My Options trade in DIVISLAB enables me to buy the stock at Rs. 3344 even though the CMP is 3660

Discussion in 'Traders Corner' started by Michael Gonsalves, May 24, 2022.

  1. Michael Gonsalves

    Michael Gonsalves Member Staff Member

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    I made a trade in DIVISLAB which enables me to buy the stock at Rs. 3344 even though the CMP is 3660.

    DIVISLAB is acknowledged by all experts as a Blue-Chip multibagger stock. Its fundamentals have been nicely summed up by Navneet Saluja D'Souza.



    It is debt-free with cash of Rs 2800 crore, has a RoE of 28%, margins at 42% and is quoting at a FY24 P/E of 31x.

    However, the Company reported disappointing results and has been sold-off aggressively. It is down 16% in just the last five days.

    [​IMG]

    The brokerages have a mixed opinion about the future prospects of the stock.

    Philip Capital is the most bullish with a Target price of Rs. 5500 while Kotak is the most bearish with a target price of Rs 3500.



    Adopting the most conservative stance, I sold a PUT OPTION of the 3500 strike price for a premium of Rs 156.

    The effect of this is that if DIVISLAB closes below Rs 3500 by 30th June, I will have to take delivery of the stock by paying Rs 3500.

    However, because I have received Rs 156 for selling the Put, my effective cost price is Rs. 3500 - Rs 156 = Rs 3344.

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    If I have to take delivery of the stock, I will then sell Call Options on it and receive premium.

    Obviously, one should take this only if one has the funds to buy the stock at the strike price.

    This strategy is known as the WHEEL strategy by options traders and is explained in a simple manner in this website and this video.

    [​IMG]

     
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