SAMIUDDIN - o Ost

A
SYNOPSIS ON
“OPTION STRATEGIES”
AT
“UNICON SECURITIES”
Submitted in partial fulfillment of the requirement for the award of the
MASTER OF BUSINESS ADMINISTRATION
BY
MOHAMMAD SAMIUDDIN
H.T NO: 1422-21-672-022
Department of management studies
CSI INSTITUTE FOR P.G. STUDIES
(Affiliated to Osmania University)
EAST MARREDPALLY, SECUNDERABAD, TELENGANA
2021-2023
INTRODUCTION:
Option strategies are the simultaneous, and often mixed, buying or selling of one or
more options that differ in one or more of the options' variables. Call options give the buyer a
right to buy that particular stock at that option's strike price. Put options give the buyer the
right to sell a particular stock at the strike price. This is often done to gain exposure to a
specific type of opportunity or risk while eliminating other risks as part of a trading strategy.
A very straight forward strategy might simply be the buying or selling of a single option,
however option strategies often refer to a combination of simultaneous buying and or selling
of options.
Options strategies allow traders to profit from movements in the underlying assets that are
bullish, bearish or neutral. In the case of neutral strategies, they can be further classified into
those that are bullish on volatility and those that are bearish on volatility. Traders can also
profit off time decay when the stock market has low volatility as well, usually measured by
the Greek letter Theta. The option positions used can be long and/or short positions in calls
and puts. Most strategies that options investors use have limited risk but also limited profit
potential.
For this reason, options strategies are not get-rich-quick schemes. Transactions generally
require less capital than equivalent stock transactions, and therefore return smaller amounts -
but a potentially greater percentage of the investment - than equivalent stock transactions.
Before you buy or sell options you need a strategy, and before you choose an options
strategy, you need to understand how you want options to work in your portfolio. A particular
strategy is successful only if it performs in a way that helps you meet your investment goals.
One of the benefits of options is the flexibility they offer—they can complement portfolios in
many different ways. So it's worth taking the time to identify a goal that suits you and your
financial plan. Once you've chosen a goal, you'll have narrowed the range of strategies to use.
As with any type of investment, only some of the strategies will be appropriate for your
objective.
Some options strategies, such as writing covered calls, are relatively simple to understand and
execute. There are more complicated strategies, however, such as spreads and collars that
require two opening transactions. These strategies are often used to further limit the risk
associated with options, but they may also limit potential return. When you limit risk, there is
usually a trade-off.
NEED AND IMPORTANCE OF THE STUDY:
Financial transactions are fraught with several risk factors. Derivatives are instrumental in
alienating those risk factors from traditional instruments and shifting risks to those entities
that are ready to take them. Some of the basic risk components in derivatives business are:
Credit Risk: When one of the two parties fails to perform its role as per the agreement, this
is called the credit risk. It can also be referred to as default or counterparty risk. It varies with
different sources.
Market Risk: This is a kind of financial loss that takes place due to the adverse price
movements of the underlying variable or instrument.
Liquidity Risk: When a firm is unable to devise a transaction at current market rates, it can
be referred to as liquidity risk. There are two kinds of liquidity risks involved in the scenario.
First is concerned with the liquidity of separate items and second is related to supporting the
activities of the organization with funds comprising derivatives.
Legal Risk: Legal issues related with the agreement need to be scrutinized well, as one can
deal in derivatives across the different judicial boundaries.

OBJECTIVES OF THE STUDY:
1. Understanding the different types of derivatives used today.
2. Understanding the usage of these derivatives.
3. Identifying the various strategies used in an equity option.
4. Classifying the different kind of strategies to be used in different market situations and
different equity stocks.
5. Providing live example of Nifty Option strategies that are used today and applying these
strategies for better understanding.
SCOPE OF THE STUDY:
This study is not only limited to application in the Indian market but also in the foreign
derivative markets. Some of the applied strategies can be used in case of derivative whose
underlying asset is not of an equity nature. The study can be used to trade in equity options
for the purpose of hedging and arbitrage as a significant area for investment.
RESEARCH METHODOLOGY OF THE STUDY:
The study is both descriptive and analytical in nature. It is a blend of primary data and
secondary data. The primary data has been collected personally by approaching the online
share traders who are engaged in share market. The data are collected with a carefully
prepared questionnaire. The secondary data has been collected from the books, journals and
websites which deal with online share trading.
Methods of the study:
1. Covered Call: With calls, one strategy is simply to buy a naked call option.
You can also structure a basic covered call or buy-write. This is a very popular strategy
because it generates income and reduces some risk of being long stock alone.
2. Married Put: In a married put strategy, an investor purchases an asset (in this example,
shares of stock), and simultaneously purchases put options for an equivalent number of
shares. The holder of a put option has the right to sell stock at the strike price. Each contract
is worth 100 shares. The reason an investor would use this strategy is simply to protect their
downside risk when holding a stock. This strategy functions just like an insurance policy, and
establishes a price floor should the stock's price fall sharply
3. Bull Call Spread: In a bull call spread strategy, an investor will simultaneously buy calls
at a specific strike price and sell the same number of calls at a higher strike price. Both call
options will have the same expiration and underlying asset. This type of vertical spread
strategy is often used when an investor is bullish on the underlying and expects a moderate
rise in the price of the asset.

4. Bear Put Spread: The bear put spread strategy is another form of vertical spread. In this
strategy, the investor will simultaneously purchase put options at a specific strike price and
sell the same number of puts at a lower strike price. Both options would be for the same
underlying asset and have the same expiration date.
5. Other Methods:
 Protective collar
 Long Straddle
 Long Strangle
 Long Call Butterfly Spread
 Iron Condor
 Butterfly Spread
LIMITATIONS:
1. Raises Volatility: As a large no. of market participants can take part in derivatives with a
small initial capital due to leveraging derivatives provide, it leads to speculation and raises
volatility in the markets.
2. Higher no. of Bankruptcies: Due to leveraged nature of derivatives, participants assume
positions which do not match their financial capabilities and eventually lead to bankruptcies.
3. Increased need of regulation: Large no. of participants take positions in derivatives and
take speculative positions. It is necessary to stop these activities and prevent people from
getting bankrupt and to stop the chain of defaults.

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A

Submitted in partial fulfillment of the requirement for the award of the

MASTER OF BUSINESS ADMINISTRATION

H.T NO: 1422-21-672-022

Department of management studies

CSI INSTITUTE FOR P.G. STUDIES

(Affiliated to Osmania University)

EAST MARREDPALLY, SECUNDERABAD, TELENGANA

movements of the underlying variable or instrument.

activities of the organization with funds comprising derivatives.

deal in derivatives across the different judicial boundaries.

1. Understanding the different types of derivatives used today.

2. Understanding the usage of these derivatives.

3. Identifying the various strategies used in an equity option.

different equity stocks.

strategies for better understanding.

SCOPE OF THE STUDY:

websites which deal with online share trading.

Methods of the study:

establishes a price floor should the stock's price fall sharply

rise in the price of the asset.

underlying asset and have the same expiration date.

 Long Call Butterfly Spread

volatility in the markets.

2. Higher no. of Bankruptcies: Due to leveraged nature of derivatives, participants assume

getting bankrupt and to stop the chain of defaults.

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