Ranbaxy -- opportunity

bandlab2 · #1 9th August 2008, 09:35 AM

ranbaxy spot is 502, sep future is 396, sep 400 call is 102, put is 36

buy 1 lot of sep future, sell 1 sep 400 call , buy 1 sep 400 put

if the price on settlement is anywthere from 0 to infinity, your net gain is 65 rs which is 52000 rs

if price is at 400, you get 100 from call, lose 35 from put. net gain 65

if price is at 500, you get 100 from future, lose 35 from put, net gain 65

if price is at 600, you get 200 from future, lose 100 from call, lose 35 from put. net gain 65 rs

if price is at 300, you lose 100 from fture, gain 100 from call, gain 65 from put. net gain 65 rs

margin requirements : need margin for 1 lot future, 1 lot call. which is around 50% of 1 lot = 2 lakh rupees. stocks or cash
m2m : most brokers wont adust m2m on options. but they do on futures on daily basis. so if price goes below 400, you need to keep m2m for that. you need to keep for atleast 65 rs (safe side) which will cover till 335 rs spot. but yo got 65 rs from call/put. so keep this money for this purpose. if spot goes above 400, then your fture will generate mpney for you to cover trigger on call

overall, not much risk in strategy, margin, m2m

any suggestions ? what happens if call/put is exersized ?

rkgoyal_98 · #2 11th August 2008, 11:12 PM

Hello,

I had been looking for pocketing premium of the next month by either buying futures and selling higher call or by selling futures and selling lower put, however had always found it problem about if market goes in other direction. In your strategy problem has been taken care by buying put. Overall there appears to be no problem in this strategy except there must be something unusual that we not know now and the people selling puts/selling calls know. may be something to do with open offer.

can some senior member through some light on this

regards
Rajeev

tanewbie · #3 12th August 2008, 01:19 AM

If the sold call gets exercised there will be loss consider this:

Ranbaxy stock price goes to 550 and call gets exercised u lose 48 rs

if stock price goes to 600 u lose 98 on the call
After the open offer is closed say ranbaxy falls to 400

gain nothing on ftrs but u lose on call+put.
I n short there is "NO FREE LUNCH"

bandlab2 · #4 12th August 2008, 07:45 AM

why wold anyone excersize the option when they know spot will come down after open offer ? he can square off in market and pocket his proit of 60 or 100 or 150 rs . to exercise he has to pay 400 rs, after getting the delivery he can again sell in the market

as i see the ONLY risk is when the call is excersiced to you. at that time you can again sell the call to the market. ofcorse you need lot of margin money

best strategy is stay away from FnO and buy in cash, wait for the spike and sell in the market

rkgoyal_98 · #5 12th August 2008, 08:26 AM

Hello,

It is not possible to imagine that all the people will exercise. i don't think exchange keeps account as to who has sold to whom, may be i am wrong it that case yes if spot price keeps moving up and futures refuses to move up then and other party exercise then there will be trouble. There is another case too. Suppose Sep futures does not move up but spot keep moving up as has happened in past few days then gap will keep increasing and margin requirement may hit the roof so many people may run short of margin. this will lead to heavy loss.

Rajeev

akshat13 · #6 12th August 2008, 04:49 PM

Hello all ,

Should I hold or square off and book loss

Ranbaxy 600 call @5 .Please suggest me

akshat13 · #7 12th August 2008, 04:58 PM

Hello

Suggestion:Should I hold or square off and book loss

Ranbaxy 600 call @5 .Please suggest me

AW10 · #8 12th August 2008, 07:54 PM

Quote:

Originally Posted by rkgoyal_98

Hello,

It is not possible to imagine that all the people will exercise. i don't think exchange keeps account as to who has sold to whom, may be i am wrong it that case yes if spot price keeps moving up and futures refuses to move up then and other party exercise then there will be trouble. There is another case too. Suppose Sep futures does not move up but spot keep moving up as has happened in past few days then gap will keep increasing and margin requirement may hit the roof so many people may run short of margin. this will lead to heavy loss.

Rajeev

Exchange does know that who are seller of options. On getting the request of excercise, it randomly picks up the seller and assign it. To the best of my knowledge, it is random assignment until unless they use any internal logic to find out the best person to be assigned.

Happy Trading.

AW10 · #9 12th August 2008, 07:57 PM

Quote:

Originally Posted by tanewbie

If the sold call gets exercised there will be loss consider this:

Ranbaxy stock price goes to 550 and call gets exercised u lose 48 rs

if stock price goes to 600 u lose 98 on the call
After the open offer is closed say ranbaxy falls to 400

gain nothing on ftrs but u lose on call+put.
I n short there is "NO FREE LUNCH"

I think, you are missing the point that the strategy also has LONG using futures. So when Call position is loosing, the LONG futures will compensate for it.

Happy Trading

AW10 · #10 12th August 2008, 08:23 PM

Quote:

Originally Posted by bandlab2

ranbaxy spot is 502, sep future is 396, sep 400 call is 102, put is 36

buy 1 lot of sep future, sell 1 sep 400 call , buy 1 sep 400 put

if the price on settlement is anywthere from 0 to infinity, your net gain is 65 rs which is 52000 rs

if price is at 400, you get 100 from call, lose 35 from put. net gain 65

if price is at 500, you get 100 from future, lose 35 from put, net gain 65

if price is at 600, you get 200 from future, lose 100 from call, lose 35 from put. net gain 65 rs

if price is at 300, you lose 100 from fture, gain 100 from call, gain 65 from put. net gain 65 rs

margin requirements : need margin for 1 lot future, 1 lot call. which is around 50% of 1 lot = 2 lakh rupees. stocks or cash
m2m : most brokers wont adust m2m on options. but they do on futures on daily basis. so if price goes below 400, you need to keep m2m for that. you need to keep for atleast 65 rs (safe side) which will cover till 335 rs spot. but yo got 65 rs from call/put. so keep this money for this purpose. if spot goes above 400, then your fture will generate mpney for you to cover trigger on call

overall, not much risk in strategy, margin, m2m

any suggestions ? what happens if call/put is exersized ?

Well explored strategy which makes sense as of today. Just a few observations

1) Liquidity - Ranbaxy option volumn is past months have been around 150 for ATM or Near the Money strike. So once the dust is settled, it might be difficult to adjust /close this position before expiry.

2) Delta - Combined delta of two option postion should be -1.0 (assuming -0.5 for sold call, and -0.5 for put). Ideally, futures should have delta of 1.0 (i.e. 1 rs increase in futures value for 1 rs increase in stock price). So ideally, your position looks well hedged i.e. delta neutral (1 + (-1) = 0). BUT (in capitals) in this case, future pricing may not follow the logic (as it is now). In that circumstance, any upmove will increase the risk of position.

3) Uncertainty of price movement - As this trade is based on corporate event so price movements may not follow any chart pattern / support / resistence. In absence of that, aren't we putting money on something which is difficult to predict. (I can't understand why future price is below 100 rs from spot, if that is the case then why Sept put is selling at 36rs which is worth 100rs as of today, why is spot not running towards open offer price of 737/-. What happens between 4th Sept when offer ends and Option expiry date).

4) Pricing of futures - In your logic it is assumed that futures will gain with upmove in spot. I have my reservation on this assumption. You might be better of using another LONG option position to hedge any upward move in the price. In that case, there is almost gurantee that one option position will take care of another on the day of expiry (in worst case). Even if, that costs a few rs from 65 rs of the profit in your pocket.

I like the way you have found the opportunity. Way to go and explore the power of options.

Happy Trading.