Role of Options Greeks in Risk Management

Authors

  • Ujjwal Anand Student, MBA (Finance Management), Christ (Deemed to be University), Karnataka, India
  • Dr. Manu K. S. Assistant Professor, Christ (Deemed to be University), Karnataka, India

Keywords:

Naked options, Event trading Implied Volatility Percentile, Vega and Delta

Abstract

Purpose of the research: The study has been undertaken to analyse an optimum strike selection for naked options and assess an event strategy with options trading for Bank Nifty & Nifty 50 options indices. Methodology: The study collected the data of Nifty 50 and Bank nifty options data for the analysis. The study considered delta, Vega, implied volatility and Implied volatility percentile for the further analysis. Nifty underlying movement along with different strike options have been studied in order to find out the sensitivity of the movement in the underlying. In general, the study develops a scheme to simulate different trading strategies and thus identify some simple but profitable strategies. Findings: Overall the study found that ITM options are more responsive to the movement of the underlying as compare to ATM or OTM. Strike selection must consider that strike price which is having delta (+/- 0.7). Study also found that before every economic event, implied volatility percentile tends to increase & once the event is being occurring the implied volatility tends to move down & so happens with the premium of the option. During the event IVP tends to crash along with implied volatility & premium also starts decaying .Therefore, creating a short straddle before every economic event, is highly profitable. Implications: The study implies that a retail participants must be focusing on option Greeks & risk management in order to trade event strategy. Most of the retail trader are find the event trading difficult due to high volatility & swings before the event. Originality: The existing literature focused on derivatives management for risk management. The current study focused predominately on retail traders and finding the right options trading strategy to protecting their capital with earning profits with minimum risk.

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Published

11-09-2021

How to Cite

Ujjwal Anand, & Dr. Manu K. S. (2021). Role of Options Greeks in Risk Management. International Journal of Management Studies (IJMS), 8(1), 33–45. Retrieved from https://researchersworld.com/index.php/ijms/article/view/869

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