November 2012

Understand : What is Paid Up Value in your Insurance Policy

What is Paid Up Value , Insurance Policy, Surrender Value, Life Insurance Concepts, Policy Lapse, Assignment, Nomination, .

Awareness precedes success

Most of the Insurance Policy Holders are unaware of the concept of Surrender Value and Paid  Up Value in case of lapse of a policy for any reason. This note with an example will help understand the concept. 

Guaranteed Surrender Value 

Under Sec 113 of Insurance Act 1938 if a person discontinues a policy, the insurer will not be allowed to forfeit all premiums paid. In every premium there will be an element of savings element accruing in a reserve fund. Insurance Act 1938 stipulates that the insurer should pay a guaranteed surrender value, if the premiums are paid for a minimum period of 3 years. Some Insurers pay more than the amount stipulated by the Act and this is called Special Surrender values. 

Paid Up Value 

When policy lapses after 3 years the Insurer will reduce the sum assured to a sum in the same ratio as the number of years premiums paid, bearers to total number of years in term of the policy. 

If Mr X. had taken a policy for 32 years for 10 Lakhs and he has paid the premium for 8 years only, then he would have paid for the term only. The Insurer offers to pay the Sum Assured, due payable on the maturity date or death if earlier as Paid up value that is Rs. 2,50,000. 

Reduced Sum Assured (RSA is the Reduced Sum Assured or the Paid up value) =
(Total number of years premium paid X sum assured) / (Total term of the policy)

Policies are with Profits or Participating polices wherein the policy holder will be eligible to get share of surplus of insurer called the bonus. 

No bonuses will be added to the sum assured of policies without profits or non – participating policies. 

 In case of policies wherein bonus eligibility is available, the sum total of Reduced Sum Assured + bonus allocated, shall be the Paid up Value. 

Where there is no bonus eligibility for the policy, the Reduced Sum Assured shall be the paid up value. 

Premiums are paid in advance in Insurance transaction. So the policy will be in force for the term depending on the mode of payment. Obviously, a monthly mode will keep the policy alive for 1 month, in quarterly it will be for 3 months, Half yearly for 6 months and yearly for 1 year.

Mr. X had taken a Half yearly mode of payment for 10 Lakhs with profits for 32 years term. The policy had commenced on 28th March 2002. He paid the premiums due on 28th September 2009. Due to certain financial constraints he could not pay further. Upon lapse of his policy due to non payment of premiums, not all of the money paid is lost.

What is Paid Up Value , Insurance Policy, Surrender Value, Life Insurance Concepts, Policy Lapse, Assignment, Nomination,

 

 

 

 

Reduced Sum Assured = Rs 2,50,000
Add Bonus Accrued = say 1,60,000
Total Paid Up = Rs 4,10,000

How much Life insurance is another article which you will find useful….

October 2012

How do you compare and evaluate Mutual Fund Performance

 Risk-adjusted Returns, Evaluating Mutual Fund Performance, Sharpe Ratio, Treynor Ratio, Beta, Alpha, tracking error, Index funds, .

Risk-Adjusted Return is one of the concept investors should be aware when comparing returns of mutual funds.  

One way of comparing the returns between two different funds is to look at the their relative returns over a period. However, a weakness of this approach is that it does not differentiate between two schemes that have assumed different levels of risk in pursuit of the same investment objective.

It is possible that although two schemes share the benchmark, their risk levels will differ, and sometimes quite dramatically as well. Evaluating performance, purely based on relative returns, may be unfair towards the fund manager who has taken lower risk but generated the same return as a peer.

An alternative approach to evaluating the performance of the fund manager is through the risk reward relationship.

The underlying principle is that return ought to be commensurate with the risk taken.

A fund manager, who has taken higher risk, ought to earn a better return to justify the risk taken. A fund manager who has earned a lower return may be able to justify it through the lower risk taken. Such evaluations are conducted through Risk-adjusted Returns.

There are various measures of risk-adjusted returns. We’ll look at the three most commonly used :

Sharpe Ratio

An investor can invest with the government, and earn a risk-free rate of return (Rf). T-Bill index is a good measure of this risk-free return.

Through investment in a scheme, a risk is taken, and a return earned (Rs).

