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How to make profit using bullish option trading strategies?

How to make profit using bullish option trading strategies?
by Nilesh Jain 27/12/2016

Bullish options trading strategies are used when options trader expects the underlying assets to rise. It is very important to determine how much the underlying price will move higher and the timeframe in which the rally will occur in order to select the best options strategy. The simplest way to make profit from rising prices using options is to buy calls. However, buying call is not necessarily the best way to make money in moderately or mildly bullish market. Following are the most popular strategies that can be used depend upon different perspectives.

Extremely bullish- Long call

Moderately bullish- Bull call spread

Long Call

When to initiate a Long call?

Long call is best used when you expect the underlying asset to increase significantly in a relatively short period of time. It would still benefit if you expect the underlying asset to rise slowly. However, one should be aware of the time decay factor, because the time value of call will reduce over a period of time as you reach near to expiry.

Why to use the Long call

This is a good strategy to use because downside risk is limited only up to the premium/cost of the call you pay, no matter how much the underlying asset drops. It also gives you the flexibility to select risk to reward ratio by choosing the strike price of the options contract you buy.

Strategy Buy/Long Call Option
Market Outlook Extremely Bullish
Breakeven at expiry Strike price + Premium paid
Risk Limited to premium paid
Reward Unlimited
Margin required No

Let’s try to understand with an Example:

Current ABC Ltd Price 8200
Strike price 8200
Premium Paid (per share) 60
BEP (strike Price + Premium paid) 8260
Lot size 75

Suppose the stock of ABC Ltd is trading at Rs. 8,200. A call option contract with a strike price of Rs. 8,200 is trading at Rs. 60. If you expect that the price of ABC Ltd will rise significantly in the coming weeks, and you paid Rs. 4,500 (75*60) to purchase single call option covering 75 shares. So, as expected, if ABC Ltd rallies to Rs. 8,300 on options expiration date, then you can sell immediately in the open market for Rs. 100 per share. As each option contract covers 75 shares, the total amount you will receive is Rs. 7,500. Since you had paid Rs. 4,500 to purchase the call option, your net profit for the entire trade is, therefore Rs. 3,000. For the ease of understanding, we did not take into account commission charges.

Analysis Of Long Call Strategy:

Long call strategy limits the downside risk to the premium paid which is coming around Rs. 60 per share in the above example, whereas potential return is unlimited if ABC Ltd moves higher significantly. It is perfectly suitable for traders who don’t have a huge capital to invest but could potentially make much bigger returns than investing the same amount directly in the underlying security.

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Which is the Best Tax Saving Investment? - ELSS or Pension Mutual Funds

Which is the Best Tax Saving Investment? - ELSS or Pension Mutual Funds
by Nutan Gupta 27/12/2016

Equity Linked Savings Scheme (ELSS) and Pension Mutual Funds are both tax-saving instruments and are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Listed below are some of the differences between ELSS and Pension Mutual Funds.

ELSS Pension Mutual Funds
Investment ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products. Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments. There are only 3 pension fund schemes:

- Reliance Retirement Fund
- Franklin Indian Pension Plan
- UTI Retirement Benefit Pension Fund
Returns Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%. The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period.
Lock-in Period 3 years Until you reach the age of 58
Risk Factor ELSS carries some risk. However, research suggests that ELSS has given positive returns over a longer period of time. As the returns depend on the performance of market, there is some amount of risk attached with pension mutual funds.
Online Option One can start an ELSS online. One can invest in pension mutual funds online.
Liquidity One can withdraw money from ELSS anytime after 3 years. One cannot withdraw the funds before retirement. The standard retirement age is taken as 58 years.
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Which is the Best Tax Saving Investment? - ELSS or National Saving Certificate

Which is the Best Tax Saving Investment? - ELSS or National Saving Certificate
by Nutan Gupta 27/12/2016

Equity Linked Saving Scheme (ELSS) and National Saving Certificate (NSC) are both tax-saving investments and are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Listed below are some of the differences between ELSS and NSC.

  ELSS National Saving Certificate
Investment ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products. NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices.
Returns Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%. The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds.

The current interest rate is 8%.
Lock-in Period 3 years 5 years
Risk Factor ELSS carries some risk. However, research suggests that ELSS has given positive returns over a longer period of time. NSC carries low risk as the interest rate is fixed and it is backed by the Government of India.
Tax Liability In ELSS, the amount received at the end of maturity is not taxable. Interest earned on NSC is taxable
Liquidity One can withdraw money from ELSS anytime after 3 years. One can withdraw money from NSC anytime after 5 years.
Minimum Investment Rs. 500 Rs. 100
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Roadside Assistance Cover & its Benefits!

Roadside Assistance Cover & its Benefits!
by Nutan Gupta 27/12/2016

Imagine running out of fuel and being stranded at an unknown location! What would you do? Freak out? Relax! This is when the roadside assistance cover comes to your rescue. As the name suggests, a roadside assistance cover provides a host of benefits to the policyholder in the time of need. This add-on cover is the most useful during monsoons as a vehicle is more prone to breakdown in this season.

What does Roadside Assistance Cover include?

