Top quant trade ideas for the day ahead

BY MOTILAL OSWAL FINANCIAL SERVICES

Option Writing
STRATEGY 1
Writing against Cash / Fut Holding
Sell TATAMOTORS 140 CE 26-MARCH-20 AT `1.70

Target Level : 0.05
Stop Loss Level : 2.60
Gross Monthly Yield : 2.40%
ROI : 7.90%
Margin : `90,000
Days to Expiry : 18
Writing with Hedging
Leg 1: Sell TATAMOTORS 140 CE 26-MAR-20 AT `1.70
Leg 2: Buy TATAMOTORS 160 CE 26-MAR-20 AT `0.60
Target Level : 0.05
Stop Loss (Spread) Level : 1.75
Gross Monthly Yield : 1.50%
ROI : 5.40%
Margin : `83,000
Days to Expiry : 18
STRATEGY 2
Writing against Cash / Future Holding
Sell HDFC 2260 CE 26-MARCH-20 AT `17.25
Target Level : 0.05
Stop Loss Level : 27
Gross Monthly Yield : 1.4%
ROI : 5.25%
Margin : `82,000
Days to Expiry : 18
Writing with Hedging
Leg 1: Sell HDFC 2260 CE 26-MARCH-20 AT `17.25
Leg 2: Buy HDFC 2360 CE 26-MARCH-20 AT `6.35
Target Level : 0.05
Stop Loss (Spread) Level : 17.50
Gross Monthly Yield : 0.9%
ROI : 3.40%
Margin : `80,000
Days to Expiry : 18

Pair Trading
STRATEGY 1
Leg 1: BUY ASIANPAINT 1 LOT 26-MARCH-20
AT `1,878.85 AND 27 SHARES IN CASH
Leg 2: SELL BERGEPAINT 1 LOT
26-MARCH-20 AT `536.55
Tenure : 7-8 Days
Target Profit : 6.80%
Stop Loss : 3.55%
Margin : `4,60,000

This pair has 95% correlation over the last one year. Pair (Asian Paints/ Berger Paints) has trade lot ratio of 0.96 with price ratio of 3.51. We are expecting the ratio to rise towards its mean of 4.22 with a view of outperformance in Asian Paints.


STRATEGY 2
Leg 1: BUY BAJFINANCE 1 LOT 26-MARCH-20
`4,224.60 AND 5 SHARES IN CASH
Leg 2: SELL BAJAJFINSV 1 LOT
26-MARCH-20 `8,622.85
Tenure : 7-8 Days
Target Profit : 4.80%
Stop Loss : 2.40%
Margin : `4,03,000

This pair has 85% correlation over the last one year. Pair (Bajaj Finserv /Bajaj Finance) has trade lot ratio of 1.02 with price ratio of 2.04. We are expecting the ratio to narrow down as per its 2SD band with the view to continue to outperformance of Bajaj Finance.