Dhaba Portfolio: Managing Risk #9

As I wrote before the week started, expect continued high volatility...alleged scandals do not improve market sentiment...I continue to exercise caution and expect reversion back to 2500 levels over the next few weeks.

As the Satyam saga started to unfold, I covered two positions:  bought the Nifty Jan 2800 Put for Rs 92 and sold the Jan 2800 Call for Rs 345.  This was a day position with the idea of rolling the equivalent December positions.  The market tanked and I sold my Nifty Dec 2800 Put for Rs 25 and bought back the Nifty Dec 2800 call for Rs 170.

Below you will find the current Dhaba portfolio as at Dec 17, 2008....actual contracts and graphical representation of the pay-off structure.

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Dhaba Portfolio: Managing Risk #8

(click to enlarge) 

Our portfolio position on Dec 8, 2008 was depicted in the chart above.

In the past week, the market extended gains.  However,   underlying earnings are weak, globally economies are under stress, capital inflows are weak.

On Dec 16 '08 I have increased the risk position by selling Jan 3000 Nifty calls for Rs 215.

The new risk and pay-off profile as at Dec 16 '08 is shown on the chart below:

(click to enlarge)

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Indian Stocks: Predictable behaviour

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 volume...so 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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India Equities: Managing Risk

Volatility continues in the mid-80's...I put in a price of Rs 70 to cover my Nifty 2600 short calls...it would mean Nifty was below 2500..the market went below 2500 and the trade was executed.

Then the market started up... I gave an order to sell Nifty 2600 calls at Rs. 150. Amazingly, that also was executed.

Absolute madness in markets....I am now long Nifty at (2436 - 62 (profit on calls) )=2374.
And I am short Nov Nifty 2600 calls at Rs 150.

This volatility has to come down...every order into the market seems to be getting executed, on the upside and downside.

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