option trading strategy in nifty, india

8/8/2019 Option Trading Strategy in NIFTY, India

1/16

1

Option trading in

National Stock Exchange, India

10th Sept 2010

By Dhananjayan J,Investment Consultant,

VD Investment advisors,

Mobile - +919629474080.Email - [email protected].

India


2/16

2

Introduction

Options are most often regarded as insurance against the price movements in the

underlying stock or an index. It is a right to exercise the holders desire to buy

(CALL) or sell (PUT). These options are priced based on the Holy Grail kind of

formulae called Black-Scholes model. This logic behind the formulae is based on

current underlying asset price, intrinsic value, time for expiry, volatility, interest

rates and dividend, if any, paid. As the expiry date nears, the option premium

price tends to go down. However such fall happens only at the fag end of the

option period. In between periods, one can watch an interesting fact about the

option premium price. It tends to move along with the value of the underlying

asset. But the spread between the value of underlying assets and the option

premium is wide enough to make huge profit. Investors can benefit from this

spread on the direction of the underlying. In this paper, we are going to discuss

various strategies that can be used to gain this spread.


3/16

3

Basics of Options

Option - DefinitionOption is a right to exercise (but not an obligation) for buying or selling underlying asset

CALL optionCall option is a right to buy an underling asset

PUT optionPut option is a right to sell an underlying asset

Strike pricePrice at which an option can be exercised

Expiry periodDate within which the option is to be exercised

American optionAn option that can be exercised anytime before or on the expiry date

European optionAn option that can be exercised only at the expiry date

Shorting an optionSelling an option which is not owned by the holder. Risk is unlimited here

Selling an optionSelling an option which is owned by the holder. Risk is limited to the extent of loss made inpremium price.

Option premium pricePrice of the option that have to be paid by the holder to purchase the option

Underlying AssetIt can be market indices, stocks, interest rates, commodities, etc. It should be traded in derivativefutures market.

What we are trying to do in this study?

This paper examines how a trader (not investor) can earn return in just the optionpremium prices direction based on the underlying assets price direction. Value ofoption premium is much higher than that of underlings as well its futures!

Underlying asset

In this paper, we use option on NIFTY, an index for Indian equity market calculatedby India Index Services & Products Ltd a joint venture between the National StockExchange1 & CRISIL Ltd (formerly the Credit Rating Information Services of IndiaLimited). This comprises of 50 large businesses that are well diversified accountingfor 22 sectors of the Indian economy.

1www.nseindia.com


4/16

4

Contract specification

Lot size 50Period 1, 2 and 3 monthsExpiry date Last Thursday of expiry monthUnderlying asset Nifty Futures

Kind of option - European option

Period under coverage From 25th June to 9th Sept 2010 3 months with 30-Sept-2010 as expiry.

Data considered for this exercise2

1. Spot index historical data2. Futures index historical data3. CALL & PUT option premium price with strike price

a. 5300b. 5400c. 5500d. 5600e. 5700

With this data, we have examined 6 different scenarios in which a trader can takeadvantage of the premium price directions to gain a substantial return.

Bull market CALL option trading strategy

Case 1 CALL Intra day buy and sell in bull market

Case 2 CALL Buy today and sell tomorrow in expected bull market

Case 3 CALL Buy today sell tomorrow or 2 days after in expected strong bull

2Source data are collected from www.nseindia.com


5/16

5

Bear market PUT option trading strategy

Case 4 PUT Intra day buy and sell in bear

Case 5 PUT - Buy today and sell tomorrow in expected bear

Case 6 PUT - Buy today sell tomorrow or 2 days after in expected strong bear

First, let us list the cash and futures quote of NIFTY as well as PUTS and CALLS.Currently, NIFTY is trading at 5,640.05 at spot & 5630.55 at futures.

Correlation between NIFTY cash and FUTURES Positive

NIFTY - Cash Vs Futures

98

99

100

101

102

103

104

105

106

107

108

25-Jun-10

2-Ju

l-10

9-Jul-1

0

16-Jul-1

0

23-Jul-1

0

30-Jul-1

0

6-Aug

-10

13-Aug

-10

20-Aug

-10

27-Aug

-10

3-Sep-10

Cash-NIFTY FUT-NIFTY


6/16

6

NIFTY - Futures Vs CALLs

-

20

40

60

80

100

120

140

160

Date

29-Jun-10

2-Jul-10

7-Jul-10

12-Jul-1

0

15-Jul-1

0

20-Jul-1

0

23-Jul-1

0

28-Jul-1

0

2-Aug

-10

5-Aug

-10

10-Aug

-10

13-Aug

-10

18-Aug

-10

23-Aug

-10

26-Aug

-10

31-Aug

-10

3-Se

p-10

8-Sep-10

94

96

98

100

102

104

106

108

CALL-53 00 CALL-54 00 CALL-55 00 CALL-5 60 0 CALL-570 0 FUT-NIFTY

NIFTY - Futures Vs PUTs

-

20

40

60

80

100

120

Dat

e

29-Jun-10

2-Jul-1

0

7-Jul-1

0

12-Jul-1

0

15-Jul-1

0

20-Jul-1

0

23-Jul-1

0

28-Jul-1

0

2-Aug

-10

5-Aug

-10

10-Aug

-10

13-Aug

-10

18-Aug

-10

23-Aug

-10

26-Aug

-10

31-Aug

-10

3-Sep-10

8-Se

p-10

94

96

98

100

102

104

106

108

PUT-5300 PUT-5400 PUT-5500 PUT-5600 PUT-5700 FUT-NIFTY


7/16

7

Exercise

We assume a trader buying one option in each strike price namely at 5300, 5400,5500, 5600 and 5700. So the total investment in any trading day would be rangingfrom INR 30,000 to INR 45,000.

