Top quant strategies for the week

By Shubham Agarwal, Head of Quantitative Research, MOSL

Option Writing:

STRATEGY 1
Writing against Cash / Fut Holding
Sell Divi’s Lab 680 PE 28SEP at Rs 22
Target level : Rs 5
Stop Loss level : Rs 27
Gross Monthly Yield : 3.8 per cent
ROI : 22 per cent
Margin : Rs 60,500
Days to expiry : 24

Writing with Hedging
Leg 1 Sell Divi’s Lab 680 PE 28SEP at Rs 22
Leg 2: Buy Divi’s Lab 660 PE 28SEP at Rs 15.35
Target level : Rs 1
Stop Loss (Spread) level : Rs 10
Gross Monthly Yield : 1.12 per cent
ROI : 10.50 per cent
Margin : Rs 48,000
Days to expiry : 24

STRATEGY 2

Writing against Fut Holding
Sell Adani Ports 28SEP 390 PE at Rs 9.30
Target Level : Re 1
Stop Loss level : Rs 13
Gross Monthly Yield : 2.65 per cent
ROI : 23.65 per cent
Margin : Rs 98,000
Days to expiry : 24

Writing with Hedging
Leg 1: Sell Adani Ports 28SEP 390 PE at Rs 9.30
Leg 2: Buy Adani Ports 28SEP 380 PE at Rs 6.05
Target Level : Rs 0.05
Stop Loss (Spread) level : Rs 4.10
Gross Monthly Yield : 1.03 per cent
ROI : 9.78 per cent
Margin : Rs 83,000
Days to expiry : 24
Volatility is expected to fall based on forecasted volatility model ‘GARCH’ along with accelerated time decay in fi nal week to expiry.

Pair Trading :

STRATEGY 1
Leg 1: Buy Godrej Consumer Products 1 Lot
28SEP at 947 and 145 shares in cash
Leg 2: Sell Tata Global Bev 1 Lot 31AUG at Rs 198
Tenure : 3 days
Target Profi t : 3.25 per cent
Stop Loss : 1.25 per cent
Statistical reversion is expected in the pair based on our mean-reversion model. The pair is co-integrated and passes the stationary test. The distribution is around normal.

STRATEGY 2
Leg 1: Buy Bharat Financial 1 Lot 28SEP at
911 and 580 shares in cash
Leg 2: Sell Muthoot Finance 2 Lots
28SEP at Rs 479
Tenure : 3 days
Target Profi t : 3 per cent
Stop Loss : 1.25 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.