Options Trading Tutorial: Free Education Video

Options are derivative instruments used for both hedging and speculative purposes. 

By definition an option is a legal contract in which the writer (seller) of the contract grants to the buyer, the right to purchase from or sell to the writer a designated instrument or a scrip at a specified price within a specified period of time. 

The right to purchase a specified stock is called the Call option, while the right to sell a specified stock is called Put option. 

There exist many option strategies (tactics), which involves different combination of Calls and Puts, for hedging as well as speculation. Some of such strategies are Bull Call Spread, Bear Call Spread, Call Backspread, Covered Call, The Collar etc.

The following Options Strategies Course is designed to show how options work as a tool for hedging positions and how they can be used for speculative purposes.

Buy Hindalco Industries

InvestorZclub is recommending a buy on dips on Hindalco Industries in the region of Rs.130 to 135 for 1 year target return of at least 30%. Some of strong reasons for the recommendation are:

1. Trading at discount to current year FY 2012 Book Value. The FY-12 book value for the stock is expected to be Rs.165 while FY-13 book value should be at least Rs.175. The PE ratio for the current year is around 12 times.

2. The European subsidiary - Novelis which is cash positive but reports loss on net level is selling its loss making foil business in three countries which could bring it to green next year provided aluminium prices are supportive.

3. Copper inventory level in LME warehouses are at very low levels which should keep  copper prices buoyant (See the charts below).  Hindalco Industries is India's largest copper producer and produces around 3,40,000 tonnes of copper every year.

4. The US economy is showing very strong signs of pick up which should keep commodities buoyant while the news of china slowdown seems to be discounted in the metal prices specially aluminium which is down 20% since the start of 2012.

5. The stock seems to be taking strong support in 125 - 130 region. 52 week high low for the stock is 224 / 111.

Couple of concerns and risks ahead for the stock and the company are:

1. High Aluminium inventory levels in LME warehouses (See the charts below) could put further pressure on Aluminium which could in turn affect the company's profitability going forward. But better than expected recovery in US and rate cycle reversal in India, which could in turn increase demand for cars (large consumer of Aluminium), should help in supporting the price which is already down 20% since Jan 2012.

2. Sudden problem in European region could affect the demand for the products that Novelis make. As a result of which the numbers might turn bad for Hindalco Industries on consolidated basis.

Charts Courtsey: Kitco.com

Stocks to avoid in 2012

Stock Markets globally has been on a tear away rally and has advanced around 20% in general in past 2 months. 

Indian stock markets also went up from the Nifty level of 4550 to 5600 since 20th Dec 2011. In this rally many stocks have either made 52 week high or are near their 52 week high. But there are some stocks which instead of going up are making fresh 52 week low. These stocks are usually in small cap category and has some kind of problem or the other. Hence retail investors should completely stay away from these stocks. 

The stocks which made fresh 52 week low as on Feb 17, 2012 are show below:

Income Tax Saving Options / Instruments in India : 2012

With financial year FY 2011 - 2012 ending soon, tax savings is usually a big headache. Where to invest, how much is the return and other questions boggles our mind. Hence InvestorZclub has compiled a list of instruments which would help you in knowing the products that can save you tax and generate good returns on your investments

Employee Provident Fund: EPF (80 C)

As pet IT Act 80C, EPF scheme offers a total yearly exemption of INR 1 lakh. In this fund, 10 % to 12 % of a person's basic salary gets deducted and the other 12 % is contributed by the employer.

Average returns: 9.5%

Maturity period: One can withdraw the entire amount in instances of leaving job, retirement after 58 years of age or taking VRS. Partial withdrawal can be done for home, medical related expenses.

Public Provident Fund : PPF (80 C)

PPF is also a tax saving option that falls within the Section 80 C of the Income Tax Act in India. However the maximum amount that one can deposit in a single year is 70,000.

Average returns: 8.6% compounded annually

Maturity period: 15 years

National Savings Certificate : NSC (80 C)

NSC scheme falls under the Section 80 C of the IT Act of India. Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first 5 years. The scheme is available at Banks, post office or any broker.

Average returns: 8% compounded half yearly

Maturity period: Usually 5-10 years.

Equity Linked Savings Schemes : ELSS (80 C)

ELSS is a mutual funds that help you save taxes under Section 80C as well as generate equity based returns. ELSS is similar to a typical equity MF scheme. It has the potential to deliver good returns and at the same time save tax.

Average returns: Based on Market performance

Maturity period: Lock in period of only three years but one can remain invested for long.

Unit-linked Insurance Plans : ULIPs (80 C)

ULIP is a unique blend of investment and insurance and is eligible for 80C benefits. The premium, which is being paid by a customer, gets deducted with initial charges while the rest of the amount is invested. Aggressive ULIPs invests 80 % to 100 % in equities. The rest is invested in debt instruments. Under balanced ULIPs an individual can invest 40 % to 60 % in equities while conservative ULIPs allows one to invest up to 20 % in equities

Average returns: As per market situation

Lock-in period: 5 years

Tax Saving Deposits (80 C)

Investment up to Rs 1 lakh in these special tax saving bank fixed deposits also entails an investor tax deduction under Section 80C. Interest income taxability upon maturity.

Average returns: 9-9.5% annually. Rate of interest varies from one bank or post office to another.

Lock-in period: 5 years

Infrastructure Bonds (80 CCF)

Over and above the deduction allowed by the Section 80 C, one can save income tax on a maximum amount of Rs 20, 000, by investing in different infrastructure bonds under the Section 80 CCF of the Indian I-T Act. L&T, REC, IDFC are some of the large issuers of infrastructure bonds

Maximum deduction: Rs 20,000

Average returns: The rate of interest  varies from 8 % to 8.7%.

Maturity period: 5 to 10 years.

Life Insurance Premium (80 C)

Any premium payable by an investor to provide cover to his life is eligible for deduction under Section 80C.

Average returns: 6-7% annual in a typical endowment policy. However term policies do not provide any return, as they are meant for cover only.

Maturity period: Length of policy.

Health Insurance Premium (80 D)

Under section 80 D of the country's Income Tax Act. these policies offers a maximum deduction of Rs 35, 000. This deduction is calculated in addition to any other tax saving done as per the Section 80 C.

List of Stock Market based Movies: Must Watch for Traders and Investors

I have seen lot of stock market based movies sometimes for learning and sometimes for the sheer adrenalin rush. I particularly like following movies and would recommend investors and traders to see them as they not only provide good learning but also boils your blood and keep you on which is very essential in stock markets.

Margin Call (2011) : A taut, sinewy drama set in a Wall Street investment bank. 

Wall Street (1987) : The classic Wall street film. You will love Michael Douglas' character Gordan Gekko

Wall Street - Money never sleeps (2010) : Wall Street part 2. A sequel to the 1987 popular movie “Wall Street”.

Trader (1987) : A very brilliant movie. Story about Paul Tudor Jones and his day-to-day life as an active investor.

Pursuit of Happiness (2006) : A very touching movie based on the real life of Chris Gardner. Will Smith is as brilliant as ever.

Rogue Trader (1999) : British version of "Wall Street". 

Enron- The smartest guys in the room (2005) : Tale of Enron's rise and fall. One of the best documentaries ever made.

Quants - The Alchemists of Wall Street (2010) : A short but excellent documentary on quantitative analysts on Wall Street.