Case 1 - CALL Intra day buy and sell in bull market

Date Open High LTP Gain/(loss) @ LTP Gain/(loss) @ HighNIFTYcash

25 June 2010 32,930.00 36,905.00 32,902.50 -0.1% 12.1% -1.0%

28 June 2010 34,815.00 37,570.00 37,290.00 7.1% 7.9% 1.2%

29 June 2010 34,792.50 37,220.00 31,585.00 -9.2% 7.0% -1.5%

30 June 2010 28,337.50 35,925.00 35,512.50 25.3% 26.8% 1.1%

01 July 2010 30,985.00 31,545.00 30,515.00 -1.5% 1.8% -1.2%

02 July 2010 30,045.00 32,275.00 29,650.00 -1.3% 7.4% -0.3%

05 July 2010 29,087.50 30,890.00 29,707.50 2.1% 6.2% 0.0%

06 July 2010 30,142.50 34,962.50 33,207.50 10.2% 16.0% 1.0%

07 July 2010 35,782.50 35,972.50 29,282.50 -18.2% 0.5% -0.9%

08 July 2010 31,775.00 35,857.50 32,922.50 3.6% 12.8% 1.1%

09 July 2010 32,440.00 37,392.50 35,662.50 9.9% 15.3% 1.0%

12 July 2010 37,292.50 39,417.50 37,135.00 -0.4% 5.7% 0.6%

13 July 2010 36,122.50 40,080.00 38,937.50 7.8% 11.0% 0.3%

14 July 2010 40,757.50 41,945.00 37,567.50 -7.8% 2.9% -0.3%

15 July 2010 37,502.50 39,150.00 37,605.00 0.3% 4.4% -0.1%

16 July 2010 35,015.00 37,962.50 37,815.00 8.0% 8.4% 0.3%

19 July 2010 36,097.50 38,780.00 36,085.00 0.0% 7.4% -0.1%

20 July 2010 37,752.50 38,100.00 32,275.00 -14.5% 0.9% -0.3%

21 July 2010 34,365.00 37,455.00 36,405.00 5.9% 9.0% 0.6%

22 July 2010 34,582.50 41,792.50 40,530.00 17.2% 20.8% 0.8%

23 July 2010 41,650.00 43,032.50 39,940.00 -4.1% 3.3% 0.1%

26 July 2010 39,387.50 40,062.50 37,260.00 -5.4% 1.7% -0.6%

27 July 2010 37,315.00 40,502.50 37,755.00 1.2% 8.5% 0.2%

28 July 2010 37,935.00 38,642.50 33,065.00 -12.8% 1.9% -0.6%

29 July 2010 32,637.50 34,012.50 33,457.50 2.5% 4.2% 0.2%

30 July 2010 31,237.50 31,715.00 26,987.50 -13.6% 1.5% -0.8%

02 August 2010 29,277.50 31,525.00 31,085.00 6.2% 7.7% 1.2%

03 August 2010 31,225.00 31,375.00 29,745.00 -4.7% 0.5% 0.1%

04 August 2010 29,370.00 32,567.50 31,710.00 8.0% 10.9% 0.5%

05 August 2010 31,665.00 34,937.50 31,707.50 0.1% 10.3% -0.4%

06 August 2010 31,475.00 32,992.50 29,850.00 -5.2% 4.8% -0.1%

09 August 2010 28,802.50 33,455.00 32,337.50 12.3% 16.2% 0.9%

10 August 2010 31,277.50 31,760.00 30,085.00 -3.8% 1.5% -0.5%11 August 2010 29,265.00 30,067.50 23,715.00 -19.0% 2.7% -0.7%

12 August 2010 20,105.00 25,827.50 24,252.50 20.6% 28.5% -0.1%

13 August 2010 24,545.00 29,360.00 26,787.50 9.1% 19.6% 0.7%

16 August 2010 26,427.50 28,227.50 23,222.50 -12.1% 6.8% -0.6%

17 August 2010 23,870.00 25,092.50 23,687.50 -0.8% 5.1% -0.1%

18 August 2010 23,280.00 29,942.50 29,642.50 27.3% 28.6% 1.2%

19 August 2010 29,327.50 35,970.00 34,925.00 19.1% 22.6% 1.1%


8/16

8

20 August 2010 33,580.00 35,865.00 34,067.50 1.5% 6.8% -0.2%

23 August 2010 33,820.00 36,670.00 36,027.50 6.5% 8.4% 0.2%

24 August 2010 35,567.50 36,135.00 32,202.50 -9.5% 1.6% -0.7%

25 August 2010 30,832.50 31,522.50 26,780.00 -13.1% 2.2% -0.8%

26 August 2010 27,802.50 28,705.00 25,575.00 -8.0% 3.2% 0.3%

27 August 2010 24,502.50 27,157.50 19,852.50 -19.0% 10.8% -1.3%

30 August 2010 23,707.50 24,480.00 20,197.50 -14.8% 3.3% 0.1%

31 August 2010 17,885.00 18,522.50 16,902.50 -5.5% 3.6% -0.2%

01 September 2010 16,865.00 24,262.50 23,095.00 36.9% 43.9% 1.3%

02 September 2010 25,890.00 26,615.00 23,275.00 -10.1% 2.8% 0.3%

03 September 2010 24,177.50 24,567.50 22,187.50 -8.2% 1.6% -0.1%

06 September 2010 24,800.00 35,520.00 33,337.50 34.4% 43.2% 1.8%

07 September 2010 33,585.00 39,745.00 35,435.00 5.5% 18.3% 0.5%

08 September 2010 33,422.50 41,670.00 37,002.50 10.7% 24.7% 0.1%

09 September 2010 38,540.00 43,817.50 41,962.50 8.9% 13.7% 0.6%

Average 1.6% 10.2% 0.1%

This strategy will be yield good return on daily basis giving a return of 10.2% (refer

the above table) average per day in the bullish conditions in the last 90 days.

Buy at Open price and sell it at days high or near to days high. Of course most ofthe time, it is very difficult to sell exactly at days high price. But if a trader managesto sell at days high, he can earn good return.

