BONGAIGAON REFINERY

Calculation of Premium (Black-Scholes Model)

NSE Code of (Igate Global Solution Ltd) is IGS.
Premium of Call Option, C = S. N (d1) – K. e –r t N (d2)

Premium of Put Option, P = K. e –r t N (-d 2) – S. N (-d 1)

d1 = ln (S/K) + (r + σ2/2)*T
σ √T
d2 = d1 - σ √T
Current Market Price/Spot Price, S = 99.85(of 26-12-2007)
Exercise/Strike Price, K = 70.00( Traded in F&O)
Risk-free rate of return, r = 7.35% (T-Bill Rate of 26-12-2007, from RBI)
Time to expiry, T = 36 days = 0.115 years. (From 26-12-07 to 31-01-08)
N (d1) = The probability of call option being in the money at expiry
Annualized Volatility, σ = 30% (approx)

Calculation of Annualized Volatility

Cash Market Price on 21-12-06 = 305.90 (Last Price, NSE)
Cash Market Price on 20-12-07 = 396.05 (Last Price, NSE)
1+ r = 396.05/305.90

1+ r = 1.2947

r = 0.2947 = 29.47% = 30% (approx).

Putting the value of S, K, T, σ and r in the equation of d1, we get

d1 = ln (396/370) + (0.30 + 0.32/2)*0.115
0.3 √.115
= 0.8013.
d2 = d1 - σ √T
= 0.8013 – 0.30√0.115
= 0.6936.
N (d1) = N (0.8013)
= 0.7889 (From Appendix A, Page 584)
N (d2) = N (0.6936)
= 0.7545.
C = S. N (d1) – K. e –r t N (d2)

= 396*0.7889 – 370. e – 0.0735*0.115 * 0.7545

= 312.40 – 370* 0.9915* 0.7545
= 312.40 – 276.79
= 35.61

P = K. e –r t N (-d 2) – S. N (-d 1)
= 370* e – 0.0735*0.115 * 0.2440 – 396 * 0.2151
= 89.51 – 85.18
= 4.33
Total Premium, (C+P) = 39.94 = 40.00 (approx)

COMPLEX STRATEGIES

1. Long Straddle
Buy Call Buy Put Net CF
MP(T) @370 @370 CFT (CFT - CF0)
300 0 70 -40 30
310 0 60 -40 20
320 0 50 -40 10
330 0 40 -40 0
335 0 35 -40 -5
340 0 30 -40 -10
345 0 25 -40 -15
350 0 20 -40 -20
355 0 15 -40 -25
360 0 10 -40 -30
365 0 5 -40 -35
370 0 0 -40 -40
375 5 0 -40 -35
380 10 0 -40 -30
385 15 0 -40 -25
390 20 0 -40 -20
395 25 0 -40 -15
400 30 0 -40 -10
405 35 0 -40 -5
410 40 0 -40 0
420 50 0 -40 10
430 60 0 -40 20
440 70 0 -40 30
2. Short Straddle
 Write Call Write Put Net CF
MP(T) @370 @370 CFT (CFT - CF0)
300 0 -70 40 -30
310 0 -60 40 -20
320 0 -50 40 -10
330 0 -40 40 0
335 0 -35 40 5
340 0 -30 40 10
345 0 -25 40 15
350 0 -20 40 20
355 0 -15 40 25
360 0 -10 40 30
365 0 -5 40 35
370 0 0 40 40
375 -5 0 40 35
380 -10 0 40 30
385 -15 0 40 25
390 -20 0 40 20
395 -25 0 40 15
400 -30 0 40 10
405 -35 0 40 5
410 -40 0 40 0
420 -50 0 40 -10
430 -60 0 40 -20
440 -70 0 40 -30

3. Strip
 Buy Call Buy 2 Put Net CF
MP(T) @370 @370 CFT (CFT - CF0)
 300 0 140 -44 96
310 0 120 -44 76
320 0 100 -44 56
330 0 80 -44 36
335 0 70 -44 26
340 0 60 -44 16
345 0 50 -44 6
348 0 44 -44 0
350 0 40 -44 -4
355 0 30 -44 -14
360 0 20 -44 -24
365 0 10 -44 -34
370 0 0 -44 -44
375 5 0 -44 -39
380 10 0 -44 -34
385 15 0 -44 -29
390 20 0 -44 -24
395 25 0 -44 -19
400 30 0 -44 -14
405 35 0 -44 -9
410 40 0 -44 -4
414 44 0 -44 0
420 50 0 -44 6
430 60 0 -44 16
440 70 0 -44 26

4. Strap

Buy 2 Call Buy 1 Put Net CF

MP(T) @370 @370 CFT (CFT - CF0)
270 0 100 -76 24
280 0 90 -76 14
 290 0 80 -76 4
294 0 76 -76 0
300 0 70 -76 -6
310 0 60 -76 -16
320 0 50 -76 -26
330 0 40 -76 -36
335 0 35 -76 -41
340 0 30 -76 -46
345 0 25 -76 -51
350 0 20 -76 -56
355 0 15 -76 -61
360 0 10 -76 -66
365 0 5 -76 -71
370 0 0 -76 -76
375 10 0 -76 -66
380 20 0 -76 -56
385 30 0 -76 -46
390 40 0 -76 -36
395 50 0 -76 -26
400 60 0 -76 -16
405 70 0 -76 -6
408 76 0 -76 0
410 80 0 -76 4
415 90 0 -76 14
420 100 0 -76 24

5. Long Strangle

Current Market Price/Spot Price, S = 396

Buy 1 - 360 Jan Call@ Rs38
Buy 1 – 400 Jan Put@ Rs2
CFo = - 40
 Buy Call Buy Put Net CF
MP(T) @360 @400 CFT (CFT - CF0)
310 0 90 -40 50
320 0 80 -40 40
330 0 70 -40 30
335 0 65 -40 25
340 0 60 -40 20
345 0 55 -40 15
350 0 50 -40 10
355 0 45 -40 5
360 0 40 -40 0
365 5 35 -40 0
370 10 30 -40 0
375 15 25 -40 0
380 20 20 -40 0
385 25 15 -40 0
390 30 10 -40 0
395 35 5 -40 0
400 40 0 -40 0
405 45 0 -40 5
410 50 0 -40 10
420 60 0 -40 20
430 70 0 -40 30
440 80 0 -40 40
450 90 0 -40 50

6. Short Strangle

Current Market Price/Spot Price, S = 396

Write 1 - 360 Jan Call@ Rs48
Write 1 – 400 Jan Put@ Rs07
CFo = 55
 Write Call Write Put Net CF
MP(T) @360 @400 CFT (CFT - CF0)
310 0 -90 55 -35
320 0 -80 55 -25
330 0 -70 55 -15
335 0 -65 55 -10
340 0 -60 55 -5
345 0 -55 55 0
350 0 -50 55 5
355 0 -45 55 10
360 0 -40 55 15
365 -5 -35 55 15
370 -10 -30 55 15
375 -15 -25 55 15
380 -20 -20 55 15
385 -25 -15 55 15
390 -30 -10 55 15
395 -35 -5 55 15
400 -40 0 55 15
405 -45 0 55 10
410 -50 0 55 5
420 -60 0 55 -5
430 -70 0 55 -15
440 -80 0 55 -25
450 -90 0 55 -35