ITRODLCTIO

uring lasr onc dccadc rlcrc was a rapid growrl ol dcrivarivcs markcr in !ndia in rcrms ol rrading volumc, numlcr ol
srock oprions availallc lor rrading, parriciparion ol invcsrors in dcrivarivcs markcr. !r was also olscrvcd rlar rcrail
invcsrors arc slowing lor ol inrcrcsr in rlc dcrivarivcs markcr. !owcvcr, rcrail invcsrors lavc losr lor ol moncy in rlc
dcrivarivcs markcr duc ro lack ol knowlcdgc alour rlc producr and invcsrmcnr srrarcgics crc. 1lc risk involvcd in srock
oprion rrading can lc minimizcd } rcrurn on srock oprion rrading can lc improviscd rlrougl dcsigning suirallc
invcsrmcnr srrarcgics sucl as lull sprcad, lcar sprcad, lurrcrlly sprcad, srrips, srrap, srranglc, srraddlc, crc. Bur, rlc lacr
is rlar simply sclccring lcsr ol rlc oprion srrarcgics docs nor lclp invcsrors ro minimizc risk or maximizc prolir, duc carc
slould lc rakcn wlilc sclccring srrikc pricc, cxpirarion darc and prcmium rarcs. So, invcsrors nccd ro dcvclop risk
managcmcnr as wcll as risk analysis rool wlicl is rlc kcy ro limiring oprion risk} maximizing prolir. 1lcrc arc numlcr ol
risk managcmcnr and analysis rools availallc, wlicl lclp invcsrors ro rakc wisc invcsrmcnr dccisions. nc ol rlc
popular rools wlicl is widcly uscd ly rcclnical analysr is xponcnrial Moving Avcragc Mcrlod (MAM) wlicl lclps
ro prcdicr lururc movcmcnr in srock pricc. !l rlc invcsror uscs rcclnical analysis as a mcans ro sclccr srock oprion srrarcgy
and srrikc pricc rlcn ir possillc ro minimizc risk } maximizc prolir on srock oprion rrading. !n rlc lackdrop ol rlis a
srudy las lccn conducrcd ro dcvclop invcsrmcnr srrarcgics lor rcrail invcsrors ly using rcclnical analysis. 1lc papcr
makcs an arrcmpr ro cnumcrarc low xponcnrial Moving Avcragc Mcrlod can lc uscd in sclccrion ol srock oprion
ITERATIOAL JOLRAL OF MARKETIG,
FIACIAL SERVICES & MAAGEMET RESEARCH
\ol.1 No. 6, {unc, !SSN 2277 S622
Onlinc Availablc at indianrcscarchjournals.com
DEVELOPIG OPTIO STRATEGIES BY LSIG TECHICAL
AALYSIS: A CASE STLDY OF ALTOMOBILE SECTOR
DR. MARLTI RAO
Asscietc Prjcssr, PG Dcpt. j Busincss A4ministretin, Beni Chennemme Univcrsity, Bc/eevi
ABSTRACT
uring lasr onc dccadc rlcrc was a rapid growrl ol dcrivarivcs markcr in !ndia in rcrms ol rrading volumc,
numlcr ol srock oprions availallc lor rrading, parriciparion ol invcsrors in dcrivarivcs markcr. !r was also
olscrvcd rlar rcrail invcsrors arc slowing lor ol inrcrcsr in rlc dcrivarivcs markcr. !owcvcr, rcrail invcsrors lavc
losr lor ol moncy in rlc dcrivarivcs markcr duc ro lack ol knowlcdgc alour rlc producr and invcsrmcnr srrarcgics
crc. 1lc risk involvcd in srock oprion rrading can lc minimizcd } rcrurn on srock oprion rrading can lc
improviscd rlrougl dcsigning suirallc invcsrmcnr srrarcgics sucl as lull sprcad, lcar sprcad, lurrcrlly sprcad,
