BULLISH CALL SPREAD

The following were 2 call options expiring on 21st February,2019 on the stock of
Nifty trading at 10678 on 20th February,2019-

Strike Price Call premium

10700 25.50

10750 16.30

The trader is bullish on the stock, he may go for bullish call spread i.e. buying call
on the lower strike price and selling call on the higher strike price.

Why this strategy?

A trader is bullish and buys a call option for a specific expiration date and pays a
premium. At the same time, the trader sells a call option at a higher strike price
and same expiration date, collecting a premium. The reason this is done is to
reduce the initial investment. In this type of transaction, the losses and gains are
limited, reducing the risk involved. The trader can only lose the net cost to create
the spread.

Outflow of premium for buying 75 call options on Nifty at 10700=25.50*75=

1912.50

Inflow of premium for selling 75 call options on Nifty at 10750=16.3*75=1222.50

Therefore, net outflow=690

Maximum loss that the trader can incur= 690

Maximum profit= 3060

As we see, on 21st Feb, the stock price was 10789.85 at closing.

Transaction cost amounted to Rs. 5.135.

Hence payoff= (50*75)-5.135 =3744.865

Profit=3744.865-690= 3054.865
BEARISH CALL SPREAD
The following were 2 call options expiring on 28th February,2019 on the stock of
Nifty trading at 10872.85 on 25th February,2019-

Strike Price Call premium

10750 125.30

10850 80.40

The trader is bearish on the stock, he may go for bearish call spread i.e. selling
call on the lower strike price and buying call on the higher strike price.

Why this strategy?

A trader is bearish and sells a call option for a specific expiration date and
receives a premium. At the same time, the trader buys a call option at a higher
strike price and same expiration date, paying a premium. The reason this is done
is because there can be unlimited loss by just selling a call due to the stock price
rising. So to protect himself from unlimited loss in unfavorable conditions, the
trader buys a call at a higher strike price. In this type of transaction, the losses
and gains are limited, reducing the risk involved.

Inflow of premium for selling 75 call options on Nifty at 10750=125.30*75=

9397.50.

Outflow of premium for buying 75 call options on Nifty at 10850=50.40*75= 3780

Therefore, net inflow=5617.50

Maximum profit= 5617.50

Maximum loss=1882.50
As we see, on 28th Feb, the stock price was 10792.50 at closing.

Transaction cost amounted to Rs. 13.17

Hence payoff= (-42.5*75)-13.17 = -3200.67

Profit=5617.50-3200.67= 2416.83
BULLISH PUT SPREAD
The following were 2 put options expiring on 21st February,2019 on the stock of
Nifty trading at 10685.60 on 20th February,2019-

Strike Price Put premium

10700 51.55

10800 99.67

The trader is bullish on the stock, he may go for bullish put spread i.e. buying put
on the lower strike price and selling put on the higher strike price.

Why this strategy?

A trader is bullish and sells a put option for a specific expiration date and
receives a premium. At the same time, the trader buys a put option at a lower
strike price and same expiration date, paying a premium. The reason this is done
is because there can be significant loss by just selling a put due to the stock price
falling. So to protect himself from significant loss in unfavorable conditions, the
trader buys a put at a lower strike price. In this type of transaction, the losses
and gains are limited, reducing the risk involved.

Outflow of premium for buying 75 put options on Nifty at 10700=51.55*75=

3866.25

Inflow of premium for selling 75 put options on Nifty at 10800=99.67*75=7475.25

Therefore, net inflow= 3609

Maximum profit= 3609

Maximum loss= 3891

As we see, on 21st Feb, the stock price was 10789.85 at closing.

Transaction cost amounted to Rs. 11.34

Hence payoff= (-10.15*75)-11.34 = -772.59

Profit=3609-772.59= 2836.41
BEARISH PUT SPREAD
The following were 2 put options expiring on 14th February,2019 on the stock of
Nifty trading at 10912.73 on 11th February,2019-

Strike Price Put premium

10800 36.60

10850 49.15

The trader is bearish on the stock, he may go for bearish put spread i.e. selling
put on the lower strike price and buying put on the higher strike price.

Why this strategy?

A trader is bearish and buys a put option for a specific expiration date and pays a
premium. At the same time, the trader sells a put option at a lower strike price
and same expiration date, collecting a premium. The reason this is done is to
reduce the initial investment. In this type of transaction, the losses and gains are
limited, reducing the risk involved. The trader can only lose the net cost to create
the spread.

