Sell Nifty 5500 Feb Call at Rs.18 Premium

Indian Stock Markets have delivered phenomenal return of around 23% in January alone. In this one month the Indian rupee has appreciated by 8.5% (from 54 to 49.50 as on 27th Jan 2012) while Nifty index has moved up 14.5% during the same period (from the lows of 5440 to 5200) generating a total return of 23% in dollar terms.

Considering the above fact InvestorZclub feels that the rally is about end soon and the upside from these level is not significant. Hence InvestorZclub is recommending the following trade:

Trade: Sell NIFTY 5500 Feb Call at the current market premium of Rs.18 

Return from this trading strategy:

Assuming 2 lot of NIFTY (1 lot = 50 NIFTY) is sold at Rs. 18

Total premium collected = 100 * 18 = Rs. 1800

Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs. 100

Margin money required: Rs. 39,000 (7% of total call value)

Total return = 1700 / 39,000 = 4.3 % in 1 month

Risk: If Nifty moves past 5518 and closes above this level then there will be a loss of Rs.100 for every point above 5518