Top Quant strategies for the week

By Shubham Agarwal, Head of Quantitative Research, Motilal Oswal

Option Writing

STRATEGY 1

Writing against Cash / Fut Holding:
Sell Century Textile 1320 PE Nov 30 at Rs 23.50
Target level : Rs 5
Stop Loss level : Rs 30
Gross Monthly Yield : 3.07%
ROI : 11.90%
Margin : Rs 1,08,000
Days to expiry : 17

Writing with Hedging:
Leg 1: Sell Century Textile 1320 PE Nov 30 at Rs 23.50
Leg 2: Buy Century Textile 1300 PE Nov 30 at Rs 17
Target level : Rs 0.10
Stop Loss (Spread) level : Rs 9.5
Gross Monthly Yield : 0.85%
ROI : 3.72%
Margin : Rs 95,800
Days to expiry : 17

STRATEGY 2

Writing against Fut Holding:
Sell Dish TV 87.50 Nov 30 CE at Rs 1.50
Target Level : Rs 0.10
Stop Loss level : Rs 2.00
Gross Monthly Yield : 3.43%
ROI : 11.32%
Margin : Rs 92,700
Days to expiry : 17

Writing with Hedging:
Leg 1: Sell Dish TV 87.50 Nov 30 CE at Rs 1.50
Leg 2: Sell Dish TV 90 Nov 30 CE at Rs 1.00
Target Level : Rs 0.05
Stop Loss (Spread) level : Rs 0.75
Gross Monthly Yield : 0.90%
ROI : 4.50%
Margin : Rs 77,600
Days to expiry : 17
Volatility is expected to fall based on forecasted volatility model ‘GARCH’ along with accelerated time decay in fi nal week to expiry.

STRATEGY 2
Leg 1: Buy Cipla 1 Lot Nov 30 at Rs 610 and
340 shares in cash
Leg 2: Sell Divis Lab 1 Lot Nov 30 at Rs 1,020
Tenure : 3-4 days
Target Profit : 3.25 %
Margin : Rs 2,36,500
Stop Loss : 1.25%

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.