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OPTIONS
INTRODUCTION TO OPTIONS
An option is a contract written by a seller that conveys to the buyer the right
obligation to buy (in the case of a call option) or to sell (in the case of a put
particular asset, at a particular price (Strike price / Exercise price) in future.
granting the option, the seller collects a pay!ent (the pre!iu!) fro! the buyer
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OPTION TERMINOLOGY Index options: "hese options have the in#ex as the un#erlying.
Stock options: Stock options are options on in#ivi#ual stocks. A stock option
gives the hol#er the right to buy or sell the un#erlying shares at the specifie#
Buyer of an option: "he person who obtains the right to buy or sell but has n
to perfor! is calle# the owner / hol#er of the option. $ne who buys an option
pre!iu! to obtain the right.
Writer / seller of an option: $ne who confers the right an# un#ertake the obl
the hol#er is calle# seller / writer of an option.
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Call option:A right toBUYthe un#erlying asset at pre#eter!ine# price with
interval of ti!e is calle# as %A&& $ption.
Put option:A right toSELLthe un#erlying asset at pre#eter!ine# price with
specifie# interval of ti!e is calle# as '" $ption.
Option price/preiu: $ption price is the price which the option buyer pay
option seller. t is also referre# to as the option pre!iu!.
Expiration date: "he #ate specifie# in the options contract is known as the ex#ate, the exercise #ate, the strike #ate or the !aturity.
Strike price: "he pre#eter!ine# price at the ti!e of buying/writing of an opt
it can be exercise# is calle# the stroke price. t is the price at which the hol#e
option buys/sells the asset.
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!erican options:A!erican options are options that can be exercise# at any
the expiration #ate.
European options:European options are options that can be exercise# only
expiration #ate itself.
In"t#e"oney option:An inthe!oney ("*) option is an option that woul#
positive cashflow to the hol#er if it were exercise# i!!e#iately. A call option
is sai# to be inthe!oney when the current in#ex stan#s at a level higher tha
price $i%e% arket price & strike price'. n the case of a put, the put is "* if t
below the strike price.
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!t"t#e"oney option:An atthe!oney (A"*) option is an option that woul# lea
cashflow if it were exercise# i!!e#iately. An option on the in#ex is atthe!oney
current in#ex euals the strike price $i%e% arket price ( strike price'.
Out"of"t#e"oney option- An outofthe!oney ($"*) option is an option that wa negative cashflow if it were exercise# i!!e#iately. A call option on the in#ex i
!oney when the current in#ex stan#s at a level which is less than the strike price
price ) strike price'. n the case of a put, the put is $"* if the in#ex is above the
Intrinsic *alue of an option- "he intrinsic value of a call is the a!ount the op
if it is "*. f the call is $"*, its intrinsic value is +ero.
+ie *alue of an option: "he ti!e value of an option is the #ifference between it
an# its intrinsic value.
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Moneyness of the Call Option
Three call options A ! " C #ith e$ercise price of Rs %&& Rs %&' " Rs %%& arRs * Rs + " Rs %, respecti-ely #hen the .n(erlyin) stoc/ is tra(in) at Rs %&'
Moneyness of each of the options2
Option A3 S 4 5 6 %&' 4 %&& 6 Positi-e 7In8the89oney :y Rs ';
Option !3 S 4 5 6 %&' 4 %&' 6
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CALL " PUT OPTIONS
!UY CALL MP 6 %&&&
SP 6 %%&&
If % 9onth later
MP 6 %*&& =>%&&?
MP 6 %%&& =&?
MP 6 @&& =not e$ercise?
!UY PUT
MP 6 %&&&
SP 6 @&&
If % 9onth later
MP 6 && =>*&&?
MP 6 @&& =&?
MP 6 %&&& =not e$ercise?
Buyer has the right, Loss of Premium &
No obligation
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SELL CALL
MP 6 %&&&
SP 6 %%&&
Pre9i.9 6 '&
If % 9onth later
MP 6 %*&& =8%&&?
MP 6 %%&& =&?
MP 6 @&& =:.yer #ill not e$ercise? >
Pre9i.9 A9o.nt
SELL PUT
MP 6 %&&&
SP 6 @&&
Pre9i.9 6 '&
If % 9onth later
MP 6 && =8*&&?
MP 6 @&& =&?
