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Presentation on Advance Options Strategies

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  • 1. FUTURES & OPTIONS PRESENTATION ONADVANCE OPTIONS STRATEGIES Presented by Group - 81 Tolani Institute of Management Studies
  • 2. MONEY SPREAD USING CALLS Question: SBI currently selling at INR 1897. There are two calls of it. 1st call with an exercise price of INR 2000 at INR 15 with maturity date on 27th September, 2012 2nd call with an exercise price of INR 1900 at INR 48 with maturity date on 27th September, 2012 2 Tolani Institute of Management Studies
  • 3. Strike Price Long Call Value Short Call Value Value of the(INR) on 27th (INR) (INR) money spreadSeptember, S.P. = 1900 S.P. = 2000 (INR) 2012 Assumed 1500 -48 15 -33 1600 -48 15 -33 1700 -48 15 -33 1800 -48 15 -33 1900 -48 15 -33 2000 52 15 67 2100 152 -85 67 2200 252 -185 67 3 2300 352 -285 67 Tolani Institute of Management Studies
  • 4.  Break – Even point for money spread = INR 1933 This strategy will give maximum profit of INR 67 if strike price is greater than INR 1933 and will give maximum loss of INR 33 if strike price is less than 1933. This strategy will be adopted in Bullish market The implications of this strategy would be constant profit if both calls are in-the-money and constant loss if both calls are out-of-money. 4 Tolani Institute of Management Studies
  • 5. Money Spread Using Call 400 300 200 Long Call Value 100 Short Call ValueGain/Loss 0 1500 1600 1700 1800 1900 2000 2100 2200 2300 Value of the money spread -100 -200 -300 -400 Stock Price 5 Tolani Institute of Management Studies
  • 6. STRADDLES Question: TATA Motors currently selling at INR 245. A call option with an exercise price of INR 250 at INR 6 with maturity date on 27th September, 2012 A put option with an exercise price of INR 250 at INR 8 with maturity date on 27th September, 2012 6 Tolani Institute of Management Studies
  • 7. Stock Price Gain from call Gain from Put Gain from the (INR) (INR) (INR) Straddle (INR) 180 -6 62 56 200 -6 42 36 220 -6 22 16 240 -6 2 -4 250 -6 -8 -14 260 4 -8 -4 280 24 -8 16 300 44 -8 36 320 64 -8 56 7 Tolani Institute of Management Studies
  • 8.  The investor will make a loss as long as the TATA Motors share price is within the range of INR 236 to INR 264. If the price is below INR 236 or above INR 264, this strategy will result in a profit. The more the price moves away from INR 236 or INR 264, the higher are the gains. A long straddle strategy is appropriate if an investor expects a large movement in the stock price but is not sure about the direction of the stock price. 8 Tolani Institute of Management Studies
  • 9. Gain from a Straddle 70 60 50 40 Gain from call (INR) 30 Gain from Put (INR)Gain/Loss Gain from the Straddle (INR) 20 10 0 180 200 220 240 250 260 280 300 320 -10 -20 9 Stock Price Tolani Institute of Management Studies
  • 10. STRANGLES Question: HUL stock is currently trading at INR 540. A call option with an exercise price of INR 560, selling for INR 4 A put option with an exercise price of INR 520, selling for INR 3. 10 Tolani Institute of Management Studies
  • 11. Stock Price (INR) Gain from the Gain from the Gain from the Long Call (INR) Long Put (INR) Strangle (INR) S.P. = 560 S.P. = 520 400 -4 117 113 440 -4 77 73 480 -4 37 33 520 -4 -3 -7 560 -4 -3 -7 600 36 -3 33 640 76 -3 73 680 116 -3 113 11 Tolani Institute of Management Studies
  • 12. A Strangle is similar to a straddle in the sense that the investor is not sure about the direction of the stock price. Thisstrangle strategy will result in a maximum loss of INR 7 as long as the stock price is in the range of the two exercise prices. The investor will make a profit only if the stock price is below INR 513 or above INR 567. 12 Tolani Institute of Management Studies
  • 13. Gain from a Strangle 140 120 100 Gain from the Long 80 Call (INR) Gain from the LongGain / Loss 60 Put (INR) Gain from the 40 Strangle (INR) 20 0 400 440 480 520 560 600 640 680 -20 Stock price 13 Tolani Institute of Management Studies
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