The Hindu Business Line : Buying L&T calls may be profitable

FRIDAY'S trading at the derivatives segment at the NSE saw call options on select stocks end in the positive territory. Here are some buy/sell strategies based on the day's trading:

Equity options: The March 340 calls on Reliance clocked the highest volumes on that stock, with 278 contracts.

Though Reliance ended in the positive territory on Friday, the stock may well reverse direction on Monday. Dealers who expect the stock to move down can write the March 340 calls. The calls fetched 10.65 points at the day's close. The entire premium consists of time value, but a slow time-decay does not quite favour the writer.

The March 200 calls on L&T clocked the highest volumes on that stock, with 189 contracts.

The immediate outlook on L&T appears somewhat positive. Dealers who share similar view can consider buying the March 200 calls, which cost 9.6 points at the day's close. The entire premium consists of time value, as the calls are OTM. Two factors could benefit the buyer — slow time decay and low implied volatility of the option compared with the stock's historical volatility.

After sharp downtick on Thursday, Satyam closed in the positive side in the spot market on Friday. Equity calls on Satyam also moved in tandem, with the March 260 calls ending 5 points higher. It was the March 280 calls, however, that clocked the highest volumes with 536 contracts.

The immediate outlook on Satyam does not appear positive. Dealers who share similar view on the stock can consider writing the March 300 calls. The calls fetched 10.10 points at the day's close. A slow time-decay does not, however, benefit the writer.

A caveat. Satyam has been very volatile in last few days. Betting on implied vols at this point in time may hence not be very rewarding.

Index options: With the sentiment in the spot market gravitating towards the positive territory, demand for OTM calls on the Nifty improved. The March 1200 calls, which are OTM by 22 points, clocked the highest volumes in this segment, with 209 contracts.

The immediate outlook on the market appears negative. Dealers can hence consider writing the March 1200 calls. The calls fetched 13.30 points at the day's close. The time decay is decent and favours the writer.

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