Derivatives and Risk Management Case Study [Internal 20 Marks]

Question: -

Data given:-
Date – 23rd November 2015
Outlook – Moderately bullish
(expect the market to go higher but the expiry around the corner could limit the upside)
Nifty Spot – 7846
ATM – 7800 CE, premium – Rs.79/-
OTM – 7900 CE, premium – Rs.25/-

Questions:-

(a) Name the strategy to be used here and trade set up.
(b) Show calculations separately for all scenarios and then complete table below:-
Scenario 1 - Market expires at 7700 (below the lower strike price i.e ATM option)
Scenario 2 - Market expires at 7800 (at the lower strike price i.e the ATM option)
Scenario 3 - Market expires at 7900 (at the higher strike price, i.e the OTM option)
Scenario 4 - Market expires at 8000 (above the higher strike price, i.e the OTM
option)

Market Expiry LS – IV HS – IV Net pay off

7700
7800
7900
8000

LS – IV - Lower Strike - Intrinsic value

HS-IV – Higher strike - Intrinsic Value