Speculation Strategies Using Investment in Options

Indian Journal of Finance, Vol. 1, No. 4, November 2007

17 Pages Posted: 5 Feb 2009

See all articles by Mihir Dash

Mihir Dash

Alliance University - School of Business

Narendra Babu

affiliation not provided to SSRN

Mahesh Kodagi

Indusind Bank Limited - Risk Management

Date Written: October 1, 2007

Abstract

Derivatives have emerged as the key financial instruments to hedge financial risk. The volatility and uncertainty in the global market has forced investors to use derivatives to hedge their positions. The speculator, being a risky player in the market, needs sound strategies for speculation, otherwise he may end up in making huge losses. This study aims at constructing an optimal portfolio of options for speculators and compares its performance with that of an optimal stocks portfolio. A mathematical programming model similar to Sharpe's optimization model is used to construct these optimal portfolios. An attempt has been made to compare and analyze both the portfolios to show how the options portfolio gives better returns on average than the stocks portfolio.

Keywords: derivatives, financial risk, volatility, speculation, options portfolio

JEL Classification: G11

Suggested Citation

Dash, Mihir and Babu, Narendra and Kodagi, Mahesh, Speculation Strategies Using Investment in Options (October 1, 2007). Indian Journal of Finance, Vol. 1, No. 4, November 2007, Available at SSRN: https://ssrn.com/abstract=1338165

Mihir Dash (Contact Author)

Alliance University - School of Business ( email )

Chikkahagade Cross,
Chandapura-Anekal Road, Anekal
Bangalore, Karnataka 562106
India
9945182465 (Phone)

Narendra Babu

affiliation not provided to SSRN ( email )

Mahesh Kodagi

Indusind Bank Limited - Risk Management ( email )

Mumbai - 400 013
India

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