Trading Idea: January 2012

The recent developments in the stock market globally suggest that we are amidst a short term rally. Indian stock markets too witnessing some buying interest because of global rally and rupee appreciation against USD.

Considering this InvestorZclub is recommending following trade:  

Trade: Sell Reliance Industries (RIL) Jan 640 Put at Rs. 2.00 premium

Lot Size of RIL: 250

Total premium collection: 250 * 2.00 = Rs. 500

Brokerage and other costs: Rs. 60

Net Earning = Rs. 460

Margin required (in cash or stocks) for 1 lot= Rs. 25,000

Total return: 460 / 25000 * 100 = 1.84%

Risk: The trade will result in loss below 638. For every rupee fall below this level there will be a loss of Rs. 250 on each lot.

Justification of trade: Reliance Industries is having very strong support at 700 and considering the fact that it is the market leader, any market rally would lift the Reliance stock as well. Even if there is a correction there is a strong safety of 90 bucks from the current market price of 736.