Equity Derivatives - Research

India Hybrid Strategy Report

September 06, 2011 Bharti Airtel: Short Strangle Strategy
Strategy: Sell one Sep 380 PE @ 6.1-6.5 and sell one Sep 420 CE @ 4.64.8. Breakeven Point: 431 (Upper), 369 (Lower). Lot Size: 1000. Maximum Profit: Rs. 10,700 Maximum Loss: Unlimited.

Source: Iris Spider Software

Derivatives Action: Bharti futures saw closure of 2.41% in open interest with an increase in cost of carry from 1.32% to 2.63% in the last trading session. Since inception the stock has shown lackluster performance and in the futures segment the stock has shed about 5% in open interest since inception. Also, historical volatility of the stock is at the 30% level which is below its 50 day moving average. On the options front highest accumulation is in the 420 CE and the 380 PE which are likely to act as resistance and support in the near future. Thus owing to low volatility along with no significant OI buildup/ shedding in the futures segment we recommend a short straddle in Bharti. Technical Outlook: On the technical front, the stock has been trading in a range of 380-420 for the past few sessions and is currently below its 20 day moving average. The Bollinger bandwidth has shown a decline, implying that the stock could witness range bound trades in the coming sessions. The 14 day RSI is currently in the neutral zone.

Open Interest Accumulation

Payoff at Expiry

Source: NSE Source: Karvy F&O Research

Karan Bhalla Karan.bhalla@karvy.com Ph.:+91-9885178779

Disclaimer & Disclosures: This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer that form part of it.

Karvy F&O Research is also available on Bloomberg, Reuters, Thomson First Call and CapitalIQ

Hybrid Strategy, September 06, 2011

Breakeven Point Calculation: Upper Breakeven point = Strike price of short call + Premium Inflow. = 420+10.7 Lower Breakeven point = Strike price of short put - Premium Inflow. = 380-10.7

Maximum Profit

= Premium Inflow X Lot size. = (10.7)*1000

Strategy Greeks: Strike Sep 380 PE Sep 420 CE IV 33.7 25.2 Delta 0.27 -0.26 Theta 0.24 0.22 Vega -0.33 -0.32 Gamma -0.0099 -0.0102

Source: Bloomberg

KARVY DERIVATIVES DESK

Shomesh Kumar Head-Equity Derivatives shomeshk@karvy.com 9849809008

Disclaimer
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Karvy F&O Research is also available on Bloomberg, Reuters, Thomson First Call and CapitalIQ