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Options are great instruments to dodge the risk. With a capacity to create a pay-off where there is no limit on the amount of money you can make but there is still comfort on the potential loss. It always stays limited to the premium we pay.

However, for getting this kind of comfort we do have to be careful about a few things other than just the price movements. If you are guessing about Time, you are right but that is not it. Yes, we do have to make sure that we execute the entry and exit in a timely fashion so that the decline in premium that certainly happens with the passage of time does not hurt us.

Here we are talking about one more aspect. That aspect is the risk premium. Option premiums do rise or fall with absolutely no change in Price or Time also. This happens when the assumption of risk among option traders, especially option sellers, goes up.

Taking the recent example of Nifty, we saw a down move in Nifty in recent weeks. As a result, the risk of falling rose significantly. This has created a significant impact on the Option Premiums as well. Just to give an approximation, the Nifty Option closest to the current level of index with the same time to expiry a few weeks back was roughly 50 percent cheaper than now.

This rise in premium due to rise in risk level will definitely help Option Buyers. However, after a fall like this one, if Nifty witnesses a comeback and rises the risk premiums will go down pushing the Option Premiums also down. The exact opposite scenario.

To avoid that there is a very simple solution. Convert you Option Buy position into a Vertical Spread position. Vertical Spread here means, Buy and Sell into Options of same Kind (Call/Put), same underlying stock/index and same expiry.

We can create this by Buying a Call/ Put with strike close to current market price and simultaneously Selling Higher Strike Call/ Lower Strike Put.

How to Create a Vertical Spread

Stock X @ 100

Buy Call 100 @ 5

Sell Call 110 @ 3

Net Premium Paid = 2

Max Profit = 110- 100 – 2 = 8 (Difference of Strikes minus the Net Premium Paid)

Max Loss= 2 (Net Premium Paid)

Yes, we are losing out on the unlimited profit potential but at the same time we are bringing down our initial cost significantly. Also, the drop in risk premium will now happen in both the options at the same time so no need to worry about that either.

When do we do this?

One of the easiest to access indicators of Risk Premium is India VIX. An index that gives you a number representation of riskiness in the market. If India VIX goes up by more than 20-30 percent from the recent low, convert your Option Buy Trades into Vertical Spreads. India VIX is computed by NSE and is available for free over the internet.

Finally, Vertical Spread is just the tip of the iceberg. There are a lot of combinations of options like this that can help us with such problems that could potentially ruin our profit potential.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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Britain’s billionaire Issa brothers and Indian tycoon Mukesh Ambani are preparing to face off in the final battle for the Boots drugstore chain, one of the UK high street’s most recognizable names.

The Issas are seen as the party to beat ahead of next week’s deadline for proposals, after they submitted the highest offer in the first round, people with knowledge of the matter said. The duo are going up against Ambani, who’s been working on a bid together with buyout firm Apollo Global Management Inc.

Bidders are now sizing up Boots’ billions in pension guarantees -- which they’ll have to take on -- as they figure out how much they can pay for the business, the people said. They’re also working around the clock to arrange financing in a difficult market, which has gotten that much tougher due to the war in Ukraine, soaring inflation and rising interest rates, according to the people.

That’s a lot to sort through, and suitors are getting a few extra days to firm their bids up after the chain’s owner Walgreens Boots Alliance Inc. pushed back the May 16 deadline to later in the week, the people said.

Empire Builders

A deal would fit in well with the Issas’ empire-building ambitions. In recent years, they’ve gone on an acquisition spree that’s turned their main company EG Group into a global gas station and convenience store colossus. They’ve snapped up UK supermarket operator Asda Group Ltd. and the Leon chain of fast casual restaurants.

The brothers, who are pursuing Boots together with TDR Capital, seem to have found a neat solution to the financing issue: they’re considering piling more debt onto Asda and selling some of the supermarket chain’s assets to help fund the acquisition, people with knowledge of the matter said this month.

