Indian Stocks: Predictable behaviour

Tuesday, December 02, 2008

The volatility continues...and it pays to be a contrarian.  As I said this morning, increase risk when this market declines and reduce it during the inevitable pull-back, with an eye on Nifty 2475 as fair value.

Impact of yesterday's crash

You will recall I was short Nifty Dec 2700 calls at Rs 225 and long Nifty Dec 2500 puts at Rs93..along with Nifty and Bank Nifty.

I bought the Calls back at Rs 110...and sold the Puts at Rs 135. Both provided 50% return on investment price. This market roared back with little I have re-sold the Dec calls at Rs 145 and bought the Puts back at Rs 99.
Current Portfolio:

Nifty 15%  at 2374
Bank Nifty 5% at 4150
Short Nifty Dec Calls 20% at Rs 145
Long Nifty Dec Puts 20% at Rs 99
Cash  82%
As you can see, the portfolio is geared for zero risk beyond 2800 Nifty and below 2500 Nifty..with significant gains possible in between.  As long as Volatility remains high and we are in this range...the Dhaba Portfolio rides up and down the steep slope in-between.

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