1. FUTURES & OPTIONS
PRESENTATION ON
ADVANCE OPTIONS STRATEGIES
Presented by Group - 8
1
Tolani Institute of Management Studies

2. MONEY SPREAD USING CALLS
 Question:
 SBI currently selling at INR 1897. There are two calls of
it.
 1st call with an exercise price of INR 2000 at INR 15 with
maturity date on 27th September, 2012
 2nd call with an exercise price of INR 1900 at INR 48 with
maturity date on 27th September, 2012
2
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3. Strike Price Long Call Value Short Call Value Value of the
(INR) on 27th (INR) (INR) money spread
September, S.P. = 1900 S.P. = 2000 (INR)
2012
Assumed
1500 -48 15 -33
1600 -48 15 -33
1700 -48 15 -33
1800 -48 15 -33
1900 -48 15 -33
2000 52 15 67
2100 152 -85 67
2200 252 -185 67 3
2300 352 -285 67
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4.  Break – Even point for money spread = INR 1933
 This strategy will give maximum profit of INR 67 if strike
price is greater than INR 1933 and will give maximum
loss of INR 33 if strike price is less than 1933.
 This strategy will be adopted in Bullish market
 The implications of this strategy would be constant profit
if both calls are in-the-money and constant loss if both
calls are out-of-money.
4
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5. Money Spread Using Call
400
300
200
Long Call Value
100
Short Call Value
Gain/Loss 0
1500 1600 1700 1800 1900 2000 2100 2200 2300 Value of the money
spread
-100
-200
-300
-400
Stock Price 5
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6. STRADDLES
 Question:
 TATA Motors currently selling at INR 245.
 A call option with an exercise price of INR 250 at INR
6 with maturity date on 27th September, 2012
 A put option with an exercise price of INR 250 at INR
8 with maturity date on 27th September, 2012
6
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7. Stock Price Gain from call Gain from Put Gain from the
(INR) (INR) (INR) Straddle (INR)
180 -6 62 56
200 -6 42 36
220 -6 22 16
240 -6 2 -4
250 -6 -8 -14
260 4 -8 -4
280 24 -8 16
300 44 -8 36
320 64 -8 56 7
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8.  The investor will make a loss as long as the TATA Motors
share price is within the range of INR 236 to INR 264.
 If the price is below INR 236 or above INR 264, this
strategy will result in a profit.
 The more the price moves away from INR 236 or INR
264, the higher are the gains.
 A long straddle strategy is appropriate if an investor
expects a large movement in the stock price but is not
sure about the direction of the stock price.
8
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9. Gain from a Straddle
70
60
50
40
Gain from call (INR)
30
Gain from Put (INR)
Gain/Loss
Gain from the Straddle (INR)
20
10
0
180 200 220 240 250 260 280 300 320
-10
-20 9
Stock Price
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10. STRANGLES
 Question:
 HUL stock is currently trading at INR 540.
 A call option with an exercise price of INR 560, selling
for INR 4
 A put option with an exercise price of INR 520, selling
for INR 3.
10
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11. Stock Price (INR) Gain from the Gain from the Gain from the
Long Call (INR) Long Put (INR) Strangle (INR)
S.P. = 560 S.P. = 520
400 -4 117 113
440 -4 77 73
480 -4 37 33
520 -4 -3 -7
560 -4 -3 -7
600 36 -3 33
640 76 -3 73
680 116 -3 113 11
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12. A Strangle is similar to a straddle in the sense
that the investor is not sure about the direction of
the stock price.
 Thisstrangle strategy will result in a maximum
loss of INR 7 as long as the stock price is in the
range of the two exercise prices.
 The investor will make a profit only if the stock
price is below INR 513 or above INR 567.
12
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13. Gain from a Strangle
140
120
100
Gain from the Long
80
Call (INR)
Gain from the Long
Gain / Loss 60
Put (INR)
Gain from the
40 Strangle (INR)
20
0
400 440 480 520 560 600 640 680
-20
Stock price
13
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14. 14