The emergence of Ambani, first revealed by Bloomberg News in April, promises to keep the race competitive. Apollo is known to be wary of overpaying on deals, which has led it to lose auctions for British companies like Asda and packaging firm RPC Group Plc. Teaming up with India’s second-richest person could give it more firepower: Ambani is an experienced operator who’s keen to expand the retail arm of his conglomerate Reliance Industries Ltd.

One outstanding question is how close Walgreens will be able to get to its asking price of 7 billion pounds ($8.5 billion). Bidders had pegged its worth around 5 billion pounds, though it’s possible they will boost their proposals following due diligence, the people said. The international drugstore unit being sold by Walgreens -- which has the Boots chain in the UK at its core -- also includes a smattering of retail operations elsewhere, plus attractive private-label brands like No7 Beauty Co.

Litmus Test

Retail-focused private equity firm Sycamore Partners has also been touted as one of the suitors still remaining. Representatives for Walgreens and the bidders declined to comment.

The Boots sale has emerged a litmus test for dealmaking in the UK as credit markets become increasingly fragile. The easy financing conditions that supported a series of debt-fueled takeovers of British companies last year have mostly come to an end. Indeed, banks that funded the private-equity buyout of Wm Morrison Supermarkets Plc had to sell some of the debt at a steep discount and are now facing losses, Bloomberg News has reported.

Whoever comes out on top, the hard work will just be getting started. Boots has a sprawling network of more than 2,200 stores across the UK, many of which need sprucing up. The high street has been hit by slowing demand in recent years, and they’ll need to refocus Boots’ business to adapt to these changing consumer habits.

There’s also the cost of living crisis to contend with. UK retailers have warned of “clouds on the horizon” after recording a sharp slowdown in sales as higher prices cut into spending power.

Rupee hit a fresh intra-day low on Thursday as it breached the 77.5/$ mark on the back of strengthening of the US dollar, before intervention from the Reserve Bank of India (RBI) helped cut its losses.

The rupee ended the day at 77.43/$, before touching a low of 77.63/$, losing 18 paise or 0.24 per cent from its previous close of 77.24/$.

“Rupee fell to a fresh all-time low today (Thursday) as the dollar continued to strengthen. But losses remained restricted as the RBI intervened to curtail volatility of the currency. Dollar strengthened after inflation in the US rose in April,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Rupee had hit an all-time closing low on May 5 when it hit 77.47/$.

Rupee came under pressure as investors pulled out from riskier assets following the global uncertainty caused by the prolonged Russia-Ukraine war. The currency has depreciated 2.1 per cent against the dollar in FY23 so far and depreciated 4 per cent in 2022.

The central bank has beefed up its intervention across foreign exchange market – spot, futures and off-shore – to slow the fall in rupee. As a result, the foreign exchange reserves fell by $45 billion since September 2021.

“USDINR spot touched a fresh all-time high after higher-than-expected inflation print in the US pushed US dollar Index to a fresh 20-year high,” said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.

“Weakness in equities was an add-on force for the US dollar. We suspect the RBI might have sold dollars to stem the decline in the rupee. Overall view is of a range, between 77.2 and 78.2 on spot,” Banerjee said.

Total forex reserves have fallen below $600 billion, and the market expects reserves to go down further before it increases. Total foreign exchange reserves were at $597.7 billion for the week ended April 29.

In the half yearly report on management of foreign exchange reserves, released on Thursday, the RBI has said its net forward assets stood at $65.79 billion as at the end of March 2022.

The RBI has increased its gold reserves over the last two years by over 100 metric tonnes, the report on management of foreign reserve said.

As at end-March 2022, the RBI held 760.42 tonnes of gold, as compared to 653.01 tonnes same time in 2020, while in 2021 the amount was 695.31 metric tonnes.

The value of gold reserves increased to $42.7 billion as of March 2022, from $30.9 billion two years back.

