All posts by The Money Cocktail

#jetairways – shared via my twitter handle 8 months ago

Will #jetairways be the next big default. Seems a matter of time until the promoters bring in capital . With a negative networth of 7200 crs , borrowings and payables over 11000 crs , illiquid assets of 3588 crs which maybe sold at a haircut of 60 pct, this firm seems to be surviving on working capital limits . PSU banks at least should exit fund and non fund base facilities until capital of at least 5000 crs is brought in .

Which stocks can double in the next 12 to 24 months? its always a bet !

When the objective is to double returns over a 12 to 24 month period , for the NOT RISK AVERSE & PATIENT INVESTOR , its better to look at the long term Chart ,  and IGNORE THE NEWS.

Assumption being, the price discounts the future much in advance and with a multiplier which is dependent on the mood of the market .

To demonstrate the point . A few Examples Below . Click on the Chart Images . They text is self Explanatory.

So a Potential Moderately High Risk Portfolio of NIFTY 100 STOCKS WHICH COULD DOUBLE within the next 12 to 24 months would comprise of stocks where the Monthly RSI’s are showing the bottoming behaviour.For each Animal ( stock ) , this number is different .

DISCLAIMER: For purely educational purposes, its not investment advise , I may or may not have positions. Always your financial advisor. 

 

Tech Mahindra Monthly: Price Vs RSI
Vedanta Monthly:Price Vs RSI
McDowell Monthly:Price Vs RSI
Tata Motors Monthly: Price Vs RSI
Vodafone Idea Monthly : Price Vs RSI

The Credit Straddle : Part 2-Expiry of the Position Initiated on 2nd NOV 2018

Summary , on 2nd November for the initiated credit straddle  on Reliance capital , If held till Expiry the position would have approximately ended as below :
Name
RELCAP
Lot Size
1500.00
Date02-Nov-18
Spot ref
Sold/Bot
CE/PE
Strike
Premium Paid(-) / Received (+) Rs/Lot
254.00
Sold
CE
260
14.40
251.00
Sold
PE
250
14.50
Implied Volatility (IV) , %
Delta
Vega
Theta
Gamma
SOLD 260 CE
60.00
-0.50
-0.28
-0.32
-0.01
SOLD 250 PE
58.00
0.55
-0.27
-0.31
-0.01
If options were held Till Expiry, with a passive Strategy
Settlement Price
228.55
Date29-Nov-18
Spot ref
Sold/Bot
CE/PE
Strike
Price For Squaring
230.00
Sold
CE
260
0.00
230.00
Sold
PE
250
-21.45
Premium recd
Premium Paid
Net
Net Profit At Expiry per Lot
28.90
-21.45
7.45
Net Profit in ,Rs
11,175
So left out as it would, the credit Straddle would have yielded Rs 11,175  per lot .
The questions  to ask are
1. Is that the what  should have done or could something substantially better be achieved?
2. Was the Delta tracked and neutralised or minimised over the course of the month and if so could it have yielded a better result?
To answer question 1 , lets look at the movement of the option premiums of Each Strike over the course of the month :
Continue reading The Credit Straddle : Part 2-Expiry of the Position Initiated on 2nd NOV 2018

The Credit Straddle : Option Position Management

Please Note : Try at your own risk, AND DON’T TRY IF U R PRESSED FOR MARGINS , GET ACIDITY FAST , UNCOMFORTABLE WITH LEVERAGE, LOOSING MONEY and NOT IN FRONT OF THE SCREEN.
Lets Try and manage an option position on Reliance Capital ( Lot Size 1500) .
The below is an example  of a CREDIT STRADDLE . Credit since premium is received . Straddle since the strikes sold 250 PE and 260 CE , are straddling the underlying price ( average of 253 ) in the cash market .
The net delta is  -.02 , but do note that strikes sold are approximately 40 delta , which means that all else remaining the same , for every 1 Rupee change in the underlying Equity price , the price of the option will change by 40 paise. Greeks change with time , spot, vols .
This is an aggressive straddle since the Sold Option Deltas are .40 or  in short referred to as 40 Delta options . A conservative trade would have been to Sell 25 Delta options , but I chose 40 delta .
Why Because :
  1. A bit greedy with high Vols, but there is a more scientific approach as well which I will cover in later articles.
  2. Since Vols are High , the size of the position is limited to 1 lot each .
  3. I Chose not to sell 2 Lots each of 25 delta options which would have  provided a broader break even range  at higher Vols for the approximately same amount of premium receipt target.
SO AS A FIRST STEP, AFTER DECIDING THE UNDERLYING :
  1. DECIDE HOW MUCH PREMIUM U WANT TO RECEIVE , IN A CREDIT STRATEGY
  2. DECIDE ON WHAT LOWER AND UPPER BREAK EVEN POINTS YOU ARE COMFORTABLE WITH FOR THE EXPIRY MONTH
  3.  BE PREPARED FOR TO SELL MORE LOTS AS THE SPOT MOVES AROUND .
On 2nd November 2018.
Summary of the position:
Spot ref
Sold/Bot
CE/PE
Strike
Premium Paid(-) / Received (+)
Delta
Vega
Theta
Break Even
254
Sold
CE
260
14.40
-0.42
0.25
-0.36
274.40
251
Sold
PE
250
14.50
0.42
0.25
-0.36
235.50
Total , Premium Received in the CREDIT STRADDLE  = 28.90 * 1500 = 43,350.
Break Even range : 235.50 to 274
More Updates in the next article

Rupee not likely to face depreciation beyond 74.50 -75 , likely reversal to 68 -70, 25 BP hike won’t do any harm but MAY be skipped in this policy

The USD borrowing allowance for OMCs to fulfil working capital requirements is a limited but effective game changer for the Rupee.