The difference between the two returns i.e. Rs – Rf is called risk premium. It is like a premium that the investor has earned for the risk taken, as compared to government’s risk-free return.

This risk premium is to be compared with the risk taken. Sharpe Ratio uses Standard Deviation as a measure of risk. It is calculated as

(Rs minus Rf) ÷ Standard Deviation

Thus, if risk free return is 5%, and a scheme with standard deviation of 0.5 earned a return of 7%, its Sharpe Ratio would be (7% – 5%) ÷ 0.5 i.e. 4%.

Sharpe Ratio is effectively the risk premium per unit of risk. Higher the Sharpe Ratio, better the scheme is considered to be. Care should be taken to do Sharpe Ratio comparisons between comparable schemes. For example, Sharpe Ratio of an equity scheme is not to be compared with the Sharpe Ratio of a debt scheme.

Treynor Ratio

Like Sharpe Ratio, Treynor Ratio too is a risk premium per unit of risk.

Computation of risk premium is the same as was done for the Sharpe Ratio. However, for risk, Treynor Ratio uses Beta.

Treynor Ratio is thus calculated as: (Rf minus Rs) ÷ Beta

Thus, if risk free return is 5%, and a scheme with Beta of 1.2 earned a return of 8%, its Treynor Ratio would be (8% – 5%) ÷ 1.2 i.e. 2.5%.

Higher the Treynor Ratio, better the scheme is considered to be. Since the concept of Beta is more relevant for diversified equity schemes, Treynor Ratio comparisons should ideally be restricted to such schemes.

Alpha

The Beta of the market, by definition is 1. An index scheme mirrors the index. Therefore, the index scheme too would have a Beta of 1, and it ought to earn the same return as the market. The difference between an index fund’s return and the market return, as seen earlier, is the tracking error.

Non-index schemes too would have a level of return which is in line with its higher or lower beta as compared to the market. Let us call this the optimal return.

The difference between a scheme’s actual return and its optimal return is its Alpha – a measure of the fund manager’s performance. Positive alpha is indicative of out-performance by the fund manager; negative alpha might indicate under- performance.

Since the concept of Beta is more relevant for diversified equity schemes, Alpha should ideally be evaluated only for such schemes.

These quantitative measures are based on historical performance, which may or may not be replicated.

Such quantitative measures are useful pointers. However, blind belief in these measures, without an understanding of the underlying factors, is dangerous. While the calculations are arithmetic – they can be done by a novice; scheme evaluation is an art – the job of an expert. 

Source : NISM
 
More on Mutual Funds

September 2012

Procedure for Transmission of Shares, In the Event of Death of the Shareholder

Procedure for Transmission of Shares,in the Event of Death of the Shareholder , Stock Investing, SEBI India

Life is uncertain..But Death is certain

Recently, an acquaintance had to undergo the process of transmission of shares when she lost her spouse to an unfortunate mishap. It is good to be aware of the process of transmission as documented by SEBI. I am putting this here for the benefit of our readers.

“Transmission” is the terminology used for this procedure that means passing of property in shares to the legal heirs. In the event of death of the shareholder procedure for transmission of shares is as follows;

 Where there is a nominee;

For shares in demat mode, you have to send to the Depository Participant (DP);

  1. Notarized copy of the death certificate
  2. Duly filled Transmission Request Form (TRF).

For physical shares, you may be requested to send any of the below documents to the Registrar and Share Transfer Agent (RTA);

  1. Original Share certificates.
  2. Duly filled Transmission Request Form (TRF).
  3. An affidavit / declaration by the nominee declaring his rights.
  4. Notarized copy of the death certificate.

Where there is no nomination: (Part A)

 Shares held in Demat mode;

 Where value of the shares is upto Rs. 100,000, one or more of the following documents is to be furnished to the DP;

  1. Notarized copy of the death certificate
  2. Transmission Request Form(TRF)
  3. Affidavit – to the effect of the claim of legal ownership to the shares,
  4. Deed of indemnity – Indemnifying the depository and Depository Participants (DP)
  5. NOC* from legal heir(s), if applicable or family settlement deed duly executed by all legal heirs of the deceased beneficial owner.