MP 6 %%&& =!.yer #ill not e$ercise? > Pre9i.9 A9o.n
,o -i.#ts Preiu 0ill 1e recei*ed O1li.ation if exercised
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OPTIONS PAYOBBSPayoff profile of :.yer of asset3 Lon) asset
An in-estor :.ys the .n(erlyin) asset A!C Lt(0 shares for instance for Rs0 **
it at a f.t.re (ate at an .n/no#n price0 Once it is p.rchase( the in-estor is sai(
the asset0 !elo# sho#s the payoff for a lon) position on A!C Lt(0
The in-estor :o.)ht A!C Lt(0 at Rs0 ***&0
If the share price )oes .p he profits0
If the share price falls he loses0
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Payoff profile for seller of asset3 Short asset
An in-estor shorts the .n(erlyin) asset A!C Lt(0 shares for instance for Rs0 *
:.ys it :ac/ at a f.t.re (ate at an .n/no#n price0 Once it is sol( the in-estor i
short the asset0 !elo# sho#s the payoff for a short position on A!C Lt(00
The in-estor sol( A!C Lt(0 at Rs0 ***&0
If the share price falls he profits0
If the share price rises he loses0
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Payoff profile for :.yer of call options3 Lon) call
A call option gives the buyer the right to buy the un#erlying asset at the stri
specifie# in the option.
The profitloss that the :.yer 9a/es on the option (epen(s on the 9ar/et price
.n(erlyin)0 If .pon e$piration the 9ar/et price e$cee(s the stri/e price he 9a
i)her the 9ar/et price 9ore is the profit he 9a/es0 If the 9ar/et price of the
less than the stri/e price he lets his option e$pire .n8e$ercise(0 is loss in this
pre9i.9 he pai( for :.yin) the option0 !elo# )i-es the payoff for the :.yer o
9onth call option 7often referre( to as lon) call; #ith a stri/e of **'& :o.)ht a
of +F0F&0
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Payoff for :.yer of call option
The fi).re sho#s the profitslosses for the :.yer of a three89onth Nifty **'& call optio
seen as the spot Nifty rises the call option is in8the89oney0 If .pon e$piration Nifty c
the stri/e of **'& the :.yer #o.l( e$ercise his option an( profit to the e$tent of the (
:et#een the Nifty8close an( the stri/e price0 The profits possi:le on this option are pot
.nli9ite(0 o#e-er if Nifty falls :elo# the stri/e of **'& he lets the option e$pire0 i
li9ite( to the e$tent of the pre9i.9 he pai( for :.yin) the option0
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Payoff profile for #riter 7seller; of call options3 Short call
A call option gives the buyer the right to buy the un#erlying asset at the strike
specifie# in the option.
Bor sellin) the option the #riter of the option char)es a pre9i.90 The profitloss
:.yer 9a/es on the option (epen(s on the 9ar/et price of the .n(erlyin)0 1
:.yers profit is the sellers loss0 If .pon e$piration the 9ar/et price e$cee(s the st
:.yer #ill e$ercise the option on the #riter0 ence as the 9ar/et price increases th
the option starts 9a/in) losses0 i)her the 9ar/et price 9ore is the loss he 9a/es
e$piration the 9ar/et price of the .n(erlyin) is less than the stri/e price the :.yer
option e$pire .n8e$ercise( an( the #riter )ets to /eep the pre9i.90 !elo# )i-es th
the #riter of a three 9onth call option 7often referre( to as short call; #ith a stri/e
at a pre9i.9 of +F0F&0
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Payoff for #riter of call option
The fi).re sho#s the profitslosses for the seller of a three89onth Nifty **'& call optio
Nifty rises the call option is in8the89oney an( the #riter starts 9a/in) losses0 If .pon
Nifty closes a:o-e the stri/e of **'& the :.yer #o.l( e$ercise his option on the #rite
s.ffer a loss to the e$tent of the (ifference :et#een the Nifty8close an( the stri/e price
can :e inc.rre( :y the #riter of the option is potentially .nli9ite( #hereas the 9a$i9
li9ite( to the e$tent of the .p8front option pre9i.9 of Rs0+F0F& char)e( :y hi90
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Payoff profile for :.yer of p.t options3 Lon) p.t
A put option gives the buyer the right to sell the un#erlying asset at the strike p
in the option.
The profitloss that the :.yer 9a/es on the option (epen(s on the 9ar/et price
.n(erlyin)0 If .pon e$piration the 9ar/et price is :elo# the stri/e price he 9a
Lo#er the 9ar/et price 9ore is the profit he 9a/es0 If the 9ar/et price of the .
hi)her than the stri/e price he lets his option e$pire .n8e$ercise(0 is loss in th
pre9i.9 he pai( for :.yin) the option0 !elo# )i-es the payoff for the :.yer o
9onth p.t option 7often referre( to as lon) p.t; #ith a stri/e of **'& :o.)ht at
of F%0&0
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Payoff for :.yer of p.t option
The fi).re sho#s the profitslosses for the :.yer of a three89onth Nifty **'& p.t optio
seen as the spot Nifty falls the p.t option is in8the89oney0 If .pon e$piration Nifty cl
the stri/e of **'& the :.yer #o.l( e$ercise his option an( profit to the e$tent of the (i
:et#een the stri/e price an( Nifty8close0 The profits possi:le on this option can :e as h
stri/e price0 o#e-er if Nifty rises a:o-e the stri/e of **'& he lets the option e$pire0
li9ite( to the e$tent of the pre9i.9 he pai( for :.yin) the option0
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Payoff profile for #riter 7seller; of p.t options3 Short p.t
A put option gives the buyer the right to sell the un#erlying asset at the strike pr
in the option.
