Nifty Spot : 2790

DERIVATIVE STRATEGIES
Strategy 1 Mildly Bullish Strategy 2 Mildly Bearish Strategy 3 Volatile Strategy 4 Range Bound ACTION Buy Feb call Sell Feb call Buy Feb put Sell Feb put Buy Feb call Buy Feb put Sell Feb call Sell Feb put STRIKE 2800 2900 2800 2700 2800 2700 2900 2600 PREM. 41 11 63 27 41 27 11 11 BREAKEVEN PT. AT EXPIRY Profitable when nifty is above Profitable when nifty is below Profitable when nifty is above Profitable when nifty is below Profitable when nifty is above Profitable when nifty is below 2830 2764 2868 2632 2578 2922

FEBRUARY 19, 2009 Max. profit/loss Max. profit: 3500 Max. loss: 1500 Max. profit: 3200 Max. loss: 1800 Max. profit: Unlimited Max. loss: 3400 Max. profit: 1100 Max. loss: Unlimited

Strategy 1 View Action Premium difference Total initial cost Break-even pt.

Nifty bull call spread

Strategy 1 - Payoff as on expiry

Mildly bullish on market. Buy Sell 30 1500 2830 Nifty Feb call 2800 at 41 Nifty Feb call 2900 at 11 (Higher premium minus lower premium) (premium difference x 50 lot size) Breakeven pt. = Lower strike Plus premium difference (difference bet. Two strikes) minus (premium difference) x 50 lot size Limited to total initial cost Do not execute strategy for more than given premium difference

4000 3000 2000 1000 0 -1000 -2000 2200 2350 2500 2650 2800 2950 3100 3250 3400

Nifty Strikes

Max. profit Max. loss Execution

3500 1500 36

SCENARIO Strategy 1 (Bull call spread) POSSIBILITIES

closing < 2800 2900 < closing < < closing 2800 2900 (closing 200

PROFIT/LOSS
- difference paid 2800 ) - difference paid

- difference paid

Profit/Loss

Strategy 2 View Action Premium difference Total initial cost Break-even pt.

Nifty bear put spread

Strategy 2 - Payoff as on expiry

Mildly bearish on market. Buy Sell 36 1800 2764 Nifty Feb put 2800 at 63 Nifty Feb put 2700 at 27 (Higher premium minus lower premium) (premium difference x 50 lot size) Breakeven pt. = Higher strike minus premium difference (difference bet. Two strikes) minus (premium difference) x 50 lot size Limited to total initial cost Do not execute strategy for more than given premium difference

4000 3000 2000 1000 0 -1000 -2000 -3000 2200 2350 2500 2650 2800 2950 3100 3250 3400

Nifty Strikes

Max. profit Max. loss Execution

3200 1800 43

SCENARIO Strategy 2 (Bear put spread) POSSIBILITIES PROFIT/LOSS

closing < 2700 2800 < closing < < closing 2700 2800 200 (- closing + - difference paid 2800 ) - difference paid

- difference paid

Strategy 3 View Action Premium paid Total initial cost Break even pt. Upper break even Lower break even Max. profit Max. loss Execution

Nifty long strangle

Strategy 3 - Payoff as on expiry

Highly volatile market, expecting break out either side Buy Buy 68 3400 Nifty Feb call 2800 at Nifty Feb put 2700 at (sum of two premiums) (premium paid x 50 lot size) Profitable if nifty on expiry is above upper break even or below lower break even 2868 2632 3400 71 Higher strike plus premium paid Lower strike minus premium paid Unlimited Limited to total initial cost Do not execute strategy if premium received is more then given total premium 41 27

30000
Profit/Loss

20000 10000 0 -10000 2200

2700 2800

Nifty Strikes

SCENARIO Strategy 3 (Long strangle) POSSIBILITIES

closing < < closing < < closing 2700 2800 (closing (- closing +

PROFIT/LOSS
2700 ) - premium paid - difference paid 2800 ) - premium paid

Profit/Loss

2350

2500

2650

2800

2950

3100

3250

3400

Strategy 4 View Action Premium rec Total initial credit Break even pt. Upper break even Lower break even Max. profit Max. loss Execution

Nifty short strangle Range bound market, expecting Nifty to remain in range. Sell Nifty Feb call 2900 at 11 Sell Nifty Feb put 2600 at 11 22 (sum of two premiums) 1100 (premium paid x 50 lot size) Profitable if nifty on expiry is between upper break even & lower break even Higher strike plus premium rec. Lower strike minus premium rec. Limited to total initial cost Unlimited beyond breakeven pts Do not execute strategy if premium received is less then given total premium
2200 2350 2500

Strategy 4 - Payoff as on expiry

5000 0 -5000 -10000 -15000 -20000 -25000 -30000 2650 2800 2950 3100 3250 3400

Nifty Strikes

2922 2578 1100

SCENARIO Strategy 4 (Short strangle) POSSIBILITIES

closing < < closing < < closing 2600 2900 (- closing + (closing -

PROFIT/LOSS
2600 ) + premium rec

21

2600 2900

+ Premium rec 2900 ) + premium rec

NOTE:

(* All the above mentioned strategies are just for easy referral for different market views mentioned. One can also opt for strikes other than mentioned in these strategies) * All calculations are as per Premium price/premium difference given in the example and it may vary according to change in premium price/premium difference * Selling/writing an Option would attract margin requirement, for further details refer FAQ)

ICICIdirect.com Derivatives Desk ICICI Securities Limited, Mafatlal House, Ground Floor, 163, H T Parekh Marg, Churchgate, Mumbai 400 020 research@icicidirect.com

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Profit/Loss