Trading Idea: March 2012

Sell ONGC 320 Call at Rs 1.40 Premium

The recent auction of 5 percent govt's stake in ONGC has given very good trading opportunity. The floor price for the auction was set at Rs. 290 which was 3 percent higher than the 29th Feb closing price. As a result the response from institutional investors was muted and LIC had to step in to bail out the govt. 

Now since the auctinn is over and it is clearly visible that there is very little demand for the share beyond 290 - 300 levels, one can write 320 call of ONGC March expiry at the current market premium of Rs 1.40

Return from this trading strategy:

Assuming 1 lot of ONGC (1 lot = 1000) is sold at Rs 1.40
Total premium collected = 1000 * 1.4 = Rs 1400
Total Transaction cost assuming Brokerage cost including STT and other taxes at Rs. 50 per lot = Rs 50
Margin money required: Rs. 42,000 (14% of total call value)
Total return = 1350 / 42,000 = 3.2 % in 1 month

Risk: If ONGC moves past 321.4 and closes above this level then there will be a loss of Rs.1000 for every point above 321.4