably.

Disclaimer: This post and examples are for teaching purpose only and are not meant as advice/suggestion to trade in these stocks. Trading in Futures and Options can lead to big losses and should be done with appropriate knowledge and advice only. Mentioning the stocks here does not imply that I have a trading position or likely to take a trade in these stocks.

One Comment

  • KV Rao

    Biocon Bonus shares will be issued this month. So, price will be adjusted accordingly.
    Bonus 1:1 Ex-Date: 12-Jun-2019

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