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NiftyBees Income Strategy Generate Income On The Nifty 50 Index
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Link to our Telegram Channel - https://t.me/niftybn • Link to our Twitter Profile - / niftybn • NiftyBees Income Strategy • How to generate income on the Nifty 50 index? • Do you know there is a way you can earn consistent weekly or monthly income by investing on the Nifty 50 index? • The answer would be YES. But Nifty 50 is an index and not a stock so how do you invest in it? • This can be done by buying 7500 units of NIFTYBEES, one unit of which at the time of making this video is trading at 95.38, and then selling an out of the money (OTM) Call option each week or each month. • You would need about 720000 to buy the NIFTYBEES and then about 100000 as margin money to write the weekly or monthly OTM Call option which makes this somewhat an expensive strategy. • So why invest in NIFTYBEES or any other Nifty 50 ETF? • A single stock, for example IndusInd Bank, is subject to far greater share price moves than, say, an ETF that tracks the 50 large company stocks in the Nifty 50. Also one can expect some intervention from the government and the RBI whenever the Nifty 50 index underperforms. • Before getting into the details let’s know what is NIFTYBEES. • NIFTYBEES is an ETF (Exchange Traded Fund) from Nippon Life India Asset Management Limited (NAM India) that has the Nifty 50 index as its underlying asset. There are other ETFs available too, like the BANKBEES that has Bank Nifty index as its underlying asset. • Equity Exchange Traded Funds (ETFs) are flexible, simple, transparent and easy to trade investment products. They have a very low upfront cost. • Advantages of ETFs: • 1) They can be bought and sold continuously at market prices like any other company stock. • 2) They mirror the index and hence offer better transparency into their holdings than competing mutual funds. • 3) Another advantage over mutual funds is that they have much lower expense ratios (annual maintenance charges). • Which Nifty ETF is better? • There are ten plus ETFs on Nifty 50 available for investment in India. With so many ETFs on Nifty 50, how do you decide which one is the best for you? The main consideration should be liquidity. • An instrument is considered to be liquid if there are enough buyers and sellers with good volumes of shares. The spread between the offer and bid prices (also known as the bid/ask spread) should be smaller. • The key is Liquidity • Liquidity is hugely important as you need it in good measure to get in and out of a stock easily. You need to have high daily volumes as if there are not enough buyers and sellers it would make it difficult to enter and exit the trade at the right level. • Low liquidity means there is a wide spread between the offer and bid prices. This is where the NIFTYBEES scores over others. Now let's look at a practical comparison between NIFTYBESS and SETFNIF50, by far the two most traded ETFs. • You can see that there is a good volume in NIFTYBESS and it also has a bid-offer spread of less than 10 paisa. • Whereas there is just enough volume in SETFNIF50 and the bid-offer spread too is a bit wide, more than 10 paisa. • The strategy: • Now let's look at how an income strategy can be built around the NIFTYBEES. • As has been mentioned earlier you would need 7500 units of NIFTYBEES to consider this strategy and then a weekly/monthly OTM Call option needs to be shorted. This can also be seen as a Covered Call strategy on the Nifty 50 index. • One way to determine which Call option to write is by making use of the ATM (at the money) straddle price. • Example and Calculations: • Since we are already half-way into the month (today is April 16) and since this is also a weekly expiry day, let’s see how a weekly option strike price which is to be sold can be determined. The Nifty is currently trading at 9000, so • ATM Straddle Price (Both options are of April 23 expiry) = • 9000 Put Option Premium + 9000 Call Option Premium • = 200 + 240 = 400 (rounding off to the nearest hundred) • OTM Call Option Strike Price = • Nifty Spot Price + ATM Straddle Price • = 9000 + 400 = 9400 • So an OTM 23rd Apr 9400 Call option can be sold for the upcoming week and the premium collected, which is about 66. • If by 23rd April, Nifty stays at or below 9400 the premium (66 X 75 = 4950) would be yours to keep and if it goes beyond the breakeven point (which is 9400 +66 = 9466) you can close the trade, that is buy to close the sold 9400 call and sell to close the 7500 units of NIFTYBEES, for a handsome profit. • Similarly a monthly Call option (May month option) can be calculated and sold for the upcoming month on the last day of April expiry (that is April 30) using the same ATM straddle price method.
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