The USD borrowed would be paid for oil payments directly and USD rollovers would effectively manage the local demand for dollars. Keeping the exposure open , is quite fine, as the RBI can intervene when demand is thin to sell dollars to keep the Rupee in check.

It’s a very smart and well thought out move, after a long time .

With RBI

1. announcing a 36000 crore OMO schedule in advance

2. markets nervous about liquidity and borrowing costs

3. A reduction in fuel prices

4. NRI and other USD deposit schemes on the cards

5. Inflation under control

My sense is RBI , contrary to the majority 25 BP hike expectation , may surprise with no hike in the 5 Oct policy.

In addition ,There could be changes to the way rates are transmitted and also some leeway on NPA provisiong .

Let’s see.

#rbi misses the point !though liquidity is always welcome

The deficits facing the Indian Financial sector are of Trust and Faith on –

1. #rbi to manage NOT liquidity , but credit !

2. #government to manage the #psubanks ( corollary public money ) prudently by both protecting profitability and at the same time resolving bad debt. By selling assets at large haircuts , the #government has put itself in a fix .

3. #sebi by sucking away liquidity from the futures and options market

4. Election related populist spending , which is not abating inspite of razors edge fiscal management , huge taxes on fuel ( ad valorem at state level )

5. Rupee in tailspin for all the above more , than oil and global prices.

6. Financial distress cannot be kept isolated by a circular or in a sector , more so if the numbers are large .

Markets have got a feeling that the present management has a disregard for timing – demonetisation, followed by an ill prepared implementation of GST , a large scam followed by a circular removing key restructuring schemes , sebi coming out with circulars on futures and options and curtailing liquidity .And for the fear of a repeat of the incredible India election defeat , uncurtailed populist spending .

The #rbi has been quite adept at liquidity management , it’s the other banking aspects which bear greater strategic weightage on a country .

Which is why we may need another regulator to manage banking .

Will ITC go to 150 -175

Times are uncertain . But there are some facts that cannot be ignored.

P/ BV = 6.80

P/E = 31.00

The most important – LIC the saviour has a 16 % stake as of June 18 , and it needs to make money and also generate some, if it continues to be the saviour of last resort .

At 291 , this stake would be valued at approximately 56,000 crore.

And it would need to monetise a part of it . The prospect of LIC selling , is the biggest overhang .

#RBI’s Feb 18 ad hoc circular and Sebi’ s F&O rules in April dealt a fatal blow , aided by the government’s focus on distributing money to win elections

When a central bank with little regard for reviving assets , washes it’s hands off an issue , issued an ad hoc circular in Feb 18 – it not only signalled strongly that they are happy at calling a 80 to 90 pct haircut as resolution , but that they looking at higher rates .

Not be left behind an otherwise very smart regulator , #sebi issued norms in April 18 , which virtually doubled the scritness index criterion, for scrips to remain in the futures and options market .

Sucking liquidity away -some short term and many over a 6 -8 month rolling period .

The government’s both at state level and central level , continued efforts to get the rural vote by distributing money via legal and fancy , though aptly named schemes.

Liquidity is always limited and cannot be increased if confidence is lost. .No regulator or government can keep self inflicted deep financial injury contained within a sector. It will reflect in debt yields, stock prices and diminish wealth , collapse an already fallen real estate market and eventually lead to a precipitous fall in demand across all sectors .

At the end liquidity is king, which was either by design or by sheer mis management or unfortunate but horrible timing, sucked out .

To get back to the stable zone , the first steps should always be to correct mistakes, and there is no shame in that, desparate times require desperate and creative measures ; before we become truly desperate , some steps that can be taken are :

1. Roll back the Feb 18 circular and bring in sector specific restructuring schemes . The markets , investors- either debt or equity should never get the sense that a greater than 70 pct haircut can be pushed to acquire public money and assets.

2.#sebi may work towards diluting the April 18 circular and would do well to bring liquidity back to the markets by reducing lot sizes , making scrips available in F and O by diluting delivery turnover and market capitalisation norms by 75 %

3.Government must not be careless in prioritising election popular money distribution schemes, by whichever parameter .

4.Government and RBI must instill confidence in PSU banks and PSU enterprises; that would go a long away in calming markets and as well instill confidence that we are still governed by a government which does more than just lip service .

What a Proactive #rbi may do !

RBI opts out of panel on stressed power assets

https://economictimes.indiatimes.com/industry/energy/power/rbi-opts-out-of-panel-on-stressed-power-assets/articleshow/65816365.cms

A welcome development . #rbi fellows have little contribution for sector specific issues related to turn around management .

A central bank regulating, a banking sector with > 1 USD trillion exposure ,not having an expert panel is quite appalling .

It can be argued that it’s not the central banks obective or authority;

but if that’s so then how can they decide what’s OK? what works , in what conditions,changing scenarios , in which sector – to formulate guidelines , and change policy without taking into account solutions for changing ground reality.

The question I ask are this , should not some basic rules to be formulated for the future which with regard to lending public money by public sector banks to projects which are highly dependent in state and government policy .

Is not renewable euphoria similar to coal ? The past is calling

Example:

1. PPAs with pricing linked to fuel costs be mandatory and gteed by state /govt with a minimum IRR. This cost needs to be a pass thru for utilities.

2.Pollution control equipment be provided at subsidised costs for life of project with price escalation be a pass thru via the PPA arrangement

3.Fuel supply price escalation clauses be a pass thru by the gteed PPA and the supply of not gteed domestically , imports will filing the gap .

The problems of infrastructure projects are more bad policy of governments than bad banking .