The report noted that at the end of December 2021, foreign exchange reserves cover of imports (on balance of payments basis) declined to 13.1 months from 14.6 months at end-September 2021. The country has foreign exchange reserves of $633 billion as on December 31.

“The ratio of short-term debt (original maturity) to reserves, which was 16.5 per cent at end-September 2021, increased to 18.1 per cent at end-December 2021,” the report said. The ratio of volatile capital flows (including cumulative portfolio inflows and outstanding short-term debt) to reserves increased from 64.1 per cent at end-September 2021 to 65.0 per cent at end-December 2021.

India will soon be sending trade delegations to at least nine wheat importing nations to explore the possibilities of boosting wheat exports. The move comes amid widespread loss of yield in major wheat growing states, and low response to public procurement by farmers who continue to sell at much higher prices to traders.

The Centre will send trade delegations to Morocco, Tunisia, Indonesia, Philippines, Thailand, Vietnam, Turkey, Algeria, and Lebanon to promote Indian wheat, the Commerce and Industry Ministry said on May 12.

The move is part of the government's efforts to export 10 million tonnes of wheat in 2022-23, amid rising global demand, it said. Not more than 10 days after the Ukraine crisis began, the Centre began discussions with various countries, including Egypt, Turkey, China, Bosnia, Sudan, Nigeria and Iran on commencing wheat exports. Initial shipments have also begun to some of these nations.

The Agricultural and Processed Food Products Export Development Authority (APEDA), under the Commerce & Industry Ministry, has also planned to organize a series of sensitization meetings on exports in major wheat-growing states such as Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Rajasthan, it said.

APEDA has set up a task force on wheat exports that include officials from various ministries such as Shipping and railways, and exporters. APEDA officials said that Indian farmers, traders and exporters have been advised to follow all the quality norms of importing countries so that India emerges as a reliable supplier of wheat globally.

American automaker Ford on Thursday said that it has withdrawn plans to manufacture electric vehicles in India. The company has also communicated to the government that it no longer intends to invest in the country under the Performance Linked Incentive (PLI) scheme.

“After careful review, we have decided to no longer pursue EV manufacturing for exports from any of the Indian plants. We remain grateful to the government for approving our proposal under the Production-Linked Incentives and for being supportive while we continued our exploration. Ford India’s previously announced business restructuring continues as planned, including exploring other alternatives for our manufacturing facilities. We continue to work closely with unions and other stakeholders to deliver an equitable and balanced plan to mitigate the impacts of restructuring,” the company said in a statement.

Ford’s application was selected under India’s PLI scheme. It was among the 20 other automakers that the Ministry of Heavy Industries had shortlisted under its Champion OEM scheme. The centre is giving incentives worth Rs 45,016 crore to attract automakers to increase their manufacturing in India.

At that time, the company said that it was exploring the possibility of using one of its plants in India to produce electric cars for exports.

In February, the Centre announced that the American automaker was among those entities which qualified for its PLI (production linked incentive scheme) where the core objective is self-reliance. In Ford’s case, it was made amply clear that this meant production of electric vehicles and components for overseas markets.

Last year, the company said that it will stop manufacturing vehicles in India but retain the engine-making and technology services business (Global Business Services) as part of restructuring its India operations. This move is expected to affect nearly 4,000 workers.

The move was prompted by the mounting losses and slowdown in India’s passenger vehicle market, made worse by the Covid-19 pandemic.

Ford had been rethinking its India operations even before it had initiated discussion with Mahindra & Mahindra in 2019. It decided to cease manufacturing after considering all options, including contract manufacturing, he added.

It is the fourth US automaker to shrink India operations -- after Harley Davidson, UM Motorcycle, and General Motors -- in less than five years amid poor sales, high operating losses, high fixed costs, and a market that has failed to live up to the parent company’s expectations.

Read Also:- Importance of Technical Analysis in The Stock Market

The Reserve Bank of India (RBI) sees the current depreciation of the rupee as part of a "broader trend" and thinks it will be "futile" to defend the Indian currency against a "global tide", according to a person familiar with the central bank's thinking.

