Calculation of the Value of NIFTY Future

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=

alculation of the Value of NIFTY Future

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

Options trading strategies

Spread Bull Call Spread(Bullish market view) Bear Call Spread(Bearish market view) Straddle

Strangle

Butterfly spread

Note
Spread cost = Cost of Strategy=

Options trading strategies

Involves taking a position in two or more options of the same type. Buy a call on a stock sell call on the same stock with a higher strike price Buy a call on a stock with higher strike price, sell call on the same stock with a lower strike price A straddle involves buying a call and a put The call and put have the same strike price and date of expiry A strangle involves buying a call and put The call and put have different strike prices but the same date of expiry 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

Note
difference in premium paid sum of premiums paid ~ premium received

Bull call spread

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 740 760 800 840 880 900 920 Values 780 38.2 840 880 0.35 840 -37.85 Payoff long call@780 0 0 0 60 100 120 140 Payoff short call@880 0 0 0 0 0 -20 -40 Net payoff -37.85 -37.85 -37.85 22.15 62.15 62.15 62.15

Buy call @780 strike price and sell call @880

Bull Call Spread

Stock price
60 40 20 0 -20 -40 -60 Stock Price 740 760 800 840 80

740 760 800 840 880 880 900 920

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

Values 780 38.2 840 880 0.35 840

60

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

40 20 0 -20 -40 -60 -80

Stock price 740 740 760 800 840 880 900

Bear Call Spread(Bearish market view)

Bear Call Spread

Net payoff 37.85 760 37.85 800 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

Values 820 9.3 840

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

60.7 40.7 0.7 -19.3 0.7 40.7 60.7

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

Values 820 9.3 840

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

66.7 46.7 6.7 -13.3 -13.3 26.7 46.7

50 40 30 20 10 0 -10 -20 740 760

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

820 9.3 840 840 3 840 860 1.3 840

Buy a call @820 Buy a call @860 Sell 2 calls @840

Cost of the strategy

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

-4.6 -4.6 -4.6 -4.6 15.4 -4.6 -4.6 -4.6

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

Using various strategies find out the pay off at 800,810,820,830,840

he pay off at 800,810,820,830,840,850,860,870,880

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