options

call long short

put long short

exercise
itm max profits
otm max loss for all options
itm
risk involved in short positions
equation of when is call is exercised
when put is exercised premium paid by long
received by short

long bond protective put strategy

long stock anticipatory call buyimg
covered call writing

nifty spot 11284.3

strike call put assume that a big event happening

ITM 11200 234.95 111.05 so the prices may come down or go up
ATM 11300 174.15 149.2 so we have following
OTM 11400 124.45 192.7 1 long stradle
2 long strangle

1 long stradle long ATM call/put 2 long strangle

11300 11400
end aug call pof put pof prem net end aug call pof
10300 0 1000 -323.35 676.65 10300 0
10500 0 800 -323.35 476.65 10500 0
10700 0 600 -323.35 276.65 10700 0
10900 0 400 -323.35 76.65 10900 0
11100 0 200 -323.35 -123.35 11100 0
11300 0 0 -323.35 -323.35 11300 0
11500 200 0 -323.35 -123.35 11500 100
11700 400 0 -323.35 76.65 11700 300
11900 600 0 -323.35 276.65 11900 500
12100 800 0 -323.35 476.65 12100 700
12300 1000 0 -323.35 676.65 12300 900

long straddle
800

600
 long straddle
800

600

400

200

0
10000 10500 11000 11500 12000 12500

-200

-400

even the market is volatile conclusions

the long straddle is out performing 1 market is volatile, direction is unknown
2 we have alternatives

long straddle
premium 323.35
max loss premium 323.35
gain is dif b/w spot and strike-premium

situation
market has relatively low volatility alternatives
I am prepared to take risks 1 short straddle 2

short ATM both call and put

TCS SPOT 2242.65

exp in AUG 2019
option strike call put
ITM 2200 106.25 52.4
ATM 2240 94.5 139
OTM 2280 81.6 164

1 short straddle short ATM both call and put 2

2240
end of augcall pof put pof premium net end of aug
1940 0 -300 233.5 -66.5 1940
 1990 0 -250 233.5 -16.5 1990
2040 0 -200 233.5 33.5 2040
2090 0 -150 233.5 83.5 2090
2140 0 -100 233.5 133.5 2140
2190 0 -50 233.5 183.5 2190
2240 0 0 233.5 233.5 2240
2290 -50 0 233.5 183.5 2290
2340 -100 0 233.5 133.5 2340
2390 -150 0 233.5 83.5 2390
2440 -200 0 233.5 33.5 2440
2490 -250 0 233.5 -16.5 2490
2540 -300 0 233.5 -66.5 2540

short straddle
300

250

200

150

100

50

0
1900 2000 2100 2200 2300 2400 2500 2600
-50

-100

situation
market is study
but slightly bulish
I am not prepared to take risk

Bull spread long ITM call 2200

short OTM call 2280

TCS SPOT 2242.65

exp in AUG 2019
option strike call put
ITM 2200 106.25 52.4 -106.25
ATM 2240 94.5 139 81.6
OTM 2280 81.6 164 -24.65 premium we pay
 2200 2280
end of augcall pof call pof premium net
1940 0 0 -24.65 -24.65 bull spread w
1990 0 0 -24.65 -24.65 60
2040 0 0 -24.65 -24.65 50
2090 0 0 -24.65 -24.65
40
2140 0 0 -24.65 -24.65
2190 0 0 -24.65 -24.65 30

2240 0 0 -24.65 -24.65 20

2290 90 -10 -24.65 55.35 10
2340 140 -60 -24.65 55.35
0
2390 190 -110 -24.65 55.35 1940 1990 2040 2090 2140 2190 2240
-10
2440 240 -160 -24.65 55.35
2490 290 -210 -24.65 55.35 -20
2540 340 -260 -24.65 55.35 -30

max loss premium

max gain dif in strike prices -premium
80-24.65 55.35

reliance spot 1213.8

bull spread with calls
strike call long ITM 1220 1220 1220
1160 70.35 short OTM 1240 1260 1280
1180 56.1
1200 43.65 max loss -8.3 -15.15 -20.45
1220 33.8 max gain 11.7 24.85 39.55
1240 25.5
1260 18.65
1280 13.35
1300 9.75

