Options Trading Strategy - Bull call spread

Options Trading Strategy - Bull call spread
by Nilesh Jain 31/01/2017

What is Bull Call Spread Options Trading strategy?

A Bull call spread option trading strategy involves two call options with different strike price but same expiration date. Bull call spread is also considered as a cheaper alternative to long call, because it involves selling of call option to offset some of the cost of buying calls.

When to initiate a Bull Call spread?

Bull call spread options trading strategy is used when the option trader thinks that the underlying assets will rise moderately in the near term. This options trading strategy is basically used to reduce the upfront costs of premium, so that less investment is required and it can also reduce the effect of time decay.

How to Construct the Bull call spread?

Buy 1 ITM/ATM Call

Sell 1 OTM Call

Bull call spread is implemented by buying in-the-money or at-the-money call option and simultaneously selling out-the-money call option of the same underlying security with the same expiry.

Strategy Buy ITM/ATM Call+ Sell OTM Call
Market Outlook Moderately Bullish
Breakeven at expiry Strike price of buy call + Net Premium Paid
Risk Limited to Net premium paid
Reward Limited
Margin required Yes

Let’s try to understand with an Example:

ABC LTD Current market Price 8150
Buy ITM Call (Strike Price) 8100
Premium Paid (per share) 60
Sell OTM Call (Strike Price) 8300
Premium Received 20
Net Premium Paid 40
BEP (Rs.) 8140
Lot Size 75

Suppose the stock of ABC Ltd is trading at Rs. 8150. If you believe that price will rise to 8300 or before the expiry, then you can buy in-the-money call option contract with a strike price of Rs. 8100, which is trading at Rs. 60 and simultaneously sell out-the-money call option contract with a strike price of 8300, which is trading at Rs. 20. You paid Rs. 60 per share to purchase single call and simultaneously received Rs. 20 by selling 8300 strike price. So, the overall net premium paid by you would be Rs. 40.

So, as expected, if ABC Ltd rallies to Rs. 8,300 on or before option expiration date, then you can square off your position in the open market for Rs. 160 by exiting from both legs of the trade. As each option contract covers 75 shares, the total amount you will receive is Rs. 12,000. Since you had paid Rs. 3000 to purchase the call option, your net profit for the entire trade is, therefore Rs. 9,000. For the ease of understanding, we did not take in to account commission charges.

The Payoff Schedule

On Expiry ABC LTD closes at Net Payoff from Call Buy (Rs.) Net Payoff from Call Sold (Rs.) Net Payoff (Rs.)
7600 -60 20 -40
7700 -60 20 -40
7800 -60 20 -40
7900 -60 20 -40
8000 -60 20 -40
8100 -60 20 -40
8140 -20 20 0
8200 40 20 60
8300 140 20 160
8400 240 -80 160
8500 340 -180 160
8600 440 -280 160
8700 540 -380 160

Bull call spread’s payoff chart:

Options Trading Strategy

Analysis of Bull call spread Options Trading strategy

The Bull call spread options trading strategy is best to use when investor is moderately bullish because investor will make maximum profit only when stock price rises to the higher (sold) strike. Although your profits will be limited if the price does not rise higher than you expected.

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Top 10 Mutual Fund Investments you should consider in 2017

Top 10 Mutual Fund Investments you should consider in 2017
by Nutan Gupta 31/01/2017

There are a lot of mutual fund schemes available in the market for investing. However, it is a very challenging task to choose the best scheme among all the schemes. In the last few years, mutual funds have been considered as the best investment option for wealth creation. Investing in the right mutual fund schemes can improve the performance of your portfolio and give you exceptional returns.

Below are 10 mutual funds across different categories which have performed consistently over the years.

Large-cap Mutual Funds Category

Large-cap funds are the one which invest a significant proportion of their corpus in companies with a large market capitalisation.

SBI Blue Chip Mutual Fund

Launched in the year 2006, SBI Blue Chip Fund weights heavily on the financial services sector. The fund comes with an exit load of 1% if an investor wishes to exit before 1 year of investing. If he exits after 1 year, there is no exit load applicable. The total assets under management (AUM) of the fund stands at Rs. 10,105.45 crore as on 31st December, 2016. The fund is suitable for investors who want exposure to blue chip Indian companies from a medium to long term perspective.

