This document discusses a study on using options strategies around events to maximize profits and hedge risk. It analyzes the effectiveness of bullish, bearish, and neutral strategies around four Indian events: the Union Budget announcement, RBI monetary policy review, and the annual results of Reliance Industries and Punjab National Bank. The study found that strike prices and option premium levels significantly impact strategy profits. Certain strategies like long calls, protective puts, and bull call spreads produced profits related to the events. Overall, the document suggests options can be effective tools for speculating on stock price movements around news and announcements.

1. A STUDY ON EFFECTIVENESS OF USING OPTIONS AS AN EVENT
STRATEGY FOR PROFIT MAXIMASATION AND HEDGING TOOL
WITH SPECIAL REFERENCE TO HEDGE EQUTIES PVT LTD
SUBMITTED TO
UNIVERSITY OF KERALA
SUBMITTED BY
MUHAMMED NOWFAL S
REG NO: 13811044
A PROJECT REPORT ON

2. INTRODUCTION TO STUDY
• India is one of the most successful developing countries in terms of a
vibrant market for exchange-traded derivatives.
• The emergence and growth of the market for derivative instruments can be
traced to the willingness of risk-averse economic agents to guard
themselves against uncertainties arising out of in asset prices
• Derivatives are meant to facilitate the hedging of price risks of inventory
holdings or a financial/commercial transaction over a certain period
• By locking in asset prices, derivative products minimise the impact of
fluctuations in asset prices on the profitability and cash flow situation of
risk-averse investors and thereby, serve as instruments of risk management.
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3. BACKGROUND TO THE PROBLEM
• Stock prices are driven by many factors. Expected corporate earnings,
interest rates, monetary flows, political events and liquidity within the
banking system all have the power to roil the markets.
• Extraordinarily important headlines and actions are being released on a
regular basis, each release drives price volatility higher in the global
financial system.
• The event may positively or negatively affect the stock price.
• Options are excellent vehicles for positioning your equity before an event
occurs.
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4. WHY FINANCIAL SERVICES INDUSTRY?
• India is the best EME’s in the World.
• India's services sector has always served the country’s economy well,
accounting for about 57 per cent of the gross domestic product (GDP). In
this regard, the financial services sector has been an important contributor.
• The Government of India has introduced reforms to liberalise, regulate and
enhance this industry. At present, India is undoubtedly one of the world's
most vibrant capital markets. Challenges remain, but the future of the
sector looks good.
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5. WHY HEDGE EQUITIES?
• Hedge equities ltd. is one of the leading retail stock broking house which is
running successfully in the country
• Vision: “Evolving into financial supermarket which will be a one stop shop for
all financial solutions”
• Strong Research Team backed with best of bread data mining and analysis.
• Trust and goodwill of more than 40,000 clients in Kerala.
• Promoters: FEDEX group, SM Hedge, Baby Marian Exports, Smart Financials,
Takkar Group, Bharat Mohanlal
• Key management team: Alex K Babu -MD, Bhuvanendran-CEO, Bobby
J Arakunnel - COO
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6. OBJECTIVES OF THE STUDY
 To analyze the effectiveness of using different Bullish strategies, Bearish
Strategies, and neutral strategies (based on Investor or Researcher
expectations) on different events for profit maximization and hedging
purpose.
 To analyze impact of different events such as announcement of Union
Budget, announcement of Monetary Policy, announcement of company
results on the performance of selected derivative instruments.
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7. RESEARCH METHODOLOGY
• This study is based on primary and secondary data.
• Primary data is collected from the discussion with the authorized officials,
classes and programs arranged by Hedge School of Applied Economics.
• The secondary data is collected from the website of NSE Ltd that is the
vital part of the study.
• Derivative being a vast area, study is limited to a section of options.
• Already established trading strategies in option trading have been
identified and were applied on the data collected from secondary sources.
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8. SELECTION OF EVENTS
• The events are selected on the basis of their importance on the stock market
and stock price.
• The events happened in between 1st January 2015 and 30th May 2015 is
selected for the analysis.
 Announcement of Union Budget of Central Government on 28th February
2015. The Index Option CNX NIFTY is taken for the study.
 Announcement of Monetary Policy Review by RBI on 7th April 2015. In
which stock option SBI is selected.
 Announcement of Annual Result of Reliance Industries Ltd on 17th April
2015
 Announcement of Annual Result of Punjab National Bank on 15th April
2015
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9. STRATEGIES SELECTED
Bullish Strategies
• Long call
• Protective Put
• Bull call spread
• Long combo
• Long call butterfly
• Short call butterfly
Neutral Strategies
• Long straddle
• Long strangle
• Short Straddle
• Short Strangle
• Long Gut
• Short Gut
Bearish Strategies
• Long put
• Protective call
• Bear Put Spread
• Bear call Spread
• Put Back Spread
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10. SCOPE OF THE STUDY
• The study is attempted to assess the power of using options at different
events as a profit maximization and hedging tool.
• This study covers only the option market in India.
• It takes into consideration the call and put trading in the market at different
stick price.
• The study describes the strategies to select the right hedging techniques
based on the requirements of the investors
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11. LIMITATIONS OF THE STUDY
• The study is limited to only stock and index options. There are some other options
like currency options, commodity options and interest rate options, were not
included in this study.
• The macroeconomic conditions that could have a an impact on prevailing market
were not considered in this study
• The time constrain is an important limitation for this study
• This study covers the Indian scenario only.
• The market is always volatile, so the prediction or anticipation that can be used
depends upon each individual investor.
• The study is based on the past performance of the stock market, which cannot
guarantee future.
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12. FINDINGS
• Strike prices are an important factor in determining the profitability of a
strategy.
• If short position of any strategy gives profit, the long position of the same
strategy will not work and vice versa
• When the option premium increases, Long position will give profit to the
strategy holder and short position will give loss to the option holder.
• Expectations about the events will reflect in option premium value
• In most of the cases call option premium and the value of the underlying
asset are moving in the same direction, but the put option premium has a
negative relation with price movement.
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FINDINGS