Case 2 - CALL Buy today and sell tomorrow in expected bull market

Date Open High LTPGain/(loss)@ Open

Gain/(loss)@ high

Gain/(loss)@ LTP NIFTY cash

25 June 2010 32,930.00 36,905.00 32,902.50 -1.0%28 June 2010 34,815.00 37,570.00 37,290.00 5.8% 14.2% 13.3% 1.2%

29 June 2010 34,792.50 37,220.00 31,585.00 -6.7% -0.2% -15.3% -1.5%

30 June 2010 28,337.50 35,925.00 35,512.50 -10.3% 13.7% 12.4% 1.1%

01 July 2010 30,985.00 31,545.00 30,515.00 -12.7% -11.2% -14.1% -1.2%

02 July 2010 30,045.00 32,275.00 29,650.00 -1.5% 5.8% -2.8% -0.3%

05 July 2010 29,087.50 30,890.00 29,707.50 -1.9% 4.2% 0.2% 0.0%

06 July 2010 30,142.50 34,962.50 33,207.50 1.5% 17.7% 11.8% 1.0%

07 July 2010 35,782.50 35,972.50 29,282.50 7.8% 8.3% -11.8% -0.9%

08 July 2010 31,775.00 35,857.50 32,922.50 8.5% 22.5% 12.4% 1.1%

09 July 2010 32,440.00 37,392.50 35,662.50 -1.5% 13.6% 8.3% 1.0%

12 July 2010 37,292.50 39,417.50 37,135.00 4.6% 10.5% 4.1% 0.6%

13 July 2010 36,122.50 40,080.00 38,937.50 -2.7% 7.9% 4.9% 0.3%

14 July 2010 40,757.50 41,945.00 37,567.50 4.7% 7.7% -3.5% -0.3%

15 July 2010 37,502.50 39,150.00 37,605.00 -0.2% 4.2% 0.1% -0.1%

16 July 2010 35,015.00 37,962.50 37,815.00 -6.9% 1.0% 0.6% 0.3%

19 July 2010 36,097.50 38,780.00 36,085.00 -4.5% 2.6% -4.6% -0.1%

20 July 2010 37,752.50 38,100.00 32,275.00 4.6% 5.6% -10.6% -0.3%

21 July 2010 34,365.00 37,455.00 36,405.00 6.5% 16.0% 12.8% 0.6%

22 July 2010 34,582.50 41,792.50 40,530.00 -5.0% 14.8% 11.3% 0.8%


9/16

9

23 July 2010 41,650.00 43,032.50 39,940.00 2.8% 6.2% -1.5% 0.1%

26 July 2010 39,387.50 40,062.50 37,260.00 -1.4% 0.3% -6.7% -0.6%

27 July 2010 37,315.00 40,502.50 37,755.00 0.1% 8.7% 1.3% 0.2%

28 July 2010 37,935.00 38,642.50 33,065.00 0.5% 2.4% -12.4% -0.6%

29 July 2010 32,637.50 34,012.50 33,457.50 -1.3% 2.9% 1.2% 0.2%

30 July 2010 31,237.50 31,715.00 26,987.50 -6.6% -5.2% -19.3% -0.8%

02 August 2010 29,277.50 31,525.00 31,085.00 8.5% 16.8% 15.2% 1.2%

03 August 2010 31,225.00 31,375.00 29,745.00 0.5% 0.9% -4.3% 0.1%

04 August 2010 29,370.00 32,567.50 31,710.00 -1.3% 9.5% 6.6% 0.5%

05 August 2010 31,665.00 34,937.50 31,707.50 -0.1% 10.2% 0.0% -0.4%

06 August 2010 31,475.00 32,992.50 29,850.00 -0.7% 4.1% -5.9% -0.1%

09 August 2010 28,802.50 33,455.00 32,337.50 -3.5% 12.1% 8.3% 0.9%

10 August 2010 31,277.50 31,760.00 30,085.00 -3.3% -1.8% -7.0% -0.5%

11 August 2010 29,265.00 30,067.50 23,715.00 -2.7% -0.1% -21.2% -0.7%

12 August 2010 20,105.00 25,827.50 24,252.50 -15.2% 8.9% 2.3% -0.1%

13 August 2010 24,545.00 29,360.00 26,787.50 1.2% 21.1% 10.5% 0.7%

16 August 2010 26,427.50 28,227.50 23,222.50 -1.3% 5.4% -13.3% -0.6%

17 August 2010 23,870.00 25,092.50 23,687.50 2.8% 8.1% 2.0% -0.1%

18 August 2010 23,280.00 29,942.50 29,642.50 -1.7% 26.4% 25.1% 1.2%

19 August 2010 29,327.50 35,970.00 34,925.00 -1.1% 21.3% 17.8% 1.1%20 August 2010 33,580.00 35,865.00 34,067.50 -3.9% 2.7% -2.5% -0.2%

23 August 2010 33,820.00 36,670.00 36,027.50 -0.7% 7.6% 5.8% 0.2%

24 August 2010 35,567.50 36,135.00 32,202.50 -1.3% 0.3% -10.6% -0.7%

25 August 2010 30,832.50 31,522.50 26,780.00 -4.3% -2.1% -16.8% -0.8%

26 August 2010 27,802.50 28,705.00 25,575.00 3.8% 7.2% -4.5% 0.3%

27 August 2010 24,502.50 27,157.50 19,852.50 -4.2% 6.2% -22.4% -1.3%

30 August 2010 23,707.50 24,480.00 20,197.50 19.4% 23.3% 1.7% 0.1%

31 August 2010 17,885.00 18,522.50 16,902.50 -11.4% -8.3% -16.3% -0.2%

01 September 2010 16,865.00 24,262.50 23,095.00 -0.2% 43.5% 36.6% 1.3%

02 September 2010 25,890.00 26,615.00 23,275.00 12.1% 15.2% 0.8% 0.3%

03 September 2010 24,177.50 24,567.50 22,187.50 3.9% 5.6% -4.7% -0.1%

06 September 2010 24,800.00 35,520.00 33,337.50 11.8% 60.1% 50.3% 1.8%

07 September 2010 33,585.00 39,745.00 35,435.00 0.7% 19.2% 6.3% 0.5%

08 September 2010 33,422.50 41,670.00 37,002.50 -5.7% 17.6% 4.4% 0.1%

09 September 2010 38,540.00 43,817.50 41,962.50 4.2% 18.4% 13.4% 0.6%

Average -0.2% 9.9% 1.3% 0.1%

When a trader expect a bull run to spread across a day or two, he can use thisstrategy in option trading buy at the close price or LTP or if possible at low price hold it for a day and sell it the next days high price.