srrips, srrap, srranglc, srraddlc, crc. Bur, rlc lacr is rlar simply sclccring lcsr ol rlc oprion srrarcgics docs nor lclp
invcsrors ro minimizc risk or maximizc prolir, duc carc slould lc rakcn wlilc sclccring srrikc pricc, cxpirarion
darc and prcmiumrarcs. So, invcsrors nccd ro dcvclop risk managcmcnr as wcll as risk analysis rool wlicl is rlc
kcy ro limiring oprion risk} maximizing prolir. !n rlc lackdrop ol rlis a srudy las lccn conducrcd ro dcvclop
invcsrmcnr srrarcgics lor rcrail invcsrors ly using rcclnical analysis. Auro indusrry was sclccrcd lor rlc purposc ol
rlc srudy. Major auro companics wlicl arc parr ol oprion scgmcnr wcrc sclccrcd i.c. 1ara Morors, Maruri Suzuki
!ndia and Malindra and Malindra. 1lc dara rcquircd lor rlc srudy was collccrcd lromBomlay Srock xclangc
and Narional Srock xclangc. 1lc dara collccrcd wcrc analysiscd ly using xponcnrial Moving Avcragc
Mcrlod, clarrs, crc. 1lc papcr makcs an arrcmpr ro cnumcrarc lowxponcnrial Moving Avcragc Mcrlod can lc
uscd in sclccrion ol srock oprion srrarcgy in ordcr ro managc risk associarcd wirl invcsrmcnr in srock oprion
markcr. A lcw managcrial implicarions ol rlis srudy arc as srarcd undcr. wisc invcsrmcnr dccision, nlancing
rcrurnoninvcsrmcnr, lcdging, crc.
Kcywords: Closc Pricc, xponcnrial Moving Avcragc Pricc, prionPricc andprionsrrarcgics.
9+
srrarcgy in ordcr ro managc risk associarcd wirl invcsrmcnr in srock oprion markcr. A lcw managcrial implicarions ol
rlis srudy arc as srarcd undcr. wisc invcsrmcnr dccision, nlancing rcrurn on invcsrmcnr, lcdging, crc. Auro indusrry
was sclccrcd lor rlc purposc ol rlc srudy. Major auro companics wlicl arc parr ol oprion scgmcnr wcrc sclccrcd i.c. 1ara
Morors, Maruri Suzuki !ndia and Malindra and Malindra. 1lc dara rcquircd lor rlc srudy was collccrcd lromBomlay
Srock xclangc and Narional Srock xclangc. 1lc dara collccrcd wcrc analysiscd ly using xponcnrial Moving
Avcragc Mcrlod, clarrs, crc.
ABBREVIATIO
MAP. xponcnrial Moving Avcragc Pricc
BS. Bomlay Srock xclangc
NS. Narional Srock xclangc
Objcctivcs of Study
1) 1o dcvclop srock oprionsrrarcgy lor aurosrock
2) 1odcvclop a modcl lor sclccring srock oprionsrrarcgy.
S) 1oollcr suggcsrions rorcrail invcsrors
Mcrlodology Auro indusrry was sclccrcd lor rlc purposc ol rlc srudy. Major auro companics wlicl arc parr ol
oprion scgmcnr wcrc sclccrcd i.c. 1ara Morors, Maruri Suzuki !ndia and Malindra and Malindra. 1lc dara rcquircd lor
rlc srudy was collccrcd lrom Bomlay Srock xclangc and Narional Srock xclangc. 1lc srock priccs ol auro srock
rradcd in Bomlay Srock xclangc lrom2nd {anuary ro 10rl clruary 2012 wcrc collccrcd. 1lc oprion pricc and srrikc
pricc wcrc collccrcd lrom Narional Srock xclangc. 1lc dara collccrcd wcrc analysiscd ly using xponcnrial Moving
Avcragc Mcrlod, clarrs, crc. Prcdicring lururc pricc ol srock
Tata Motors Ltd.
