Derivatives Assignment:

Role of the Market Participant: Hedger

Name of the Strategy: Bull Put Spread

Long Term Put, Short Term Call

Date of Execution: 27th January 2022

Underlying Stock: SBI

Strike Price: Rs. 707.25

Underlying Option Contract: Long Term Put

Expiry Date:  24th February 2022
Market Lot Size: 570
Number of Lots Purchased: 32

Underlying Option Contract: Short Term Call

Expiry Date:  24th February 2022
Market Lot Size: 570
Number of Lots Purchased: 20

Background:

The State Bank of India, the country’s oldest bank and a premier in terms of balance sheet size,
number of branches, market capitalization and profits is today going through a momentous
phase of change and transformation the two-hundred-year-old public sector behemoth is today
stirring out of its public sector legacy and moving with an agility to give the private and foreign
banks a run for their money. The bank is entering into many new businesses with strategic tie
ups Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point
of Sale Merchant Acquisition, Advisory Services, structured products etc each one of these
initiatives having a huge potential for growth. The services offered by the company includes NRI
Services, Personal Banking, International Banking, Agriculture / Rural, Corporate Banking, SME,
Government Business and Domestic Treasury.

The bull case for Bharti Airtel

1. State Bank of India, on February 5, reported a 62 percent year-on-year (YoY) rise in

net profit to Rs 8,431.9 crore for the quarter ended December, which was above
analysts' expectations of Rs 7,957.4 crore.
2. SBI MF’s multi-cap NFO attracts Rs. 8200 crore investment
3. State Bank of India (SBI), the country's largest public-sector lender, December 30
announced the acquisition of 9.95 percent in India International Exchange (IFSC).
In a regulatory filing, SBI said the 9.95 percent stake in IFSC is "to be acquired
subject to a maximum investment of Rs. 34.03 crore".
 ₹ 400,000.00
Performance comparison
₹ 200,000.00

₹ 0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

-₹ 200,000.00

-₹ 400,000.00

-₹ 600,000.00

-₹ 800,000.00
Daily Gain or Loss for Long Put
-₹ 1,000,000.00 Combined Daily Net Profit & Loss for Hedged Porfolio
Daily Gain or Loss for Short Put

Conclusion:
A bull spread call option strategy can help provide a hedge since the trader also sells a call
option on the same stock, with the same expiration date but higher strike price, to defray the
initial cost and to provide a counterbalancing effect. However, this is not a risk-free strategy.