Bor sellin) the option the #riter of the option char)es a pre9i.90 The profitloss
:.yer 9a/es on the option (epen(s on the 9ar/et price of the .n(erlyin)0 1hate
:.yers profit is the sellers loss0 If .pon e$piration the 9ar/et price happens to :
stri/e price the :.yer #ill e$ercise the option on the #riter0 If .pon e$piration th
of the .n(erlyin) is 9ore than the stri/e price the :.yer lets his option .n8e$erci
#riter )ets to /eep the pre9i.90 !elo# )i-es the payoff for the #riter of a three
option 7often referre( to as short p.t; #ith a stri/e of **'& sol( at a pre9i.9 of F
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Payoff for #riter of p.t option
The fi).re sho#s the profitslosses for the seller of a three89onth Nifty **'& p.t option
Nifty falls the p.t option is in8the89oney an( the #riter starts 9a/in) losses0 If .pon e
Nifty closes :elo# the stri/e of **'& the :.yer #o.l( e$ercise his option on the #rite
s.ffer a loss to the e$tent of the (ifference :et#een the stri/e price an( Nifty8 close0 Th
:e inc.rre( :y the #riter of the option is a 9a$i9.9 e$tent of the stri/e price 7Since th
can happen is that the asset price can fall to Hero; #hereas the 9a$i9.9 profit is li9ite
e$tent of the .p8front option pre9i.9 of Rs0F%0& char)e(
:y hi90
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STRATEGY % 3 LONG CALL
When to Use: In-estor is -ery bullish on the stoc/ in(e$0
Risk: Li9ite( to the Pre9i.90
Reward: Unli9ite(
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Mr0 5Y< is :.llish on Nifty on *,th .ne #hen the Nifty is at ,%@%0%&0 e :.
option #ith a stri/e price of Rs0 ,F&& at a pre9i.9 of Rs0 JF0J' e$pirin) on
If the Nifty )oes a:o-e ,FJF0J' Mr0 5Y< #ill 9a/e a net profit 7after
the pre9i.9; on e$ercisin) the option0 In case the Nifty stays at or falls :elo#
can fore)o the option 7it #ill e$pire #orthless; #ith a 9a$i9.9 loss of the pre
Current Nifty
Index
4191.10
Call Option Strike Price (Rs) 4600
Mr. XYZ Pays Premium (Rs) 6.!
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Payoff Sche(.le
On expiry Nifty
closes at
Net Payoff from
Call
Option (Rs.)
4100.00 !".!#
4!00.00 !".!#
4#00.00 !".!#
4"!".!# 04$00.00 "!."#
4900.00 %"!."#
#100.00 4"!."#
#!00.00 ""!."#
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STRATEGY * 3 SORT CALL
When to use: In-estor is -ery a))ressi-e an( he is very bearish a:o.t the
in(e$0
Risk: Unli9ite(
Reward: Li9ite( to the a9o.nt of pre9i.9
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Mr0 5Y< is :earish a:o.t Nifty an( e$pects it to fall0 e sells a Call option #it
price of Rs0 *F&& at a pre9i.9 of Rs0 %', #hen the c.rrent Nifty is at *F@,0 If
stays at *F&& or :elo# the Call option #ill not :e e$ercise( :y the :.yer of the
Mr0 5Y< can retain the entire pre9i.9 of Rs0 %',0
Strate)y 3 Sell Call Option
C.rrent Nifty in(e$ *F@,
Call Option Stri/e Price 7Rs0; *F&&
Mr0 5Y< recei-es Pre9i.9 7Rs0; %',
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Payoff Sche(.le
On expiry
Nifty closes at
Net Payoff from the Call
Options Rs!"
#$%% &'$
#'%% &'$
#(%% &'$
#)%% '$
#)'$ %
#*%% +$(
#,%% +&$(
-%%% +#$(
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STRATEGY J 3 SYNTETIC LONG CALL3 !UY STOCK !U
When to use: 1hen o#nership is (esire( of stoc/ yet in-estor is conce
near8ter9 (o#nsi(e ris/0 The o.tloo/ is conservatively bullish!
Risk: Losses li9ite( to Stoc/ price > P.t Pre9i.9 4 P.t Stri/e price
Reward: Profit potential is .nli9ite(0
M 5Y< i : lli h : t A!C Lt( t / : A!C Lt( t t / t
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Mr0 5Y< is :.llish a:o.t A!C Lt( stoc/0 e :.ys A!C Lt(0 at c.rrent 9ar/et
,&&& on ,th .ly0 To protect a)ainst fall in the price of A!C Lt(0 7his ris/; he :
Lt(0 P.t option #ith a stri/e price Rs0 J@&& 7OTM; at a pre9i.9 of Rs0 %,J0+&
J %st .ly0
.trate/y : 0uy .tock 1 0uy Put Option
0uy .tock 2r! 345
pays"
C.rrent Mar/et Price of A!C Lt(0
7Rs0;
$%%
Stri/e Price 7Rs0; -,%
0uy Put 2r! 345
pays"
Premium Rs!"
