all options aug 2013 series

all price date 2nd august 2013

Nifty = 5677

Please consider call spread "Buy 5700 call @ 119.7(delta 0.53) & sell 5800

[email protected] (delta 0.39)" VS buy "naked 5700 call"

delta of spread = 0.14

delta of 5700 call = 0.53

Stoploss :5600

Nifty at 5600

loss in call = 40 points

loss in spread= 10 points

So if one buys 4 spreads OR 1 call ,both positions have equal loss at 5600 ( equally hedged )

Nifty at 5750

profit in call (1 lot) = 38.7 points

profit in spread (4 lot) = 41 points

Nifty at 5800

profit in call (1 lot) = 66.2 points

profit in spread (4 lot) = 70 points

-These calculations do not consider brokerage/slippage

-After taking into account brokerage/slippage the difference in gains of spread vs call, narrows/evaporates.

-Total investment for call is premium Vs Margin for sold calls in Spread

-For near equal returns, Yield( % return on the amount invested) of naked call should be higher than that of spread

Advantage spread:

These calculations are valid 1-2 days trade only ,for 10-15 days holding ,theta ( time value) of naked call will

decline faster than that of spread

Advantage Naked call:

Trader gets profit from nifty move above 5800 which is forfeited by selling 5800 call in spread

Regards