situation
market is steady but slightly bearish
I am not prepared to take risk

TCS SPOT 2242.65 bear spread with puts

exp in AUG 2019 buy ITM put
option strike call put sell OTM put
ITM 2200 106.25 112.5
ATM 2240 94.5 139
OTM 2280 81.6 164
 2280 2200
end of augput pof put of premium net
1940 340 -260 -51.5 28.5 Beat spread
1990 290 -210 -51.5 28.5 40
2040 240 -160 -51.5 28.5 30
2090 190 -110 -51.5 28.5
20
2140 140 -60 -51.5 28.5
10
2190 90 -10 -51.5 28.5
0
2240 0 0 -51.5 -51.5 1940 1990 2040 2090 2140 2190 22
2290 0 0 -51.5 -51.5 -10

2340 0 0 -51.5 -51.5 -20

2390 0 0 -51.5 -51.5 -30
2440 0 0 -51.5 -51.5 -40
2490 0 0 -51.5 -51.5 -50
2540 0 0 -51.5 -51.5 -60
vent happening
ome down or go up

long ATM call/put

long OTM call
ITM put

long strangle long call 11400 long put 11200

11200
put pof prem net
900 -235.5 664.5
700 -235.5 464.5
500 -235.5 264.5
300 -235.5 64.5
100 -235.5 -135.5
0 -235.5 -235.5
0 -235.5 -135.5
0 -235.5 64.5
0 -235.5 264.5
0 -235.5 464.5
0 -235.5 664.5

Long strangle
0

0
 Long strangle
0

0
0000 10500 11000 11500 12000 12500

volatile, direction is unknown

since we are buying OTM in long strangle the premium will be less

short strangle

short OTM both call and put

short strangle short OTM both call and put

2280 2200
call pof put pof premium net
0 -260 134 -126
 0 -210 134 -76
0 -160 134 -26
0 -110 134 24
0 -60 134 74
0 -10 134 124
0 0 134 134
-10 0 134 124
-60 0 134 74
-110 0 134 24
-160 0 134 -26
-210 0 134 -76
-260 0 134 -126

short strangle
50

00

50

0
1900 2000 2100 2200 2300 2400 2500 2600

50

00

50
 bull spread with calls

990 2040 2090 2140 2190 2240 2290 2340 2390 2440 2490 2540

1200
1280

-30.3 premium
49.7 dif between strike price -premium
 Beat spread with puts

1990 2040 2090 2140 2190 2240 2290 2340 2390 2440 2490 2540
portfolio manager volatility risk
corporate finance treasurer high low long straddle
low low covered call writing
low high short straddle
slightly high on bull side low bull spread
slightly high on bear side low bear spread

M&M spot 564.45

strike call put
540 34.1 7.2
ITM 550 27.6 10.8
560 21.8 15.6
OTM 570 15.3 21.3
580 8.1 26.9

1. bull spread long ITM call premium -12.3

short OTM call

550 570
end of aug call pof call pof premium net
440 0 0 -12.3 -12.3
460 0 0 -12.3 -12.3
Bull spread with
480 0 0 -12.3 -12.3 10
500 0 0 -12.3 -12.3
520 0 0 -12.3 -12.3 5
540 0 0 -12.3 -12.3
560 10 0 -12.3 -2.3 0
580 30 -10 -12.3 7.7 440 460 480 500 520 540 560

600 50 -30 -12.3 7.7

-5
620 70 -50 -12.3 7.7
640 90 -70 -12.3 7.7
660 110 -90 -12.3 7.7 -10

680 130 -110 -12.3 7.7

-15
combinations550/570 550/580 540/570 540/580
max loss 12.3 19.5 18.8 26
max profit 7.7 10.5 11.2 14

% of P/L 0.626016 0.538462 0.595745 0.538462

M&M spot 564.45

 strike call put
540 34.1 7.2 market is steady slightly bearish
ITM 550 27.6 10.8 low risk strategy
560 21.8 15.6 bear spread with puts
OTM 570 15.3 21.3
580 8.1 26.9 premium -10.5 max loss
max gain

570 550
end of aug put pof put of premium net
440 130 -110 -10.5 9.5 bear spread with put
460 110 -90 -10.5 9.5 15
480 90 -70 -10.5 9.5
500 70 -50 -10.5 9.5 10