Empirical evidence shows that this strategy has returned 9.9% (refer the above table)daily return on an average basis.


10/16

10

Case 3 CALL Buy today sell tomorrow or 2 days after in expected strongbull

Date Open High Low LTPGain/(loss)-next day

Gain/(loss)@ 2days

NIFTYcash

25 June 2010 32,930.00 36,905.00 31,375.00 32,902.50 -1.0%

28 June 2010 34,815.00 37,570.00 33,780.00 37,290.00 14.2% 1.2%

29 June 2010 34,792.50 37,220.00 29,375.00 31,585.00 -0.2% 13.1% -1.5%

30 June 2010 28,337.50 35,925.00 28,262.50 35,512.50 13.7% -3.7% 1.1%

01 July 2010 30,985.00 31,545.00 28,475.00 30,515.00 -11.2% -0.1% -1.2%

02 July 2010 30,045.00 32,275.00 28,787.50 29,650.00 5.8% -9.1% -0.3%

05 July 2010 29,087.50 30,890.00 28,455.00 29,707.50 4.2% 1.2% 0.0%

06 July 2010 30,142.50 34,962.50 29,792.50 33,207.50 17.7% 17.9% 1.0%

07 July 2010 35,782.50 35,972.50 28,020.00 29,282.50 8.3% 21.1% -0.9%

08 July 2010 31,775.00 35,857.50 31,502.50 32,922.50 22.5% 8.0% 1.1%

09 July 2010 32,440.00 37,392.50 32,242.50 35,662.50 13.6% 27.7% 1.0%

12 July 2010 37,292.50 39,417.50 35,420.00 37,135.00 10.5% 19.7% 0.6%

13 July 2010 36,122.50 40,080.00 35,140.00 38,937.50 7.9% 12.4% 0.3%

14 July 2010 40,757.50 41,945.00 36,910.00 37,567.50 7.7% 13.0% -0.3%

15 July 2010 37,502.50 39,150.00 34,795.00 37,605.00 4.2% 0.5% -0.1%

16 July 2010 35,015.00 37,962.50 34,672.50 37,815.00 1.0% 1.1% 0.3%

19 July 2010 36,097.50 38,780.00 35,230.00 36,085.00 2.6% 3.1% -0.1%

20 July 2010 37,752.50 38,100.00 32,175.00 32,275.00 5.6% 0.8% -0.3%

21 July 2010 34,365.00 37,455.00 33,930.00 36,405.00 16.0% 3.8% 0.6%

22 July 2010 34,582.50 41,792.50 34,102.50 40,530.00 14.8% 29.5% 0.8%

23 July 2010 41,650.00 43,032.50 39,065.00 39,940.00 6.2% 18.2% 0.1%

26 July 2010 39,387.50 40,062.50 36,917.50 37,260.00 0.3% -1.2% -0.6%

27 July 2010 37,315.00 40,502.50 36,625.00 37,755.00 8.7% 1.4% 0.2%

28 July 2010 37,935.00 38,642.50 32,760.00 33,065.00 2.4% 3.7% -0.6%

29 July 2010 32,637.50 34,012.50 31,370.00 33,457.50 2.9% -9.9% 0.2%

30 July 2010 31,237.50 31,715.00 26,730.00 26,987.50 -5.2% -4.1% -0.8%

02 August 2010 29,277.50 31,525.00 28,510.00 31,085.00 16.8% -5.8% 1.2%

03 August 2010 31,225.00 31,375.00 28,742.50 29,745.00 0.9% 16.3% 0.1%

04 August 2010 29,370.00 32,567.50 27,607.50 31,710.00 9.5% 4.8% 0.5%

05 August 2010 31,665.00 34,937.50 31,047.50 31,707.50 10.2% 17.5% -0.4%

06 August 2010 31,475.00 32,992.50 28,437.50 29,850.00 4.1% 4.0% -0.1%

09 August 2010 28,802.50 33,455.00 28,142.50 32,337.50 12.1% 5.5% 0.9%

10 August 2010 31,277.50 31,760.00 27,972.50 30,085.00 -1.8% 6.4% -0.5%

11 August 2010 29,265.00 30,067.50 23,450.00 23,715.00 -0.1% -7.0% -0.7%

12 August 2010 20,105.00 25,827.50 19,852.50 24,252.50 8.9% -14.2% -0.1%

13 August 2010 24,545.00 29,360.00 24,400.00 26,787.50 21.1% 23.8% 0.7%

16 August 2010 26,427.50 28,227.50 21,275.00 23,222.50 5.4% 16.4% -0.6%

17 August 2010 23,870.00 25,092.50 21,972.50 23,687.50 8.1% -6.3% -0.1%

18 August 2010 23,280.00 29,942.50 22,332.50 29,642.50 26.4% 28.9% 1.2%

