Empirical Study of Yield Enhancement using Call Options

Done under Prof A. K. Vaish

For the partial fulfillment of the course

Financial Engineering

Shubham Dubey

2007B5C7868P
Theory:

The study uses the fact that the time value of options is greatest for the at-the-money options.
Therefore we will sell those options to realize this benefit. Whenever the price changes so that the at-
the-money call option now would be at different strike price, we will cover the previous position and
take new short position in the new call. This way again we will get the time value which is highest as
compared to other call options. Next two pages contains this study for the months of January 2011 and
February 2011.
January 2011

DATE STER CE 190 CE 180 CE 170 RECEIVED PAID

1/3/2011 192.25 9.10 17.00 19.90 9.10

1/4/2011 193.90 9.45 18.00 27.00

1/5/2011 191.05 7.75 15.00 23.50

1/6/2011 183.60 4.65 9.20 15.00 9.20 (4.65)

1/7/2011 176.15 2.65 5.65 9.50

1/10/2011 171.35 1.75 3.65 7.55 7.55 (3.65)

1/11/2011 170.95 1.40 3.50 6.85

1/12/2011 183.05 3.30 7.70 15.15 7.70 (15.15)

1/13/2011 183.10 3.15 7.50 16.10

1/14/2011 177.40 1.65 4.10 10.40

1/17/2011 169.75 0.60 1.55 4.85 4.85 (1.55)

1/18/2011 177.35 1.05 3.20 9.30 3.20 (9.30)

1/19/2011 182.15 1.80 5.90 13.00

1/20/2011 180.70 1.05 4.20 11.70

1/21/2011 177.40 0.40 2.20 8.00

1/24/2011 178.25 0.35 2.20 8.75

1/25/2011 179.05 0.30 2.75 9.15

1/27/2011 169.40 0.05 0.05 0.05 (0.05)

41.60 (34.35)

TOTAL 7.25
February 2011

DATE STER CE 160 CE 170 REC PAID

2/1/2011 165.00 10.10 5.00 10.10

2/2/2011 168.50 12.15 6.00 6.00 (12.15)

2/3/2011 171.60 15.00 7.50

2/4/2011 168.30 11.55 5.50

2/7/2011 169.40 13.00 6.10

2/8/2011 165.00 9.00 3.80 9.00 (3.80)

2/9/2011 159.50 5.45 2.20

2/10/2011 155.75 4.15 1.55

2/11/2011 160.80 6.15 2.25

2/14/2011 164.35 7.90 2.85

2/15/2011 163.50 6.75 2.25

2/16/2011 163.65 6.95 2.05

2/17/2011 163.85 6.50 1.65

2/18/2011 160.35 3.50 0.65

2/21/2011 165.95 6.25 1.15 1.15 (6.25)

2/22/2011 167.85 8.10 1.50

2/23/2011 169.45 9.00 1.30

2/24/2011 163.15 2.20 0.05 (0.05)

26.25 (22.25)

TOTAL 4.00
Conclusion

Yield is enhanced. Total is positive in both the cases.