Market View and Options Strategy

Is it possible to make money just by having a market view and no technical

knowledge? The answer is may be YES. Example - Buy Calls in bull market and Buy
Puts in bear market. (If Nifty is above 200 dma, then it is bull market and if Nifty is
below 200 dma, then it is bear market.)

Strategy - Buy one lot of Put at slightly out of the money strike price and square it
off 2 days prior to expiry - every month.

Assumptions

• In early March 2008, Nifty decisively broke down below 200 dma; and hence
the strategy begins from March series.

• One cannot time the market, and its difficult to assume that when the real
declines may happen. Hence, a safer strategy - be persistent with strategy of
buying puts when market is below 200 dma.

• Entry Date - The puts are pretty expensive at the start of the series, and
hence it would be better to buy puts at some later date. For the sake of
simplicity - 05th of the month has been picked as date of buying puts. (If 05th
is holiday, then puts should be bought on 4th)

• Strike Price - One should take slightly out of the money puts. Example - if price
on 05th of the month is 4921, then one should buy 4900 puts.

• Buy Price and Sell price are end of day price.

• Markets makes weird moves couple of days before expiry. Hence, position
would be closed on Tuesday, 2 days before expiry.

• Starting Capital = Rs. 50000 and Lot size = 100

Results - Profit and Loss Sheet of last 7 months

Closing
Strike
Price on Buy Net
Price of Sell Price
5th of the Price Profit/Loss
Puts
month

March Series 4921 4900 201 65 -136

April Series 4647 4600 130 0 -130

May Series 5192 5100 96 258 162

June Series 4676 4600 109 428 319

July Series 4016 4000 185 6 -179

August Series 4502 4500 141 206 65

September
4352 4300 109 161 52
Series
Net Profit 153

Cash Flow Statement

Inve
Starting stme Balan Booked Closing
Cash nt ce Cash Cash
Position Amo Cash Position Balance
unt

2
March Series 50 000 010 29900 6500 36400
0

1
April Series 36 400 300 23400 0 23400
0

9
May Series 23400 13800 25800 39600
600

1
June Series 39600 090 28700 42800 71500
0

1
July Series 71500 850 53000 600 53600
0

1
August Series 53600 410 39500 20600 60100
0

1
September
60100 090 49200 16100 65300
Series
0

Return 30.6%

Formula used above Ü Investment Amount = Buy Price * Lot Size; Balance Cash =
Starting Cash Position - Investment Amount; Booked Cash Position = Sell Price * Lot
Size; and Closing Cash Position = Booked Cash Position + Balance Cash

What Lessons we can learn from this?

• There are many ways to make money provided one is persistent and
disciplined with the strategy.

• It is possible to have a trading strategy even when one cannot time the
market

• Simple Trading Strategies also work.

• No trading strategy works 100% of the time. Even if it works - 50% of the
time, it can be rewarding.

The purpose of the article is not to recommend any strategy but to provide food for
thought.

Risk - The strategy may not work if Nifty trades sideways.