I lost Rs. 23.71 lakh due to a covered call in Bajaj Finance

[Michael Gonsalves]

Last month, the stock markets were in such a bad shape, that a Put of 2000 shares that I had sold of the Bajaj Finance 5800 strike price had devolved upon me and I was forced to take delivery. The stock was sinking fast and so I hurried to sell a Call at the same strike price of 5800.

Unfortunately, in the meantime, the markets have turned from aggressively Bearish to aggressively Bullish. Bajaj Finance shot up an incredible 10.6% today to close at Rs. 7076.



As today is the expiry, no adjustments are possible and I have no option but to give delivery at the strike price of Rs. 5800.

I suffered a (opportunity) loss of Rs. Rs. 23.71 lakhs. The loss is reduced to Rs. 19.35 lakh because I had sold some Puts to salvage the Calls.

[Michael Gonsalves]

I want to buy back Bajaj Finance and so I have sold Puts. I had sold 2000 Puts in the August expiry which expired out of the money. I made about Rs 2 lakh or odd from it.

In the September expiry, I have sold 2250 Puts which will make me Rs. 3.28 lakh if Bajaj Finance closes above Rs 7000. I had also sold 1000 Calls of the strike price of Rs 8000 which will make me Rs 42000.



Of course, this is not a speculative bet. I have the funds to take delivery if the stocks falls for some reason. I also have the stock in my portfolio to give delivery.

[Michael Gonsalves]

The Puts and Calls sold of the September expiry have yielded a profit of about Rs. 4 Lakh. I will roll these over to October.

[Michael Gonsalves]

I want to sell 2000 Puts of Bajaj Finance. However, after I sold 1000 nos, the stock shot up. I will try to sell the other 1000 when the stock is down. I got a good price because the stock was down in the morning session and also the ViX was high due to the speech of the RBI Governor.

[Michael Gonsalves]

Bajaj Finance has yielded a good gain of about Rs. 3.50 Lakh due to the stock staying range-bound. I will repeat the same process for November. This will hopefully enable me to recover some of the losses suffered due to the premature sale.

[Michael Gonsalves]

Bajaj Finance has lost a bit of ground. The 6800 Put came into the money. However, instead of delivering the stock, I rolled it down to the 6600PE. Hopefully the stock will stay above that till the Nov expiry.

[Michael Gonsalves]

Macquarie on Bajaj Fin
U-P, TP Rs 5275
Weakening cross-sell franchise & co's weaker digital footprint will affect loan growth going ahead
Expect RoA to moderate from 4.6% in FY23E to 4.2% over FY23-25E, while consensus builds no moderation
Risk-reward unfavourable @6.4x FY24E BV

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