How traders can play RIL on Q2 results day

MUMBAI: Those keen on punting on RIL for share price movement post its Q2 results after market hours on Wednesday could initiate a short straddle on the near month at the money (ATM) options of the oil and gas to telecom behemoth.

A short straddle consists of selling a call and put option of the same strike price in the hope that the share will remain rangebound and enable the seller to pocket much of the premium (paid by the buyer) immediately after an important event, like results, or at the expiration of derivatives contracts.

In RIL, derivatives experts like Rajesh Palviya of Axis Securities and Chandan Taparia of Motilal Oswal, suggest a “short straddle.” Going by data from the past five quarters, RIL has moved in a range of minus 3.18 per cent and 3.76 per cent.


“A short straddle will enable sellers to pocket a chunk of premium as implied volatility will fall post the results on Wednesday,” said Taparia. “This typically results in options premia declining by as much as 25 per cent.”

To illustrate, RIL closed at Rs 1,166 a share Tuesday. The 1,160 options, expiring on October 25, are at the money. The sale of a 1,160 straddle yields a combined Rs 63 premium to the seller. The range is simply arrived at by adding the premium to and subtracting it from CMP (1,166).

This is Rs 1,097-1,223. The upper end of the range is 4.8 per cent from Tuesday closing and the lower end is 5.9 per cent below it. “Considering volatility of past quarterly results, this shows that short straddle will yield a decent gain, if initiated,” said Palviya.

The strategy is agnostic direction but bets on fall in option IVs and rangebound movement.