Wednesday, 3 November 2021

Ratio spread for SBI post excellent Q2 result

SBI share price analysis and trade plan for option strategy.

SBI net profit jumps more than 60% in Q2. SBI share price outperform Banknifty index and Nift 500. State bank price rallied more than 150% in last one year. I selected state bank share for buying tomorrow during Diwali Muhurt trading. This is my long term investment plan. 

You may read SBI option chain analysis , where I shared my plan to enter into bullish option strategy and updated my position as on 1st November. 

 SBI 1:2 bull call spread 520 CE call and 560 CE sell

I closed the position . Here I got the benefit of volatility of result day at ATM buy leg 

SBI is  bullish  on day and weekly chart. 

As long as SBI is trading above 5 day moving average, there will be buy in dips opportunity.

Once SBI trades above 541 ( Gann level) , I will initiate a new call ratio spread. I will buy 580 CE and sell 610 CE. I will make it 1:3 ratio spread. 

SBI-ratio spread

Pay off chart of SBI 1:3 bull call ratio spread

This a credit spread. This means if market expires below 620 , I will receive at least  Rs 5400 . This will be 1.6% return on capital deployed.This strategy will give profit first before it gives loss. 

The strategy will give problem if SBI moves beyond 600 in next 1 or 2 day.  This strategy will be highly sensitive to rise in volatility.


Option greek values in Rupees for easy understanding


A good understanding SBI option chain and behavior of greeks with movement of underlying, time and volatility is very important for managing option strategy.

Analysis of option greeks impact on strategy 

1. Combined premium will go down by Rs. 216  for each point increase of underlying. This is due to delta The strategy has negative gama 7.It implied delta ill be farther impacted by -7 point for increase of one point. 

2. Strategy will gain Rs. 691  with passing of each day. This is due to theta.

3. If implied volatility increase by 1%, premium  will gain Rs.587. This is due to vega.

If price increased by 10 point and volatility decreased by 1%. total premium value will be 

-2160  loss due to theta

-70 Rs loss due to Gama

+691  gain for theta decay over a day

+587 Gain for volatility contraction

Hence total loss will be  Rs. 952 

If price increased by 10 point and volatility increased by 1%. total loss will be -2126

Why I want to implement this strategy ?

I want to invest in SBI for long term. I will buy 100 shares to day at Diwali Muhurta. This cash buy will help me to minimize the delta effect and will give fixed rental till SBI is below 620. Trade need to hold position irrespective of M2M loss in strategy till price reach near brakeeven point.

I will explain adjustment once I deploy any strategy.

I deployed  far OT 1:3 ratio spread strategy to take the benefit of comparatively high IV. Please click the next link to know my analysis behind the strategy  SBI share trade plan  

Please click the link to know my over all view on SBI share price 

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