Where value is more than Rs 100,000, the Depository Participants (DP) may additionally insist on one or more of the following documents;

  1. Surety form
  2. Succession certificate
  3. Probated will

Shares held in Physical mode:

 Where the Shares are in physical mode, The RTA (Registrar/Share Transfer Agent) may insist on any of following documents;

  1. Original Share certificates.
  2. Duly filled Transmission Request Form (TRF).
  3. Notarized copy of the death certificate.
  4. Succession certificate or
  5. Probate or letter of administration duly attested by Court Officer or Notary

 * In case of multiple successors, NOC from non-applicants shall be recorded on the share transmission form of the applicant instead of insisting separate share transmission form from each of the successors.

 Transmission of shares is required to be done within a period of one month for share held in physical form and within seven days for shares held in Demat form, from the date of lodgment of the Transmission Request Form by listed companies.

Sources: SEBI

August 2012

Investors Guide to the Capital Market & 20 mantras for investing

Investors Guide to the Capital Market ,20 mantras for investing, India Stock Markets, Investing in IndiaI came across the document ‘Investors Guide to the Capital Market’ produced by the Ministry of Corporate Affairs under the Aegis of ‘Investor Education and Protection fund’ (IEPF)

It contains some 20 generic mantras for investors to follow for successful investing. It would have been nice if the document contained some more depth in terms of the material. It appears to be put together in haste.

Also, I disagree with Mantra 4 (Invest in IPO & book profit on listing) & Mantra 5 (Invest in all PSU IPO’s. Don’t bother about listing price, stay invested). These two mantra’s mention that the investor will not lose money while investing in IPO’s and should try to take the profits on listing, aka recommending trading and timing.

Also, why should an investor invest in all PSU’s. Investors should invest in companies which will generate cash flow and maintain growth year on year and give returns in forms of either dividends or capital appreciation. Do all PSU’s guarantee outperformance over Private sectors. Answer is NO.

Beginner investor can refer to the document (albeit with a pinch of salt.) It starts off as follows.

Save prudently…
Invest even more wisely
Investing
• Investing is compulsory.
• You have to invest otherwise your savings
will depreciate in value/purchasing power.
• However, mindless or reckless investing is
hazardous to wealth.
20 Mantras to Wise Investing

The complete link to the document is here. Investors Guide to Investing – NSE

July 2012

Tax Filing ~ Which ITR (Income Tax Return) forms to file~File Online

Income Tax India, Tax filing, Online, Form 26AS, ITR forms, Income from salaryNow you can File taxes online using the website : https://incometaxindiaefiling.gov.in/portal/index.jsp. Follow these simple steps for filing online.

1. Register using  your PAN. Once you login you can choose the Assessment Year for filing the tax :

Tax Filing, Which ITR (Income Tax Return) forms to file, Form 26AS, Individual , HUF,

2. Use the following ITR forms based on your type/ source of Income.

Tax Filing, Which ITR (Income Tax Return) forms to file, Form 26AS, Individual , HUF,

3. Download the return preparation excel sheet. There is excel utility excel templates which are provided for each type of ITR forms. 

Income tax return, Excel Utility, Preparation software, ITR Return, NSDL, ITR-1 Sahajj, ITR-2, ITR-3, ITR-4

4. Use form 16 to fill in the form (4 pages). Click Validate. This will generate the XML File. Now you just need to upload the file using the following form :

Income tax return, Excel Utility, Preparation software, ITR Return, NSDL, ITR-1 Sahajj, ITR-2, ITR-3, ITR-4Income tax return, Excel Utility, XML, Upload return, refund, Preparation software, ITR Return, NSDL, ITR-1 Sahajj, ITR-2, ITR-3, ITR-45.  You will get an email from income tax office. You need to send the signed form to the address mentioned on the file by ordinary post or speed post.

And that’s it… Remember online tax filing is mandatory for Income over 10lacs/Optional for income < 10lacs. You can either sign digitally or send by post.

Ensure that you check Form 26AS for TDS information and verification. 

The document : Common_Mistakes  which should be avoided when filing taxes online. 

