Nifty Spot : 4607

DERIVATIVE STRATEGIES AUGUST 24, 2009

ACTION STRIKE PREM. BREAKEVEN PT. AT EXPIRY Max. profit/loss

Strategy 1 Buy Sep call 4600 186 Profitable when nifty is above 4649 Max. profit: 2550
Mildly Bullish Sell Sep call 4700 137 Max. loss: 2450
Strategy 2 Buy Sep put 4500 140 Profitable when nifty is below 4464 Max. profit: 3200
Mildly Bearish Sell Sep put 4400 104 Max. loss: 1800
Strategy 3 Buy Sep call 4600 186 Profitable when nifty is above 4926 Max. profit: Unlimited
Volatile Buy Sep put 4500 140 Profitable when nifty is below 4174 Max. loss: 16300
Strategy 4 Sell Sep call 4800 98 Profitable when nifty is above 4124 Max. profit: 8800
Range Bound Sell Sep put 4300 78 Profitable when nifty is below 4976 Max. loss: Unlimited

Strategy 1 Nifty bull call spread

Strategy 1 - Payoff as on expiry

3000
View Mildly bullish on market.
2000

Profit/Loss
Buy Nifty Sep call 4600 at 186 1000
Action 0
Sell Nifty Sep call 4700 at 137
-1000
Premium (Higher premium minus lower -2000
49
difference premium) -3000
Total initial (premium difference x 50 lot
3100

3400

3700

4000

4300

4600

4900

5200

5500
2450
cost size)
Nifty Strikes
Breakeven pt. = Lower strike
Break-even pt. 4649
Plus premium difference

(difference bet. Two strikes)

Max. profit 2550 minus (premium difference) x SCENARIO – Strategy 1 (Bull call spread)
50 lot size POSSIBILITIES PROFIT/LOSS
Max. loss 2450 Limited to total initial cost closing < 4600 - difference paid
Do not execute strategy for 4600 < closing < 4700 (closing - 4600 ) - difference paid
Execution 59 more than given premium
difference 4700 < closing 100 - difference paid
Strategy 2 Nifty bear put spread
Strategy 2 - Payoff as on expiry
View Mildly bearish on market. 5000

Buy Nifty Sep put 4500 at 140 3000

Profit/Loss
Action
Sell Nifty Sep put 4400 at 104 1000
Premium (Higher premium minus lower
36 -1000
difference premium)
Total initial (premium difference x 50 lot -3000
1800
cost

3100

3400

3700

4000

4300

4600

4900

5200

5500
size)

Breakeven pt. = Higher strike Nifty Strikes

Break-even pt. 4464
minus premium difference

(difference bet. Two strikes)

Max. profit 3200 minus (premium difference) x
50 lot size SCENARIO – Strategy 2 (Bear put spread)
POSSIBILITIES PROFIT/LOSS
Max. loss 1800 Limited to total initial cost
closing < 4400 100 - difference paid
Do not execute strategy for
4400 < closing < 4500 (- closing + 4500 ) - difference paid
Execution 43 more than given premium
difference 4500 < closing - difference paid

Strategy 3 Nifty long strangle

Strategy 3 - Payoff as on expiry

Highly volatile market, expecting break 60000

View
out either side
40000

Profit/Loss
Buy Nifty Sep call 4600 at 186 20000
Action
Buy Nifty Sep put 4500 at 140
0
Premium paid 326 (sum of two premiums)
Total initial -20000
16300
3300

3600

3900
4200
4500

4800
5100

5400

5700

cost (premium paid x 50 lot size)

Profitable if nifty on expiry is Nifty Strikes
Break even pt. above upper break even or
below lower break even
Upper break Higher strike plus premium
4926
even paid
Lower break Lower strike minus premium
4174
even paid SCENARIO – Strategy 3 (Long strangle)
Max. profit Unlimited POSSIBILITIES PROFIT/LOSS
Max. loss 16300 Limited to total initial cost closing < 4500 (- closing + 4500 ) - premium paid
Do not execute strategy if 4500 < closing < 4600 - difference paid
Execution 342 premium received is more then
given total premium 4600 < closing (closing - 4600 ) - premium paid
 Strategy 4 Nifty short strangle Strategy 4 - Payoff as on expiry

Range bound market, expecting Nifty to 20000

View 10000
remain in range.
0

Profit/Loss
Sell Nifty Sep call 4800 at 98 -10000
Action
Sell Nifty Sep put 4300 at 78 -20000
Premium rec 176 (sum of two premiums) -30000
-40000
Total initial -50000
8800
credit (premium paid x 50 lot size)

3300
3600
3900
4200
4500
4800
5100
5400

5700
Profitable if nifty on expiry is
Break even pt. between upper break even & Nifty Strikes

lower break even

Upper break
4976 Higher strike plus premium rec.
even
Lower break Lower strike minus premium SCENARIO – Strategy 4 (Short strangle)
4124
even rec. POSSIBILITIES PROFIT/LOSS
Max. profit 8800 Limited to total initial cost closing < 4300 (closing - 4300 ) + premium rec
Max. loss Unlimited beyond breakeven pts < closing
4300 < 4800 + Premium rec
Do not execute strategy if (- closing
Execution 167 premium received is less then 4800 < closing + 4800 ) + premium rec
given total premium

NOTE:
(* All the above mentioned strategies are just for easy referral for different market views mentioned. One can also opt for strikes other than mentioned
in these strategies)
* All calculations are as per Premium price/premium difference given in the example and it may vary according to change in premium price/premium
difference
* Selling/writing an Option would attract margin requirement, for further details refer FAQ)

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