Q1. Please do not make fun if there is something stupid in my doubt. I want to buy 750 nifty bees at current price of 1185 involving an investment of 888,750/-. That is actual cost. As per the zerodha calculator, I will have to shell out 440/ for buying and selling them at 1185. Actually niftybees should be trading at 1128 if it did not have the premium. I expect that this premium will continue even if it falls. Nifty may 11400 ce (monthly) is at 250. I fundamentally assume that one day in future i will get 15% per annum return eventually in 10-15 years irrespective of politics and short term jitters like elections or small border skirmishes. Is this idea okay? Is there anything better than this where chance of capital loss is minimal? Please advise.
There is no guarantee nifty will give 15% returns every year.
There will be a big loss if nifty moves up by 1000 points. Your 11400 CE will be in a loss of more than 600 rupees per contract whereas only 100 rupees profit from nifty bees.
If you are doing this with nifty future, you will be in profit. Even if you are in loss, your call short position will be in profit and you can roll over the future for next month
Thanks for the reply. But I did not understand why I will be in a loss if nifty moves up by 1000 points. Niftybees will also have a 970 - 1030 point upmove. This will cover the losses in call option writing. In effect I will be in a profit of 475 points in case nifty expires above 11400 however high it may be. The only problem as I understand is if nifty falls by 1000 points or more and does not recover, If my understanding is incorrect then I am unfit to trade. As regards annual return, i see that nifty as on date is 11275 appr whereas it was about 1600 in April 2000. A growth of more than 7 times and the rate is about 10% which is also better than any other return. Please reply in case I have misunderstood or missed something here.
No, nifty bees value is only 10 percent of nifty index value. So a 100 points movement in nifty equals 10 points movement in nifty bees.
Thaks again. That is why I am buying 750 bees at 888750+ charges of about 450/-. Please let me know if this also has a serious problem.
If you buy 10 : 1, it is similar to covered call.
But if you do the same with futures, you can save lot of margin. For the same margin, you returns would be approximately 4 times higher than nifty bees.
The problem with futures is when it falls. The mtm causes lot of anxiety and drives us to sell them while niftybees even with a lesser value will be fine because you know that they will rise again. Thanks. By the way if there is any link where I can get to understand hedging futures with options, please share it. Will be grateful to you.