Happy Tax filing

IRDA Consumer Education website ~ Insurance ~ Educating Customers

insurance, IRDA, consumer education, life insurance, health insurance, car insurance, plans, Insurance is a sophisticated financial instrument which requires a fairly high level of involvement on the part of the consumer to make it effective. Yet insurance is also a basic requirement that every person should have. This universal need coupled with its complexity makes for a difficult combination since there is a mismatch between the perceptions of the customer and the reality of the product. It is this perception-reality gap that consumer education bridges.

The best protection for a consumer is education.

The IRDA website appears to be a sincere effort in this direction. Make use of the resources given in the website. It is useful.

You can access the site here : IRDA Consumer Education website

Financial Planning Workbook from NISM ~ An Excellent read

NISM, SEBI, Financial Planning, Risk Management, Insurance, Retirement, Estate, Investments, Planning

The Financial Planning Workbook has been jointly developed by the National Institute of Securities Markets (NISM) and Financial Planning Corporation (India) Pvt. Ltd (FPCIL) to assist candidates in preparing for the non-mandated Certified Personal Financial Advisor (CPFA) Examination.

NISM is an educational initiative by SEBI.

It covers various Concept of Financial Planning , Managing Investment Risk ,Measuring Investment Returns ,  Investment Vehicles , Investment Strategies, Insurance Planning, Retirement Planning, Tax and Estate Planning & Need for Regulation.

It is an excellent read for anyone looking for an overview of financial planning.

Certified Financial Planner Advisor Workbook from NISM (National Institute of Securities Market)

June 2012

Relative Valuation ~ Primer

relative valuation, multiples, PE Ratio, EPS, EBIDTA, ROE, ROI, WACC, Cost of equity, researchRelative Valuation is Valuing an asset by comparing with prices of similar assets in market. In relative valuation the value is relative to how the market is pricing comparable firms
.
There are three basic steps
–Identify comparable assets
–Standardize – price of the asset or the value of equity
–Adjust for differences  
.
Why popularity of Relative Valuation in analyst circle?
.
•It is Easy to sell a story based on comparables
–Pebble beach golf – Japanese paid 750$ mn in late 1980’s
–At that time All of Tokyo real was estimated to be cost more than all of US real estate put together
–Business potential did not justify the price
–Imagine selling a DCF based valuation!!!
.
•Most  Assumptions and inaccuracies are hidden
.
•If you mess up so would have others
–You don’t want to be wrong all alone on the street
.
Is there widespread use ?? Of course …
.
•Majority of research reports are based on Relative Valuation
•Mergers and Acquisitions derive valuations based on a  multiple based prices of comparable firms.
•Many investment strategies  are based on multiple (eg: Venture Capital/PE fund investing in entrepreneurial ventures)
•Terminal Value in DCF often calculated using Relative Valuation
•DCF used to justify Relative Valuation quite often
.
More on Common Multiples later….

May 2012

Options Delta : The Basics

options, call, put, hedging, risk , return, delta, delta neutral strategy, options basics, enrichwise

Options Delta is the ratio of the change in the price of the stock option to the change in the price of the underlying stock

Delta = instantaneous change in value of asset with respect to an underlying risk factor. Option’s delta changes continuously as underlying risk factor changes

Here are some basic characteristics of Options Delta :

  • It is the change in the price of an option for a one point moves in the underlying
  • Delta of a call option is positive
  • Delta of a put option is negative
  • Delta increases – in decreasing index
  • Delta decreases – in increasing index
  • Call options: 0 < Option Delta < 1
  • Put options: -1 < Option Delta < 0
  • In-the-money options: Delta Option approaches 1 (call:+1,put:-1)
  • At-the-money options: Delta is about 0.5 (call:+0.5, put: -0.5)
  • Out-of-the-money options: Delta Option approaches 0
  • Call Option Delta can be interpreted as the probability that the option will finish in the money
  • An at-the-money option : which has a delta of approximately 0.5, has roughly a 50/50 chance of ending up in-the-money
  • Put Option Delta can be interpreted as -1 times the probability that the option will finish in the money

Impact of Time : As time passes, the delta of In-the-money options: increases & Out-of-the-money options: decreases

Impact of Volatility : As volatility falls, the delta of In-the-money options: increases & Out-of-the-money options: decreases