&$-!
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Payoff Sche(.le
&'C td.
closes at
(Rs.) on
expiry
Payoff from
te
*toc+ (Rs.)
Net Payoff from
te
Put Option
(Rs.)
Net
Payo,
(Rs.)
!400.00 "600.00 !6.#0 %4!.-
!"00.00 "400.00 $!6.#0 %4!.-
!-00.00 "#00.00 "4.%0 %4!.-
4000.00 0 "$4.%0 14!.-414!.-0 $4.%0 "$4.%0 0
4%00.00 #00.00 "$4.%0 #".%0
4400.00 400.00 "$4.%0 %#".%
4"00.00 600.00 "$4.%0 4#".%
4-00.00 -00.00 14!.-0 "#".%
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STRATEGY , 3 LONG PUT
When to use: In-estor is :earish a:o.t the stoc/ in(e$0
Risk: Li9ite( to the a9o.nt of Pre9i.9 pai(0
Reward: Unli9ite(
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Mr0 5Y< is :earish on Nifty on *,th .ne #hen the Nifty is at *F@,0 e :.
option #ith a stri/e price Rs0 *F&& at a pre9i.9 of Rs0 '* e$pirin) on J%st .
Nifty )oes :elo# *',+ Mr0 5Y< #ill 9a/e a profit on e$ercisin) the option0
Nifty rises a:o-e *F&& he can fore)o the option 7it #ill e$pire #orthless; #ith
loss of the pre9i.90
*tratey / 'uy Put Option
Current &i'ty ine %"94
Put Option Strike Price (Rs.) %"00
r. 23 Pays Premium (Rs.) #%
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Payoff Sche(.le
On expiry Niftycloses at
Net Payoff from
Put Option (Rs.)
%!00 %4-%400 14-
%#00 4-
%#4- 0
%"00 #%
%$00 #%
%-00 #%%900 #%
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STRATEGY ' 3 SORT PUT
When to Use: In-estor is -ery 0ullish on the stoc/ in(e$0 The 9ain i(ea is
short ter9 inco9e0
Risk: P.t Stri/e Price 4 P.t Pre9i.90
Reward: Li9ite( to the a9o.nt of Pre9i.9 recei-e(0
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Mr0 5Y< is :.llish on Nifty #hen it is at ,%@%0%&0 e sells a P.t option #ith a
of Rs0 ,%&& at a pre9i.9 of Rs0 %&0'& e$pirin) on J%st .ly0 If the Nifty in
a:o-e ,%&& he #ill )ain the a9o.nt of pre9i.9 as the P.t :.yer #ont e$erc
option0 In case the Nifty falls :elo# ,%&& P.t :.yer #ill e$ercise the option5Y< #ill start losin) 9oney0 If the Nifty falls :elo# J@*@0'& #hich
:rea/e-en point Mr0 5Y< #ill lose the pre9i.9 an( 9ore (epen(in) on the
fall in Nifty0*tratey / *ell Put Option
Current &i'ty ine 4191.1
0
Put Option Strike Price (Rs.) 4100
r. 23
recei5es
Premium (Rs.) 1$0.#
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Payoff Sche(.le
On expiry Nifty
Closes at
Net Payo, from te
Put Option (Rs.)
!400.00 #%9.#0
!#00.00 4%9.#0
!$00.00 %%9.#0
!900.00 %9.#0
!9%9.#0 0
4100.00 1$0.#0
4!00.00 1$0.#0
4#00.00 1$0.#0
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STRATEGY F 3 COERED CAL
When to Use: This is often e9ploye( #hen an in-estor has a short+term
moderately bullish -ie# on the stoc/ he hol(s0
Risk: If the Stoc/ Price falls to Hero the in-estor loses the entire -al.e of
:.t retains the pre9i.9 since the Call #ill not :e e$ercise( a)ainst hi90
Reward: Li9ite( to 7Call Stri/e Price 4 Stoc/ Price pai(; > Pre9i.9 rec
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Mr0 A :o.)ht 5Y< Lt(0 for Rs J+'& an( si9.ltaneo.sly sells a Call option at an
of Rs ,&&&0 1hich 9eans Mr0 A (oes not thin/ that the price of 5Y< Lt(0 #ill r
Rs0 ,&&&0 o#e-er incase it rises a:o-e Rs0 ,&&& Mr0 A (oes not 9in( )ettin)
that price an( e$itin) the stoc/ at Rs0 ,&&& 7TARGET SELL PRICE 6 J0@& restoc/ p.rchase price;0 Mr0 A recei-es a pre9i.9 of Rs +& for sellin) the Ca
o.tflo# to Mr0 A is 7Rs0 J+'& 4 Rs0 +&; 6 Rs0 J&0 e re(.ces the cost of :.y
:y this strate)y0
If the stoc/ price stays at or :elo# Rs0 ,&&& the Call option #ill not )et e$erciscan retain the Rs0 +& pre9i.9 #hich is an e$tra inco9e0
If the stoc/ price )oes a:o-e Rs ,&&& the Call option #ill )et e$ercise(
:.yer0
.trate/y : 0uy .tock 1 .ell Call Option
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2r! 6 buys the stock 345
7td!
