Options Strategies for a Range-bound Market
| Case Code: FINC173
Case Length: 5 Pages
Pub Date: 2021
Teaching Note: Available
| Price: Rs.200
Organization: Magnus Returns Private Limited
Industry: Financial Services
Themes: Financial Options & Derivatives
Abstract Case Intro 1 Case Intro 2 Excerpts
Surendra at Magnus Returns
Surendra had invested several times in the stock market and had earned decent returns too. However, for the first time, he decided to take Sumit’s help, as he had a short investment horizon and wanted to ensure that he did not lose his money as he needed it for his daughter’s wedding..
Stock Market In Early 2020
Ritu found that in the first week of January 2020, market sentiment had turned negative as the US had threatened sanctions against Iraq and Iran, a move that could disturb the global oil supply. Due to negative sentiments, the NSE Nifty 50 went down by 233 points and closed below 12,000 marks on January 6, 2020. However, the market improved the next day, i.e., January 7, 2020, and closed above 12,000 marks..
Option Strategy for One Month Investment
Thus, Ritu expected the market to be range-bound. She thought of implementing option strategies that were profitable during range-bound markets. She planned to use the Nifty 50 February 2020 options which had a lot size of 75. For long positions, she needed to pay the premium, but for short positions, margin money of Rs. 0.1 million had to be paid for each contract..
Exhibit I: Three Scenarios and Probability
Exhibit II: Nifty 50 End of the Day (EOD) Values from July 01, 2019 to January 31, 2020
Exhibit III: Nifty 50 Option Premium
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