Answer To: Part A (4marks)Usethe open interest or trading volume data provided for the period 1stJanuary 2021...
Himanshu answered on Oct 29 2021
Table of Contents
Executive Summary 2
Part A 3
Part B 5
Part C 9
Part D 12
References 13
Executive Summary
In this study, we will look at how different investors use Put Call Ratio, Option, and future strategies. When an investor enters the trade, the call rate has many components, while options have different limits, and futures contracts have different features. In this study, we will examine each part of the overall strategy, as well as its implementation and outcomes. Lastly, we can say that each strategy has its own set of features and rewards, based entirely on investor preferences and goals.
Part A
Put-call ratio graph for the period 1st January 2021 to 15th August 2021
Chart 1: Put Call Ratio
We chose Put Call Ratio and Open Interest because it provides a clear picture of what is happening and what the movement will be in the near future.
PCR can also be expressed on a daily basis. Volumes indicate market movement, and OI indicates stock. Although both are used, PCR (OI) is generally the best indicator of market trends, while PCR (Volumes) is often used to verify achieved PCR (OI) findings. One of the most beneficial methods is a combination of PCR OI and PCR Volume with an in-depth volume analysis. This can be used to determine how a combination of three different indicators can be used to accurately predict short-term changes. The Put Call Open Interest Ratio (PCR OI) is an open interest rate rate that sets the interest rate on calls, while the Put Call Volume Ratio (PCR Volume) is the volume of the stock or index volume. . While traders use PCR OI and PCR Volume to provide critical insight, anything above 1.4 is considered a bearish indicator, as many market participants are confident of a continuous uptrend, and one can go against buying or selling calls to profit in the fall. the future. because of the overconfidence. Similarly, a PCR ratio of 0.6 or less is bullish, indicating that the market is not very optimistic and that a change is imminent. In this case, the best way would be to record the placement / purchase of calls and the benefit in the near future, which is sure to happen, and the short cover that will occur.
Chart 2: Put Call Ratio
While the Put Call Ratio with Open Interest is 0.34 and the Put Call Ratio with Volume is 0.28, the Put Call Ratio with Open Interest is 0.34. In all cases, the market seems to be very optimistic. The market is bullish if the average call put is less than or equal to 0.6.
Put / Call Ratio (PCR) is a common alternative indicator used to help traders determine the overall market attitude (attitude). The rate is determined using the option to trade volumes or open interest for a period of time. If the ratio is more than one, it shows that many puts are sold all day, and if it is less than one, it indicates that many calls have been changed. PCR may be included in the entire options market, including individual stocks and indicators. Put / Call Ratio is a popular measure used by traders to determine market sentiment. Traders use a put / call rate to predict price movements for basic security and direct betting on stocks. As a counterfeit signal, it helps traders avoid the trap of Herd Mentality. The Put / Call Ratio can be used to analyse the overall trading behaviour of market players because it is calculated in terms of open profit and volume. (CFI, 2021)
Part B
According to Part A's research, we believe the stock has a good possibility of continuing its upward trajectory because the Put Call Ratio was less than 1, indicating a bullish tendency. With stock, we may utilise option method to generate excellent returns with minimum risk. We can buy stocks with that we can sell some put since we are highly bullish on the stock.
Stock price action as on 16 August to 30 August
Chart 3: Stock Price action 16 Aug 2021 to 30 Aug 2021
Chart 4: Formation of Flag Pattern
Technical analysis is a trading method that analyzes stocks and identifies trading opportunities using patterns and levels in illustrations. Technical experts believe that historical and unpredictable price behavior can be used to predict future price fluctuations. On the other hand, basic research is more about a company’s profit than a previous price trend or sharing flexibility. Technical analysis is often used to provide short-term investment indicators for various image tools, but can also be used to improve strengths and weaknesses in relation to a larger market or one of its components. This information helps analysts improve their overall scores (Edelweisis, 2021)
From technical analysis we can see that the stock is strengthening at these levels and is ready for a rise based on the Put Call Ratio analysis.
Let’s, suppose call options are
Chart 5: Option chain of the BXB
Total amount $1000,000.
We have invested 50 percent of the value in stocks and 50 percent in other options as our short-term outlook for a gradual shift in stock will have very little chance of a sharp decline in a particular stock.
We will use the strategies of two options including:
1. Bull Call Spread
2. Bull Put Spread
Chart 6: Allotments of Fund
Option to mix and match calls to trade. This usually includes long and short directions, but some strategies include only long or short. 'Leg' is the name given to each contract for the various options. With the exception of one fence or one single long or short placement, most strategies have multiple legs.
Bull Call Spread
The bully call distribution includes one long call with a low strike value and one short call with a high strike value. Both calls have the same basic stock and the same expiration date. The distribution of the capital fence is based on deductions (or residual costs) and profits as the primary stock rises in price. Profit is limited if the stock price rises above the short-term strike price, and potential losses are limited if the stock price falls below the long-term (low strike) strike price (Options Playbook, 2021)
Buy * 1 At the money call
Sell * 2 Out the money call
Chart 7: Execution of the strategy
Bull Put Spread
A bull put spread is an investment strategy that an investor uses when expecting an average rise in the price of a commodity asset. The strategy uses two placement options to create a range, which includes a high strike price and a low strike price.
Chart 8: Execution of Strategy
Chart 8: Profit Analysis
Part C
Hedging Strategy
Hedging "is a good practice that every shareholder should be aware of when it comes to investing. Hedging" refers to the activities of your garden-loving neighbor, but when it comes to investing, fencing is a useful strategy that should be communicated to every shareholder. for.
Fencing is considered a financial expense, a way to reduce risk. Hedging is an easy-to-understand concept, yet it is still controversial among new entrants to the market. Hedging is used to protect against market losses caused by unexpected fluctuations....