Hedging using Options – Delta to neutralize market risk :

  • In order to maintain a riskless hedge using an option and the underlying stock, need to adjust holdings in the stock periodically
  • An important parameter in pricing and hedging of options
  • No. of units of stock should hold for each option shorted in order to create a riskless hedge
  • Construction of a riskless hedge is sometimes referred as delta hedging

To get more information on Options Greeks , read Options Basics of Vega ,  Gamma 

“The greatest ignorance is to reject something you know nothing about”…If you are invested in Markets, it makes sense to be aware of & have an idea about Options

Present Value (PV) Basics….Formulae

Present Value, PV, Formulae, Time Value of Money, Tutorials, basics, Money, Investment fundamentals, Cash Flow

Terms uses :
PV = Present Value;
A = Annuity;
r = interest rate;
g = growth rate;
n = number of periods;
CF = Cash Flow;
 
“A bird in the hand is worth two in the bush” – Miguel de Cervantes
 
If someone owes you 10,000/- , it is advantageous to get the money today If you get this money today:
–> You could earn interest and invest it and you will receive this quantity plus some other amount in the future.
–> You can use it to pay your debts and therefore, lower the interest amount paid on your debt.
–> Or you can spend it and enjoy it as you wish.
 
More on Time Value of Money here

April 2012

Understanding COEFFICIENT OF VARIATION

COEFFICIENT OF VARIATION , Financial Terms, Understand, Risk, Return, Investing, Stocks, Standard Deviation

What is COEFFICIENT OF VARIATION?

It Measures risk per unit of return.

It helps us choose between two investments where one has both a higher expected return and higher standard deviation than the other.

A simple example to understand the concept :

Investment 1 has an expected return of .40 and a standard deviation of .22.

Investment 2 has an expected return of .23 and a standard deviation of .14.

Which should we choose assuming we are a risk averse investor?

Coefficient of variation is calculated by dividing the standard deviation by the expected return.

Investment 1 : .22/.40 = .55

Investment 2 : .14/.23 = .61

A risk averse investor would choose investment 1 because the risk per unit of return is less.

The vast majority of investors are risk averse, i.e., when choosing between two investments they will choose the less risky of the two.

March 2012

February 2012

Common Non Verbal Mistakes made at a Job Interview

Interview, Mistakes, MBA, Engineering, Medical, Job, Tips, Confidence, Preparation

 

  • The first 90 seconds of an interview are critical and almost 33% of the interviewers decide whether they will hire someone
  • Prepare about the company. Having little to no knowledge of the company is the most common mistake made during interviews
  • Failure to make eye contact is a common nonverbal mistake
  • When meeting new people, majority of the impact comes from the way the person dresses, acts and walks through the door
  • Clothes also play a deciding factor between two almost-identical candidates
  • “Tell me about yourself” is the number one question which every participant should prepare as this question is the most oft asked.
  • The number one most common mistake at a job interview is: the confidence to actually ask for the job

 

August 2010

What and How of Nifty Index!!!

.

One of my friend recently just wanted to get an idea about Nifty and How it is calculated. I am presenting some basic facts about Nifty here….

Background of Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India’s first specialised company focused upon the index as a core product. IISL has a Marketing and licensing agreement with Standard & Poor’s (S&P), who are world leaders in index services.

  • The traded value for the last six months of all Nifty stocks is approximately 44.89% of the traded value of all stocks on the NSE
  • Nifty stocks represent about 58.64% of the total market capitalization as on March 31, 2008.
  • Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.15%
  • S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

What and How of Nifty Index, How is stock selected in Index, Sensex, India Index Services and Products Ltd. (IISL)NSE, CRISIL, Liquidity,  Impact Cost, Floating Stock, index calculation

How Stocks are selected :

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria:

Liquidity (Impact Cost)

For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of Rs. 2 Crores.

