This research paper titled ‘A Model for Calculating the Effectiveness of Writing and Hedging SBI Derivatives’ explains how to trade F&O on the National Stock Exchange (NSE) in India and presents a model for calculating the effectiveness of writing and hedging SBI derivatives. The paper discusses the role of options in the stock market as a form of risk management and the increased demand for derivatives reflected in higher trading volumes every day. It specifically studies the State Bank of India (SBI) options chain for the first quarter of fiscal years 22 and 23.
The paper begins with an introduction to the financial market and the role of derivatives in risk management. It discusses the importance of understanding how the stock market functions and the purpose of stock market forecasts. The paper also provides a literature review of various studies related to derivatives and their impact on the stock market.
The objectives of the study were to accurately estimate performance measurement for hedging and writing on the SBI derivatives option chain. The study used data from the first three months of fiscal year 22-23 and applied an ANOVA, a regression, and a profit-and-loss statement to the data.
The results of the study showed that both hedging and writing on the SBI derivatives option chain result in a profit. The study concluded that even if each month concludes with a profit, there is still a chance that the study will incur a loss on any given day. It occurs when the strike price exceeds the underlying asset’s worth when the option expires. The study suggests examining the concept of “stop-loss” to maintain a certain level of financial stability.
The limitations of the study were that it only examines the SBI derivatives option chain and the prospect of profit cannot be guaranteed for the future. The study also suggests that an advanced machine learning model and natural language processing (NLP) will be required to study the stop loss size.
The scope for future research includes further research on major agricultural commodities and other issues like if commodity future market is fairly priced or not can be studied.
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