Parliamentary elections create more ‘options’: Evidences from world’s largest democracy ‘India’

Abstract

The present research focuses on the management of derivative options contracts and associated options strategies that can be adequately utilized to generate profit out of an uncertain and high-volatile environment. The situation is the days preceding the declaration of the results of parliamentary elections of the world’s largest democracy – India. This research is based on the real life experience of traders and portfolio managers entrusted with the task of maximizing return and minimizing risk on their investments in such uncertain situation. In 2004, Parliamentary elections in India, post-election results, the Indian capital market plunged to 20 per cent and had hit the lower circuit. In 2009 elections, the market rose to 20 per cent, hit the upper circuit. While in 2014 it remained highly volatile. The study explored that how exchange traded Nifty Index Options derivative contracts had helped participants in winning significant returns of 72– 400 per cent that too in an uncertain environment, in little duration of time. This is significant from a traders’ perspective because the scenarios discussed depict highly uncertain situation and suggested the way ahead in terms of selection of suitable option strategies in highly volatile market conditions. The scenario presented in this research study can well be applied to other democracies as well.