Plunge in Bajaj Auto is an opportunity to make money through options

Discussion in 'Traders Corner' started by Michael Gonsalves, Jun 14, 2022.

  1. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Jun 26, 2016
    Likes Received:
    Traders have to keep alert for trading opportunities that may arise anytime. One such opportunity arose today in the case of Bajaj Auto.

    Bajaj Auto's credentials as a blue-chip cannot be denied. Apart from quality management, strong brand etc, it has cash on books of Rs 19000 crore which amounts to Rs 660 per share. The dividend yield is 3.8%.

    The announcement of deferral of the buy-back led to a knee-jerk reaction amongst investors & traders causing the stock to plunge more than 6% though it recovered a few percentile points towards the closing.


    Because I like Bajaj Auto and would like it to be in my portfolio, I sold a Put at the strike price of Rs 3500. 3500 is also the bottom made by the stock on 6th May and so it is likely to find support there.

    I received a premium of Rs. 100 per share which amounts to Rs. 25000 as the lot size is 250. The margin money required for the trade is Rs. 125000. However, the funds required to take delivery of the stock is Rs 875,000. My return on the entire capital is 2.85%.

    So, if the stock closes above Rs 3500 on 30th June, I will get to keep the premium of Rs 25000. However, if it closes below that I will take delivery and thereafter sell Calls on it.