Trailing Returns (%)
1-year 3-year 5-year 10-year
SBI Blue Chip Fund 8.01 19.33 19.76 9.82
Catogory 7.73 13.36 13.55 8.64

Reliance Top 200 Mutual Fund

Launched in the year 2007, Reliance Top 200 Fund invests 23.10% of its corpus in the banking sector. Managed by Sailesh Raj Bhan and Ashwani Kumar, the total assets under management of the fund stand at Rs. 2,338 crore as on 31st December, 2016. This fund is suitable for investors who are willing to take moderately high level of risk.

Trailing Returns (%)
1-year 3-year 5-year 10-year
Reliance Top 200 Fund 4.98 17.85 17.98 -
Catogory 7.73 13.36 13.55 -

Diversified or Multi-cap Category

Diversified or multi-cap funds are the one which invest across all the categories like large cap, mid-cap and small-cap stocks.

Birla Sun Life Equity Mutual Fund

Birla Sun Life Equity Fund was launched in the year 1998 and the fund has given returns of 24.50% since then. The objective of the scheme is long term growth of capital, through a portfolio with a target allocation of 90% equity and 10% debt and money market securities. Managed by Anil Shah, the total assets under management of the fund currently stand at Rs. 3,451 crore as on 30th November, 2016.

Trailing Returns (%)
1-year 3-year 5-year 10-year
Birla Sun Life Equity Fund 19.35 24.20 22.05 11.65
Catogory 8.36 18.02 16.92 10.71

ICICI Pru Value Discovery Mutual Fund

ICICI Pru Value Discovery Fund is an open-ended equity fund which adopts a bottom-up approach to identify and pick its investments. Managed by Mrinal Singh, the total assets under management of the fund stand at Rs. 14,919 crore as on 31st Secember, 2016. The fund was launched in the year 2004 and has given returns of 22.17% since then.

Trailing Returns (%)
1-year 3-year 5-year 10-year
ICICI Pru Value Discovery Fund 9.19 24.93 23.84 15.86
Catogory 10.19 18.25 16.89 10.90

Small & Mid-cap Category

The funds which invest in a mix of small-cap and mid-cap stocks come under the category of small and mid-cap funds.

HDFC Mid-cap Opportunities Mutual Fund

HDFC Mid-cap Opportunities Fund is an open-ended equity scheme which was launched in the year 2007. Managed by Chirag Setalvad, the total assets under management of the fund stand at Rs. 12,848 crore as on 31st December, 2016. The fund has given returns of 16.65% since its launch. The fund is suitable for investors who are willing to take a moderately high level of risk.

Trailing Returns (%)
1-year 3-year 5-year 10-year
HDFC Mid-cap Opportunities Fund 16.57 28.91 25.86 -
Catogory 9.33 24.65 21.82 -

SBI Small & Mid-cap Mutual Fund

Managed by R Srinivasan, SBI Small & Mid-cap Fund was launched in the year 2009. The fund has given returns of 19.17% since then. The fund is suitable for high-risk appetite investors. The total assets under management of the fund stands at Rs. 719 crore as on 31st December, 2016. The fund invests majority of its corpus in the consumer goods sector.

Trailing Returns (%)
1-year 3-year 5-year 10-year
SBI Small & Mid-Cap Fund 6.21 37.98 29.92 -
Catogory 11.06 32.15 26.50 -

Hybrid Category

Hybrid funds are the one which consist a mix of equity and debt.

HDFC Prudence Mutual Fund

HDFC Prudence Fund is an open-ended balanced scheme which was launched in the year 1994. Managed by Prashant Jain, the total assets under management of the fund stands at Rs. 14,953 crore as on 31st December, 2016. The fund has a total of 94 stocks in its portfolio and has a higher exposure to the financial sector.

Trailing Returns (%)
1-year 3-year 5-year 10-year
HDFC Prudence Fund 15.08 19.95 17.11 13.90
Catogory 9.59 15.66 14.65 10.29

ICICI Prudential Balanced Mutual Fund

ICICI Prudential Balanced Fund was launched in the year 1999 and has given returns of 14.72% since its launch. The fund seeks to optimize the risk-adjusted return by distributing assets between both equity and debt markets. Managed by Atul Patel, Manish Banthia and Sankaran Naren, the total assets under management of the fund stands at Rs. 5,098 crore as on 31st December, 2016.

Trailing Returns (%)
1-year 3-year 5-year 10-year
ICICI Prudential Balanced Fund 18.26 19.97 19.42 11.86
Catogory 9.59 15.66 14.65 10.29

ELSS Category

The funds in the equity linked savings scheme (ELSS) category are eligible for a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act. ELSS funds come with a lock-in period of three years.

