01 Bearish Strategies

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Bearish Strategies

RAVI - IBA


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STRATEGY 2 : SHORT CALL• When you uy a Ca!! you are ho"ing that the

un#er!ying sto$% & in#e' (ou!# rise) When you e'"e$tthe un#er!ying sto$% & in#e' to *a!! you #o theo""osite)

• When an in+estor is +ery earish a out a sto$% &in#e' an# e'"e$ts the "ri$es to *a!!, he $an se!! Ca!!o"tions)

• This "osition o ers !i.ite# "ro/t "otentia! an# the

"ossi i!ity o* !arge !osses on ig a#+an$es inun#er!ying "ri$es)• A!though easy to e'e$ute it is a ris%y strategy sin$e

the se!!er o* the Ca!! is e'"ose# to un!i.ite# ris%)


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Re$a!! 0 Ca!! o"tion uy &Se!!

• A Ca!! o"tion .eans an O"tion to uy)Buying a Ca!! o"tion .eans anin+estor e'"e$ts the un#er!ying "ri$eo* a sto$% & in#e' to rise in *uture)

• Se!!ing a Ca!! o"tion is 1ust theo""osite o* uying a Ca!! o"tion)

• Here the se!!er o* the o"tion *ee!s theun#er!ying "ri$e o* a sto$% & in#e' isset to *a!! in the *uture)


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• When to use: In+estor is +eryaggressi+e an# he is +ery earisha out the sto$% & in#e')

• Ris%: n!i.ite#• Re(ar#: Li.ite# to the a.ount o*

"re.iu. Brea%-e+en 3oint: Stri%e3ri$e 4 3re.iu.


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E'a."!e:• 5r) 6Y7 is earish a out 8i*ty an#

e'"e$ts it to *a!!)• He se!!s a Ca!! o"tion (ith a stri%e "ri$e

o* Rs) 29 at a "re.iu. o* Rs);=)

• I* the 8i*ty stays at 29 or e!o(, theCa!! o"tion (i!! not e e'er$ise# y the

uyer o* the Ca!! an# 5r) 6Y7 $anretain the entire "re.iu. o* Rs) ;


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A8ALYSIS• This strategy is use# (hen an in+estor is +ery

aggressi+e an# has a strong e'"e$tation o* a"ri$e *a!! ?an# $ertain!y not a "ri$e rise@)

•

This is a ris%y strategy sin$e as the sto$% "ri$e &in#e' rises, the short $a!! !oses .oney .orean# .ore ui$%!y an# !osses $an e signi/$anti* the sto$% "ri$e & in#e' *a!!s e!o( the stri%e"ri$e)

• Sin$e the in+estor #oes not o(n the un#er!yingsto$% that he is shorting this strategy is alsocalled Short Naked Call.


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Strategy 2: Long Put• Buying a 3ut is the o""osite o*

uying a Ca!!) When you uy a Ca!!you are u!!ish a out the sto$% &in#e') When an in+estor is earish,he $an uy a 3ut o"tion)

• A 3ut O"tion gi+es the uyer o* the3ut a right to se!! the sto$% ?to the3ut se!!er@ at a "re-s"e$i/e# "ri$ean# there y !i.it his ris%)


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Long 3ut• A !ong 3ut is a Bearish strategy) To ta%e

a#+antage o* a *a!!ing .ar%et an in+estor $anuy 3ut o"tions)

•

When to use:• In+estor is earish a out the sto$% & in#e')• Risk: Li.ite# to the a.ount o* 3re.iu. "ai#)

?5a'i.u. !oss i* sto$% & in#e' e'"ires at ora o+e the o"tion stri%e "ri$e@)

• Reward: n!i.ite#• Break-even Point: Sto$% 3ri$e - 3re.iu.


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Long 3ut E'a."!e

5r) 6Y7 is earish on 8i*ty on 2=th une, (henthe8i*ty is at 29>=)

He uys a 3ut o"tion (ith a stri%e "ri$e Rs) 29at a "re.iu. o* Rs)


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PROTECTI E C!LL "S#$T%ETIC LO$& P'T

• This is a strategy (herein an in+estor has goneshort on a sto$% an# uys a $a!! to he#ge)

• This is an o""osite o* Syntheti$ Ca!! )•

An in+estor shorts a sto$% an# uys an AT5 ors!ight!y OT5 Ca!!)• The net e e$t o* this is that the in+estor

$reates a "ay-o !i%e a Long 3ut, ut instea# o*

ha+ing a net #e it ?"aying "re.iu.@ *or a Long3ut, he $reates a net $re#it ?re$ei+es .oney onshorting the sto$%@


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• In $ase the sto$% "ri$e *a!!s the in+estor gains inthe #o(n(ar# *a!! in the "ri$e)

• Ho(e+er, in$ase there is an une'"e$te# rise inthe

• "ri$e o* the sto$% the !oss is !i.ite#)• The "ay-o *ro. the Long Ca!! (i!! in$rease

there y• $o."ensating *or the !oss in +a!ue o* the short

sto$% "osition)• This strategy he#ges the u"si#e in the sto$%

"osition (hi!e retaining #o(nsi#e "ro/t "otentia!)