Impact cost is cost of executing a transaction in a security in proportion to the weightage of its market capitalisation as against the index market capitalisation at any point of time. This is the percentage mark up suffered while buying / selling the desired quantity of a security compared to its ideal price (best buy + best sell) / 2

Floating Stock

Companies eligible for inclusion in S&P CNX Nifty should have atleast 10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Others

a) A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligiblity criteria for the index like impact cost, market capitalisation and floating stock, for a 3 month period instead of a 6 month period.

b) Replacement of Stock from the Index:

A stock may be replaced from an index for the following reasons:

i. Compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest market capitalization and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion.

ii. When a better candidate is available in the replacement pool, which can replace the index stock i.e. the stock with the highest market capitalization in the replacement pool has at least twice the market capitalization of the index stock with the lowest market capitalization.

With respect to (2) above, a maximum of 10% of the index size (number of stocks in the index) may be changed in a calendar year. Changes carried out for (2) above are irrespective of changes, if any, carried out for (1) above.

And Finally how is the index calculation done

S&P CNX Nifty is computed using market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.

Source : NSE

Selling Options : Sometimes it can be made to good use.

Selling Options , Calls, Puts, Tutorials, Options Strategies, Butterfly, Straddle, Strangle,  What Investors should know.

Options, by definition, are a wasting asset. The time decay, declining volatility etc. eat away into the premiums of the options.

Many option buyers learn this fact the hard way by watching their option contracts expire worthless many times. The majority of options expire worthless (estimates are somewhere > 80%). Given that the majority of option buy positions are worthless at the time of expiration, some investors decide that they will sell options and collect the premium. Prima Facie, this sounds like an easy way to make money.

However, there is no free lunch in the investment field as well. There are stories of how some of the brightest people in the world have blown up their accounts while selling ‘Naked’ options. Selling options, when there are no underlying holdings to support in case of adverse move is known as ‘Naked’ Selling.

Nevertheless, Options selling, when used intelligently, can be used to complement/protect your portfolio holdings to a certain extent and also make income in return.

Investors earn a premium for every put and call option which they sell. This premium is paid by Option Buyers.

Selling Short

When you sell shares of a company which you do not own, then it is called short selling. Selling a stock short is taking a view that the shares will keep going down. One way of doing this is by selling Futures. And another way of doing this is by selling Call Options.

In a short sale you have to buy back the shares at some point. And thus, short selling exposes you to unlimited risk, if the price of the stock starts to increase.

There are numerous strategies in Options. I will present just one example of how the selling of call options can be used by investors :

 

Covered Call Strategy

A covered call strategy is strategy for bullish investors to make some money and benefit from a stock that will move little over the short term.

This is often employed when an investor has a short-term neutral view on a stock or when the Stock has made a decent up move in a relative short period of time, and is expected to be range bound in the near term.

Let us take the example of Larsen and Toubro (LNT) recent price action again.

Assume, Investors bought the stock @ 1400 or Traders bought it at the breakout above 1660 in early June. Next, the stock made a decent up move in a month’s time frame and touched almost 1900. Investors could have written an options contract selling one call option of LNT Jul 2010 strike price 1900 at Rs 40. (However, Remember that one call option gives an investor the right to buy 125 shares).

You would earn income because the buyer of the call option has to pay you a premium for the option. If the stock’s price drops stays below the strike price (In this case , LNT did close well below Rs 1900 by Jul end) , the call buyer will never exercise the contract and the entire premium is yours to keep (Remember one lot of LNT is 125 and that makes the premium monies Rs 125 * 40 = Rs 5000).

If the stock’s price increases above the strike price, the call buyer may choose to exercise the contract. You would then either have to buy shares on the open market or deliver your shares to the buyer.

This is one of the common ways in which large institutional players generate income on the basis of their large holdings which they can always use to hedge in case of any adverse move against their options position.

Again, the intention of this article is to arouse interest and make aware of Options Selling. It does not advocate that you start selling options. Please understand, when selling options, remember that although your profit potential is limited to the amount of the premium that you receive, your losses can be rather large.

Also, My personal view is that selling PUT Options carries higher risk than Selling CALL options. This is because , in general, stocks generally use the stairs when going up (Sellers of Call Options can manage risk here ….) , But Jump out of the window when coming down. (Sellers of Put options can run out of exit options or get trapped …)

LNT has indeed made a good move from 1660 to 1900 and which I have been tracking since Early June …

You might be interested to know about Buying Options here…