Option Strategies - Top straddle or Straddle sell

Top straddle or Straddle sell

Salient Features

a) Market is expected to move in sideways zone         b) Unlimited loss and limited profits  Introduction: When an investor expects sideways movement in the market then he may enter into a top straddle strategy that means selling a Call and a Put together of the same strike price and same expiry date. Let us take an example to understand this in detail- an investor takes following positions on 27th May 2005 when Nifty Spot was Rs.2070. Action Option type Strike Premium Total investment Short Call 2050 49   Short Put 2050 34 -83 Here he sells Nifty Call and Put option of Strike price Rs.2050 for which he receives a net amount of Rs.83 as premium (Rs.49 received for short Call position and Rs.34 received for short Put position) to create the position. His cash flow at different levels of Nifty closing on 30th June05(last Thursday of the following month) are as follows: Index Long call Long Put Investment Cash flow 1900               -           (150) 83                      (67) 1950               -           (100) 83                      (17) 2000               -             (50) 83                       33 2050               -              -   83                       83 2100              (50)            -   83                       33 2150            (100)            -   83                      (17) 2200            (150)            -   83                      (67) 2250            (200)            -   83                    (117) 2300            (250)            -   83                    (167) Thus it is clear that his profits will occur when the exercise price remains within a certain range of prices (here it is Rs.2000 to Rs.2100). In case of exercise price going beyond the range he will make loss. Here the upper level of range of prices is more than and lower level of range is less than the strike price of call and put taken. This strategy is useful when we expect the market to remain sideways and do not move beyond the current levels.

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Option Strategies- Bottom straddle or Straddle purchase

Bottom straddle or Straddle purchase

Salient Features

a) Market is expected to take volatile move but its direction is not clear         b) Unlimited profit and limited loss  Introduction: When an investor expects volatile movements in the market but he is not sure of the direction of it then he may enter into a bottom straddle strategy that means buying a Call and a Put together of the same strike price and same expiry date. Let us take an example to understand this in detail- an investor takes following positions on 27th May 2005 when Nifty Spot was Rs.2070. Action Option type Strike Premium Total investment Long Call 2100 24   Long Put 2100 59 83 Here he buys Nifty Call and Put option of same Strike price (Rs.2100) he pays a net amount of Rs.83 as premium (Rs.24 paid for long Call position and Rs.59 paid for long Put position) to create the position. His cash flow at different levels of Nifty closing on 30th June05(last Thursday of the following month) are as follows: Index Long call Long Put Investment Cash flow 1900               -            200 -83                     117 1950               -            150 -83                       67 2000               -            100 -83                       17 2050               -              50 -83                      (33) 2100               -              -   -83                      (83) 2150               50            -   -83                      (33) 2200             100            -   -83                       17 2250             150            -   -83                       67 2300             200            -   -83                     117 Thus it is clear that his profits will occur only when the market moves beyond a certain range of prices (here it is Rs.2000 to Rs.2200), otherwise he will make loss (in case market remains within the range). This strategy is useful when we expect volatile movements in the market, which may be prior to any major announcements, ahead of financial results of company, election time, etc.

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Option strategies- Bull spread

Bull spread

Salient Featuresa) Market is expected to go up.
b) Limited profit or loss. 

Introduction:

Bull spread is used when the market is likely to go up, it can be created in two ways which are given below: 1st Buying a call of lower strike price and selling a call of higher strike price:- When an investor, expecting the market to go up, creates a spread by purchasing a call and selling another call of higher strike price. If the market moves upwards after the creation of spread, investor makes profit otherwise he loses. Let us take an example to understand this in detail- an investor takes following spread on 27th May 2005 when Nifty Spot was Rs. 2050. Action Option type Strike Premium Total investment Long Call 2000 84 Short Call 2100 24 60

Here he buys a Nifty call of Strike price Rs.2000 and sells a call of Strike price of Rs. 2100 (Higher strike price). For creating this spread he pays a net amount of Rs.60 as premium (Rs.84 paid for long position and Rs. 24 received from short position). Now, his cash flow at different levels of Nifty closing on 30th June05(last Thursday of the following month) are as follows: Index Long call Short call Investment Cash flow 1940               -              -   -60                      (60) 1970               -              -   -60                      (60) 2000               -              -   -60                      (60) 2030               30            -   -60                      (30) 2060               60            -   -60                        -   2090               90            -   -60                       30 2120             120           (20) -60                       40 2150             150           (50) -60                       40 2180             180           (80) -60                       40