"There are certain factors, like global spillovers, which the RBI can do very little about. India is a price-taking country. It will be futile if the RBI tries to resist a global tide," the person said, requesting anonymity. "But if there are country-specific factors, then the RBI has formidable reserves."

The comments come after the Indian currency weakened to an all-time low against the dollar on May 9, with the US Federal Reserve having raised the federal funds rate target range by 50 basis points last week. In response, yield on the 10-year US government bond crossed 3 percent on May 5.

"There is a 'fly home' bias now," the person noted, commenting on the outflow of foreign capital from certain countries.

The RBI has been actively intervening in the foreign exchange market in recent days to reduce volatility in the rupee's exchange rate. As always, the central bank has no specific level for the exchange rate in mind and is more concerned with intra-day movements being limited to a "certain number of paise", the person quoted above said.The RBI's foreign exchange reserves have declined in recent weeks to $597.73 billion as on April 29. According to the person quoted above, the fall in the reserves was not because of the RBI's actions in the foreign exchange market but due to the valuation losses of the central bank's non-dollar assets. he RBI's foreign exchange reserves are held in assets denominated in various currencies. While the US dollar is the largest component, its appreciation against these other currencies - such as the euro, the yen, or British pound - means a fall in the value of these currencies in dollar terms and consequently a decline in the RBI's foreign exchange reserves, which are measured in dollars. 

According to the source's information, data on RBI's foreign exchange reserves scheduled for release on May 13 will likely show another fall in the reserves before posting a rise in next week's publication.

A day after the European Union (EU) slapped a phased embargo on Russian oil imports, the Organization of the Petroleum Exporting Countries plus (OPEC+) agreed to another modest monthly oil output increase, arguing that the producer group could not be blamed for disruptions in Russian supply. Incidentally, Russia is a member of this group.

In its May 5 meeting, the group it also said that China's coronavirus lockdowns threatened the outlook for demand. OPEC+ agreed to raise its June production target by 432,000 barrels per day (bpd), in line with its existing plan to undo the curbs enforced in 2020 when the pandemic impacted overall oil demand.

Also Read: OPEC+ sticks to modest oil output hike despite price rally

There were calls from several countries that the group, which exercises significant power to influence global oil prices, pumps in some fuel to cool down prices. OPEC+ ignored these calls. With the Russian invasion of Ukraine that resulted in supply chain disruptions and high oil prices, OPEC’s stance over its oil output has come under fire.

Analysts reckon that EU’s sixth set of sanctions against Russia - the toughest one yet as it aims, among other things, to  phase out supplies of Russian crude oil within six months, will drive energy prices further.

A day after the European Union (EU) slapped a phased embargo on Russian oil imports, the Organization of the Petroleum Exporting Countries plus (OPEC+) agreed to another modest monthly oil output increase, arguing that the producer group could not be blamed for disruptions in Russian supply. Incidentally, Russia is a member of this group.

In its May 5 meeting, the group it also said that China's coronavirus lockdowns threatened the outlook for demand. OPEC+ agreed to raise its June production target by 432,000 barrels per day (bpd), in line with its existing plan to undo the curbs enforced in 2020 when the pandemic impacted overall oil demand.

Also Read: OPEC+ sticks to modest oil output hike despite price rally

There were calls from several countries that the group, which exercises significant power to influence global oil prices, pumps in some fuel to cool down prices. OPEC+ ignored these calls. With the Russian invasion of Ukraine that resulted in supply chain disruptions and high oil prices, OPEC’s stance over its oil output has come under fire.

Analysts reckon that EU’s sixth set of sanctions against Russia - the toughest one yet as it aims, among other things, to  phase out supplies of Russian crude oil within six months, will drive energy prices further.

In March, when crude prices hit their highest since 2008 at more than $139 a barrel after Russia's invasion of Ukraine, the OPEC+ supply shortfall was a contributing factor to the record-setting mark.

