Determination of Properties of the Benchmark Index through Strangle Option Strategies

ABSTRACT

The purpose of this paper is to measure the intrinsic characteristics of the Indian capital market through the long and short strangle options strategies. The study uses the trigonometric ratio Tan θ to form the monthly angle between strategy profit and Nifty closing. Further, the results of monthly angle formation have been verified by the regression analysis. The result of the angle formation indicates that the short strangle option strategy may perform better on the Nifty Index in the future. To the best of our knowledge, this is the first research where different properties of any index through the strangle options strategies using the Angle (Tan θ) have been analyzed on the Nifty Index of India. These findings will help investment management companies, retail investors, and investment advisors for profit maximization while trading in Nifty.

KEYWORDS:

• strangle option strategy
• θ
• tan⁻¹ (.)
• Angle
• Emerging Market

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Nifty is a Benchmark Index of the Indian Stock Market

2. Profit and loss is the outcome of total points earned or loss in the index and lot size. The lot size may vary due to regulations of NSE hence we have calculated the points earn or lost.

3. Regression assumption has been tested through data transformation, and we found no change in positive and negative signs in both models.