19 August 2010 29,327.50 35,970.00 28,650.00 34,925.00 21.3% 51.9% 1.1%

20 August 2010 33,580.00 35,865.00 32,585.00 34,067.50 2.7% 21.0% -0.2%

23 August 2010 33,820.00 36,670.00 33,022.50 36,027.50 7.6% 5.0% 0.2%

24 August 2010 35,567.50 36,135.00 29,197.50 32,202.50 0.3% 6.1% -0.7%

25 August 2010 30,832.50 31,522.50 26,637.50 26,780.00 -2.1% -12.5% -0.8%

26 August 2010 27,802.50 28,705.00 24,055.00 25,575.00 7.2% -10.9% 0.3%

27 August 2010 24,502.50 27,157.50 18,927.50 19,852.50 6.2% 1.4% -1.3%


11/16

11

30 August 2010 23,707.50 24,480.00 17,737.50 20,197.50 23.3% -4.3% 0.1%

31 August 2010 17,885.00 18,522.50 14,012.50 16,902.50 -8.3% -6.7% -0.2%

01 September 2010 16,865.00 24,262.50 16,092.50 23,095.00 43.5% 20.1% 1.3%

02 September 2010 25,890.00 26,615.00 22,502.50 23,275.00 15.2% 57.5% 0.3%

03 September 2010 24,177.50 24,567.50 21,502.50 22,187.50 5.6% 6.4% -0.1%

06 September 2010 24,800.00 35,520.00 24,352.50 33,337.50 60.1% 52.6% 1.8%

07 September 2010 33,585.00 39,745.00 32,640.00 35,435.00 19.2% 79.1% 0.5%

08 September 2010 33,422.50 41,670.00 32,490.00 37,002.50 17.6% 25.0% 0.1%

09 September 2010 38,540.00 43,817.50 29,587.50 41,962.50 18.4% 23.7% 0.6%

Average 9.9% 10.8% 0.1%

If anticipating strong bull run in the market for near future, say a week, traders cansafely follow a strategy of buying CALL option and holding it for one or two days.However, this strategy works only when the market have high volatility. It involvesbuying at LTP at the close of the trading and selling it at high price the followingtrading day or in the 2nd trading days high price.

Again a question of guessing the days high price is a big deal for a trader. However,the trader should have an expected rate of return. Evidence from CALL option onNIFTY in the past 90 days shows this strategy returning 10% and 11% per day onaverage (refer the above table).

Case 4 PUT Intra day buy and sell in bear

Date Open High Low LTPGain/(loss)@ LTP

Gain/(loss) @High

NIFTYcash

25 June 2010 38,650.00 43,450.00 38,197.50 42,067.50 8.8% 12.4% -1.0%

28 June 2010 38,850.00 42,047.50 37,255.00 38,200.00 -1.7% 8.2% 1.2%

29 June 2010 38,100.00 46,330.00 37,502.50 43,300.00 13.6% 21.6% -1.5%

30 June 2010 44,200.00 45,050.00 38,590.00 38,640.00 -12.6% 1.9% 1.1%

01 July 2010 42,902.50 46,335.00 42,152.50 44,817.50 4.5% 8.0% -1.2%

02 July 2010 41,800.00 45,715.00 40,855.00 44,000.00 5.3% 9.4% -0.3%

05 July 2010 43,850.00 45,750.00 42,250.00 44,527.50 1.5% 4.3% 0.0%

06 July 2010 44,252.50 44,252.50 38,002.50 38,825.00 -12.3% 0.0% 1.0%

07 July 2010 44,150.00 46,850.00 41,500.00 43,817.50 -0.8% 6.1% -0.9%

08 July 2010 39,100.00 39,197.50 36,325.00 38,622.50 -1.2% 0.2% 1.1%

09 July 2010 35,400.00 35,825.00 33,055.00 34,407.50 -2.8% 1.2% 1.0%

12 July 2010 66,265.00 72,332.50 62,845.00 65,642.50 -0.9% 9.2% 0.6%

13 July 2010 65,452.50 67,190.00 55,852.50 56,402.50 -13.8% 2.7% 0.3%14 July 2010 39,100.00 45,885.00 38,200.00 62,702.50 60.4% 17.4% -0.3%

