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NIFTY Future 26 Jul 2012 Futures Price= Interest cost per unit= Cash Price= Risk free rate (Current 10Yr Govt bond return)= Time(In months)= Storage cost per unit= Risk free rate (Current 10Yr Govt bond return)= Theoratical Futures Price of NIFTY 26 Jul 2012 = Current Futures Price=
Cash Price + Interest cost per unit+Storage cost per unit Cash price*Risk free rate*time 4990.1 8.50% 2 0 70.69 5060.79 4975.4
Strangle
Butterfly spread
Note
Spread cost = Cost of Strategy=
Note
difference in premium paid sum of premiums paid ~ premium received
Net payoff -37.85 -37.85 -37.85 22.15 90062.15 920 62.15 62.15
Net payoff
Net payoff
Net payoff
ICICI Bank Call Expiry date-31/05 Strike price Options price Current mkt price Strike price Options price Current mkt price Cost of the strategy= Stock price 740 760 800 840 880 900
37.85 Payoff long call 880 0 0 0 0 0 20 Payoff short call 780 0 0 -20 -60 -100 -120 Net payoff 37.85 37.85 17.85 -22.15 -62.15 -62.15
840
880
900
Net payoff
Buy a call on a stock with higher strike price, sell call on the same stock with a lower strike price
Net payoff
ICICI Bank Call Expiry date-31/05 Strike price Options price Current mkt price
ICICI Bank Put Expiry date-31/05 Values Strike price 820 Options price 10 Current mkt price 840
Cost of the strategy Stock Price 740 760 800 820 840 880 900
19.3 Payoff long Call Payoff long Put Net payoff 820 820 0 80 0 60 0 20 0 0 20 0 60 0 80 0 Stock Price 70 740 60 760 50 800 40 820 30 840 20 880 10 900
0 -10 -20 -30 740
Straddle
>A straddle involves buying a call and a put >The call and put have the same strike price and date of expiry
Straddle
Net payoff 60.7 40.7 0.7 -19.3 0.7 40.7 60.7
740 760 800 820 840 880 900
Net payoff
ICICI Bank Call Expiry date-31/05 Strike price Options price Current mkt price
ICICI Bank Put Expiry date-31/05 Values Strike price 840 Options price 24 Current mkt price 840
Cost of the strategy Stock Price 740 760 800 820 840 880 900
33.3
80
Payoff long Call Payoff long Put Net payoff 820 840 0 100 0 80 0 40 0 20 20 0 60 0 80 0
70 60
Strangle
Net payoff
Stock Price Net payoff 740 66.7 760 46.7 800 6.7 820 -13.3 840 -13.3 880 26.7 900 46.7
800 820
760
840
880
900
>A strangle involves buying a call and put >The call and put have different strike prices but the same date of expiry
Net payoff
ICICI Bank Call Expiry date-31/05 Values Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price Stock Price 740 760 800 820 840 880 900 920
4.6
Payoff long Call Payoff long call Payoff Short call Net payoff 820 860 840 0 0 0 0 0 0 0 0 0 0 0 0 20 0 0 60 20 -80 80 40 -120 100 60 -160
20
15 10 5 0 740 -5 -10
Butterfly Spread
Butterfly Spread
Stock Price Net payoff 740 760 800 820 840 880 900 760 800 920 820 840 -4.6 -4.6 -4.6 -4.6 15.4 -4.6 -4.6 880 -4.6900
740
A spread involving 3 different options with different strike prices Buy a call option with a low strike price Buy a call option with a high strike price Sell two call options with a strike price way between the high and low strike prices
rfly Spread
Net payoff
900
920
ICICI Bank Call Expiry date-31/05 Values Strike price 780 Options price 38.2 Current mkt price 840 Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price 800 20 840 820 9.3 840 840 3 840 860 1.3 840 880 0.35 840
ICICI Bank Put Expiry date-31/05 Values Strike price 780 Options price 0.95 Current mkt price 840 Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price Strike price Options price Current mkt price 800 2.5 840 820 10 840 840 24 840 860 42.35 840 880 59.9 840
Bull call spread call @780 strike price and sell call @880 Buy Bear call spreadcall @880 strike price and sell call @780 Buy
Calculation of the Value of NIFTY Future Formula S I r I D t F=(S-I)e^rt Spot price Present value of Dividend paid continuously compounded risk free rate = ln(1+risk free rate) D*e^-rtd Dividend paid Time period for divident payments