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A Study Of Option Trading Strategies

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Group No: 3528

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL

A Study of Option Trading Strategies

Group Members

Lim Wei, Jackson Tay Cheng Sun, Shane Yang Shufan

Supervisor: Assoc. Prof Bobby Sundaravaradhan Srinivasan

Applied Research Project submitted to the Nanyang Business School, Nanyang Technological University in partial fulfillment for the degree of Bachelor of Accountancy and Bachelor of Business

ATTENTION: The Singapore Copyright Act applies to the use of this document. Nanyang Technological University Library

Academic Year 2004/2005

ACKNOWLEDGEMENTS

First and foremost, we would like to express our heartfelt gratitude to our Applied Research Project Supervisor,

Assoc. Prof Bobby Sundaravaradhan Srinivasan

for his valuable guidance, patience, advice and continued support in supervising our project.

i

ATTENTION: The Singapore Copyright Act applies to the use of this document. Nanyang Technological University Library

ABSTRACT

This   paper   examines   several   option   trading   strategies,   namely,   strap,   strangle   and straddle, compares the profitability of short and long strategies and examines the factors that influenced the results.

A diversified portfolio of 14 selected companies with options actively traded on the New York Stock Exchange was studied and analysed based on the period from the end of 2004 to the first quarter of 2005.

Results revealed that the short strategies generated a far superior return compared to the long strategies. And of the 3 strategies, the short strap produces the highest profit while the long strap exhibits the greatest loss.

Factors that influenced the experiment results were discussed and analysed. US’ MiddleEastern commitments, threat of terrorism, rising oil prices, decline in US dollar value, rise of interest rates...