1. F&O Earnings Strategy: Maruti Suzuki India Q3

F&O Earnings Strategy: Maruti Suzuki India Q3

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4 min read • Updated: January 30, 2024, 3:15 PM

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Summary

For options traders, earnings announcements provide an opportunity to trade on the volatility.

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A trader will sell a straddle if he or she believes that Maruti Suzuki India would not be volatile.

Maruti Suzuki India is all set to announce its December quarter results on 31 January. The price of the stock as of 2:00 pm on 30 January is ₹10.006.70.

Interested in trading options?

When you trade options, you can either use a directional strategy or a non-directional strategy. To use a directional option strategy, you have to have an idea of the direction, bullish or bearish, of the underlying security. With non-directional strategies, you don’t need an opinion of the direction of the underlying index or stock; all that you need is an opinion on whether the underlying will be volatile or not.

Let's understand what a straddle is.

Long straddle: A trader will buy a straddle if he or she believes that Maruti Suzuki India will be volatile before 29 February 2024, which is the next expiration date following the release of earnings. This long straddle option strategy is deployed by buying at-the-money (ATM) call and put options of the same expiry and strike.

Short straddle: A trader will sell a straddle if he or she believes that Maruti Suzuki India would not be volatile before 29 February 2024. This strategy is deployed by selling ATM call and put options of the same expiry and strike.

Now, let’s find out critical levels while trading options for Maruti Suzuki India

  • Since Maruti Suzuki India is trading at ₹10,006.70, the at-the-money strike is 10000.
  • The premium for 10000 CE (ATM call option) is ₹329.90.
  • The premium for 10000 PE (ATM put option) is ₹244.15.
  • When we add these, we get the total cost of the strategy if you are executing a long straddle. This value is the total credit received if you are executing a short straddle.
  • To obtain the upper breakeven point, you add the total premium (₹574.05) to the strike price (10000). For the lower breakeven point, you subtract the total premium (₹574.05) from the strike price (10000).
  • The upper breakeven point is ₹10,574.05 (+5.7%) and the lower breakeven point is ₹9,425.95 (-5.8%). If you are executing a long straddle, Maruti Suzuki India needs to move more than this to breakeven. If you are executing a short straddle, if Maruti Suzuki India stays within this range, you will make a profit.

Deploying straddle for Maruti Suzuki India

For options traders, earnings announcements provide an opportunity to trade on the volatility.

Deploy a Long Straddle if you believe Maruti Suzuki India will move up more than 5.7% or down more than 5.8%

Deploy a Short Straddle if you believe Maruti Suzuki India will move up less than 5.7% or down less than 5.8%.

Interested to know more about straddles? Check out our UpLearn education content. If you want to see more earnings insights like this, sign-up for our community, let us know, and we will share it!

Simplified Straddles on our Strategy Chain

Are you interested in trading straddles but don’t want to manually calculate the strategy premium or the breakeven points? On our option chain webpage, we have a “Strategy” dropdown menu that is to the left of the “Expiry” selection. Using the “Strategy” dropdown menu, select “Straddle” to view the straddle-specific option chain. The ‘Total Bid’ value is the premium you will collect if you enter into a short straddle for that particular strike price. The ‘Total Ask’ value is the premium you will collect if you enter into a long straddle for that particular strike price. The ‘B/E 1’ and ‘B/E 2’ are the upper and lower breakeven points. If you login to your Upstox account from this page or start the account sign-up process, the breakeven probability (‘B/E Prob’) will become unlocked.

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Disclaimer

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Derivatives trading must be done only by traders who fully understand the risks associated with them and strictly apply risk mechanisms like stop-losses. The information is only for consumption by the client and such material should not be redistributed. We do not recommend any particular stock, securities and strategies for trading. The stock names mentioned in this article are purely for showing how to do analysis. Take your own decision before investing.