Here we find that maximum profit and loss that he can incur are limited, thus it has low level of risk (lesser profits also). If he goes right in predicting the trend, then on an investment of Rs.60, he can earn Rs. 40. 2nd Buying a put of lower strike price and selling a put of higher strike price:- When an investor, expecting the market to go up, creates a spread by purchasing a put and selling another put of higher strike price. If the market moves upwards after creation of spread, investor makes profit otherwise he loses. Let us take an example to understand this in detail- an investor takes following spread on 27th May 2005 when Nifty Spot was Rs. 2050.   Action Option type Strike Premium Total investment Long Put 2000 18 Short Put 2100 59 -41 Here he buys a Nifty Put of Strike price Rs.2000 and sells a put of Strike price of Rs. 2100 (Higher strike price). For creating this spread he receives a net amount of Rs.41 as premium (Rs.18 paid for long position and Rs. 59 received from short position). Now, his cash flow at different levels of Nifty closing on 30th June05(last Thursday of the following month) are as follows:  Index Long Put Short Put Investment Cash flow 1940               60        (160) 41                      (59) 1970               30        (130) 41                      (59) 2000               -          (100) 41                      (59) 2030               -            (70) 41                      (29) 2060               -            (40) 41                         1 2090               -            (10) 41                       31 2120               -             -   41                       41 2150               -             -   41                       41 2180               -             -   41                       41 Here we find that maximum loss and profit that he can incur are limited, thus it has low level of risk (lesser profits also). If he goes right in predicting the trend, then on an investment of Rs.41, he can earn Rs. 41.

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Commodities Products and Exchanges Overview

Which are the major commodity exchanges in India?

There are 24 commodity exchanges in India. There are three national level commodity exchanges to trade in all permitted commodities. They are:

Multi Commodity Exchange of India Ltd, Mumbai (MCX)
www.mcxindia.com
MCX is an independent and de-mutualised multi commodity exchange. MCX features amongst the world's top three bullion exchanges and top four energy exchanges. Its key shareholders are Financial Technologies (I) Ltd., State Bank of India and it's associates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda, HDFC Bank and SBI Life Insurance Co. Ltd.
National Commodity and Derivative Exchange, Mumbai (NCDEX)

www.ncdex.com
A consortium of institutions promotes NCDEX. These include the ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).

National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE)

www.nmce.com
It is the first de-mutualised electronic multi-commodity Exchange of India. Some of its key promoters are Central Warehousing Corporation (CWC), National Agricultural Co Operative Marketing Federation of India Limited (NAFED), Gujarat Agro Industries Corporation Limited (GAIC) and Punjab National Bank (PNB).

Product  

Bullion	Metals	Energy
Gold	Aluminium	ATF
Gold Guinea	Aluminium Mini	Brent Crude Oil
Gold M	Copper	Crude Oil
Gold Petal	Copper Mini	Gasoline
Gold Petal	Iron Ore	Heating Oil
(New Delhi)	Lead	Imported Thermal Coal
Platinum	Lead Mini	Natural Gas
Silver	Mild Steel Ingot,Billets
Silver M	Nickel	Weather
Silver Micro	Nickel Mini
Silver 1000	Tin	Carbon(CER)
	Zinc	Carbon (CFI)
	Zinc Mini
Pulses		Cereals
	Plantations
Chana		Barley
	Rubber	Wheat
Others		Maize-Feed /
	Fiber	Industrial Grade
Almond
Guar Gum	Kapas	Oil & Oil Seeds
Guar Seed	Cotton (29mm)
Melted Menthol		Crude Palm Oil
Flakes	Spices	Kapasia Khalli
Mentha Oil		(Cottonseed Oilcake)
Potato (Agra)	Cardamon	Refined Soya Oil
Potato (Tarkeshwar)	Coriander	Soya Bean
Sugar M