15 July 2010 30,142.50 32,100.00 29,375.00 62,750.00 108.2% 6.5% -0.1%

16 July 2010 46,050.00 46,585.00 43,900.00 60,950.00 32.4% 1.2% 0.3%

19 July 2010 45,400.00 45,400.00 42,407.50 61,000.00 34.4% 0.0% -0.1%

20 July 2010 42,655.00 45,827.50 41,800.00 61,725.00 44.7% 7.4% -0.3%

21 July 2010 60,767.50 61,212.50 57,390.00 58,242.50 -4.2% 0.7% 0.6%

22 July 2010 57,225.00 59,492.50 48,902.50 50,622.50 -11.5% 4.0% 0.8%

23 July 2010 47,595.00 51,665.00 46,752.50 49,920.00 4.9% 8.6% 0.1%


12/16

12

26 July 2010 51,547.50 54,960.00 50,535.00 54,822.50 6.4% 6.6% -0.6%

27 July 2010 53,400.00 54,560.00 47,940.00 50,450.00 -5.5% 2.2% 0.2%

28 July 2010 50,345.00 57,472.50 46,480.00 56,795.00 12.8% 14.2% -0.6%

29 July 2010 53,930.00 57,480.00 47,515.00 50,540.00 -6.3% 6.6% 0.2%

30 July 2010 54,240.00 58,077.50 51,765.00 57,002.50 5.1% 7.1% -0.8%

02 August 2010 51,872.50 53,515.00 45,302.50 45,427.50 -12.4% 3.2% 1.2%

03 August 2010 45,337.50 48,022.50 43,725.00 44,255.00 -2.4% 5.9% 0.1%

04 August 2010 45,412.50 46,145.00 38,532.50 39,657.50 -12.7% 1.6% 0.5%

05 August 2010 39,750.00 42,100.00 37,215.00 41,800.00 5.2% 5.9% -0.4%

06 August 2010 40,577.50 44,235.00 38,242.50 42,050.00 3.6% 9.0% -0.1%

09 August 2010 40,992.50 42,377.50 35,467.50 36,695.00 -10.5% 3.4% 0.9%

10 August 2010 38,010.00 41,620.00 37,092.50 38,875.00 2.3% 9.5% -0.5%

11 August 2010 39,010.00 46,397.50 37,932.50 45,907.50 17.7% 18.9% -0.7%

12 August 2010 50,125.00 51,682.50 42,412.50 43,917.50 -12.4% 3.1% -0.1%

13 August 2010 40,840.00 41,572.50 34,265.00 36,185.00 -11.4% 1.8% 0.7%

16 August 2010 36,500.00 46,087.50 33,702.50 42,872.50 17.5% 26.3% -0.6%

17 August 2010 40,267.50 43,035.00 38,582.50 40,312.50 0.1% 6.9% -0.1%

18 August 2010 40,697.50 41,300.00 30,582.50 30,950.00 -24.0% 1.5% 1.2%

19 August 2010 30,932.50 31,667.50 26,367.50 27,005.00 -12.7% 2.4% 1.1%

20 August 2010 29,155.00 29,630.00 25,720.00 27,425.00 -5.9% 1.6% -0.2%23 August 2010 26,362.50 28,095.00 24,780.00 25,640.00 -2.7% 6.6% 0.2%

24 August 2010 25,977.50 32,662.50 25,457.50 29,240.00 12.6% 25.7% -0.7%

25 August 2010 30,517.50 36,650.00 29,810.00 35,980.00 17.9% 20.1% -0.8%

26 August 2010 34,257.50 36,157.50 31,235.00 33,470.00 -2.3% 5.5% 0.3%

27 August 2010 34,672.50 45,672.50 30,247.50 44,782.50 29.2% 31.7% -1.3%

30 August 2010 36,305.00 45,522.50 33,917.50 38,717.50 6.6% 25.4% 0.1%

31 August 2010 43,400.00 50,642.50 40,297.50 42,840.00 -1.3% 16.7% -0.2%

01 September 2010 37,727.50 39,977.50 27,942.50 29,580.00 -21.6% 6.0% 1.3%

02 September 2010 26,020.00 28,967.50 24,622.50 27,805.00 6.9% 11.3% 0.3%

03 September 2010 26,160.00 29,670.00 25,577.50 27,740.00 6.0% 13.4% -0.1%

06 September 2010 23,662.50 23,932.50 13,870.00 14,955.00 -36.8% 1.1% 1.8%

07 September 2010 14,500.00 16,045.00 12,230.00 14,632.50 0.9% 10.7% 0.5%

08 September 2010 15,327.50 16,282.50 11,452.50 13,367.50 -12.8% 6.2% 0.1%

09 September 2010 12,232.50 16,020.00 9,347.50 10,042.50 -17.9% 31.0% 0.6%

Growth 3.6% 8.7% 0.1%

Buying at opening and selling PUT option at days high would have earned a decentreturn of 8.7%. However this strategy would earn more in the bear rather than bull.If the market for the day is going to be bearish, a trader can buy a PUT and sell it atLTP (if it gives good return and the direction of market is clear downward).