520 50 -30 -10.5 9.5

5
540 30 -10 -10.5 9.5
560 10 0 -10.5 -0.5
0
580 0 0 -10.5 -10.5 440 460 480 500 520 540 560 580 6
600 0 0 -10.5 -10.5 -5
620 0 0 -10.5 -10.5
640 0 0 -10.5 -10.5 -10
660 0 0 -10.5 -10.5
680 0 0 -10.5 -10.5 -15

combinations570/550 570/540 580/550 580/540

max loss 10.5 14.1 16.1 19.7
max profit 9.5 15.9 13.9 20.3

long short
bull spread calls ITM OTM
bull spread put OTM ITM

Bear spred puts ITM OTM

Bear spred calls ITM OTM

M&M spot 564.45 bull spread with putslong OTM put and short itm put
strike call put
540 34.1 7.2 premium inflow
550 27.6 10.8 long 550 -10.8
560 21.8 15.6 short 570 21.3
570 15.3 21.3 10.5
580 8.1 26.9 550/570 550/580
max loss 9.5 13.9
 max gain 10.5 16.1
550 570 % of P/L 1.105263158 1.15827338
end of aug put 550 put 570 prem total
440 110 -130 10.5 -9.5
460 90 -110 10.5 -9.5
480 70 -90 10.5 -9.5
Bull spread with put
500 50 -70 10.5 -9.5
15
520 30 -50 10.5 -9.5
540 10 -30 10.5 -9.5
10
560 0 -10 10.5 0.5
580 0 0 10.5 10.5
5
600 0 0 10.5 10.5
620 0 0 10.5 10.5 0
640 0 0 10.5 10.5 440 460 480 500 520 540 560 580 6

660 0 0 10.5 10.5 -5

680 0 0 10.5 10.5
-10

-15

Bull spread with calls Bull spread with puts

combinations550/570 550/580 540/570 540/580 550/570
max loss 12.3 19.5 18.8 26 max loss 9.5
max profit 7.7 10.5 11.2 14 max gain 10.5
% of P/L 0.626016 0.538462 0.595745 0.538462 % of P/L 1.10526316

1 economic analysis that market is steady

but likely to be slightly bullish
2 how sure are you?
3 how much risk can you take?
4 so bull spread is recommended
draw a chart of various combinations o
with calls and puts and pick the best

M&M spot 564.45 bear spread with calls

strike call put
540 34.1 7.2 buy OTM 570 -15.3
ITM 550 27.6 10.8 sell ITM 550 27.6
560 21.8 15.6 12.3
OTM 570 15.3 21.3
580 8.1 26.9 550/570 550/580 540/570 540/580
 max loss 7.7 10.5 11.2 14
max gain 12.3 19.5 18.8 26

bear spread with puts bear spread with calls

combinations570/550 570/540 580/550 580/540 550/570 550/580
max loss 10.5 14.1 16.1 19.7 max loss 7.7 10.5
max profit 9.5 15.9 13.9 20.3 max gain 12.3 19.5
% of P/L 0.904762 1.12766 0.863354 1.030457 % of P/L 1.597402597 1.85714286

buy sell premium

Bull spread
calls ITM OTM pay
puts OTM ITM get

Bear spread
calls OTM ITM get
put ITM OTM pay
 long strangle

call
put

Bull spread with calls

0 520 540 560 580 600 620 640 660 680

 long ITM put
short OTMput

premium -10.5
dif of strike-premiu 9.5

ar spread with puts

20 540 560 580 600 620 640 660 680

nd short itm put

540/570 540/580
15.9 20.3
 14.1 19.7
0.886792 0.970443

ull spread with puts

20 540 560 580 600 620 640 660 680

550/580 540/570 540/580

13.9 15.9 20.3
16.1 14.1 19.7
1.158273 0.886792 0.970443

sis that market is steady

slightly bullish
not sure
can you take? not much risk
s recommended
various combinations of bull spread
uts and pick the best
540/570 540/580
11.2 14
18.8 26
1.678571 1.857143
 spot infy 791.45 market is steady
strike call so not want to take risk
760 47.2
770 41.3
780 26.05 buy ITM call 780 -26.05
790 19.6 buy OTM call 800 -14.3
800 14.3 sell 2 nos of ATM call 2nos 790 39.2
810 10.55 premium -1.15
820 7.4

