About

Rajveer Rawlin received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher having followed capital markets in the US and India since 1993. His research interests includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Sunday, 5 April 2015

Option Trading Strategy Indian Market

I expect the market to be volatile leading up to and beyond the RBI meeting on Tuesday the 7 th. It is best to be two sided in this market. The 20 DMA has crossed below the 50 DMA on the Nifty so short term bias maybe to the downside. Regardless a two way strangle seems to offer good value.

Nifty - Current Spot - 8594
Nifty 8400 Put - 51
Nifty 8800 Call - 44
CNX NIFTY (^NSEI)

You can buy the above two options for a combined premium of 95. The break even occurs at 8305 and 8895. If market stays between the break even points you lose 95X 25 (per nifty lot) at expiry. I expect a big move in the market post the RBI decision that will cause a break out of this trading range.

As of Market close on April 10:
Nifty - Current Spot - 8780
Nifty 8400 Put - 19
Nifty 8800 Call - 104
Profit = 30%

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My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.