Mar/et Price 7Rs0; -*'%
Call Options Stri/e Price 7Rs0; $%%%
2r! 6 receives Premium Rs!" *%
345 7td! price closes at
Rs!"
Net Payoff
Rs!"
-(%% +&)%
-)%% +)%
-)$% +-%
-))% %
-*%% -%
-,%% &-%
$%%% #-%
$&%% #-%
$#%% #-%
STRATEGY 3 LONG COM!O 3 SELL A PUT
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STRATEGY 3 LONG COM!O 3 SELL A PUT
CALL
When to Use: In-estor is 0ullish on the stoc/0
Risk: Unli9ite(
Reward: Unli9ite(
A stoc/ A!C Lt(0 is tra(in) at Rs0 ,'&0 Mr0 5Y< is :.llish on the stoc/0
not #ant to in-est Rs0 ,'&0 e (oes a Lon) Co9:o0 e sells a P.t option #ith
Rs0 ,&& at a pre9i.9 of Rs0 %0&& an( :.ys a Call Option #ith a stri/e price of R
pre9i.9 of Rs0 *0 The net cost of the strate)y 7net (e:it; is Rs0 %0
*tratey / *ell a Put 6 'uy a CallC d C k i 0
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&'C td. Current Market Price
(Rs.)
4#0
*ells Put Strike Price (Rs.) 400r. 23
recei5es
Premium (Rs.) 1.00
'uys Call Strike Price (Rs.) #00r. 23
pays
Premium (Rs.) %.00
Net 7e8it (Rs.) 1.00
Payoff Sche(.le
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Payoff Sche(.le
60C 7td! closes at
Rs!"
Net Payoff from
the Put .old
Rs!"
Net Payoff from the
Call purchased
Rs!"
Net Pa
Rs
)%% % %@+ &,,('% % %,+ &$,
(%% % @+ ,,
''% % ,+ $,
'%& % 8% %
'%% % 8* +&
$'% % 8* +&
$%% % 8* +&
-'% 8,@ 8* +'&
-%% 8@@ 8* +&%&
#'% +&$, +# +&'&
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STRATEGY + 3 PROTECTIE CALL SYNTETIC LONG PUT
When to Use: If the in-estor is of the -ie# that the 9ar/ets #ill )o (o#n b
#ants to protect a)ainst any .ne$pecte( rise in the price of the stoc/0
Risk: Li9ite(0
Reward: Ma$i9.9 is Stoc/ Price 4 Call Pre9i.9
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*tratey / *ort *toc+ 6 'uy CallOption
*ells *toc+
(r. &
recei5es)
Current Market
Price (Rs.)
44#$
'uys Call Strike Price (Rs.) 4#00r. & pays Premium (Rs.) 100
S.ppose A!C Lt(0 is tra(in) at Rs0 ,,' in .ne0 An in-estor Mr0 A :.y
,'&& call for Rs0 %&& #hile shortin) the stoc/ at Rs0 ,,'0
Payoff Sche(.le
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Payoff Sche(.le60C 7td! closes at
Rs!"
Payoff from the
stock Rs!"
Net Payoff from
the Call Option
Rs!"
Net Payoff
Rs!"
$&%% J' 8%&& #')
$&'% J& 8%&& #%)
$#%% *' 8%&& &')
$-%% %' 8%&& ')
$-'% %& 8%&& )
$-') %&& 8%&& %
$$%% ' 8%&& +$-
$$') & 8%&& +&%%
$(%% 8%,J & +&$-
$)%% 8*,J %&& +&$-
$*%% 8J,J *&& +&$-
$,%% 8,,J J&& +&$-
+ +
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STRATEGY @ 3 COERED PUT
When to Use: If the in-estor is of the -ie# that the 9ar/ets are moderately
Risk: Unli9ite( if the price of the stoc/ rises s.:stantially
Reward: Ma$i9.9
S.ppose A!C Lt( is tra(in) at Rs ,'&& in .ne An in-estor Mr A shorts R
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S.ppose A!C Lt(0 is tra(in) at Rs ,'&& in .ne0 An in-estor Mr0 A shorts R
sellin) a .ly P.t for Rs0 *, #hile shortin) an A!C Lt(0 stoc/0
.trate/y : .hort .tock 1 .hort Put Option
.ells .tock 2r!
6 receives"
C.rrent Mar/et
Price 7Rs0;
$'%%
.ells Put Stri/e Price 7Rs0; $-%%
2r! 6 receives Premium Rs!" #$
P ff S h ( l
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Payoff Sche(.le
&'C td.
closes at
(Rs.)
