INFY strategy for tomorrow- a must read

INFY RESULTS  ON FRIDAY

Lets start with some strategies for tomorrow. We are using Excella option strategy finder software to calculate profit potential

Over the past two years, Infosys' share has swung wildly on either side on the results day on Friday.Confident that volatility and, therefore, prices of the options will decline post the company's results, options sellers are selling options of the same strike price - price at which the share can be bought or sold -- to buyers who believe that option prices will jump rather than fall even from current levels as the stock has risen by as much as 17% and fallen 21% on the result day over the past seven quarters.



Here is strategy..

LONG STRANGLE -when we expects greater swings


BUY 1 OTM CALL 
BUT  1 OTM PUT

IF INFY PRICE GO ABOVE 2820 THEN TRADER WILL START MAKING PROFIT
ON DOWN SIDE INFY NEED TO COME BELOW 2150 TO MAKE GAIN

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IRON BUTTERFLY - for limited risk and limited profit

Iron Butterfly Construction

Buy 1 OTM Put Sell 1 ATM Put Sell 1 ATM Call Buy 1 OTM Call

However, to protect themselves from any sharp swing on either side, the sellers are also buying options of different strike prices. 

This combined strategy of selling options of the same strike and using proceeds from this to purchase options of a different strike is called butterfly spread. It is a limited risk-reward strategy.

Here is how it works. A trader sells a call (option giving the holder the right to buy the stock) and a put (giving the holder right to sell it) of the 2500 strike. On this, a seller receives a combined premium from the buyer of Rs 34000. He uses part of these proceeds to buy a 2850 call and a 2150 put for a combined Rs 8750. Thus the net inflow he receives is 25250. This becomes his break even point. 


The traders stand to lose only if Infy closes above the break even of the call option or below the break even of the put, or move by 9% either side. While this is possible given Nifty's 17% overnight rise on January 11, after it reported December 2012 quarter results and 21% overnight on April 12 when it reported its March quarter results, in four out of the past seven quarters it has not seen a greater than 9% move either side. This has made sellers confident they will profit from the butterfly spread. Also, the high volatility in the run up to the results has made sellers confident that option prices will remain within the band of their comfort.

Best investment 

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