1ara Morors rd is a markcr lcadcr in auro indusrry. 1ara Morors is availallc lor oprion rrading lorl in NSwirl lor sizc
ol 500unirs. xponcnrial Moving avcragc pricc ol rlc 1ara Morors las lccncalcularcdlascd on10days moving pcriod.
Chart - 1
DR. MARLTI RAO
9S
!r is cvidcnr lromrlc clarr 1 rlar rlc MAP ol 1ara Morors las nor inrcrsccrcd wirl closc pricc during rlc pcriod undcr
rclcrcncc. !l wc assumc rlar prior ro 2nd {anuary 2012, lorl MAP and closc pricc lavc inrcrsccrcd and rlcrcalrcr
MAP ol 1ara Morors is srarrcd moving in upward dirccrion as ir is visillc lromrlc clarr rlcn ir is possillc ro prcdicr
alour lururc movcmcnr ol pricc. 1lc MPA curvc is moving in upward dirccrion rlcrclorc rlc pricc ol 1ara Morors is
cxpccrcdromovc inupward dirccrion.
Sclcctionof Optionstratcgy
As pricc ol 1ara morors is cxpccrcd ro go up modcrarcly in rlc ncar rcrm, ir is suggcsrcd lor invcsror ro dcsign Bull Pur
Sprcad srrarcgy as ir will lclps rlcmro look prolir}lcdgc risk. n 10rl clruary 2012, rlc srock oprion pricc and srrikc
pricc quorcdlor 1ara Morors rd (lor sizc. 500) inNSoprionscgmcnr arc givcn.
\ndcrlying asscr. 1ara Morors rd
xpirarion arc. 2Srd Marcl 2012
prion1ypc. Pur
Strikc pricc OptionPricc
120 +.00
1S0 S5.60
1S5 S9.60
1+0 ++.25
1+5 +8.70
150 +8.50
Bull Put SprcadStratcgy
Buy 120, 1Pur on1ara Morors ar Fs. +.00Scll 150, 1Pur on1ara Morors ar +8.50
Chart -2
1lc clarr-2 cxlilirs rlar rlc lull pur sprcad srrarcgy will cnsurc a maximumprolir ol Fs. 89000 il rlc spor pricc ol 1ara
Morors movcs inupward dirccrionas pcr rlc lorccasr.
Maruti Ldyog Ltd.
Maruri \dyog rd is onc ol rlc lcading playcrs in rlc auro indusrry. Maruri \dyog is availallc lor oprion rrading lorl in
DEVELOPIG OPTIO STRATEGIES BY LSIG TECHICAL AALYSIS: A CASE STLDY OF ALTOMOBILE SECTOR
96
NSwirl lor sizc ol 250 unirs. xponcnrial Moving avcragc pricc ol rlc Maruri \dyog las lccn calcularcd lascd on 10
days moving pcriod.
!r is cvidcnr lromrlc clarr -S rlar rlc MAP ol Maruri \dyog las nor inrcrsccrcd wirl closc pricc during rlc pcriod
undcr rclcrcncc. !l wc assumc rlar prior ro 2nd {anuary 2012, lorl MAP and closc pricc lavc inrcrsccrcd and
rlcrcalrcr MAP ol Maruri \dyog is srarrcd moving in upward dirccrion as ir is visillc lromrlc clarr rlcn ir is possillc
ro prcdicr alour lururc movcmcnr ol pricc. 1lc MPA curvc is moving in upward dirccrion rlcrclorc rlc pricc ol srock
will movc inupward dirccrion.

Chart -3
Sclcctionof Optionstratcgy
Pricc ol Maruri Suzuki !ndia rd cxpccrcd ro go up modcrarcly in rlc ncar rcrm; rlcrclorc invcsrors lavc an opporruniry
ro usc any ol rlc lollowing oprion srrarcgy ro look prolir } lcdgc risk. a) long call oprion l) nakcd pur oprion, c) lull
pur sprcad. n 10rl clruary 2012, rlc srock oprion pricc and srrikc pricc quorcd lor Maruri Suzuki !ndia lrd in NS
oprionscgmcnr arc givcnlclow.