Payoff
from te
stoc+ (Rs.)
Net Payo,
from te
Put Option
(Rs.)
Net Payo,
(Rs.)
4000 !00 "#*6 %%4
4100 400 "$*6 %%4
4%00 00 "*6 %%4
4!00 #00 #4 %%4
4400 $00 #4 1%4
44#0 !0 #4 $4
4#00 0 #4 %4
4#%4 "#4 #4 0
4##0 "!0 #4 %"
4"00 "$00 #4 $"
4"!# "$! #4 111
4"#0 1"0 %4 1!"
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STRATEGY %& 3 LONG STRADDLE
When to Use: The in-estor thin/s that the .n(erlyin) stoc/ in(e$ #ill e$pe
si/nificant volatility in the near ter90
Risk: Li9ite( to the initial pre9i.9 pai(0
Reward: Unli9ite(
S.ppose Nifty is at ,,'& on *th April0 An in-estor Mr0 A enters a lon) s
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pp y p )
:.yin) a May Rs ,'&& Nifty P.t for Rs0 +' an( a May Rs0 ,'&& Nifty Call for
net (e:it ta/en to enter the tra(e is Rs *& #hich is also his 9a$i9.9 possi:le
*tratey / 'uy Put 6 'uy CallNifty index Current +alue 44#0Call and Put Strike Price
(Rs.)
4#00
r. & pays otal
Premium(Call 6 Put)
(Rs.)
%0$
Payoff Sche(.le
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On expiryNifty closes at
Net Payoff from Putpurcased (Rs.)
Net Payoff from Callpurcased (Rs.)
Net Pa(Rs.
!-00 6$! "$## 49!
!900 !$! "$## !9!4000 4$! "$## %9!
4100 $! "$## 19!4%00 #$! "$## 9!4%!4 $%$ "$## #94%9! $## "$## 04!00 $$! "$## $4400 $! "$## 10$4#00 "%! "$## %0$4"00 "%! "## 10$4$00 "%! *% $4$0$ "%! %! 04$"" "%! $44 #94-00 "%! $*% 9!4900 "%! #*% 19!#000 "%! *% %9!#100 "%! 4*% !9!#%00 "%! !*% 49!#!00 -# "$- #9!
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STRATEGY %% 3 SORT STRADDL
When to Use: The in-estor thin/s that the .n(erlyin) stoc/ in(e$ #ill e$pe
little volatility in the near ter90
Risk: Unli9ite(
Reward: Li9ite( to the pre9i.9 recei-e(
S.ppose Nifty is at ,,'& on *th April0 An in-estor Mr0 A enters into a short s
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sellin) a May Rs ,'&& Nifty P.t for Rs0 +' an( a May Rs0 ,'&& Nifty Call for R
net cre(it recei-e( is Rs0 *& #hich is also his 9a$i9.9 possi:le profit0
.trate/y : .ell Put 1 .ell Call
Nifty index C.rrent al.e $$'%
Call and Put Stri/e Price 7Rs0; $'%%
2r! 6 receives 8otal PremiumCall 1 Put" Rs!"
#%)
Payoff Sche(.le
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On expiry Nifty closes at Net Payoff from Put
.old Rs!"
Net Payoff from Call
.old Rs!"
Net Payoff
Rs!"
-*%% 8F%' %** +$,-
-,%% 8'%' %** +-,-
$%%% 8,%' %** +#,-
$&%% 8J%' %** +&,-
$#%% 8*%' %** +,-
$#-$ 8%+% %** +',
$#,- 8%** %** %
$-%% 8%%' %** )
$$%% 8%' %** &%)
$'%% +' %** #%)
$(%% +' ** &%)
$)%% +' 8+ )
$)%) +' 8+' %
$)(( +' 8%,, +',
$*%% +' 8%+ +,-
$,%% +' 8*+ +&,-
'%%% +' 8J+ +#,-
STRATEGY %* LONG STRANGLE
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STRATEGY %* 3 LONG STRANGLE
When to Use: The in-estor thin/s that the .n(erlyin) stoc/ in(e$ #ill e$
very hi/h levels of volatility in the near ter90
Risk: Li9ite( to the initial pre9i.9 pai(
Reward: Unli9ite(
S.ppose Nifty is at ,'&& in May0 An in-estor Mr0 A e$ec.tes a Lon) Stran)le
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Rs0 ,J&& Nifty P.t for a pre9i.9 of Rs0 *J an( a Rs ,&& Nifty Call for Rs ,J
(e:it ta/en to enter the tra(e is Rs0 FF #hich is also his 9a$i 9.9 possi:le los
*tratey / 'uy O Put 6 'uy
O CallNifty index Current +alue 4#0
0'uy Call
Option
Strike Price (Rs.) 4$0
0r. & pays Premium (Rs.) 4!'uy Put
Option
Strike Price (Rs.) 4!0
0r. & pays Premium (Rs.) %!
