Profits Are Here: Spread Performance on the Indian Stock Market

Abstract

The main aim of this study is to analyze the performance of four different options spread strategies on the Indian stock market index, Nifty. These strategies are analyzed using monthly data for the 2007–2018 period. The four strategies used in this analysis are 1) bull call spread, 2) bull put spread, 3) bear call spread, and 4) bear put spread. The results have been analyzed on the basis of profitability (in terms of points earned or lost in Nifty) and monthly success rate. The result shows that bull spread strategies have a higher success rate than the bear spread strategies. Further, the bull call and put spread strategy is found to be profitable while the bear call and put spread strategy is found to produce losses. Comparing both bull spread strategies on the basis of profitability, the bull call spread strategy is shown to be 2.75 times more profitable than the bull put spread strategy. Because of higher profitability, the bull call spread can be used consistently in Nifty. Better return of the bull spread strategies indicates that Nifty exhibits less bearish than bullish behavior while the better performance of bull call spread over bull put spread indicates that the Indian stock market gives excessive return to the investor. For any trader on the Nifty, these findings will be useful for trading.

TOPICS: Options, performance measurement, emerging markets