\ndcrlying asscr. Maruri Suzuki !ndia rd
xpirarionarc. 2Srd Marcl 2012
DR. MARLTI RAO
97
Chart - 4 : Payoff from Bull Put Sprcad
!r can lc undcrsrood lrom clarr -+ rlar rlc lull pur sprcad srrarcgy lclps invcsror ro look prolir il rlc pricc ol
Maruri Suzuki !ndia rd rcaclcs ro Fs.1200 and alovc in rlc casl markcr. 1lc roral payoll lromrlis srrarcgy is Fs.750
il rlc spor pricc ol undcrlying asscr rcaclcs roFs.1200and Fs.25750il rlc spor pricc rcaclcs roFs.1S00.

Chart -5: Payoff from Long Call
DEVELOPIG OPTIO STRATEGIES BY LSIG TECHICAL AALYSIS: A CASE STLDY OF ALTOMOBILE SECTOR
98
!r is cvidcnr lromrlc clarr -5. rlar rlc long call srrarcgy lclps invcsror ro look prolir il rlc pricc ol Maruri Suzuki !ndia
rd movcs ro Fs.1180 and alovc in rlc casl markcr. 1lc roral payoll lromrlis srrarcgy is Fs.2000 il rlc spor pricc ol
undcrlying asscr rcaclcs roFs.1200and Fs.S2000il rlc spor pricc rcaclcs roFs.1S00.
Chart -: Payoff from akcd Put
!r is clcar lrom rlc clarr -6. rlar rlc Nakcd pur srrarcgy can lclps invcsror ro look prolir il rlc pricc ol Maruri
Suzuki !ndia rd movcs ro Fs.1260 and alovc in rlc spor markcr. 1lc roral payoll lromrlis srrarcgy is Fs +000 il rlc
pricc ol undcrlying asscr movcs roFs.1200and Fs.1+000il rlc spor pricc movcs roFs.1S00.
1lc analysis ol clarr-+, 5 and 6, rcvcals rlar invcsrors slould dcsign long call srrarcgy as rlis srrarcgy lclps rlcm ro
maximisc prolir comparcd roorlcr oprionsrrarcgy.
Mahindra andMahindra
Malindra and Malindra is also onc ol rlc major playcrs in rlc auro indusrry. Malindra and Malindra is availallc lor
oprion rrading lorl in NS wirl lor sizc ol 500 unirs. xponcnrial Moving avcragc pricc ol rlc Malindra and
Malindra las lccncalcularcdlascd on10days moving pcriod.
Chart -7
DR. MARLTI RAO
99
!r is cvidcnr lrom rlc clarr -7 rlar rlc MAP ol Malindra and Malindra las inrcrsccrcd wirl closc pricc on 10rl
clruary 2012 and srarrcd moving downward dirccrion signalling rlar pricc ol srock will movc in downward dirccrion
inrlc ncar lururc.
Sclcctionof Optionstratcgy
Pricc ol Malindra and Malindra cxpccrcd ro movc in downward dirccrion; rlcrclorc invcsror las an opporruniry ro usc
any ol rlc lollowing oprion srrarcgy ro look prolir } lcdgc risk. a) nakcd call oprion l) lcar call sprcad, c) lcar pur
sprcad. n 10rl clruary 2012 rlc srock oprion pricc and srrikc pricc quorcd lor Malindra and Malindra rd in NS
oprionscgmcnr arc givcnlclow.
\ndcrlying asscr. Malindra and Malindra
xpirarionarc. 2Srd Marcl 2012
Chart -8
Payoff from akcdcall option
Baskcr !
