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    This document discusses scenarios for calculating profits and losses for covered call strategies using futures. [1] It provides an example of calculating the contract value, net futures adjusted daily (FAD), margin required, and how to provide margin for a futures contract. [2] It then models the profit/loss outcomes for different covered call scenarios where the underlying asset finishes at the strike price or above/below at expiry. [3] It notes that choosing a near out-of-the-money strike price for the covered call can provide additional profit equal to the difference between the strike price and anchor price if the underlying rises above the strike at expiry.

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    Scenarios for Calculation

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    This document discusses scenarios for calculating profits and losses for covered call strategies using futures. [1] It provides an example of calculating the contract value, net futures adjusted daily (FAD), margin required, and how to provide margin for a futures contract. [2] It then models the profit/loss outcomes for different covered call scenarios where the underlying asset finishes at the strike price or above/below at expiry. [3] It notes that choosing a near out-of-the-money strike price for the covered call can provide additional profit equal to the difference between the strike price and anchor price if the underlying rises above the strike at expiry.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    3 views12 pages

    Scenarios For Calculation

    Uploaded by

    meenakshi sundaram
    This document discusses scenarios for calculating profits and losses for covered call strategies using futures. [1] It provides an example of calculating the contract value, net futures adjusted daily (FAD), margin required, and how to provide margin for a futures contract. [2] It then models the profit/loss outcomes for different covered call scenarios where the underlying asset finishes at the strike price or above/below at expiry. [3] It notes that choosing a near out-of-the-money strike price for the covered call can provide additional profit equal to the difference between the strike price and anchor price if the underlying rises above the strike at expiry.

    Copyright:

    © All Rights Reserved
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    of 12

    SCENARIOS FOR CALCULATION - G50

    Dr. J. Sarva Vinothini


    Senior Guide - Dr. A. Eswaran
    Mentor - Dr. Ram
    AB CD E F GH

    A - ANALYSIS
    B - BIAS

    C - CALCULATION
    CALCULATION
    • Contract value for
    entering 1 lot futures
    • What is the Net FAD

    CV = 2812 x 200
    = Rs 564200
    FAD = 2813.65-2812 = 1.65
    Net FAD = 1.65 x 200
    =Rs 330

    ASSES LIQUIDITY
    - Volume
    -Open Interest
    -(Ask-Bid diff/ Bid ) x 100
    < 0.5
    Margin

    CV = 5.64 L
    How much margin • Three Buckets
    required ? • M2M margin required -
    - 1.04L Cash
    How to provide ?
    EV eating - strike price, EV%
    EV eating - strike price, EV%
    EV eating - strike price, EV%
    EV% = 1% EV% = 0.89%

    EV% = 1.21% EV% = 1.14%

    EV% = 1.31% EV% = 1.2%

    EV% = 0.96% EV% = 0.92%

    EV% = 0.73% EV% = 0.78%

    Check liquidity
    Calculate IV, EV , EV%
    Scenarios
    Anchor - 2812 . CC1 - Shares - 5.64 L
    EV% = 1.21% 2800 CE - 48
    IV = 12 EV = 36
    Premium received = 9600
    ???

    SCENARIO A SCENARIO B SCENARIO C


    Asset remains @2812 0n expiry Asset @3100 0n expiry Asset @ 2500 0n expiry
    P/L ? P/L ? P/L ?

    IV = 300, EV = 0 IV = 0, EV = 0
    IV = 12, EV = 0
    Square off = 6000 Square off = 0
    Square off = 2400
    Profit = EV = 36
    Profit = EV = 36 Profit = EV = 36 Gain IV = 12
    IV = 0 Loss IV = - 288 = 48 x 200 = 9600
    =36 x 200 = 7200 = -252x 200 = -50,400 Shares Unrealised loss
    Shares - no change Shares = +288 = 57600 = 312 x 200 = -62400
    Net P/L = 7200 = EV Net P/L = 7200 = EV Net P/L = 9600 = Premium received
    = EV + IV
    Covered call ITM -Plan C >>> Plan A >>> Plan B
    Profit = EV = 36 Anchor - 2812 . CC1 - Shares - 5.64 L
    Gain IV = 12 2800 CE - IV =12
    = 48 x 200 = 9600
    Shares Unrealised loss
    = 312 x 200 = -62400
    Net P/L = 9600 = Premium received

    When asset again raises to anchor, when we sell 2800 CE


    same strike @ same anchor again, the IV 12 gained will be
    eventually lost, (as the initial anchor price of asset is 2812)
    and when we finally reach Plan B, Only EV is gained.
    CC - Near OTM Strike -Advantage
    EV% = 1% EV% = 0.89%

    EV% = 1.21% EV% = 1.14%

    EV% = 1.31% EV% = 1.2%

    EV% = 0.96% EV% = 0.92%

    EV% = 0.73% EV% = 0.78%

    SCENARIO B IV = 300, EV = 0 IV = 260, EV=0


    Asset @3100 0n expiry Profit = EV = 36 IV lost = - 260, EV gained = 27.30
    Loss IV = - 288 Shares = + 288
    Shares = +288 Net Gain = 27.30 - 260 +288 = 55.3. (11,060 Rs)
    Net P/L = 36-288+288 = 36 x 200 = EV + (288-260) = EV + (Strike - Anchor)
    Net P/L = 7200 = EV The additional 28 IV gain in the Strike - Anchor Diff =
    2840 - 2812 = 28
    Covered call OTM - Plan B

    OTM strike , in Covered Call Strategies


    When in Plan B
    EV + Additional Profit
    Additional profit = Strike - Anchor diff

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