Outflow of premium for buying 75 put options on Nifty at 10850=49.15*75=

3686.25

Inflow of premium for selling 75 put options on Nifty at 10800=36.60*75=2745

Therefore, net outflow= 941.25

Maximum loss that the trader can incur= 941.25

Maximum profit= 2808.75

As we see, on 14th Feb, the stock price was 10746.05 at closing.

Transaction cost amounted to Rs. 6.73

Hence payoff= (50*75)-6.73 = 3743.27

Profit= 3743.27-941.25= 2802.02

STRADDLE
The following were 1 put and 1 call option at the strike price of 10700 expiring on
21st February,2019 on the stock of Nifty trading at 10691.80 on 18th
February,2019 -

Option Premium

Call 75.39

Put 83.16

The trader is volatile on the stock, he may go for straddle which involves buying
both call and put on the same stock at the same maturity and strike price.
Why this strategy?

A trader is volatile on the stock i.e. he expects the price to move significantly up
or down and is not sure about the direction. A straddle is an options strategy that
involves buying both a call and a put option for the underlying security with the
same strike price and the same expiration date. A trader will profit from a straddle
when the price of the security rises or falls from the strike price by an amount
more than the total cost of the premium paid.

Outflow of premium for buying 75 call options on Nifty at 10700= 75.39*75=

5654.25

Outflow of premium for buying 75 put options on Nifty at 10700= 83.16*75= 6237

Therefore, total outflow= 11893.50

Maximum profit= Unlimited

Maximum loss= 11891.25

As we see, on 21st Feb, the stock price was 10789.85 at closing.

Transaction cost amounted to Rs. 11.89

Hence payoff= (89.85*75)-11.89 = 6726.86

Profit=6726.86-11891.25= -5164.39

However, if a trader is non-volatile on stock, he may go for short straddle i.e.

selling call and put of the same stock on the same maturity and same strike
price.
CALENDAR SPREAD
The following were 2 call options expiring on 21st February,2019 and 28th
February,2019 on the stock of Nifty trading at 10741.38 on 15th February,2019
at the strike price of 10750-

Expiry Premium

21/02/19 64.21

28/02/19 92.88

If a trader is non-volatile on the stock, he may go for bullish calendar spread.

Bullish calendar spread involves simultaneously selling short term option and
buying long term option at the same strike price on the same stock. Obviously,
long term option would be more costly because of time value of money.
Why this strategy?

A trader is non-volatile on the stock. He expects that on short term maturity the
share price will be close to the strike price. The short term option expires and the
long term option is sold in the market and its time value is high. So the trader
makes a profit.

Obviously, there would be a loss if the option happens to be deep in the money
or deep out of the money on the short term maturity date.

Inflow of premium for selling 75 call options on Nifty at 10750 which expires on
21st Feb, 2019=64.21*75= 4815.75

Outflow of premium for buying 75 call options on Nifty at 10750=92.88*75=6966

Therefore, net outflow= 2150.25

As we see, on 21st Feb, the stock price was 10789.85 at closing.

Transaction cost amounted to Rs. 14.78

On 21st Feb, the price of the call option expiring on 28th Feb was 93.60 which
was sold

Hence payoff= 75*93.6-(39.85*75)-14.78 = 4016.47

Profit=4016.47-2150.25= 1866.22

However, if a trader is volatile on the stock, he may go for bearish calendar

spread which involves buying short term option and selling long term option on
the same strike price of the same stock.
BUTTERFLY SPREAD
The following were 3 put options expiring on 28th February,2019 on the stock of
Nifty trading at 10792.14 on 22nd February,2019-

Strike Price Put premium

10750 45.20

10800 61.37

10850 82.19

The trader is non-volatile on the stock, he may go for a butterfly spread i.e. buy
the options of the lowest and highest strike price and sell twice the options on the
middle strike price.
Why this strategy?

A trader is non-volatile on the stock. He expects the share price on maturity to be

close to the middle strike price.

Inflow of premium for selling 150 put options on Nifty at 10800 =61.37*150=
9205.50

Outflow of premium for buying 75 put options on Nifty at 10750 and

10850=(45.20+82.19)*75= 9554.25

Therefore, net outflow= 348.75

Maximum loss = 348.75

Maximum profit= 3401.25

As we see, on 28th Feb, the stock price was 10792.50 at closing.

