Shorting the Nifty

This is a follow up to the observation made by George in the previous post. The graph below shows the price of a single Nifty 24-Jun-2010 4400 Put option, superimposed on the Nifty. As can be seen, the graph exhibits an inverse relationship between the put option and the nifty (as expected). Now, suppose that we had purchased the put option on Nifty on Jan 4th 2010. Given the contract size of 50, it would have entailed a capital outlay of Rs. 6150 (Rs. 123 X 50). This same put is today valued at Rs. 163.45. Selling the put would have fetched us Rs. 8172.5 (Rs. 163.45 X 50). A gain of Rs. 2000 (approx).  Now pursuant to the observation made by George that given past performance, Nifty should remain bearish in H1 2010, that still gives us an opportunity to buy the Nifty put (non necessarily with the strike of 4400) and profit from the increase in its premium.

Something we are deliberating on right now.

Trending the sensex

Here is a look at a potential trading option on the sensex.

Lets look at the sensex over a 5 year horizon

The hypothesis that I would like to posit is this: is taking a long position in the sensex, mid-year and squaring off at the end of the year a strategy that would earn a good return?

This is the case in 2005, 2006, 2007 and 2009.

2008 saw the height of the recession and the trend broke off, but re-established itself in 2009.

It seems that a poor performance in Q1 and Q2 is always offset by a bull run in Q3 and Q4.

Now considering that the stimulus will in all probability be withdrawn in several areas and a slight slide in Q1 2010, my guess is that the trend will continue on till June which will be followed by a revival.