13/16

13

Case 5 PUT - Buy today and sell tomorrow in expected bear

Date Open High Low LTPGain/(loss)@ Open

Gain/(loss)@ high

Gain/(loss)@ LTP

NIFTYcash

25 June 2010 38,650.00 43,450.00 38,197.50 42,067.50 -1.0%

28 June 2010 38,850.00 42,047.50 37,255.00 38,200.00 -7.6% 0.0% -9.2% 1.2%

29 June 2010 38,100.00 46,330.00 37,502.50 43,300.00 -0.3% 21.3% 13.4% -1.5%

30 June 2010 44,200.00 45,050.00 38,590.00 38,640.00 2.1% 4.0% -10.8% 1.1%

01 July 2010 42,902.50 46,335.00 42,152.50 44,817.50 11.0% 19.9% 16.0% -1.2%

02 July 2010 41,800.00 45,715.00 40,855.00 44,000.00 -6.7% 2.0% -1.8% -0.3%

05 July 2010 43,850.00 45,750.00 42,250.00 44,527.50 -0.3% 4.0% 1.2% 0.0%

06 July 2010 44,252.50 44,252.50 38,002.50 38,825.00 -0.6% -0.6% -12.8% 1.0%

07 July 2010 44,150.00 46,850.00 41,500.00 43,817.50 13.7% 20.7% 12.9% -0.9%

08 July 2010 39,100.00 39,197.50 36,325.00 38,622.50 -10.8% -10.5% -11.9% 1.1%

09 July 2010 35,400.00 35,825.00 33,055.00 34,407.50 -8.3% -7.2% -10.9% 1.0%

12 July 2010 66,265.00 72,332.50 62,845.00 65,642.50 92.6% 110.2% 90.8% 0.6%

13 July 2010 65,452.50 67,190.00 55,852.50 56,402.50 -0.3% 2.4% -14.1% 0.3%

14 July 2010 39,100.00 45,885.00 38,200.00 62,702.50 -30.7% -18.6% 11.2% -0.3%

15 July 2010 30,142.50 32,100.00 29,375.00 62,750.00 -51.9% -48.8% 0.1% -0.1%

16 July 2010 46,050.00 46,585.00 43,900.00 60,950.00 -26.6% -25.8% -2.9% 0.3%

19 July 2010 45,400.00 45,400.00 42,407.50 61,000.00 -25.5% -25.5% 0.1% -0.1%

20 July 2010 42,655.00 45,827.50 41,800.00 61,725.00 -30.1% -24.9% 1.2% -0.3%

21 July 2010 60,767.50 61,212.50 57,390.00 58,242.50 -1.6% -0.8% -5.6% 0.6%

22 July 2010 57,225.00 59,492.50 48,902.50 50,622.50 -1.7% 2.1% -13.1% 0.8%

23 July 2010 47,595.00 51,665.00 46,752.50 49,920.00 -6.0% 2.1% -1.4% 0.1%

26 July 2010 51,547.50 54,960.00 50,535.00 54,822.50 3.3% 10.1% 9.8% -0.6%

27 July 2010 53,400.00 54,560.00 47,940.00 50,450.00 -2.6% -0.5% -8.0% 0.2%

28 July 2010 50,345.00 57,472.50 46,480.00 56,795.00 -0.2% 13.9% 12.6% -0.6%

29 July 2010 53,930.00 57,480.00 47,515.00 50,540.00 -5.0% 1.2% -11.0% 0.2%

30 July 2010 54,240.00 58,077.50 51,765.00 57,002.50 7.3% 14.9% 12.8% -0.8%

02 August 2010 51,872.50 53,515.00 45,302.50 45,427.50 -9.0% -6.1% -20.3% 1.2%

03 August 2010 45,337.50 48,022.50 43,725.00 44,255.00 -0.2% 5.7% -2.6% 0.1%

04 August 2010 45,412.50 46,145.00 38,532.50 39,657.50 2.6% 4.3% -10.4% 0.5%

05 August 2010 39,750.00 42,100.00 37,215.00 41,800.00 0.2% 6.2% 5.4% -0.4%

06 August 2010 40,577.50 44,235.00 38,242.50 42,050.00 -2.9% 5.8% 0.6% -0.1%

09 August 2010 40,992.50 42,377.50 35,467.50 36,695.00 -2.5% 0.8% -12.7% 0.9%

10 August 2010 38,010.00 41,620.00 37,092.50 38,875.00 3.6% 13.4% 5.9% -0.5%

11 August 2010 39,010.00 46,397.50 37,932.50 45,907.50 0.3% 19.4% 18.1% -0.7%

12 August 2010 50,125.00 51,682.50 42,412.50 43,917.50 9.2% 12.6% -4.3% -0.1%

13 August 2010 40,840.00 41,572.50 34,265.00 36,185.00 -7.0% -5.3% -17.6% 0.7%

16 August 2010 36,500.00 46,087.50 33,702.50 42,872.50 0.9% 27.4% 18.5% -0.6%

17 August 2010 40,267.50 43,035.00 38,582.50 40,312.50 -6.1% 0.4% -6.0% -0.1%

18 August 2010 40,697.50 41,300.00 30,582.50 30,950.00 1.0% 2.4% -23.2% 1.2%

19 August 2010 30,932.50 31,667.50 26,367.50 27,005.00 -0.1% 2.3% -12.7% 1.1%

20 August 2010 29,155.00 29,630.00 25,720.00 27,425.00 8.0% 9.7% 1.6% -0.2%

23 August 2010 26,362.50 28,095.00 24,780.00 25,640.00 -3.9% 2.4% -6.5% 0.2%

24 August 2010 25,977.50 32,662.50 25,457.50 29,240.00 1.3% 27.4% 14.0% -0.7%

25 August 2010 30,517.50 36,650.00 29,810.00 35,980.00 4.4% 25.3% 23.1% -0.8%

26 August 2010 34,257.50 36,157.50 31,235.00 33,470.00 -4.8% 0.5% -7.0% 0.3%

27 August 2010 34,672.50 45,672.50 30,247.50 44,782.50 3.6% 36.5% 33.8% -1.3%

30 August 2010 36,305.00 45,522.50 33,917.50 38,717.50 -18.9% 1.7% -13.5% 0.1%


14/16

14

31 August 2010 43,400.00 50,642.50 40,297.50 42,840.00 12.1% 30.8% 10.6% -0.2%

01 September 2010 37,727.50 39,977.50 27,942.50 29,580.00 -11.9% -6.7% -31.0% 1.3%

02 September 2010 26,020.00 28,967.50 24,622.50 27,805.00 -12.0% -2.1% -6.0% 0.3%

03 September 2010 26,160.00 29,670.00 25,577.50 27,740.00 -5.9% 6.7% -0.2% -0.1%

06 September 2010 23,662.50 23,932.50 13,870.00 14,955.00 -14.7% -13.7% -46.1% 1.8%

07 September 2010 14,500.00 16,045.00 12,230.00 14,632.50 -3.0% 7.3% -2.2% 0.5%

08 September 2010 15,327.50 16,282.50 11,452.50 13,367.50 4.7% 11.3% -8.6% 0.1%

09 September 2010 12,232.50 16,020.00 9,347.50 10,042.50 -8.5% 19.8% -24.9% 0.6%

Growth -2.7% 5.8% -1.0% 0.1%

Here a trader should buy PUT option and sell it at next days high price. But thistrading works only when the next days market is expected to be a bear. Selling atnext days high will earn a good return. In bull, NIFTY PUT option under thisstrategy had returned 5.8%.

Case 6 PUT - Buy today sell tomorrow or 2 days after in expected strong bear

Date Open High Low LTPGain/(loss) -nextday

Gain/(loss) @2days NIFTY cash

25 June 2010 38,650.00 43,450.00 38,197.50 42,067.50 -1.0%

28 June 2010 38,850.00 42,047.50 37,255.00 38,200.00 0.0% 1.2%

29 June 2010 38,100.00 46,330.00 37,502.50 43,300.00 21.3% 10.1% -1.5%

30 June 2010 44,200.00 45,050.00 38,590.00 38,640.00 4.0% 17.9% 1.1%

01 July 2010 42,902.50 46,335.00 42,152.50 44,817.50 19.9% 7.0% -1.2%

02 July 2010 41,800.00 45,715.00 40,855.00 44,000.00 2.0% 18.3% -0.3%

05 July 2010 43,850.00 45,750.00 42,250.00 44,527.50 4.0% 2.1% 0.0%

06 July 2010 44,252.50 44,252.50 38,002.50 38,825.00 -0.6% 0.6% 1.0%

07 July 2010 44,150.00 46,850.00 41,500.00 43,817.50 20.7% 5.2% -0.9%08 July 2010 39,100.00 39,197.50 36,325.00 38,622.50 -10.5% 1.0% 1.1%

