Summer training @ jainam shares consultancy ltd

A presentation on
Jainam shares pvt ltd
(Back testing on CNX NIFTY options)
Presented by-
Mohit jariwala(GJ063)

MISSION VISION VALUES
 Mission:
“To provide world class services and creat wealth for
every one”
 Vision :
“To be the most preferred organization providing all
financial services across the country”
 Core values of company:
1. Change
2. People Development
3. Security
4. Team Work

MILESTONE OF COMPANY
2005 15th December Acquired Membership of
Central Depository service
(India) Ltd.
2004 23rd December Acquired Membership of
National Stock Exchange of
India Ltd. (Cash Seg.)
National Stock Exchange of
India Ltd. (F & O Seg.)
Bombay Stock Exchange Ltd.
(Cash Seg.)
2003 10th November Company Registered

PRODUCTS AND SERVICES OF THE COMPANY
 Equity
 Derivatives
 Depository Services
 Commodities
 IPO -Initial Public Offerings
 Insurance
 Portfolio Tracking
 E-Trading
 Mutual Funds

OPTIONS
 An option is a contract, which gives the buyer the right, but
not the obligation to buy or sell shares of the underlying
security at a specific price on or before a specific date.
 Option as the word suggests, is a choice given to the investor
to either honour the contract or if he chooses not to walk away
from the contract.
 An option is a contract between two parties giving the taker
(buyer) the right, but not the obligation, to buy or sell a parcel
of shares at a predetermined price possibly on, or before a
predetermined date. To acquire this right the taker pays a
premium to the writer (seller) of the contract.
 There are two types of options:
Call Options
Put Options

OPTION TERMINOLOGY
 Buyer of an option
 Writer / seller of an option
 Call option
 Put option
 Option price/premium
 Expiration date
 American options
 European options
 Hedge
 In-the-money option
 At-the-money option
 Out-of-the-money option

OPTION STRATEGY
Long strangle
 This strategy involves the simultaneous buying of a
slightly out-of-the-money (OTM) put and a slightly out-
of-the-money (OTM) call of the same underlying stock /
index and expiration date
 When to Use: The investor thinks that the underlying
stock / index will experience very high levels of volatility
in the near term.
 Risk: Limited to the initial premium paid
 Reward: Unlimited
 Breakeven:
1. Upper Breakeven Point = Strike Price of Long Call +
Net Premium Paid
2. Lower Breakeven Point = Strike Price of Long Put -
Net Premium Paid

Short strangle
 This strategy involves the simultaneous selling of a
slightly out-of-the-money (OTM) put and a slightly out-
of-the-money (OTM) call of the same underlying stock
and expiration date.
 When to Use: This options trading strategy is taken
when the options investor thinks that the underlying
stock will experience little volatility in the near term.
Risk: Unlimited
 Reward: Limited to the premium received
 Breakeven:
1. Upper Breakeven Point = Strike Price of Short Call +
Net Premium Received
2. Lower Breakeven Point = Strike Price of Short Put -
Net Premium Received

BACK TESTING OF LONG AND SHORT STRANGLE
ON CNX NIFTY
 Under these call and put option are purchased and sold at a
strike price with the difference of 5 % from the spot market
 Under theses both call as well put are out of the money
 As per theory of long strangle, it is more beneficial for the
investor as against short strangle. As in long strangle losses
are limited up to certain limit whereas profit are unlimited.
 But as per the back testing carried out in these strategy result
are exactly reverse. These is because market fluctuates but
not as per the investors expectation.

Sr. No. Criteria Strategy Profit/Loss Max DD Probability
1 Profit book at 20% of investment Long Strangle -941.32 961.41 36.17
9 Exit at Expiry
10 Profit book at 20% of investment Short Strangle 519.65 528.1 56.17
16 Exit at Expiry Short Strangle

 When to Use long strangle:
The investor thinks that the underlying stock / index
will experience very high levels of volatility in the near
term.
 When to Use short strangle:
This options trading strategy is taken when the
options investor thinks that the underlying stock will
experience little volatility in the near term
 Recomondetaion:
According to back testing investor should use short
strangle as against long strangle as the probability of
profit is more In short strangle even though investor is
going too get the premium of the option, he will earn
more as against the losses in long strangle

2% STRAYEGY
 Under these strategy investor will take a position both in call as well
as put option, before 5 days of expiry. Investor will purchase a call
and put at a strike price with the difference of 2 %( being rounded
off to zero)
 Need of these strategy: - As various strategy formulated ahead do
not help investor too get maximum profit with minimum risks.
According to these strategy investor will be benefited only if index is
between the range. If spot price is above or below on the expiry than
in in that case investor will make loss up to the difference between
spot price and the strike price.
year profit loss Max loss max profit
2010 230.7 -77.15 57.5
2011 294.6 -17.15 71.55
2012 75.65 -105.35 39.3
2013 224.55 -81.85 50.95
2014 148.8 -76.15 193.95

 According to back testing in these strategy there is approximately
83% probability of getting profit in five years. As per the findings
maximum profit was in the year 2010. Investor should be very
cautious of using these strategy as there can be huge loss if spot
price move away from the reng specified. Maximum profit in last four
years is 57.5, 71.55, 39.3, 50.95, 193.95 in respective there years.
And Maximum loses in last four years is 77.15, 17.15, 105.35, 81.85,
76.15.
 From the above figures these strategy can be adopted by the
investor who are risk averse to the market and thereby can book the
profit with less risk as against the profit.
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014
profit loss

CONCLUSION AND RECOMMENDATION
According to the back testing on CNX NIFTY following
can be measures can be concluded for the investor:
 Investor should take short position in the market against
the long position, as per our study probability of getting
profit 83 % and in the majority of long position there are
losses.
 Investor should take short position in market few days
say 5 before expiry.
 Investor should take into consideration investment
pattern of foreign investors as they affect the market to a
great extent.
 Option can be used for short term investment as
maximum 3 months expiry are available.
 Study is helpful to the government to predict the future
trends in the market.

Summer training @ jainam shares consultancy ltd

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Summer training @ jainam shares consultancy ltd