Top quantitative strategies for the week

By Shubham Agarwal, Head of Quantitative Research, MOSL

Option Writing - Strategy 1
Writing against Cash / Fut Holding
Sell DRREDDY 2450 CE 30-NOV-17 @ 22.75
Target level: Rs 3
Stop Loss level: Rs 29
Gross Monthly Yield: 2.14%
ROI: 7.00%
Margin: ~Rs 65,000
Days to expiry: 10

Writing with Hedging
Leg 1: Sell DRREDDY 2450 CE 30-NOV-17 @ 22.75
Leg 2: Buy DRREDDY 2500 CE 30-NOV-17 @ 16
Target level: Rs 0
Stop Loss ( Spread) level: Rs 9.50
Gross Monthly Yield: 0.87%
ROI: 6.50%
Margin: ~Rs 62,000
Days to expiry: 10

Strategy 2
Writing against Fut Holding
Sell JSWSTEEL 260 30-NOV-17 PE @ 3.00
Target Level: Rs 0.05
Stop Loss level: Rs 4.25
Gross Monthly Yield: 3.35%
ROI: 7.60%
Margin: ~Rs 1,18,000
Days to expiry: 10

Writing with Hedging
Leg 1: Sell JSWSTEEL 260 30-NOV-17 PE @ 3.00
Leg 2: Buy JSWSTEEL 255 30-NOV-17 PE @ 2.00
Target Level: Rs 0.05
Stop Loss (Spread) level: Rs 1.50
Gross Monthly Yield: 1.15%
ROI: 2.80%
Margin: ~Rs 1,06,000
Days to expiry: 10
Volatility is expected to fall based on forecasted volatility model ‘GARCH’ along with accelerated time decay in final week to expiry.

Pair Trading - Strategy 1
Leg 1: Buy CASTROLIND 1Lot 30-NOV-17
@397.65 and 700 shares in cash
Leg 2: Sell POWERGRID 1 Lot 30-NOV-17
@ 209.30
Tenure: 3-4 days
Target Profi t: 3.50%
Stop Loss: 1.25%
Margin: Rs 1,75,000
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.

Pair Trading - Strategy 2
Leg 1: Buy CANBK 1 Lot 30-NOV-17 @ 390.50
and 400 shares in cash
Leg 2: Sell UNIONBANK 2 Lots 30-NOV-17
@ 170.25
Tenure: 3-4 days
Target Profit: 3.25 %
Margin: Rs 4,45,000
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.