Top quant play ideas for the week ahead

By Motilal Oswal Financial Services

Option Writing
STRATEGY 1
Writing against Cash / Fut Holding
Sell KOTAK BANK 1720 CE 27-FEB-20 @ 13.25

Target Level : 0.05
Stop Loss Level : 19.50
Gross Monthly Yield : 1.35%
ROI : 5.10%
Margin : 1,02,000
Days to Expiry : 18
Writing with Hedging
Leg 1: Sell KOTAK BANK 1720 CE 27-FEB-20
@ 13.25
Leg 2: Buy KOTAK BANK 1800 CE 27-FEB-20
@ 4.20
Target Level : 0.05
Stop Loss (Spread) Level : 13.50
Gross Monthly Yield : 0.9%
ROI : 3.50%
Margin : 1,00,000
Days to Expiry : 18

STRATEGY 2
Writing against Fut Holding
Sell RELIANCE 1500 CE 27-FEB-20 @ 11.35
Target Level : 0.05
Stop Loss Level : 16.50
Gross Monthly Yield : 1.30%
ROI : 4.85%
Margin : 1,10,000
Days to Expiry : 18
Writing with Hedging
Leg 1: Sell RELIANCE 1500 CE 27-FEB-20 @ 11.35
Leg 2: Buy RELIANCE 1600 CE 27-FEB-20 @ 2.60
Target Level : 0.05
Stop Loss (Spread) Level : 12.25
Gross Monthly Yield : 0.95%
ROI : 3.75%
Margin : 1,09,000
Days to Expiry : 18


Pair Trading
STRATEGY 1
Leg 1: BUY HDFCBANK 1 LOT 27-FEB-20
@ 1242.50
Leg 2 : SELL HDFC 1 LOT 27-FEB-20 @ 2415
Tenure : 7-8 Days
Target Profit : 5.10%
Stop Loss : 2.50%
Margin : 2,16,000

This pair has 90% correlation over the last few weeks post its ex-corporate action. Pair (HDFC/ HDFCBANK) has trade lot ratio of 0.97 with price ratio of 1.94. Pair ratio may now take a pause, as 1.97-2.0 is upper band of this band as per the statistical data so expecting the ratio to now turn lower towards its half the way of mean which is 1.80.

STRATEGY 2
Leg 1 : BUY BAJFINANCE 1 LOT 27-FEB-20
@ 4660.10 AND 8 SHARES IN CASH
Leg 2 : SELL BAJAJFINSV 1 LOT 27-FEB-20
@ 9632.55
Tenure : 7-8 Days
Target Profit : 4.50%
Stop Loss : 2.30%
Margin : 4,56,000

This pair has 85% correlation over the last one year. Pair (BAJAJFINSV /BAJFINANCE) has trade lot ratio of 1.03 with price ratio of 2.06. We are expecting the ratio to narrow down as per its 2SD band with the view to continue to outperformance of BAJFINANCE.