Solid quant play strategies for the week

By Shubham Agrawal, Head of Quantitative Research, MOSL

STRATEGY 1
Writing against Cash / Fut Holding
JSW Steel 210 27 July PE at Rs 3.60
Target Profit: Rs 0
Stop Loss: Rs 4.5
Gross Monthly Yield: 2.77 per cent
ROI: 11.13 per cent Margin: Rs 97,000
Days to expiry: 18

Writing with Hedging
Leg 1: Sell JSW Steel 210 27July PE at Rs 3.60
Leg 2: Buy JSW Steel 205 27July PE at Rs 2.4
Target Profit: Rs 1.2
Stop Loss (Spread): Rs 1.8
Gross Monthly Yield: 0.85 per cent
ROI: 4.2 per cent
Margin: Rs 86,000
Days to expiry: 18

STRATEGY 2
Writing against Fut Holding
Sell Reliance Capital 27 July 640 PE at Rs 10.50
Target Profit: Rs 0
Stop Loss: Rs 14.5
Gross Monthly Yield: 2.45 per cent
ROI: 11.33 per cent
Margin: Rs 1,39,000
Days to expiry: 18

Writing with Hedging
Leg 1: Sell Reliance Cap 27 July 640 PE at Rs 10.50
Leg 2: Buy Reliance Cap 27July 630 PE at Rs 7.8
Target Profit: Rs 2.70
Stop Loss (Spread): Rs 3.60 Gross
Monthly Yield: 0.61 per cent
ROI: 3.17 per cent
Margin: Rs 1,27,000
Days to expiry: 18


Pair Trading

STRATEGY 1
Leg 1: Buy L&T 1 Lot 27 July at Rs 1,705
Leg 2: Sell Nifty 1 Lot 27 July at 9667 and Buy 9800 PE 1 lot 27 July at Rs 163
Tenure: 3 days
Target Profit: 2 per cent

STRATEGY 2
Leg 1: Buy HCL Tech 1 Lot 27 July at Rs 832.5
Leg 2: Sell Mindtree 1 Lot 27 July at Rs 531
Tenure: 3 days
Target Profit: 2 per cent
Stop Loss: 0.7 per cent

The pair is well co-integrated. The distribution is not normal and skewed to the left and has evidence of a reversion within its own distribution.