Birla Sun Life Tax Relief 96

Launched in the year 1996, Birla Sun Life Tax Relief 96 has given returns of 25.34% since its inception. The fund has a total of 51 stocks in its portfolio. Managed by Ajay Garg, the total assets under management (AUM) of the fund currently stands at Rs. 2,358 crore.

Trailing Returns (%)
1-year 3-year 5-year 10-year
Birla Sun Life Tax Relief 96 7.53 21.52 20.95 10.98
Catogory 9.39 18.85 17.40 9.91

Reliance Tax Saver Mutual Fund

Launched in the year 2005, Reliance Tax Saver Fund has given returns of 14.85% since its inception. The fund has outperformed its category returns over a longer period of time. Managed by Ashwani Kumar, the fund has a total of 57 stocks in its portfolio. The total assets under management of the fund currently stand at Rs. 5,882 crore.

Trailing Returns (%)
1-year 3-year 5-year 10-year
Reliance Tax Saver Fund 10.03 25.12 22.81 12.48
Catogory 9.39 18.85 17.40 9.91

Source: Ace Equity

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When To Review Your Life Insurance

When To Review Your Life Insurance
by Divya Nair 01/02/2017

With changes in our life situations, our insurance needs also keep fluctuating. Purchasing an insurance policy once may not necessarily suffice the ever evolving insurance needs. Here comes the importance of reviewing your life insurance cover every time there is a major change in one’s life. Know what those changes are in the following points:

Newly Married -

You might have purchased an insurance policy earlier in life when you had no dependents. But once married, you start sharing your life with your spouse. If your spouse depends on your income, you need to review and explore ways of maximizing the insurance cover purchased earlier as that might be enough for both of you.

Became A Parent

After you become a parent, life insurance policy can help your family meet current and future expenses in case of an untoward event (in this case premature death). As your children would completely be dependent on you until they start earning, it becomes critical that you re-evaluate the cover amount.

When You Take On Higher Liabilities -

If you were to pass untimely, the repayment burden of the liabilities that you had taken earlier in life falls on your family.

Child’s Growing Years -

This phase of life brings increased responsibilities like your children’s’ education, their tuition fees etc. Re-adjustment in your insurance cover may help you determine the right amount, ensuring that your spouse is not burdened with such financial crisis in your absence.

Change of Career -

With change in career or job profile, your income levels change as well. A rise in your income levels up your and your family’s lifestyle. Once used to a lifestyle, your family may find it difficult to cut down their expenses when you are not around anymore.

When Retired -

If you are already retired, you may be able to discontinue your life insurance policies if you have a regular source of income in the form of your investments. If you are one of them who still have debts to repay but do not have a reliable income post-retirement, You should re-evaluate your policies to meet such expenses.

Conclusion -

Of course none of you wants to be underinsured even after purchasing a life insurance policy or paying for more than you actually need. The above factors hopefully may help you identify the major changes in life calling out for an appropriate review of your policies.

Get a Term Insurance Cover Now!

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Reasons Your Car Insurance Claims May Be Denied

Reasons Your Car Insurance Claims May Be Denied
by Divya Nair 01/02/2017

Auto insurance companies deny claims or reduce payment values in case of frauds or when insureds furnish any wrong information. A lot of people make such mistakes by being unaware of the grave consequences when the need arises. In such a situation, filing claims and receiving financial benefits could be a difficult task.

Some of the common reasons that may lead to rejection of your car insurance claims are:

Invalid License -

Either your license is fake, it has expired, or it is for a different vehicle category.

Wrong Usage Of Car -

You have a car insurance policy which states ‘for personal use’, but you use your car for commercial purposes. If you want to use the vehicle commercially, you should purchase a commercial car insurance policy.

Accident Under The Influence Of Alcohol -

An accident because of drink and drive offense (or any other intoxicant for that matter) may lead to rejection of insurance claims.

Failing To Intimate Insurer About A Theft/Accident Within Stipulated A Time -

In case of a theft or an accident, insureds are obliged to inform their insurance companies within 48-72 hours of the incident.

When Value Of Your Vehicle Depreciates -

Over time, the value of your vehicle depreciates. After few years, the value of your car tend to be lesser than the overall repair cost due to depreciation. In such a situation, your car insurance claim may be denied.

