Background:

Interglobe aviations recorded its highest ever quarterly revenue in Oct-Dec at Rs. 15,410
crore. Net profit recorded during this tenure was 1422.6 crore, while the management
expected the momentum to continue in the same manner in the last quarter of financial
year 2022-23. (as per the post -earning’s conference call with the managers)
The purchase price of the call option was 59 and it was 48.5 for the put option as on
February 28th 2023.Owing to good fundamentals and strong management team, we
acquired 31 lots of 300 shares per lot of the company till March 31st 2023.

Multiple reasons backing growth

There was a sharp surge in travel and tourism post- covid which predicted an increase in airline stock
prices. Moreover , the G20 summit being presided over by India was aimed at providing an impetus to
the travel and tourism industry aiming to for sustainable and equitable growth and striking a goal to
reach US$ 1 trillion by 2047 in terms of the overall travel and tourism economy, including both,
domestic and international tourism. In addition, Indigo has placed an order of 500 aircrafts from
European giants Airbus and US Boeing as part of their expansion plans. Thus, the projected movement
of the stock was a big price change however the intense competition fro AirIndia, which had also
purchased 4700 aircrafts made the market prediction uncertain. This justified the selection of Long
Straddle for this particular stock

Details of the strategy:

Role of market participant: Speculator
Name of the strategy: Long Straddle
Date of execution: February 28th 2023

Underlying option contract: Call and Put options

 Type: European
 Strike price: Rs. 59 (call option)
Rs, 48.5 (put option)
 Expiry date: 31 March 2023
st

 Market lot size: 300 shares

 No. of lots purchased: 31

Graphical representation of the strategy:

 RBL Bank - Protective Put strategy
1,500,000
1,400,000
1,300,000
1,200,000
1,100,000
1,000,000
900,000
800,000
700,000
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
l-1 ul-1 ul-1 ul-1 ul-1 ul-1 ul-1 ug-1 ug-1 ug-1 ug-1 ug-1 ug-1 ug-1 ug-1 ug-1
J- u J- J- J- J- J- J-
15 17 19 23 25 29 31 -A -A -A -A -A -A -A -A -A
02 06 08 13 16 20 22 26 28

Value of hedged portfolio Value of the unhedged portfolio

Cost of long position of shares

Excel file of the strategy:

Conclusion: The strategy was not successful, since the share price did not exhibit any
strong movement on either side. Main reason for this was more wrong timing than lack of
possibility of momentum. There were both, strong upwards and downward catalysts , but
they negated each other instead of affecting the stock price significantly
Note: The put option has been exercised on the date of expiry since, it had become in-the-
money.

Assumptions:
i. Transaction costs in executing a long straddle strategy is minimal and hence will not
significantly impact the results.
ii. Liquidity of call and put options is high enough for execution of this strategy.