Srrikc Pricc. 6+0
Call prion Pricc. +7.50
DEVELOPIG OPTIO STRATEGIES BY LSIG TECHICAL AALYSIS: A CASE STLDY OF ALTOMOBILE SECTOR
100
Baskcr !!
Srrikc Pricc. 660
Call prionPricc. S9
Chart-
Baskcr !!!
Srrikc Pricc. 680
Call prionPricc. 25.65
Chart 10
1lc analysis ol clarrs 8, 9 and 10 rcvcals rlar ir is advanragcous lor invcsrors ro scll call oprion wirl srrikc pricc ol 680 ar
Fs. 25.65 rarlcr rlan sclling call oprion wirl srrikc pricc ol 660 and 6+0. 1lc slorr posirion on call oprion wirl srrikc
pricc ol 660will lcrcl rlc invcsrors Fs.19500il rlc spor pricc movcs as pcr rlc rcclnical analysis.
DR. MARLTI RAO
101
Payoff from Bcar Call Sprcad
Buy call oprion800ar Fs. 1.20
Scll call oprion6+0ar Fs.+7.50
!r is cvidcnr lromrlc clarr -11 rlar rlc lull call sprcad srrarcgy can lclps invcsror ro look a minimumprolir ol +S50 and
a maximumprolir ol 2+S50il rlc spor pricc movcs indownward dirccrionas pcr lorccasr
Chart 11
Payoll lromBcar Pur Sprcad
Buy call oprion720ar Fs. 2S.60
Scll call oprion680ar Fs.16.S5
!r is cvidcnr lromrlc clarr -12 rlar rlc lull pur sprcad srrarcgy can lclps invcsror ro look minimumprolir ol 1S75
and a maximumprolir ol 16S75il rlc spor pricc movcs indownward dirccrionas pcr lorccasr.
Chart 12
DEVELOPIG OPTIO STRATEGIES BY LSIG TECHICAL AALYSIS: A CASE STLDY OF ALTOMOBILE SECTOR
102
1lc analysis ol alovc rallc rcvcals rlar ir is vcry salc and prolirallc lor invcsror ro dcsign rlc lull pur sprcad srrarcgy
as ir will cnsurc maximumand consranr prolir il rlc spor pricc ol Malindra and Malindra movcs roFs.660}670}680.
Conclusion !nvcsrors in oprion markcr can usc xponcnrial Moving Avcragc Mcrlod lor sclccring oprion srrarcgics
and srrikc pricc and oprion prcmiumwlicl may lc ol immcnsc lclp ro rlcmin lcdging risk associarcd wirl invcsrmcnr
in oprion markcr lur also lclps in maximising prolir il priccs ol undcrlying srock movcs in a dirccrion as pcr rlc
prcdicrionmadc ly using MAM.
REFERECES
1) {oln!ull, "prions, ururcs, and rlcr crivarivcs, Prcnricc !all, 2011.
2) {olnPcrson, rcclnical analysr, anicls 1rading, "Moving Avcragc ormula & Srrarcgy Guidc".
S) Faman Iumar, Arulya Sarin and Iuldccp Slasrri, "1lc !mpacr ol prions 1rading on rlc Markcr Qualiry ol rlc
\ndcrlying Sccuriry. Anmpirical Analysis" 1lc {ournal ol inancc, \olumc !!!, No.2, April 1998
+) Sandccp Srivasrava, Surcndra S Yadav, and P I {ain, "Signilicancc ol Non-Pricc \ariallcs in Pricc iscovcry. an
mpirical Srudy ol Srock prionMarkcr in!ndia", \ikalpa, volumc.SS, No2, April-{unc 2008.
5) Zlang, {in. "A larricc algorirlmlor pricing moving avcragc larricr oprions"
6) {ournal ol conomic ynamics and Conrrol, \olumc, S+, 2010, Pp. 5+2-55+.
DR. MARLTI RAO
103