Golden Chariot Capital’s Foray into Option Trading

Abstract

The case presents a real-life situation faced by a research analyst to improve the performance of the funds under management by exploring the opportunities in the options market. Golden Chariot Capital (GCC), an investment firm with ₹500 million worth of assets under management, was failing in its objective to provide long-term capital appreciation with a steady income to its investors. GCC had its funds invested in publicly traded common stocks and corporate bonds. In the last 8 months, GCC failed to match up with the benchmark index. Ms Indira, a research analyst at GCC, was given the task to identify and suggest alternate avenues of investment. Indira brought forward a proposal to explore the derivatives market in general and options market in particular to improve the fund performance. After going through Indira’s proposal, few fund managers at GCC were reluctant to expose their funds to the speculative market of options. Hence, Indira was asked to conduct a pilot study on the payoffs resulting from selected income strategies using options. As an illustration, Indira came up with five income strategies comprising covered call, covered put, short straddle, short strangle and long iron condor that involved either selling of options resulting in income or reduction of cost of the portfolio. The case will help the students to learn about options and their payoffs, as well as strategies involving various options. The case is equally useful for practitioners taking a balanced view of the market to develop appropriate options related to income strategies.