780 800 790

end aug call ITM call OTM call ATM prem total butterfly spread
690 0 0 0 -1.15 -1.15 10
715 0 0 0 -1.15 -1.15
8
740 0 0 0 -1.15 -1.15
765 0 0 0 -1.15 -1.15 6
790 10 0 0 -1.15 8.85 4
815 35 15 -50 -1.15 -1.15
2
840 60 40 -100 -1.15 -1.15
865 85 65 -150 -1.15 -1.15 0
690 715 740 765 790 815 840
890 110 90 -200 -1.15 -1.15 -2

780/800 770/810 760/820

max loss 1.15 12.65 15.4
max profit 8.85 7.35 14.6
% of P/L 7.695652 0.581028 0.948052

spot infy 791.45

strike call put bull spread with calls
760 47.2 6.45 bear spread with puts
770 41.3 8.65
780 25.3 11.7
790 19.6 15.55 buy ITM call 780
800 16.2 20.3 sell OTM call 800
810 10.55 26.35 buy ITM put 800
820 7.4 33 sell OTM put 780

780 800 800 780

end aug Call ITM call OTM put ITM put OTM premium total
690 0 0 110 -90 -17.7 2.3
715 0 0 85 -65 -17.7 2.3
740 0 0 60 -40 -17.7 2.3
765 0 0 35 -15 -17.7 2.3
790 10 0 10 0 -17.7 2.3
815 35 -15 0 0 -17.7 2.3
840 60 -40 0 0 -17.7 2.3
865 85 -65 0 0 -17.7 2.3
890 110 -90 0 0 -17.7 2.3
 max loss premium 1.15
max gain (790-780) 8.85

butterfly spread

765 790 815 840 865 890

-25.3
16.2
-20.3
11.7
-17.7
 strategy when what

market volatile
1 long straddle direction unknown long call long put ATM

low market volatile

2 short stradle risk taker short ATM both call and put
3 short strangle
4 long strange
market steady
5 Bull spread with calls slightly bullish long ITM call short OTM call
market steady
6 Bull spread with puts slightly bullish long OTM put short ITM put
market steady
7 bear spread with puts slightly bearish long ITM put and short OTM put
8 bear spread with calls
market steady, cant Long ITM call, long OTM call, sell 2
9 Butterfly take big risk ATM call

long ITM call+short OTM call+long

10 Box arbitrage points ITM put + short OTM put

nifty spot 11189.2

strike call put
11050 264.45 99.65
11100 226.55 115.6
11150 196.5 135.75
11200 167.05 154.6
11250 141.9 177.6
11300 116.3 202.3
11350 95.65 228.95
max profit max loss remarks

profits above:-strike+prem
infinite premium paid profits below:- strike-prem

loss above strike = premium

premium infinite and strike -premium

dif in strike- prem premium

premium dif in strike- prem

choose the correct

dif in strike- prem premium combiantion by checkeing
max profits and max loss
dif in strike of long
calls/2- prem premium

gain anlaysis should be equal to interest

max profit max loss ramarks

long straddle infinate 321.65 above 11521.65
below 10878.35

butterfly (11150/11250)
price
value futures spot*e^rt
premium diference in premium cannot exceeed diferences
in strike prices

reliance 1210 spot

c august strike 1200 30

d august strike 1175 65

end price c pay of c premi c net d pay of d premi d net

1180 0 -30 -30 5 -65 -60
1190 0 -30 -30 15 -65 -50
1200 0 -30 -30 25 -65 -40
1210 10 -30 -20 35 -65 -30
1220 20 -30 -10 45 -65 -20
1230 30 -30 0 55 -65 -10

X spot 850
strike 840
tenure 1 month
premium
premium cannot be lower than
stock price - pv of strike price

850-836.5073 cannot be lower than 13.49

if it is lower say it is only 10

buy the cal -10

sell the stock 850
net 840
invest this after 1 month you get
you need only 830 to exercise the call
exceeed diferences