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• When to 'se: I* the in+estor is o* the +ie(that the .ar%ets (i!! go #o(n ()earish* ut(ants to

•

"rote$t against any une'"e$te# rise in the"ri$e o* the sto$%)• Risk: Li.ite#) 5a'i.u. Ris% is Ca!! Stri%e

3ri$e 0 Sto$% 3ri$e 4 3re.iu.• Reward: 5a'i.u. is Sto$% 3ri$e 0 Ca!!

3re.iu.• Breakeven: Sto$% 3ri$e 0 Ca!! 3re.iu.


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E+a, .e :• Su ose !BC Ltd/ is trading at

Rs/ 001 in 3une/ !n investor 4r/! )uys a Rs 0155 6a.. 7or Rs/ 855whi.e shorting the sto6k at Rs/001 /

• The net 6redit to the investor isRs/ 091 (Rs/

• 001 Rs/ 855*/


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E'a."!e Prote6tive Ca..

• RIL is tra#ing at Rs) =< !e+e!sF 5r) 6 is earishan# e'"e$ts the sto$% to *a!! in the near *uture)

• He shorts 2< shares o* RIL Rs) =< in the*utures .ar%et)

• Re.e. er (hen you short in $ash .ar%et youha+e to $o+er it y en# o* the #ay, so here you(i!! short in the *utures .ar%et so that you $anho!# your short "ositions ti!! e'"iry)

• In or#er to he#ge hi.se!* in short "ositions, he(i!! uy one = AT5 Ca!! O"tion at a "re.iu.o* Rs) 22) The !ot si e o* RIL O"tion is 2< )


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CO ERE; P'T• This strategy is o""osite to a Co+ere# Ca!!)

A Co+ere# Ca!! is a neutra! to u!!ishstrategy, (hereas a Co+ere# 3ut is a

neutra! to Bearish strategy)• You #o this strategy (hen you *ee! the

"ri$e o* a sto$% & in#e' is going to re.ainrange oun# or .o+e #o(n) Co+ere# 3ut(riting in+o!+es a short in a sto$% & in#e'a!ong (ith a short 3ut on the o"tions onthe sto$% & in#e')


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• The 3ut that is so!# is genera!!y an OT5 3ut) Thein+estor shorts a sto$% e$ause he is earish a outit, ut #oes not .in# uying it a$% on$e the "ri$erea$hes ?*a!!s to@ a target "ri$e) This target "ri$e isthe "ri$e at (hi$h the in+estor shorts the 3ut ?3utstri%e "ri$e@)

• Se!!ing a 3ut .eans, uying the sto$% at the stri%e"ri$e i* e'er$ise# ?Strategy no) 2@) I* the sto$% *a!!s

e!o( the 3ut stri%e, the in+estor (i!! e e'er$ise#an# (i!! ha+e to uy the sto$% at the stri%e "ri$e?(hi$h is any(ay his target "ri$e to re"ur$hase thesto$%@)


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• The in+estor .a%es a "ro/t e$ausehe has shorte# the sto$% an#"ur$hasing it at the stri%e "ri$esi."!y $!oses the short sto$% "ositionat a "ro/t) An# the in+estor %ee"s the3re.iu. on the 3ut so!#)

• The in+estor is $o+ere# here e$ausehe shorte# the sto$% in the /rst "!a$e)


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• I* the sto$% "ri$e #oes not $hange, the in+estorgets to %ee" the 3re.iu.)

• He $an use this strategy as an in$o.e in aneutra! .ar%et) Let us un#erstan# this (ith ane'a."!e )

E+a, .eSu ose !BC Ltd/ is trading at Rs 0155 in

3une/ !n investor< 4r/ !< shorts Rs 0955 Put)y se..ing a 3u.y Put 7or Rs/ 20 whi.e shortingan !BC Ltd/ sto6k/ The net 6redit re6eived )y4r/ ! is Rs/ 0155 = Rs/ 20 > Rs/ 0120/


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• When to 'se: I* the in+estor is o* the+ie( that the .ar%ets are ,oderate.y)earish/

• Risk: n!i.ite# i* the "ri$e o* the sto$%• rises su stantia!!y• Reward: 5a'i.u. is ?Sa!e 3ri$e o* the

Sto$% 0 Stri%e 3ri$e@ 4 3ut 3re.iu.• Breakeven: Sa!e 3ri$e o* Sto$% 4 3ut

3re.iu.


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01 Bearish Strategies

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