Most of us know about SIP or systematic investment plan to invest in mutual funds, and other financial instruments. As you very well know such investment works only when the price of assets in which one has invested increases and thereafter gets profit on selling those assets like stocks, gold, etc. at higher price than cost price. Volatility has become a way of life in stock market. Even best predictions or speculation fail to work in this kind of extreme uncertain volatile market condition. For instance, almost all world indices went down badly after the news of Greece crisis and later upon the news of bailout indices began to bounce back, now the indices is moving down again due to financial the problem in Europe. Technical analysis can predict stocks or indices direction to certain extent but they too have their own limitations, ultimately Mr. Market is the unbeatable king, who has always throws surprise to the little retail investor.
Here is a wonderful strategy to make money consistently in stock-market. Divide your investment portion into blue-chip stocks and gold ETFs as gold and stocks go almost vice-versa, now as stocks are finding their bottom, gold is touching its yearly high. Lets’s assume you have invested 2.5 lakhs in gold and 2.5 lakhs in stocks. Using appropriate options strategy, these investments(gold ETF and stocks) as margin one can make consistent profit every month using covered call and can get 60 to 100% return in one year by using a combination of gold ETFs, blue-chip stocks and options.
Here is a solution if retail traders have invested in stocks at higher rate and who have stopped trading and waiting for price to recover and exit at cost rate or marginal profit. For instance, if you hold Reliance at Rs. 2000 level and now reliance is trading around Rs.1000 level, you can still make profit even if reliance continues to be around Rs.1000 level for next one year using options strategy. Please do note that investment in blue-chip stocks such as Reliance can be done when the market tanks down in panic/fear, please do read my last article on “Using Options to get paid to buy Blue-chip stock for less” to buy blue-chip stocks for cheap. In case, if you do not hold any blue-chip stocks, please use options to buy them at cheap rate. So in total options help you to buy blue-chip stocks for cheap, and also helps to generate monthly income which can be used for investment needs such as paying housing loan EMI /insurance etc and at the same time allow you to benefit from long-term return on investing.
(Update on last post: Reliance 960 put sold @10 is in profit now, book profit and exit)
Narendar Rathod, Options strategist, www.AssuredGain.com