Also Read: India defends Russian oil imports as EU proposes gradual ban

Way forward

The EU’s oil embargo could deprive Moscow of a major revenue stream as around half of Russia's 4.7 million barrels per day of crude exports go to the EU. The ban will likely force Russia to reroute its flows to Asia and reduce production by a huge margin while the EU will compete for the remaining available supply.

"OPEC+ continues to view this as a problem of the West’s own making and not a fundamental supply issue that it should respond to," Macpherson told Reuters.

In the absence of Russian oil, the EU is likely to face higher energy bills and a slowdown of economic activity upon insufficient and moderately priced alternatives. OPEC Secretary-General Mohammad Barkindo said that it was not possible for other producers to replace Russian exports of more than seven million bpd. "The spare capacity just does not exist,” he said.

Analysts foresee the global market potentially losing up to two million barrels within six months if all 27 EU governments agree to the proposed sanctions against Russia, besides concerns of rebuilding the global supply chain network in a short period of time.

Also Read: Europe is about to ban Russian oil: What’s next?

Supply chain makeover

‘’OPEC has failed to bridge the supply gap that we have already witnessed recently and in March too, OPEC and allies produced 1.45 mbpd below their output targets in March 2022,’’ said Sugandha Sachdeva, VP-Commodity & Currency Research, Religare Broking.

“Besides, rerouting spare capacity towards Europe would be a difficult task in a short period, after fulfilling the requirements of Asian buyers including China and India. Another concern is that rebuilding or makeover of the whole supply chain and distribution network in such a big region is not a small task, it takes years and huge capital to create a vast infrastructure,’’ she added.

In early Asian trade on Wednesday, oil edged lower, sustaining weakness that was caused by risks to demand from economic recession and on uncertainty of the embargo on Russian oil. Brent crude was last down 86 cents, or 1.1 percent, at $101.60 a barrel, while US West Texas Intermediate crude fell 80 cents, or 0.8 percent, to $98.96 a barrel.

Once the Russian oil ban and other latest sanctions roll out, the global economy is expected to witness an energy crunch which could raise the prices of refined products such as petrol, diesel, and aviation fuel. The high prices will fuel global inflation and discourage people from spending that would have otherwise supported economic recovery.

In the next and final installment of the series, read about what the EU ban on Russian crude oil imports means for India.

Logistics player Delhivery’s initial public offering (IPO) opened for subscription today with a price band of Rs 462-487 per share. The three-day issue will close on Friday, May 13. The Gurugram-based firm has raised Rs 2,347 crore from 64 anchor investors ahead of its IPO. Some of the anchor investors who participated in the allotment include Tiger Global, Bay Capital, Amansa, GIC, and Baillie Gifford.

While the company plans to raise Rs 4,000 crore of fresh capital through issuance of shares, the offer of sale (OFS) portion was reduced to Rs 1,235 crore from Rs 2,460 crore. The logistics major aims to utilize the Rs 2,000 crore in funding growth initiatives, Rs 1,000 crore towards inorganic growth through acquisitions or strategic alliances and the remaining Rs 1,000 crore in general corporate purposes. The company’s market value on a post-dilution basis is expected to be Rs 35,284 crore in the upper end.

According to IPO Watch, shares of Delhivery commanded Rs 7 premium in the grey market. However, investors witnessed a decline in premium ahead of its IPO, after commanding Rs 25 over the weekend. Upon listing, Delhivery will join peers like Blue Dart Express, TCI Express, and Mahindra Logistics.

Besides this, Kotak Mahindra Bank, Morgan Stanley, BofA Securities, and Citigroup Global Markets India are managing the share sale of the issue.

Investors’ checklist before applying for Delhivery’s IPO:

Bidding dates: The three-day issue of Delhivery is open from Wednesday, May 11 and closes on Friday, May 17.

Minimum investment: Investors can bid for a minimum of 30 shares that translates to Rs 14,610 and multiples thereafter.