Payoff Sche(.le
On expiry Net Payoff from Put Net Payoff from Call Net Payoff
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Nifty closes at purchased Rs!" purchased Rs!" Rs!"
-*%% , 8,J $-$
-,%% J 8,J --$
$%%% * 8,J #-$
$&%% % 8,J &-$
$#%% 8,J -$
$#-$ ,J 8,J %
$-%% 8*J 8,J +((
$$%% 8*J 8,J +((
$'%% 8*J 8,J +((
$(%% 8*J 8,J +((
$)%% 8*J 8,J +((
$)(( 8*J *J %
$*%% 8*J ' -$
$,%% 8*J %' &-$
'%%% 8*J *' #-$
'&%% 8*J J' --$
'#%% 8*J ,' $-$
'-%% +#- '') '-$
STRATEGY %J SORT STRANGL
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STRATEGY %J0 SORT STRANGL
When to Use: This options tra(in) strate)y is ta/en #hen the options in-esto
the .n(erlyin) stoc/ #ill e$perience little volatility in the near ter90
Risk: Unli9ite(
Reward: Li9ite( to the pre9i.9 recei-e(
S.ppose Nifty is at ,'&& in May0 An in-estor Mr0 A e$ec.tes a Short Stra
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sellin) a Rs0 ,J&& Nifty P.t for a pre9i.9 of Rs0 *J an( a Rs0 ,&& Nifty Call
The net cre(it is Rs0 FF #hich is also his 9a$i9.9 possi:le )ain0
.trate/y : .ell O82 Put 1 .ell O82 Call
Nifty index C.rrent al.e $'%%
.ell Call Option Stri/e Price 7Rs0; $)%%
2r! 6 receives Pre9i.9 7Rs0; $-
.ell Put Option Stri/e Price 7Rs0; $-%%
2r! 6 receives Premium Rs!" #-
Payoff Sche(.le
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On expiry Nifty
closes at
Net Payoff from
Put sold Rs!"
Net Payoff from Call
sold Rs!"
Net Payoff
Rs!"
-*%% 8, ,J +$-$
-,%% 8J ,J +--$
$%%% 8* ,J +#-$$&%% 8% ,J +&-$
$#%% 8 ,J +-$
$#-$ 8,J ,J %
$-%% *J ,J ((
$$%% *J ,J ((
$'%% *J ,J ((
$(%% *J ,J ((
$)%% *J ,J ((
$)(( *J 8*J %
$*%% *J 8' +-$
$,%% *J 8%' +&-$
'%%% *J 8*' +#-$
'&%% *J 8J' +--$
'#%% *J 8,' +$-$
+ +
STRATEGY %, COLLAR
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STRATEGY %,0 COLLAR
When to Use: The collar is a )oo( strate)y to .se if the in-estor is #ritin
calls to earn pre9i.9s :.t #ishes to protect hi9self fro9 an .ne$pecte(in the price of the .n(erlyin) sec.rity0
Risk: Li9ite(
Reward: Li9ite(
S.ppose an in-estor Mr0 A :.ys or is hol(in) A!C Lt(0 c.rrently tra(in) at Rs
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(eci(es to esta:lish a collar :y #ritin) a Call of stri/e price Rs0 '&&& for Rs0
si9.ltaneo.sly p.rchasin) a Rs0 ,&& stri/e price P.t for Rs0 *0 Since he pays
the stoc/ A!C Lt(0 another Rs0 * for the P.t :.t recei-es Rs0 J@ for sellin) th
option his total in-est9ent is Rs0 ,,F0
.trate/y : 0uy .tock 1 0uy Put 1 .ell Call
60C 7td! C.rrent Mar/et Price
7Rs0;
$)'*
.ell Call Option Stri/e Price 7Rs0; '%%%
2r! 6 Receives Pre9i.9 7Rs0; -,
0uy Put Option Stri/e Price 7Rs0; $)%%
2r! 6 Pays Pre9i.9 7Rs0; #)
Net Premium
ReceivedRs!"
Payoff .chedule
60C 7td! closes at Payoff fro9 Call Payoff fro9 P.t Payoff fro9 stoc/ Net p
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Rs!" Sol( 7Rs0; P.rchase( 7Rs0; A!C Lt(0 Rs
$$%% J@ *J 8J'+ +$
$$'% J@ **J 8J&+ +$
$'%% J@ %J 8*'+ +$
$(%% J@ J 8%'+ +$
$)%% J@ 8* 8'+ +$
$)'% J@ 8* 8+ $
$*%% J@ 8* ,* '$
$*'% J@ 8* @* &%
$*'* J@ 8* %&& &&
$,%% J@ 8* %,* &'
$,$* J@ 8* %@& #%
'%%% J@ 8* *,* #'
'%'% 8%% 8* *@* #'
'&%% 8F% 8* J,* #'
'&'% 8%%% 8* J@* #'
'#%% 8%F% 8* ,,* #'
'#$* 8*&@ 8* ,@& #'
'#'% 8*%% 8* ,@* #'
'-%% +#(& +#) '$# #'
STRATEGY %'0 !ULL CALL SPREAD STRATEGY
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CALL OPTION SELL CALL OPTION
When to Use: In-estor is moderately bullish!
