FUTURES AND OPTIONS

ASSIGNMENT
Professor In-Charge: Dr. Ranjan Chakravarty

Submitted By: Batch 2 (Group 2)

Arunabha Banerjee F007
Gautam Kumar F031
Snehalata Mundra F039
Varshil Nandu F041
Udaykiran Paluri F042
Rahul Chokhani J015

FUTURES AND OPTIONS GROUP PROJECT

Stock – Cipla Ltd.

Reasons to choose the above stock:

1. Cipla’s quarterly profit for the second quarter missed the lowest analyst estimate. Net Profit
declined 11% YoY while Net Sales Declined 2%. The operational performance missed
estimates too.
2. The company indicated at a funding squeeze in its investor call impacting the tender flows
particularly from South Africa (about 50% cut) from FY2019.
3. Other factors affecting the company include higher crude and commodity prices and rising
supplies sourced from China even though there was benefit from INR depreciation against
the USD.

Technical Analysis

1. HVG: On 3rd November, the HVG was found below Price line and both were expected to
converge in the coming period. Inflexion points were spotted for both Price and Historical
Volatility. Thus. Price was found to be reducing with rising volatility.



2. Bollinger Bands:

Bollinger bands indicated a short sell since the price of the stock has been in a downtrend
and hovered near the upper band. The gradual widening of the bands also indicated rising
volatility with falling price.

Industry – Pharmaceutical Industry

Strategy – Bear Call Spread as we were expecting the stock to tank with falling prices and rising
volatility.

Strike Price Choice – Cipla Ltd. Stock Option (expiry 29Nov’18)

550 and 530 strike prices based on expected support and resistance from underlying Open Interest
numbers.

Long 550 call @ 66.10 – (Premium Paid)

Short 530 call @ 82.40 – (Premium Received)

Net Credit or Premium Received = Rs. 16.3

Current P&L – If the Price continues to stay below the levels of 530, then both the calls will expire
out of the money giving a profit% of ((16.3/66.10) *100) that is 24.65% of return on invested amount.

The maximum loss is the difference between the two strike prices reduced by the net premium or net
credit received at the outset.