Bank of Baroda - PUT CALL Analysis 14th December 2013

Starting from 16th December 2013 there are exactly 5+4 = 9 days of trading sessions for Stock Options expiry date of 26th December 2013.

Let us see if we get an option strategy for the trading period 16th December 2013 open and close 19th December 2013 - 4 days position open.

We analyze the PUT and call details of Bank Baroda :

BANBAR ---> ANALYSIS AS OF 14TH DECEMBER 2013 Current Market Price of Bank of Baroda as of 13th December 2013 close is about Rs.660 /- approx.


700 CALL 6.65 40.64 0.24 -0.68 0.01 0.37
720 CALL 3.25 40.15 0.14 -0.47 0.00 0.26

640 PUT 9.70 40.64 -0.30 -0.64 0.01 0.42
620 PUT 4.90 41.61 -0.18 -0.50 0.01 0.31

660 PUT  16.20 37.23 -0.48 -0.63 0.01 0.48
680 CALL 12.40 40.64  0.38 -0.85 0.01 0.46

The 640 put + 680 call have positive delta of 0.08 paise on 680 Call side. This means for every one Rs price hike the position will move up by 8 paise . If the price moves by Rs. 20 the option 680 call will move up by 1.60 Rs.

The total theta decay on this sums to 1.49 (0.85+0.64)  Rs. This means in a trading session of 5 days the decay is approximately 1.49*5 = 7.5 Rs.

To cover the decay of 8 Rs in 5 trading session the price has to oscillate 5 times 20 Rs variation that is about 100 Rs variation from 660 to 760 or 660 to 560 on down side.

Here we can take this position sell 640 PUT + 680 CALL and wait for 4 trading sessions (ie., till 19th December 2013 on 19th December 2013 volatility likely to be high ) and wind up the position on 19th December 2013 which would give roughly 1.49*4 = 6.00 Rs. multiplied by 500 stock lot which is about Rs.3000/- Net gain on this position.

Let us see the outcome of this position on 19th December 2013 and take review of the same

Position open 16th December 2013 640 PUT + 680 CALL totaling to Rs. roughly 21-22 Rs per stock.
Wind up on 19th December between 22-6 = 15 or 16 Rs.


cheers
zilebi

Capturing Theta - A Delta Neutral Theta Decay Strategy - Experimentation on NIFTY

Capturing Theta - A Delta Neutral Theta Decay Strategy - Experimentation on NIFTY

This experiment is recorded for the purposes of checking the principle of capturing theta decay if possible by making a Delta neutral strategy.

The experimental index taken up for this purpose is NIFTY which is trading around 6180 points per unit  as of close 29th Nov 2013 (November month end close).

The various Option Greeks for this NIFTY index are observed as below for a 6100 put and a 6400 Call for  December 2013 Option expiry


NIFTY : Quoting around 6180 as of close of November 29th 2013:

SALE OF THIS STRATEGY:
                    PRICE           VOL
                                        ATILITY   Delta     Theta   Gamma Vega
6400 CALL       65.60           20.70        0.32      -3.00   0.00 5.75
6100 PUT         87.95           22.64       -0.35      -2.03   0.00 5.88


By writing a 6100  PUT and a 6400 call we gain a Theta of 5 Rs approximately per day.

DECAY PER DAY: 5 Rs. Delta is 0.03 paise Neutral;

10 day decay = 50 Rs. To make 50 Rs. As delta combo is 0.03 paise to make 1 Rs Delta it has to move by 33 points so to make Rs 50 gain index has to move by 1500 points ? Is this possible in 10 days? So selling this strategy in 10 days should give approx 2500 Rs. ?

Assuming the above strategy is executed on 2nd December 2013 by collecting premium of 65+85 = 150 Rs approx. and 10 days down the line we should be in position to close out this position at Rs. 100 approx.. This would give 50 Rs gain which for a lot of 50 gives a gain of Rs.2500/-


So this article is written down here to see update on 12th Dec 2013 how it works out.


cheers
zilebi