  Products Trading Lot Size

Commodity	Qutation	Symbol	Tick size	Trading Unit	Lot size	Delivery center
Metal futures- Mega
Gold	10gm	GOLD	1	1Kg	100	Mumbai/ Ahm'bad
Silver	1Kg	SILVER	1	30Kg	30	Ahmedabad
Copper	1Kg	COPPER	0.05	1MT	1000	Mumbai
Nickel	1Kg	NICKEL	0.1	250Kg	250	Bhiwandi
Lead	1Kg	LEAD	0.05	5MT	5000	Bhiwandi
Aluminium	1Kg	ALUMINUM	0.05	5MT	5000	Bhiwandi
Zinc	1Kg	ZINC	0.05	5MT	5000	Bhiwandi
Metal Futures-Mini
Gold Mini	10gm	GOLDM	1	100gm	10	Ahmedabad
Gold Guinea	8gm	GOLD GUINEA	1	8gm	1	Ahmedabad
Gold PETAL	1gm	GOLD Petal	1	1gm	1	Mumbai
Silver Mini	1Kg	SILVERM	1	5Kg	5	Ahmedabad
Silver Micro	1Kg	SILVERMIC	1	1Kg	1	Ahmedabad
Copper Mini	1Kg	COPPER	0.05	250Kg	250	Ahmedabad
Nickel Mini	1Kg	NICKEL	0.1	100Kg	100	Bhiwandi
Lead Mini	1Kg	LEAD	0.05	1MT	1000	Bhiwandi
Zinc Mini	1Kg	ZINC	0.05	1MT	1000	Bhiwandi
Aluminium Mini	1Kg	ALUMINI	0.05	1MT	1000	Bhiwandi
Energy Futures-MCX
Crude Oil	1BBl	CRUDEOLL	1	100BBl	100	Mumbai
Natural Gas	1 mmBtu	NATURAL GAS	0.1	1250mmbtu	1250	Hazira
Agriculture Futures -Cereals & Pulses & soft
Barley (NCDEX)	1Quintal	BARLEYJPR	0.5	10MT	100	Jaipur
Chana (NCDEX)	1Quintal	CHARJDDEL	1	10MT	100	Delhi
Maize (NCDEX)	1Quintal	MAIZYRNZM	1	10MT	100	Nizamabad
Wheat (NCDEX)	1Quintal	WHTSMQDELI	1	10MT	100	Delhi
Sugar-M200(NCDEX)	1Quintal	SUGARM200	1	10MT	100	Kolhapur
Gur (NCDEX)	40Kg	GURCHMUZR	0.5	10MT	250	Muzaffarnagar
Agriculture Futures - Spices
Cardomom (MCX)	1Kg	CARDOMOM	0.1	100Kg	100	Vandanmedu
Pepper (NCDEX)	1Quintal	PPRMLGKOC	5	1MT	10	Kochi
Chilli (NCDEX)	1Quintal	CHLL334GTR	2	5MT	50	Guntur
Coriander (NCDEX)	1Quintal	DHANIYA	1	10MT	100	Kota
Turmeric (NCDEX)	1Quintal	TMCFGRNZM	2	5MT	50	Nizamabad
Jeera (NCDEX)	1Quintal	JEERAUNJHA	2.5	3MT	30	Unjha
Agriculture Futures -Oil & Oil seeds
CrudePalmOil (MCX)	10Kg	CPO	0.1	10MT	1000	Kandla
Ref. Soya Oil (NCDEX)	10Kg	REFSOYOIL	0.05	10MT	1000	Indore
Soybean (NCDEX)	1Quintal	SYBEANIDR	0.5	10MT	100	Indore
Mustard seed (NCDEX)	1 Quintal	RMSEED	1	10MT	100	Jaipur
Castor seed (NCDEX)	1Quintal	CASTORDSA	1	10MT	100	Deesa
Agriculture Futures -Industrial commodities
Guargum (NCDEX)	1Quintal	GARGUMJDR	0.1	1MT	100	Jodhpur
Guarseed (NCDEX)	1Quintal	GARSEDJDR	1	1MT	100	Jodhpur
Kapas (MCX)	20Kg	KAPAS	0.1	4MT	200	Surendranagar
Cotton (MCX)	1Bale	COTTON	1	25 bales	25	Rajkot
Mentha Oil (MCX)	1Kg	MENTHAOIL	0.1	360Kg	360	Chandausi
KapasKhali (NCDEX)	1Quintal	COCUDAKL	1	10MT	100	Akola
Rubber (NMCE)	1 Quintal	RUBBERF	1	1MT	10	Kochi
Coffee (NMCE)	1 Quintal	COFERF	0.5	1.5MT	15	Kushalnagar
Agriculture Futures - Others
Potato (NCDEX)	1Quintal	POTATO	0.1	15MT	150	Agra
Potato (MCX)	1Quintal	POTATO	0.1	30MT	300	Agra

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