Policy Lapse -

Filing a claim for a lapsed policy would not help you in anyway and so it is necessary that you unfailingly pay your yearly premiums on or before the due date. Even if you are unbale to pay premiums on due dates, insurance companies provide a grace period to renew your insurance.

Conclusion -
Now that you know when your auto insurance claims may get rejected, why take the risk of getting less financial assistance or worst - not getting anything from your policy at all? Be honest and furnish every detail pertaining to the above factors to your insurer.

Buy a Car Insurance Cover Now!

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Things to Remember When Reviewing Your Financial Investments

Things to Remember When Reviewing Your Financial Investments
by Divya Nair 01/02/2017

A regular review of investment portfolio helps in monitoring if investors are meeting their financial goals as planned. It is, therefore critical that every investor maintains a discipline to check his/her savings or investments and make changes whenever the need arises. Convinced enough to revisit your investments? Consider these essential factors:

Set A Regular Review Date -

Setting a regular review date allows investors to conduct a regular check-up of their investments in a disciplined manner. A portfolio can be reviewed monthly, quarterly or in a yearly basis.

Maintain Your Investment Strategy -

Usually, people tend to get excited at any seem-to-be profitable opportunity/tip suggested by friends or peers and end up taking decisions completely opposite to their strategies. Investors should not get carried away with such suggestions and follow one strategy.

Consider Your Risk Profile -

Readjustments in an investment portfolio should always be in-line with the risk profile of investors. Sometimes an investment which looks as an opportunity can bring a lot of extra risk to the portfolio.

Look Beyond Buy At Low & Sell At High -

Rebalancing isn’t always about buying at low and selling at high. It also means identifying opportunities where investors may find a better stock or any other investment asset at a fair value.

Tax Implications Due To Rebalancing -

Tax implications should be taken into consideration while making any alteration in a portfolio. Many a times investors tweak their portfolios a lot for the sake of re-balancing. Missing this crucial aspect might lead to a heavy tax burden of 30% on profit (for stocks or equity mutual funds if holding period less than a year for).

Consult An Advisor -

Taking advice from an advisor or a professional is better if you are new to investments or find that the changes you need in your portfolio are complex to make.

Conclusion -

The phrase - Take care of your money and it will take care of you - holds true when it comes to reviewing investments. Monitoring our savings and investment portfolio helps us identify the poor-performing assets in it and make timely needed adjustments.

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7 Hacks To Lower Your Car Insurance Costs

7 Hacks To Lower Your Car Insurance Costs
by Divya Nair 01/06/2017

Buying a new car today might be cheaper than actually using one in our daily lives. The running cost of a car today is definitely higher than the day it was bought. While nothing can be done about the rising premiums on car insurance, we can certainly try cutting down the overall costs on our insurance covers.

Try These 7 Smart Ways To Save On Your Car Insurance Cost:

1. Accumulating NCB - Car owners can accumulate No Claim Bonus (NCB) by not claiming for minor repairs. Many insurance companies usually reduce premiums for the preceding year if you don’t make any claims in a year. Moreover, it is better to spend on your own on minor repairs than file a claim and lose the no-claim bonus.

2. Transferring NCB -

You can transfer your NCB when you sell your old vehicle and buy a new one. When getting your new car, all you have to do is inform your insurance provider that you wish to transfer your NCB. That done, the insurer will provide you with a certificate stating the details of the new car.

3. Apply For Discounts -

There are few insurance companies that offer discounts based on your age and profession. Make sure you apply for it.

4. Install Anti-Theft Devices -

People can also reduce the premium costs by installing smart anti-theft devices like alarms and tracking devices. By installing such safety devices, vehicle owners can get substantial discount.

5. Drop Unnecessary Add-On Covers -

We are often advised to buy the necessary add-on covers while buying a new car. But an add-on should not be bought only for the sake of buying it. One should drop any unnecessary add-on covers which will otherwise increase the premium costs.

6. Opt For Voluntary Deductible -

Vehicle owners can opt for a voluntary deductible and get further discount. But this also means that they will have to bear the claim cost upto the value of the deductible chosen.

7. Compare Quotes Online Before Purchasing -

It is wise to do an online comparison of policies from a number of companies before buying a policy. Most insurance companies offer lower premiums online. You may miss out on huge discount if you do not compare various plans.

Conclusion - With the rising cost of vehicles and changing lifestyles, car insurance cost is unlikely to go down in times to come. With these 7 ways mentioned above, we hope you will be able to lessen that extra cost on car insurance.

Buy a Car Insurance Cover Now!