what option trading strategies we must use…when companies announces BUYBACK of shares…Now DRReddy is going for buy back offer…i am holding DRREddy shares 100 QTY @ 3100 …what must be my option strategy
Usually when companies announces a buy back, the stock price goes up. The buy back happens when the company feels that the the share prices are too low and the valuations are not justified. Hence one of the best strategy would be to sell Puts as the chances of a price drop is very low.
Btw, for other generic option stratergies you can have a look at this - http://zerodha.com/varsity/module/option-strategies/
Ideally if share buyback is happening then prices will go up. If one is worried for prices going down then one can buy OTM puts for insurance or can write OTM calls.Company said it will be buying maximum up to 2.6% of existing paid up capital with each share price not more than Rs 3500.
I would write calls of strike price more than 3500 and compromise my profits if it goes beyond 3500.Basically covered call writing.
You can take your own call by doing some more research.