I have 400 shares of Infosys, and I don’t intend to sell it. Looking at the movement of Infosys over the last year, suggest an option strategy to make money on Infosys without any money in my trading account, and involving minimal risk. Also, is such a strategy called something?
As you will see that only 2 months in the last 12 months has INFY stock gone up by more than 6%. And those 2 times it has crossed 10%,
So here is what could be done, Pledge the INFY stock (400 shares), and when a client pledges and takes completely hedged/safe positions we don’t ask for the 10% margin.
Covered Call
You pledge shares and short call options. Since the average range is 6%, the idea is to short calls which are around 6% higher than the Infy market price and to do this every month as long as the client doesn’t intend to sell his stock. So every month he can keep pocketing some premium.
So if Infy is at 4000, short 4250 calls( 6% away), as long as INFY remains below 4250, you make profits from the call option, and when the price goes above 4250 your loss on call option can be negated by a a gain in the stock.
The risk with such a strategy is if INFY shoots up 25% because he will end up not making that gain on the stock.
In case you don’t want to not take the above risk
Bear call spread
Short 4250 calls, but along with it buy a 4500 call just in case INFY does a big move on the upwards. Since 4500 call is far away, the premium required to buy also will be very less.
The above 2 strategies are used commonly by HNI’s and MF’s, to write calls above the average historical range to keep making small amounts of money on their stock holding, which will otherwise not yield anything. "
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