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

Started by Michael Gonsalves, Jul 28, 2022, 08:03 PM

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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