Call writing to hedge your Portfolio Stocks

We are well aware that general elections results are due next month, which is expected to result in wide fluctuation of the Index. Therefore, in this backdrop, we are recommending you to hedge your portfolio stocks through call writing. Call writing is the best strategy to hedge the portfolio stocks as the volatility is very high in options during the election month. Call writing means selling a call option of selective strike. This article will give you the strategies for the ‘Top 10 Stocks’ to hedge them against market volatility.

 

The main criteria for the strategies mentioned in this article is that you should have the stock quantity same as the F&O lot size. Moreover, if you do not have enough quantity to match the lot size, we recommend you to sell some other stocks, which are low beta or you can send us the portfolio so that we will suggest you to make lot size after selling some stocks.

 

Call Writing Example:

Suppose I have 1000 shares of Tatasteel (Cmp 415) for short/long term.

Strategy:

 

Sell Tatasteel 420 CE at Rs 30 i.e 7.4% of the stock price.

Remarks:

 

If the stock decreases to 370, the total premium comes as profit. If the stock increases to 470, then stock value increases by Rs 55 with loss of only Rs20 in 420 CE yielding net profit of around Rs35 Per lot.

 

In case someone does not have 1000 shares of Tata Steel and has only 700- 800 shares, then sell some low beta stocks to make the same lot size as in F&O to hedge.

Top 10 Stocks Strategies

Scrip Cmp Lot Size

 Strategy

RELIANCE

960

250

Sell Reliance May 960 CE at Rs. 55-60
ICICIBANK

1268

250

Sell Icicibank May 1280 CE at Rs. 80-85
TATASTEEL

419

1000

Sell Tatasteel May 420 CE at Rs. 30-35
LARSEN

1292

500

Sell Larsen May 1300 CE at Rs. 95-100
HINDALCO

142

2000

Sell Hindalco May 145 CE at Rs. 9-10
ITC

355

1000

Sell ITC May 360 CE at Rs. 13-14
INFY

3185

125

Sell Infy May 3200 CE at Rs. 100-110
TCS

2220

125

Sell Tcs May 2250 CE at Rs. 80-90
IDFC

120

4000

Sell Idfc May 120 CE at Rs. 10-11
SBIN

2045

125

Sell Sbin May 2050 CE at Rs. 130-140

 

The 10 Stocks mentioned have Liquidity in options in the next month. Therefore, we recommend that one can start adopting these strategies. We will be releasing some more strategies as the volume in stock options increases in other stocks.

Written By:

Akhil Rathi

Equity Research Desk

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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