Risk: Li9ite( to any initial pre9i.9 pai( in esta:lishin) the position0 Ma$i9
occ.rs #here the .n(erlyin) falls to the le-el of the lo#er stri/e or :elo#0
Reward: Li9ite( to the (ifference :et#een the t#o stri/es 9in.s net pre9
Ma$i9.9 profit occ.rs #here the .n(erlyin) rises to the le-el of the hi)her
a:o-e0
Mr0 5Y< :.ys a Nifty Call #ith a Stri/e price Rs0 ,%&& at a pre9i.9 of Rs0 %
ll Nift C ll ti ith t i/ i R ,,&& t i f R J' ,&
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sells a Nifty Call option #ith a stri/e price Rs0 ,,&& at a pre9i.9 of Rs0 J'0,&
(e:it here is Rs0 %J'0&' #hich is also his 9a$i9.9 loss0
*tratey / 'uy a Call :it a lo:er stri+e(I) 6 *ell a Call :it a ier stri+e
(O)Nifty index Current +alue 4191.10'uy I Call
Option
Strike Price (Rs.) 4100
r. 23
Pays
Premium (Rs.) 1$0.4#
*ell O
Call
Option
Strike Price (Rs.) 4400
r. 23Recei5es
Premium (Rs.) !#.40
Net Premium
Paid
1!#.0#
Payoff Sche(.le
On expiry NiftyCloses at
Net Payoff from Call
' (R )
Net Payoff from
C ll * ld (R )
Net
(
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Closes at 'uy (Rs.) Call *old (Rs.) (
!#00.00 "$*0.4! !.40
!"00.00 "$*0.4! !.40
!$00.00 "$*0.4! !.40
!-00.00 "$*0.4! !.40
!900.00 "$*0.4! !.40
4000.00 "$*0.4! !.40
4100.00 "$*0.4! !.40
4%00.00 "*0.4! !.40
4%!#.0# "!.40 !.40
4!00.00 #,.!! !.40 "
4400.00 $#,.!! !.40
4#00.00 ##,.!! "64.60
4"00.00 #,.!! "$64.60
4$00.00 4#,.!! "#64.60
4-00.00 !#,.!! "64.60
4900.00 6#,.!! "464.60
#000.00 *#,.!! "!64.60
#100.00 %#,. !! "664.60
#%00.00 9%9.## $"4."0
STRATEGY %F0 !ULL PUT SPREAD STRAT
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SELL PUT OPTION !UY PUT OPTION
When to Use: 1hen the in-estor is moderately bullish!
Risk: Li9ite(0 Ma$i9.9 loss occ.rs #here the .n(erlyin) falls to the le-e
stri/e or :elo#
Reward: Li9ite( to the net pre9i.9 cre(it0 Ma$i9.9 profit occ.rs #here
rises to the le-el of the hi)her stri/e or a:o-e0
Mr0 5Y< sells a Nifty P.t option #ith a stri/e pric e of Rs0 ,&&& at a pre9
*% ,' an( :.ys a f.rther OTM Nifty P.t option #ith a stri/e price Rs J+&&
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*%0,' an( :.ys a f.rther OTM Nifty P.t option #ith a stri/e price Rs0 J+&&
pre9i.9 of Rs0 J0&& #hen the c.rrent Nifty is at ,%@%0%& #ith :oth op
e$pirin) on J%st .ly0
.trate/y : .ell a Put 1 0uy a Put
Nifty 9ndex C.rrent al.e $&,&!&%
.ell Put Option Stri/e Price 7Rs0; $%%%
2r! 345
Receives
Pre9i.9 7Rs0; #&!$'
0uy Put Option Stri/e Price 7Rs0; -*%%
2r! 345 Pays Pre9i.9 7Rs0; -!%%
Net Premium
Received Rs!"
&*!$'
Payoff Sche(.le
On expiry Nifty Net Payoff from Put Net Payoff from
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Closes at 'uy (Rs.) Put *old (Rs.)
!#00.00 #,*.00 "4*%.!!
!"00.00 $,*.00 "*%.!!
!$00.00 ,*.00 "#*%.!!
!-00.00 ".00 "$*%.!!
!900.00 ".00 "*%.!!
!9-1.## ".00 .00
4000.00 ".00 #$.4!
4100.00 ".00 #$.4!
4%00.00 ".00 #$.4!
4!00.00 ".00 #$.4!4400.00 ".00 #$.4!
4#00.00 ".00 #$.4!
4"00.00 ".00 #$.4!
4$00.00 ".00 #$.4!
4-00.00 !.00 %1.4#