Option Strategy for January 2009

This strategy is a covered Call Option on Reliance Natural - ICICIDIRECT Code RELNAT.The current Stock Price of RELNAT is Rs.52. Buy 2000 shares of RELNAT. Investment = 52*2000 = 104,000 Rs. The following calculation is made with out consideration of Brokerages.RELNAT 1 Option Lot is 1788 Shares.Cost of Buying RELNAT 1788 Shares = 1788* 52 = 92976 = approx 93,000/-Using the above shares as Margin Sell a covered call of RELNAT 55 Strike Price. Current Option Price = 5 approx. So you will receive 5*1788 = 8940 Rs. as option premium as call seller. approx 9000/-At January Month end if the stock closes above 60 You can Sell Your stock at month end price & pay off the Covered Call sale.This would give a profit of(60-52= 8) 8*1788 = 14304 Rs on an investment of Rs.93,000/- ie., ie., about 15% Return for one month. = 180% return p.aIf the stock closes below 55 You get to retain 8940 full and between 55 & 60 you pay between zero to 8940. If the stock closes below Rs. 55 by January Month end your cost of holding the stock will be 52-5 = 47 which is really good. Isnt it?