Indian Journal of Finance

Open Access Open Access  Restricted Access Subscription Access

An Empirical Study of Nifty 50 Option Time Spreads


Affiliations
1 New York University – Tandon School of Engineering, Department of Finance and Risk Engineering, 1 Metrotech Center, 10th Fl. Brooklyn, NY 11201, United States
2 Financial Engineering, New York University – Tandon School of Engineering, Department of Finance and Risk Engineering, 1 Metrotech Center, 10th Fl. Brooklyn, NY 11201, United States
3 NYU MSc Graduate – Financial Engineering, New York University – Tandon School of Engineering, Department of Finance and Risk Engineering, 1 Metrotech Center, 10th Fl. Brooklyn, NY 11201, United States

   Subscribe/Renew Journal


The objective of this study was to identify and test preliminary rules for trading call option time spreads and then to assess opportunities for further research to improve on those rules. To do so, the theoretical and empirical properties of near-the-money time spreads were used to develop four rules for profitably trading in India’s Nifty 50 (NSE 50) call options. Day-end pricing for 2015 – 2019 included periods of rising, falling, and stable volatility. The resulting four rule algorithm produced positive results on out-of-sample data and outperformed a buy and hold strategy. As the general procedure followed for rule development was not country specific, it was applied to options on China’s SSE 50 index, where the algorithm was found to outperform a hold-to-expiry strategy in every year tested. These related studies of NSE 50 and SSE 50 option time spreads provide a helpful addition to the growing knowledge about the developing derivatives markets in India and China. Opportunities for further research are described.

Keywords

SSE50 Options, Nifty 50 Options, Time Spreads, Calendar Spreads, Horizontal Spreads.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Cretien, P. D. (2012, January). Eurodollar options: Interest rate forecasts and calendar spreads. Futures Magazine, pp. 28 – 29, 33. Retrieved from http://www.futuresmag.com

  • Cretien, P. D. (2013, April). Seize the day with forex calendar spreads. Futures Magazine, pp. 20 – 21, 27. Retrieved from http://www.futuresmag.com

  • Koshiyama, A. S., Firoozye, N., & Treleaven, P. (2019). A derivatives trading recommendation system : The mid-curve calendar spread case. Intelligent Systems in Accounting, Finance & Management, 26(2), 83 – 103. https://doi.org/10.1002/isaf.1445

  • Schneider, L., & Tavin, B. (2018). From the Samuelson volatility effect to a Samuelson correlation effect : An analysis of crude oil calendar spread options. Journal of Banking and Finance, 95, 185 – 202. http://dx.doi.org/10.1016/j.jbankfin.2016.12.001

  • Seok, J., Brorsen, B. W., & Niyibizi, B. (2018). Modeling calendar spread options. Agricultural Finance Review, 78(5), 551 – 570. https:// DOI 10.1108/AFR-09-2017-0088

  • Slivka, R. T., & Wang, R. (2019). Time spreads in China SSE 50 Options. Indian Journal of Research in Capital Markets, 6(4), 7 – 19. https://doi.org/10.17010/ijrcm/2019/v6/i4/150268


Abstract Views: 250

PDF Views: 0




  • An Empirical Study of Nifty 50 Option Time Spreads

Abstract Views: 250  |  PDF Views: 0

Authors

Ronald T. Slivka
New York University – Tandon School of Engineering, Department of Finance and Risk Engineering, 1 Metrotech Center, 10th Fl. Brooklyn, NY 11201, United States
Yuxing Liang
Financial Engineering, New York University – Tandon School of Engineering, Department of Finance and Risk Engineering, 1 Metrotech Center, 10th Fl. Brooklyn, NY 11201, United States
Jieqi Xue
NYU MSc Graduate – Financial Engineering, New York University – Tandon School of Engineering, Department of Finance and Risk Engineering, 1 Metrotech Center, 10th Fl. Brooklyn, NY 11201, United States

Abstract


The objective of this study was to identify and test preliminary rules for trading call option time spreads and then to assess opportunities for further research to improve on those rules. To do so, the theoretical and empirical properties of near-the-money time spreads were used to develop four rules for profitably trading in India’s Nifty 50 (NSE 50) call options. Day-end pricing for 2015 – 2019 included periods of rising, falling, and stable volatility. The resulting four rule algorithm produced positive results on out-of-sample data and outperformed a buy and hold strategy. As the general procedure followed for rule development was not country specific, it was applied to options on China’s SSE 50 index, where the algorithm was found to outperform a hold-to-expiry strategy in every year tested. These related studies of NSE 50 and SSE 50 option time spreads provide a helpful addition to the growing knowledge about the developing derivatives markets in India and China. Opportunities for further research are described.

Keywords


SSE50 Options, Nifty 50 Options, Time Spreads, Calendar Spreads, Horizontal Spreads.

References





DOI: https://doi.org/10.17010/ijf%2F2020%2Fv14i8-9%2F154944