Rs. 836.51

cannot be lower than 13.49

843.1559

3.15 is clean profit

 heromotorco
spot 2468.55 implied volatility
strike bs price implied volatility
45.00%
6-Aug 2300 204 38.15% 40.00%
29-Aug expiry 2350 159.3 34% 35.00%
30.00%
2400 124.6 33.50% 25.00%
0.063014 2450 89.03 30.75% 20.00%
15.00%
2500 64.1 30.47% 10.00%
2550 43.5 29.85% 5.00%
2600 28.4 30.15% 0.00%
2300 2350 2400 2450 2500
 implied volatility

2350 2400 2450 2500 2550 2600

 interest rate derivatives

100 crores 1 year

loan will be taken after 3 months

today Jan-01 2020

loan to be taken Apr-01 2020
for 1 year
full payment with interest mar 31 2021

bank can give only floating

you want fixed 9%

national principle 100 cr

BOB will pay X floating rate (SBI plr)
X will pay BOB 8.50%

on april 1
2020 int. 31-Mar-21
sbi plr pay to sbi get from BOB pay to BOB net
8.00% -8.50% 8.00% -8.50% -9.00%
8.25% -8.75% 8.25% -8.50% -9.00%
8.50% -9.00% 8.50% -8.50% -9.00%
8.75% -9.25% 8.75% -8.50% -9.00%
9.00% -9.50% 9.00% -8.50% -9.00%
9.25% -9.75% 9.25% -8.50% -9.00%
9.50% -10.00% 9.50% -8.50% -9.00%
9.75% -10.25% 9.75% -8.50% -9.00%
 x takes a 5 year loan from BOI Rs, 50 lakhs
the emtire principal is repayable at end of 5 years.
Tosay is 1st aug, 2019. the loan will be taken on 1st january 2020
interest rate quoted by BOI is
approaches PNB for a 5 year plain vanila shop
PNB quotes SBI plr+2%
SBI PLR TO BE DECIDED AT THE BEGINNING OF EACH YEAR>
FOR NEXT 5 YEATS, SBI TURNED OUT TO BE
1 9.25%
2 8.80%
3 8.00% DRAw UP THE SWAP FLOWS
4 7.80% Jan1. 2020
5 7.15% year 0
loan taken from BOI 5000000
SBI PLR 9.25%

PAY BOI
get from PNB
pay to PNB

repay BOI
5000000
all-in 10.40%

P 80 lakh Q
4 years

vijaya bank OBC

fixed 11.75% fixed
floating rate SBI PLR +2.5% floating rate

spread diferential
FIXED 1% both are diferent as to type of loa
Floating 0.50% sharing is equal

step1 check the quotes and ascertain spread diferential

step2 ask parties whether they are indiferent, if yes, proceed
step3 ascertain comparitive advantage P floating
step4 ask each party to borrow on comparitive advantage
p will boorrow on floating rate SBI PLR + 2.5% q will borrow on fixed rate
 P Q
loan taken -sbiplr+2.5% loan taken -10.75%
get from Q SBIPLR+2.5% get from P 11.50%
pay to Q -11.50% pay to P -sbiplr+2.5%

TOTAL fixed 11.50% floating SBI PLR+1.75%

 11% fixed

w UP THE SWAP FLOWS

jan1 2021 jan1 2022 jan1 2023 jan1 2024 jan1 2025

8.80% 8.00% 7.80% 7.15%

-550000 -550000 -550000 -550000 -550000

545000 545000 545000 545000 545000
-562500 -540000 -500000 -490000 -457500

-5000000
-567500 -545000 -505000 -495000 -5462500

80 lakh
4 years

10.75%
SBI PLR +2%

are diferent as to type of loan

0.24%
0.25%

l borrow on fixed rate 10.75%

X wants a loan of 120 lakh Y also wants a loan of 120 lakhs

X's bankers Axis bank quotes Y's bankerssyndicate bank quotes

fixed 9.80% fixed 11.30%
floating SBIPLR + 1.5% floating SBIPLR + 2%

Kotak mahindra is prepared to be an intermediatery with full guarantee on performance

it wants 0.4% a commission totally
the remaining spread diferential will be shared equally between x and y

draw up a possible swap 1

both borrow on their comparitive advantage and then swap

Y borrow floating as it is "less more"
X Borrows fixed
of 120 lakhs

syndicate bank quotes

SBIPLR + 2%

tee on performance

spread diferential fixed 1.50%

floating 0.50%
net 1%
to be shared by Kotak 0.40%
X 0.30%
Y 0.30%