09 July 2010 35,400.00 35,825.00 33,055.00 34,407.50 -7.2% -18.2% 1.0%

12 July 2010 66,265.00 72,332.50 62,845.00 65,642.50 110.2% 87.3% 0.6%

13 July 2010 65,452.50 67,190.00 55,852.50 56,402.50 2.4% 95.3% 0.3%

14 July 2010 39,100.00 45,885.00 38,200.00 62,702.50 -18.6% -30.1% -0.3%

15 July 2010 30,142.50 32,100.00 29,375.00 62,750.00 -48.8% -43.1% -0.1%

16 July 2010 46,050.00 46,585.00 43,900.00 60,950.00 -25.8% -25.7% 0.3%

19 July 2010 45,400.00 45,400.00 42,407.50 61,000.00 -25.5% -27.6% -0.1%

20 July 2010 42,655.00 45,827.50 41,800.00 61,725.00 -24.9% -24.8% -0.3%

21 July 2010 60,767.50 61,212.50 57,390.00 58,242.50 -0.8% 0.3% 0.6%

22 July 2010 57,225.00 59,492.50 48,902.50 50,622.50 2.1% -3.6% 0.8%

23 July 2010 47,595.00 51,665.00 46,752.50 49,920.00 2.1% -11.3% 0.1%

26 July 2010 51,547.50 54,960.00 50,535.00 54,822.50 10.1% 8.6% -0.6%

27 July 2010 53,400.00 54,560.00 47,940.00 50,450.00 -0.5% 9.3% 0.2%

28 July 2010 50,345.00 57,472.50 46,480.00 56,795.00 13.9% 4.8% -0.6%

29 July 2010 53,930.00 57,480.00 47,515.00 50,540.00 1.2% 13.9% 0.2%

30 July 2010 54,240.00 58,077.50 51,765.00 57,002.50 14.9% 2.3% -0.8%

02 August 2010 51,872.50 53,515.00 45,302.50 45,427.50 -6.1% 5.9% 1.2%

03 August 2010 45,337.50 48,022.50 43,725.00 44,255.00 5.7% -15.8% 0.1%


15/16

15

04 August 2010 45,412.50 46,145.00 38,532.50 39,657.50 4.3% 1.6% 0.5%

05 August 2010 39,750.00 42,100.00 37,215.00 41,800.00 6.2% -4.9% -0.4%

06 August 2010 40,577.50 44,235.00 38,242.50 42,050.00 5.8% 11.5% -0.1%

09 August 2010 40,992.50 42,377.50 35,467.50 36,695.00 0.8% 1.4% 0.9%

10 August 2010 38,010.00 41,620.00 37,092.50 38,875.00 13.4% -1.0% -0.5%

11 August 2010 39,010.00 46,397.50 37,932.50 45,907.50 19.4% 26.4% -0.7%

12 August 2010 50,125.00 51,682.50 42,412.50 43,917.50 12.6% 32.9% -0.1%

13 August 2010 40,840.00 41,572.50 34,265.00 36,185.00 -5.3% -9.4% 0.7%

16 August 2010 36,500.00 46,087.50 33,702.50 42,872.50 27.4% 4.9% -0.6%

17 August 2010 40,267.50 43,035.00 38,582.50 40,312.50 0.4% 18.9% -0.1%

18 August 2010 40,697.50 41,300.00 30,582.50 30,950.00 2.4% -3.7% 1.2%

19 August 2010 30,932.50 31,667.50 26,367.50 27,005.00 2.3% -21.4% 1.1%

20 August 2010 29,155.00 29,630.00 25,720.00 27,425.00 9.7% -4.3% -0.2%

23 August 2010 26,362.50 28,095.00 24,780.00 25,640.00 2.4% 4.0% 0.2%

24 August 2010 25,977.50 32,662.50 25,457.50 29,240.00 27.4% 19.1% -0.7%

25 August 2010 30,517.50 36,650.00 29,810.00 35,980.00 25.3% 42.9% -0.8%

26 August 2010 34,257.50 36,157.50 31,235.00 33,470.00 0.5% 23.7% 0.3%

27 August 2010 34,672.50 45,672.50 30,247.50 44,782.50 36.5% 26.9% -1.3%

30 August 2010 36,305.00 45,522.50 33,917.50 38,717.50 1.7% 36.0% 0.1%

31 August 2010 43,400.00 50,642.50 40,297.50 42,840.00 30.8% 13.1% -0.2%01 September 2010 37,727.50 39,977.50 27,942.50 29,580.00 -6.7% 3.3% 1.3%

02 September 2010 26,020.00 28,967.50 24,622.50 27,805.00 -2.1% -32.4% 0.3%

03 September 2010 26,160.00 29,670.00 25,577.50 27,740.00 6.7% 0.3% -0.1%

06 September 2010 23,662.50 23,932.50 13,870.00 14,955.00 -13.7% -13.9% 1.8%

07 September 2010 14,500.00 16,045.00 12,230.00 14,632.50 7.3% -42.2% 0.5%

08 September 2010 15,327.50 16,282.50 11,452.50 13,367.50 11.3% 8.9% 0.1%

09 September 2010 12,232.50 16,020.00 9,347.50 10,042.50 19.8% 9.5% 0.6%

Growth 5.8% 4.6% 0.1%

Like CALL, PUT option also earns a return even in the bull. If it is a bear market, thereturn of 5% (average refer above table) would have been doubled.


16/16

16

Conclusion

Overall all the above strategies can be blindly used in trading of options based on

the traders instinct on the market levels. If anyone could guess these levels, they can

be a successful trader. Having said that, such precise prediction is unlikely. But such

trades can earn a decent return if executed with strict trading disciplines. We would

like to remind that this strategy is better when used on market direction (on market

indices) rather than on stock options. In stock options, the dynamics in the price

movement is entirely based on two risks market risk (both global and its industry)

and business risk. Combining these two risks to calculate the potential upside or

downward movements in stock price is highly impossible in short run. Most of the

time, it may turn our prediction down. Even remote news that is no way connected

with the underlying stock may affect its price movements. So it is better to bid on the

overall market direction with the proper mix of PUT and CALL on index might earn

us a good return like illustrated in this paper.

option trading strategy in nifty, india

Documents