13. • If one takes more risk, strategies give more profit mostly.
• The trader can effectively use strategies for return enhancement provided that he
has correct market anticipation
• Stock option strategies are highly effective to be used as speculative tools in the
short run.
• The strategic combinations applied provided to be highly effective in providing a
safe playground for the trader by limiting the range of losses and profit
• Buying contracts at high premium and writing contracts at low premium often
becomes the cause of loss
• While using a different option strategies, different combinations of strike prices
gives different level of profit
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14. CNX NIFTY – Union Budget
Strategy Profit
Long straddle -62.55
Short Straddle 62.55
Long Strangle -73.15
Short Strangle 73.15
Long Gut -58.40
Short Gut 58.40
SBIN – Monetary Policy Review
Strategy Profit
Long Call 1.35
Protective Put 6.2
Bull Call Spread 1.5
Long Combo .65
Long Call Butterfly -0.4
Short Call Butterfly 0.4
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15. RIL- Financial Result
Strategy Profit
Long call 70.20
Protective Put 80.30
Bull Call Spread 60.45
Long Combo 68.35
Long Call Butterfly -6.40
Short Call Butterfly 6.40
PNB – Financial Result
Strategy Profit
Long Put 7.15
Protective Call 5.50
Bear Call Spread 3.45
Bull Call Spread 4.65
Put Back Spread 2.60
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16. SUGGESTIONS
• The investors should be well aware and knowledgeable on the
macroeconomic indices and derivative contacts before entering in to the
derivative segment
• Various events happening in the stock market is the best time for any
investor to make high return through using option strategies. Investor can
exploit events in the stock market through different option strategies
• Strategies should be applied on the best possible strike price
• When the option premium high, it is better to sell options and keep short
position otherwise buy options and keep long position
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17. • If the investor is conservative i.e. low risk taker, short strategies are better.
• Determining profit percent in advance is better for every strategy
• If the trader is new to the market, he will be uncertain about the market movements.
So it is advisable to go for straddle and strangle strategies.
• The trader should look for the contracts that have a reasonable premium while
buying the option
• Those who use options for speculative purpose are suggested to have a better
understanding of price movements or trend through market observations.
• When the options are used for speculation, the risk involved is comparatively high.
So investor should use appropriate strategies
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18. CONCLUSION
• The main objective of my study was to understand the effectiveness of options as
an event strategy for profit maximization and risk reduction.
• Usually derivative contracts are bit complex in nature, but it gives more opportunity
to make profit than others.
• The success or failure of the option trading strategies largely depends on the
sentiments of the stock market.
• Today, the option trading gained much popularity in the world. In India, around 40
per cent of total trade is constituted by the derivative segment.
• The investor should be well aware about the stock market movements and various
macroeconomic indicators before entering in to the derivative trading.
• While using an option strategy, an investor should consider the factors like strike
price, time decay, cost of strategy and volatility.
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19. THANKS FOR YOUR TIME
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