Hi, everyone
While trading in my dummy trading a/c on nseindia (dot) com i created the following bearish-debit-put-spread.
Case 1:
Construction: On 14th march'12 when the spot nifty was at 5430(approx.), i sold 5400 put for 92.05 and brought 5500 put for 138.05. The expiry was on 29th march'12.
So,
Net cost: 46
Max reward: 100
B.E.P : 5454
But on the day of expiry, and the premiums ended at,
5500PE: 316.00
5400PE: 214.80
NIFTY closed at 5180(approx.)
I.e. i have got Rs.60 additionally to the Rs.5000 reward i should have got.
I know Rs60 can be considered as a negligible amount, that too when it’s additional profit. But out of curiosity i checked the historical data on nseindia (dot) com, if such differences could lessen our max rewards, and i found the following situation (case 2)
Case 2:
Construction: On the same 14th march, the EOD premiums were the following,
5800PE: 306.85
5900PE: 392.10
I.e. i could have sold 5800PE for 306.85 and brought 5900PE at 392.10
So,
Net cost: 85.25 (approx., because the premium rates are from E.O.D data)
Max reward: 100, again.
B.E.P : 5814.75
I know no one would have gone for this spread because the net profit is quite less, but the possibility of nifty closing below 5800 (or below this spread’s B.E.P) was quite high, isn't it?
And moreover i have mentioned about this spread only for "discuss & gain knowledge" purpose.
Again, on the day of expiry, the puts closed at:
5800PE: 630.05
5900PE: 718.00
NIFTY closed at 5180(approx.)
In this case also i should have got a gross return of 100*50, Rs.5000,
But with the premium rates at expiry (of 5800PE and 5900PE) mentioned above, the gross return i could have got is only Rs.4397.50 (87.95*50).
I.e. approximately 12% (approx.) less reward (gross return)
And approximately 18.30% (approx.) less profit (net return)
Wonder why the max reward obtained, varied from the calculated/expected max reward? Especially in the 2nd case when the underlying nifty index stayed way below the lower strike as expected and as it did in the 1st case.
P.S: In both the cases the spreads were created on 14th march'12 and both expired on 29th march'12, and in this same period the nifty traded between 5438-5194 and finally closed at 5179 on the day of expiry.
Is there any simple basic point i am missing here, if yes, what is it?
If no, i request the legends in this thread to look into both the above cases.
AW10 , what's your take on this?
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ADD: EOD premium prices used to construct/calculate the spread in the second case, were taken from the nseindia (dot) com's link provided below
http://www.nseindia.com/content/fo/fo_contractsdata.htm
