Hi I am planning to implement Nifty PMCC strategy in my Portfolio. This is what I have planned and need input on how to improve it
So i have capital of 11L Which is 50*21500 to cover buying
So I need your view on this and help with below question
@Jason_Castelino I have seen your response on many covered call post. hoping you can help or guide
Yeah. I do covered call. But that’s only for the holdings that I already have. I don’t buy stocks or ITM options just for the purpose of implementing covered calls.
I have my own valuation mechanism. If I feel I am buying nifty at 21000, then I sell put of 21k. When that comes in the money, I switch to niftybees and then start selling high level call, say 21500ce of next month.
I already have index etf of 11L from which i want to switch to PMCC (Long ITM CE + liquidbees) having same risk but planning to earn extra income by covered call
Another option would be not sell index etf and sell OTM call with adding 1L extra margin ( Will miss some fixed income which i might get from liquidbees)
Which would be good ?
I would prefer continuing with bees and selling calls against this.
ITM options have some premium in it. That will be equivalent to the interest that you are planning to earn. There is no way you can have arbitrage here.
@Jason_Castelino What are the risk if I do covered calls using synthetic future, as it gives more leverage than owning nifty etf.
E.g Say, I open a synthetic future(buy atm call & sell atm put) position for long dated option( may/June) and sell a otm call(25/30 delta) in current month at the start of month( February).
Kindly respond.
For PMCC or Synth fut question, what are your plans when nifty were to go down?
My answer would depend on that
If you intend to buy in cash, then better to sell otm PE like cash secured puts.
But if you’re buying deep itm or long fut/Synth and dreaming of selling otm CE for peanuts, it’s recipe for disaster.
Better do bear call spreads with otm CE.
The only proper way for covered call is to have underlying in cash, otherwise cost of carry (premium) is crazy. Nifty used to avg 50-70 per lot monthly rolling, last few months it’s in 150pt range.
And if one is so smart in timing, instead of just doing CC, just long PE as hedge when you sense downside and maybe fund the put partly with short CE.
Why not go for regular futures instead of synthetic futures?
Thank you for answering, but isn’t the cost of carry(interest/premium) is cancelled out by each other(call-put) for synthetic future unlike future which has. Also since I am taking about covered call using leaps with otm put hedge, which is showing me fixed loss in sensibull. Hence, in the event of sharp down or correction,I have my loss fixed.
Thank you for your answer. But isn’t the future have premium/interest factored in their price, which becomes equal to cash market price on expiry? Hence, I don’t want to pay this interest/cost of carry.
Since in synthetic future both put and call cancel each other’s interest/cost of carry.
Future can be of maximum far month I.e. 3 months ahead, while synthetic future can be for expiry of leaps, say I am taking synthetic future ( call & put ) of December expiry. Hence, no pressure of rollovers, and I will keep eating the premium from otm calls. Also we know yoy basis nifty will move up only, so profit from future also.
I want to save stt and other taxes which is high for future and less for options.
Kindly clarify as I am just starting , please explain me like I am five.
Thanks
You post some real example rates in live mkt, and we’ll compare that with spot price, then you will see.
Also don’t just use ltp, open mkt depth and check the spread. The spread increases as one goes far out. To be realistic, do synthetic long with 2024 DEC options.
There is no way, if you’re long Synth and short otm CE, downside risk becomes limited.
If you’re hedging with PE, it’s going to cost, and then this is no longer CC, it’s more like an iron condor. Limited up and down side.
Wowww. And you think synthetic futures won’t have any premium on it.
If that was the case every month I would buy synthetic future and sell futures. Free money.
There is no free lunch in markets mate.
Other things are covered by @Chirag1
Suggestion: Don’t break your head on all this. It won’t work. Keep your bees as it is and sell calls if you wanna do covered calls. Converting it to futures or synthetic futures will only lead to lower returns.
@Chirag1 @Jason_Castelino Thank you both of you for the clarifications and prompt response.
Yeah, I too think it is too good to be true.Niftybees is the way then as suggested.
Thanks a lot!
@Jason_Castelino just want to check when you buy etf and sell CSP when put become ATM or on expiry?
And how will you close etf and covered call position if call expire ITM
Depends. Sometimes if I feel we may reverse right away I either switch to futures or buy etf as soon as it comes in the money. Sometimes even before it comes ITM. Like if I have short 21k out and at 21100 itself I feel we may reverse then I close out and buy futures. But let’s say we open huge gap down at 20800, then I wait to eat up time value of that option before I switch.
I don’t. I just sell in futures. Holding etf and selling futures gives 8 percent annualised return. Simultaneously I can again sell lower level put for a very low margin since my future short is open. Shorting futures against etf also helps me reduce my profits from Fno trading if markets go up. If markets come down again then I just have to close my futures and my etf will remain as it is. And then sell call against this.
Ah. I make a lot of adjustments.
I haven’t fully understood what all you’ve discussed with respect to all the adjustments etc but just out of curiosity how much additional annual return on an avg have you been able to generate doing CCs over the last few years?
Can you explain holding etf and selling future will give 8 percentage?
Explained here.
Thanks, very detailed
one off topic question FnO loss will not be offset with salary right?
Also are there any tool you use to see how this adjustment impact overall position. For you it might be easy as you are doing it for long time, but if we can have some tool to calculate these adjustment impact it would be great