Coverage Benefit
Towing service If your car breaks down in the middle of the road and is not drivable, this cover comes handy. Depending on your service provider, they will tow your vehicle to a mechanic absolutely free of cost to a limited number of miles. If you wish to take your vehicle further, you will be charged extra.
Battery Jump-start If your car battery fails and you are stranded anywhere, you can use this cover. A technician will come to your location and jump-start your car.
Lockout service If you have accidentally left your keys inside the vehicle, or it is stolen or lost, a qualified service provider comes and help you with a pair of new keys. However, you will have to bear the cost of new keys.
Fuel Delivery service If your vehicle runs out of gas while driving, the required fuel is delivered to your location. While the delivery is free of cost, one has to pay for the fuel charges.
Flat tire service Flat tire is something which can happen to anyone anytime. If you do not know how to replace a flat tire, or do not have a spare tire in your vehicle, you can use this service. A service professional will come to your location and replace the flat tire.

Is it important to buy roadside assistance cover?

Considering the wide range of coverage which roadside assistance offers, it is extremely important to purchase this add-on. Be it a new vehicle or old, emergencies like running out of fuel or flat tire can happen to anyone anytime. A roadside assistance cover saves you from the out-of-pocket expenses. Also, if you commute to remote places on a daily basis, this add-on can be of great help to you.

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5 Stocks Recommendation For Feb 25th, 2019 – Mar 1st , 2019

Stock recommendations
by Gautam Upadhaya 21/07/2017

1) Balkrishna Industries Ltd - Buy

 

Stock Balkrishna Industries Ltd
Recommendation The stock has witnessed a breakout from its sideways consolidation
backed by an uptick in volumes on the daily chart. It has also shown
positive momentum on the daily MACD-Histogram, an indication that
the uptrend will continue in the short term.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs850-855 Rs892 Rs827
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
BALKRISIND 16543 Rs1467/741 Rs987

 

2) REC Ltd - Buy

 

Stock REC Ltd
Recommendation The stock has witnessed a consolidation breakout backed by an uptick
in volumes on the weekly chart. Derivative data indicates fresh long
positions in the stock.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs131-133 Rs139 Rs127.8
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RECLTD 26068 Rs148/89 Rs119

 

3) Mahindra & Mahindra Ltd - Buy

 

Stock Mahindra & Mahindra Ltd
Recommendation The stock has witnessed a rounding bottom formation and has managed
to close above its 10-DEMA, short-term resistance level on the daily charts.
It has also formed a bullish hammer candlestick on the weekly charts.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs641-647 Rs672 Rs625
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
M&M 80272 Rs992/615 Rs771

 

4) Raymond Ltd - Buy
 

Stock Raymond Ltd
Recommendation The stock has witnessed a breakout above its resistance levels backed by an uptick in volumes on the daily charts. It has also shown strong momentum on the daily MACD-Histogram.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs721-728 Rs755 Rs705
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RAYMOND 4478 Rs1151/593 Rs806

 

5) HDFC Bank Ltd - Sell

 

Stock HDFC Bank Ltd
Recommendation The stock has formed a bearish engulfing candlestick pattern backed by an uptick in volumes on the daily chart. Derivative data indicates fresh short positions in the stock.
Buy/Sell Range Target Stop Loss
Sell (March Futures) Rs2105-2120 Rs2030 Rs2164
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
HDFCBANK 569029 Rs2219/1830 Rs2041

 

Research Disclaimer

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What Stocks/Shares (Equity) Are And How Do Shareholders Make Money?

how do Shareholders Make Money
by Priyanka Sharma 05/08/2017

Jargon is the biggest hurdle to every new investor, particularly when it comes to those who want to invest in stocks. For that reason, it's important that before someone starts focusing on losses and gains, or the BSE versus the NSE, it's important to understand what stocks really are and what they represent. You can't make any money until you grasp the fundamentals of the tools you're working with, after all. 

Put simply, stocks represent a share in a company. If someone goes online and buys a share of ONGC stock then that individual now has a stake in how well ONGC does. If the company does well, the investor does well. If the company does poorly, then the investor can lose money. How much one stands to gain or lose depends on how much stock that person has in the company, and how that particular company performs.

Let's use an example to make this a little bit clearer. Say that Company ABC wants to attract investors. As such it divides itself up into 5,00,000 shares of stock. For every person who buys stock, that money goes to the company so it can hire new employees, build new stores and generally attempt to get a bigger share of the market. Seen this way, it's clear that trading stock is great for the company. but how do you, the investor, make money?

Method 1: Make Money Trading Stocks
Trading stocks is the most well-known way to make money on the stock market. The price of a stock is liquid, climbing and falling within the space of days or even hours. The trick to make money as a trader is to buy the stock when its price is low, and to sell it when the price rises. So, say that a stock broker heard Reliance Industries is claiming a bigger part of the market and it's poised to rebound from a slump. He or she might buy stock at Rs.50 a share, and wait. If the stock goes up then the broker can sell it at a profit. So if the stock climbs to Rs.90 a share the broker has made a Rs. 40 per share profit. That's not terribly impressive for a single share, but if the broker purchased 100 shares, or 1,000 shares then that profit is going to go up pretty quickly.

It doesn't matter whether you hang onto a stock for an hour, a year or a decade; if you sell it for more than you paid for it you made a profit.

Method 2: Making Money With Stock Dividends
When someone is a stockholder in a company, that company's profits are also the stockholder's profits. The increasing value of a stock is just one instance of this. Another may be dividends paid to shareholders by the company. In plain English, that means that every quarter the company will take a segment of its profits, split it up and give those profits to stockholders according to how much stock someone has. The more profit the company makes, the more money the stockholder gets paid at the end of the quarter. The ideal situation for you to be in is to hold stock in a company that pays dividends, and which is making record profits. If you hold onto your shares then as long as the company is making money, you're making money. In essence you're being paid to own the stock, because when you bought it you paid for a share of the company. That share of the company comes with your own little piece of the profits pie.