Transaction cost amounted to Rs. 18.75

Hence payoff= 75*57.50-(7.5*150)-18.75 = 3168.75

Profit=3168.75-348.75= 2820

However, if a trader is volatile on the stock, he may go for a reverse butterfly

spread i.e. sell the options of the lowest and highest strike price and buy twice
the options on the middle strike price.
STRIP
The following were put and call expiring on 21st February,2019 on the stock of
Nifty at the strike price of 10850 trading at 10773.22 on 15th February,2019-

Option Premium

Call 42.86

Put 126.22

If a trader is more bearish than bullish on the stock, he may go for strip i.e.
buying 2 put options and 1 call option on the same stock at the same strike price
with the same maturity.
Outflow of premium for buying 150 put options on Nifty at 10850 =126.22*150=
18933

Outflow of premium for buying 75 call options on Nifty at 10850 =42.86*75=

3214.50

Therefore, total outflow= 22147.50

Maximum loss = 22147.5

Maximum profit= Unlimited

As we see, on 21st Feb, the stock price was 10789.85 at closing.

Transaction cost amounted to Rs. 22.14

Hence payoff= 60.15*150-22.14= 9000.36

Profit= 9000.36-22147.50= -13147.14

STRAP

The following were put and call expiring on 28th February,2019 on the stock of
Nifty at the strike price of 10800 trading at 10791.42 on 26th February,2019-

Option Premium

Call 71.37

Put 66.82

If a trader is more bullish than bearish on the stock, he may go for strap i.e.
buying 2 call options and 1 put option on the same stock at the same strike price
with the same maturity.
Outflow of premium for buying 150 call options on Nifty at 10800 =71.37*150=
10705.50

Outflow of premium for buying 75 put options on Nifty at 10800 =66.82*75=

5011.50

Therefore, total outflow= 15717

Maximum loss = 15717

Maximum profit= Unlimited

As we see, on 28th Feb, the stock price was 10792.50 at closing.

Transaction cost amounted to Rs. 15.71

Hence payoff= 7.5*75-15.71= 546.79

Profit= 546.79-15717= -15170.21

Literature Review

As indicated by the Black and Scholes (1973) alternative pricing model, the
choice cost is resolved just by five info factors. Bollen and Whaley (2004)
discover proof suggesting that net purchasing weight influences alternatives'
inferred unpredictability, which recommends that option prices are influenced by
interest. As per their exploration, there are more list puts traded than record calls.
In any case, the inverse is watched for individual stock options. Their discoveries
recommend that the file put purchasing weight drives the adjustment in
unpredictability of index alternatives, while the stock call purchasing weight
drives the adjustment in instability of stock options. Naturally, the interest for calls
and puts would be distinctive in rising and falling markets. At the point when the
market turns out to be progressively unpredictable, the expanding unpredictability
results in higher prices for the two calls and puts. Debashish and Mitra (2008)
analyzed the lead and slack connection between the money markets and
subordinates showcases and reasoned that subsidiaries markets drove the
money markets. Anyway different examinations like Pradhan and Bhatt (2009),
Johansen (1988), Basdas (2009) have seen that in numerous nations spot
markets lead the subsidiaries markets. This equivocalness showcase drives
alternate, has made it very troublesome for retail dealers to take view and
exchange on costs.

Trennepohl and Dukes (1981) is among the soonest observational research to

test alternative composition and purchasing return. Merton, Scholes and
Gladstein (1978) presumed that specific alternative methodologies like
completely secured composing strategy have been effective in changing the
examples of profits and are not reproducible by any straightforward technique of
joining stocks with fixed pay securities. Covered system is a mix of the stock with
its individual choice. The procedure can give great returns over the long haul
contrasted with the customary methodology of long haul putting resources into
stocks.

Research done by Bondarenko (2003), Jones (2006), and Coval and Shumway
(2001), analyze the profits of techniques that include puts and calls. They report
that techniques including put choices offer great returns and that put alternatives
are more costly than calls of huge separation from the cash. However, little
research has been done to investigate the profits from blends, straddles, and
collars. Maheshwari (2013) presumes that showcase members significantly retail
members may not be encountering productive markets, because of absence of
instruction, liquidity and exchange charges. This is valid in the present situation
as retail brokers and financial specialists see choices as an exceptionally utilized
instrument well-suited for estimating. Anyway theory does not generally work and
these speculators are far from additional advertises once they consume their
hands with utilized misfortunes.