Report
On

Options Trading
Strategies

Course: Investment Management Lab Course

Facilitators: Prof. Hanish Rajpal
Prof. J Singh Matharu

Submitted by, Group 3

Sravanthi Bhogela 2017111094

Nandu Jayakumar 2017222147

Nikhil More 2017222148

Shreysha Saha 2017122111

 1.   Technical Analysis

Technical Indicator: Moving Averages

Figure 1: Moving Averages with 7, 21 periods.


In the above chart for technical analysis, we applied 7 periods as fast moving averages and is
shown in red colour, and 21 periods as slow moving average which is shown in blue colour.

From the above chart, we can observe cross over of moving averages. Fast moving average (red
line) crossing the slow moving average (blue line) from bottom hence it is a golden cross
representing the possible bullish trend of share price movement.
Technical Indicator: Ichimoku Clouds

Figure 2: Ichimoku Clouds


In the above chart, for technical analysis we have applied Tenkan sen in blue color and Kijun
Sen or Base line in red color.

We can see a crossover of Tenkan Sen and Baseline. Tenkan sen (blue colour line) is crossing
the Baseline (red colour) from bottom indicating possible up movement of prices.

Hence we anticipate the price to be bullish.

Technical Indicator: Pivot Points

Figure 3: Pivot points and Volume shown.

Figure 4: Various Call Options of Tech Mahindra with different Strike prices.
From Figure 3, we can observe 3 Resistance and 3 Support levels shown by applying the
technical indicator pivot points. Also we applied Volume as another indictor which shows how
strong the trend could be and whether strong hands or weak hands causing the price movements.

From Figure 4, In order to anticipate high probability of resistance level in this case, we used
Options Volume and Open Interest along with Delta concept here and is explained as follows.
Our investment origin is from 19th Nov 2018 to 29th Nov 2018. Hence, we have taken 29th Nov
as Date of expiry for the option of Tech Mahindra observed the option chain and for choosing
strike price, we saw Out of the Money options in which 740 has 236400 volume, 397200 Open
Interest and 0.28 delta. Delta has to be between 0.25 and 0.35. At price level 800 there is huge
volume 52800 and Open interest as 306000 which is giving strong resistance at this price level
and hence we are assuming the resistance line 803.

Figure 5: Various Put Options of Tech Mahindra with different Strike prices.
From Figure 5, In order to anticipate high probability of Support level in this case, we used
Options Volume and Open Interest along with Delta concept here and is explained as follows.
We observed the option chain and for choosing strike price, we saw Out of the Money put
options in which 680 has 108000 volume, 222000 Open Interest and 0.23 delta even though it is
not in between 0.25 and 0.35. But based on high Volume and open interest we are assuming 680
as strong support line.
 Options Trading Strategies
Long Strangle:

Current Stock price 727.95

Strike Price 740 680

Date of Expiry 29-Nov-18 29-Nov-18

Position Long Call Long Put

3
Premium 10

Net Cash Outflow

-13
 NET$CASH$OUTFLOW .13
pay$off$(long$put) pay$off$(long$call) total$payoff total$profit
600 80 0 80 67
610 70 0 70 57
620 60 0 60 47
630 50 0 50 37
640 40 0 40 27
650 30 0 30 17
660 20 0 20 7
670 10 0 10 .3
680 0 0 0 .13
690 0 0 0 .13
700 0 0 0 .13
710 0 0 0 .13
720 0 0 0 .13
730 0 0 0 .13
740 0 0 0 .13
750 0 10 10 .3
760 0 20 20 7
770 0 30 30 17
780 0 40 40 27
790 0 50 50 37
800 0 60 60 47
810 0 70 70 57
820 0 80 80 67
830 0 90 90 77
840 0 100 100 87
850 0 110 110 97
860 0 120 120 107
870 0 130 130 117
880 0 140 140 127
890 0 150 150 137
900 0 160 160 147

Table 1: Long Strangle Pay off calculation.

Since we are bullish on the trend, we have applied Long strangle option trading strategy and the
pay off diagram for it for different strike prices is as shown below.
 PAY -­‐ OFF  DIAGRAM
160

140

120

100

80

60

40

20

0
0 100 200 300 400 500 600 700 800 900 1000
-­‐20

-­‐40

Figure 6: Pay off diagram of Long Strangle strategy for Options in Tech
Mahindra.