Cigarette, wheat, dividend: How ITC shares make people happy and option traders pay, 2022

People who write options are like “silent bombers.” It’s hard to find them. And it’s almost impossible to fight them off. In the stock market (ITC), most of the time, the prey is an untrained person who buys cheap call options and hopes to double or triple their money in a few days. Most of the time, the retail buyer loses money. But then, there are a few times when the option writer is on the other side.

The same thing happened at the ITC counter. People who buy call options on this stock usually get a certain amount of money back because the share price stays between INR200 and INR240. Anyone writing a prospect takes the opposite side of what the option buyer does.

Investors who bought the 230 call option with an expiration date of March 31, 2022, on the other hand, got a pleasant surprise. Between February 24 and March 31, 2022, ITC shares rose 20%, and the call-option price rose 1,700%.

While option buyers made a lot of money, the sellers lost the same money. ITC’s stock rose the most this year because FPIs (foreign portfolio investors) bought more of the company. Mutual funds cut their stake in the company, but FPIs bought more of it.

The recent move has made many fund managers and people who buy stocks at home happy because ITC has been a value stock with a cheap price-to-book value of 5.2x. It looked like this: The store had not moved for the longest time. It has 2.79 million retail shareholders, one of the highest among the Nifty 50 companies. They own about 12 percent of the total shares. These are usually long-term investors who are betting on the fundamentals of the company, not options traders, who are only betting on the stock’s price at the moment.

As a writer, ITC has always been one of my favorite stocks because the stock isn’t very volatile. That gave option writers a set amount of money each month. As far back as a long time, it has been in that range: 200 to 250 INR. Now, that range has changed. Jyoti Budhia, one of the most experienced traders in the derivatives market, says that we are waiting for the following content.

It has never been so high for 230 calls in March before.” Those who sell options usually make money when ITC doesn’t go up, so it was very hard for them. During that time, ITC kept going up. If the rise had been for just one or two days, option sellers would have changed their positions. But because the price went up until the March expiration, they couldn’t because they had to change their jobs. The stock is close to INR260, and the range will change if it goes over that. Subhadip Nandy, an options trader, says that INR310 is the next target.

If you own an ITC stock, should you keep it? This is a good time for new investors to get in on the stock.

First, we need to know what’s making ITC shares rise.

The things that start things
Because of the Russia-Ukraine war, wheat exports went up, and people wanted high dividend-yielding stocks when prices went up. ITC’s stock price rose quickly because of these things. People at ICICI Direct think that ITC’s revenue will increase 21.5 percent in the fourth quarter of FY22 over the same period in FY21. DABUR and Nestle are expected to grow about 10%, and HUL is expected to grow by about 5%.

ITC should have a good year at the end of the whole thing. Revenues from wheat exports could rise by 66% this year compared to last year, and its food and drink business could grow by 13% because prices are passed on to customers when there is a lot of inflation.

The ITC stock wasn’t moving as quickly as it should have been.

There hasn’t been any growth in ITC’s cigarette business, which makes up about 84% of the company’s profits before interest and taxes (PBIT). This group has grown just 3% each quarter for the last three years. The number of cigarettes sold each year hasn’t changed much, with the number of sticks sold between six and eight billion in the previous five years.

The World Health Organization said last year that the number of people who smoke will fall by 2025. In 2021, there were 1.30 billion people who used tobacco, down from 1.32 billion in 2015. By 2025, there will be 1.27 billion people who use tobacco.

“People are becoming more aware of their health.” Existing smokers may not give up, but the number of people who start smoking in this space may go down over time, says Abhay Agarwal, the founder and fund manager of Piper Serica, a portfolio management service registered with the Sebi.

It’s not just ITC that makes money. Agribusiness and FMCG also make money for the company. But they aren’t very profitable. When they made money together, they made 47 percent of all the money in Q3FY22, and their PBIT was only 11 percent. The company’s hospitality and packaging businesses haven’t yet made as much money and made as much money as the other businesses.

ESG (environmental, social, and governance) investing was a big thing until last year, and it wasn’t as popular this year. Investors didn’t like ITC because of its cigarettes business, so they didn’t want to buy it. We bought ITC last month because Edelweiss said it was an excellent stock to buy. In light of the rise in commodity prices during the pandemic, the report said there was a lot of uncertainty about the long-term benefits of ESG-based investing.

The things that make someone want to do something.
ITC has a PE of 21x, which isn’t as high as HUL’s 56x or Nestle’s 75x. If you look at ITC’s value in terms of return on capital and earnings per share, other FMCG stocks in the index are better than ITC.

But when there is a lot of inflation, investors look for low-PE stocks with high dividend yields. A 4.04 percent dividend-yielding share of ITC stock (as of FY22) will not hurt anyone as long as the CPI inflation rate is 6.95 percent and the interest rate on government bonds is 7.

For a conservative investor, ITC has a dividend yield of 4% right now and a long-term source of cash flow that makes it a good buy. Think about it this way. If an INR11 dividend this year grows by 10% a year, then in about seven years, the investor would have doubled his reward. Today, the rate on a bond would be about 8%. That would be the best bond investment, assuming interest rates don’t rise to 10%. VP Rajesh, the managing partner at Banyan Capital Advisors, says that.

Companies like Altria Group and British American Tobacco (BAT) that make tobacco have also increased this year. On the other hand, their dividend yields are higher than ITC’s, and they pay out 6.5 percent a year.

For long-term investors, dividends are one of the things that sway them toward the ITC stock. But for the trader, breaking long-term resistance is what makes it appealing.

Santosh Kumar Pasi, an options trader and a trainer talks about this. Then, when ITC broke through its long-term demand and support zone with many volumes, traders were interested, and a lot of cash market volume was being made.” “Right now, INR270 is the big thing that needs to be done,” says the man.

To stay where you are or leave?
If you look at ITC, you don’t usually see price changes like this one. When the traders don’t expect it, they strike.

One of the stocks that didn’t move at all was ITC. The Nifty 50 went up 112% during the last two years, but ITC went up 46%. This is because ITC has gone up 46% during this time. In March 2022, the stock has risen 20%. In April 2020, the market rebounded from a 40% fall in March 2020. However, the stock market had risen 20% in a month, and the ITC didn’t move that much. The March 2022 move is a 12-sigma event, which is very rare, and it can only happen again if the stock gets into a momentum zone.

It turns out that long-term investors who bought ITC during the pandemic are pleased. Some people on social media will tell you to sell the stock, and it makes sense for investors to stay with the store and wait for the business to get better.

For people who are just starting, the cost of missing out on something is too high. They can always look for better stocks than ITC because the rest of the Nifty 50 stocks look good. This includes some big banks and many big companies in the field of IT.

People who are here to follow ITC’s trend have a good chance that it’s already over. For, the current movement in the stock is not a religious one, and this is why.

ITC hasn’t done very well in the last six years compared to the overall stock market, which has gone up a lot. When the stock market was going up, ITC didn’t grow and stayed in a range even last year. During the day, it is going up.