Price range: The company has fixed a price band of Rs 462-487 per share for its 5,235 crore IPO. It has allocated shares worth Rs 20 crore to eligible employees who can get a discount of Rs 25 per share.

Issue size: Delhivery’s IPO size is Rs 5,235 crore, the second-biggest after LIC this year. While Rs 4,000 crore comprises fresh issue of equity shares, Rs 1,235 crore is a part of OFS of equity shares. Besides that, 75 per cent of the issue size belongs to qualified institutional buyers (QIB), 15 per cent for non-institutional investors (NII), and 10 per cent is reserved for retail investors.

Business model: Delhivery provides supply chain solutions to a diverse base of 23,113 active customers such as e-commerce marketplace, direct-to-consumers e-tailers, and enterprises across several verticals. The company operates pan-India and provides their services in 17,488 PIN codes. Their logistics platform, data intelligence, and automation enable their network to be seamlessly interoperable. As of December 31, 2021, Delhivery had over 5,000 active customers and PIN code accessibility to over 13,000 regions.

Risk factor: According to the red herring prospectus, the company’s net loss widened to Rs 891 crore for the nine months ended December 2021 from Rs 297 crore posted a year ago. Delhivery has a total addressable market of over $300 billion; however its market share is only half a per cent, looming over the untapped opportunity. Analysts anticipate valuations to be expensive due to rising fuel costs, supply chain, and logistics issues. The heavy dependency on e-commerce, network partners, reliance on other third parties for transportation vehicles, lower barriers to entry are some of the key risks to the operating model of the logistics player. Brokerage firms remain mixed and see the valuation to be aggressively priced in a rising interest rate environment.

Wheat flour’s all-India average retail price stood at Rs 32.78 per kg on Saturday, 9.15 per cent higher than the price (Rs 30.03 per kg) a year ago, according to data reported by the state civil supplies departments to the Union Ministry of Consumer Affairs, Food and Public Distribution.

Among the four metro cities, the average wheat flour retail price was the highest in Mumbai at Rs 49 per kg, followed by Chennai (Rs 34 per kg), Kolkata (Rs 29 per kg) and Delhi (Rs 27 per kg).

Also, wheat buying by the milling industry from the FCI can vary from negligible amounts to about 7-8 million tonnes in a year, depending on the position of wheat in the market.

During 2021-22, the wheat processing industry procured seven million tonnes of the foodgrain from the government. This year, the industry will have to buy 100 per cent wheat from the open market if the government does not declare the continuation of the OMSS policy 

Meanwhile, soaps, shampoo, biscuits and noodles are facing price hike pressures due to Indonesia’s ban on palm oil export. Palm oil is used as a raw material for various industries to manufacture products ranging from soaps, shampoos, noodles and biscuits to chocolates. The shortage in the supply of palm oil will push its prices, which, in turn, will raise the input cost of these products and hence prices.

India is the world’s largest importer of edible oils and is the biggest importer of palm oil and soyabean oil. India imports over 13.5 million tonnes of edible oil every year. Out of this, 8-8.5 million tonnes (around 63 per cent) is palm oil. Now, nearly 45 per cent comes from Indonesia and the remaining from neighbouring Malaysia. India imports roughly 4 million tonnes of palm oil from Indonesia each year.

Apart from this, rising input costs due to high food inflation and fuel prices are also forcing quick-service restaurants such as Dominos, bars and cafes to increase prices by up to 15 per cent. Industry executives have earlier said their raw material costs have increased by up to 30 per cent in the past three months.

The inflation in March jumped mainly due to a rise in food items. The inflation in the food basket during the month stood at 7.68 per cent, higher as compared with 5.85 per cent in February.

Core inflation, which excludes food and fuel components, also rose to a 10-month high of 6.29 per cent in March. Food inflation rose to 7.68 per cent in March, against 5.85 per cent in the preceding month. The spike in the food basket was due to a sharp rise in prices of oils and fats, which climbed 18.79 per cent year-on-year in March.