Hedging & Income OutlookDefined Risk (100% Risk-Free)Advanced LevelArbitrage

Conversion (Arbitrage)

Buy stock, buy an ATM Put, and sell an ATM Call at the same strike to lock in risk-free mispricing arbitrage.

Ideal IV Regime

Neutral / Any IV

Capital Required

High Capital

Holding Duration

Held to Expiry

Breakeven Formula

Flat everywhere

Interactive Payoff Curve & Greeks Simulation

Visualize the theoretical profit & loss at expiry vs T+0 immediate day curves. Drag the simulation slider to stress-test your trade.

Interactive Payoff EngineRef: RELIANCE (@ ₹2,900)

Option Payoff Curve & Greeks

Lots:

Inspected Price

₹2,900

At Spot Price

P&L at Expiry

+₹3,750

Settlement Day Return

P&L Today (T+0)

+₹3,750

Immediate Move Est.

Breakeven Point(s)

N/A

Zero P&L Level

Expiry P&L

T+0 Line (Today)

Breakeven

Drag slider below to stress test price moves

Simulation Slider: ₹2,700Selected: ₹2,900₹3,100

Net Option Greeks (Sensitivity Profile)

Values per 1 Lot standard unit

Net Delta (Δ)Direction

0.00

₹ move per ₹1 underlying change

Net Theta (Θ)Time Decay

₹0

Daily decay erosion / accumulation

Net Vega (ν)Volatility

₹0

P&L impact per 1% IV shift

Net Gamma (Γ)Curvature

0.00

Rate of delta acceleration

Multi-Leg Position Structure (3 Legs)

Action	Instrument / Strike	Type	Expiry	Approx Delta	Est. Premium	Qty Ratio
BUY	Long Stock	STOCK	Long Term	+1.00	₹2900	1x
BUY	2,900 PE	PUT	Monthly Expiry	-0.50	₹60	1x
SELL	2,900 CE	CALL	Monthly Expiry	+0.50	₹75	1x

Quantitative Mechanics

How the Structure Works

Long Stock + Long Put replicates a Long Call, which offsets the Short Call perfectly.

A Conversion is a classic quantitative arbitrage strategy that exploits temporary mispricings in Put-Call Parity. By buying the stock, buying an ATM Put, and selling an ATM Call, you lock in a completely flat risk-free profit.

Strike Selection Criteria

Institutional Strike Selection Rules

1Deploy when Call Premium - Put Premium > Cost of Carry.

Execution Playbook

Phased Execution Blueprint

Follow this structured sequence to eliminate emotional hesitation during order entry, lifecycle management, and final exit.

Phase 1Step 01

Mispricing Scan

Scan algorithmically for Put-Call Parity dislocations.

Checklist:

Positive arbitrage delta

Interactive Margin & Position Size Calculator

Calculate exact lot sizing based on the 1-2% risk rule to preserve capital against Black Swan events.

Position Sizing & Margin Engine

Options Position Size & Max Risk Calculator

Total Account Capital (₹)

₹

Total net liquid equity in your brokerage account

Max Risk Tolerance per Trade (%)

Recommended: 1.0% - 2.0% for disciplined longevity

Planned Stop-Loss / Max Loss Per Lot (₹)

₹

Wing width max loss or defined mental/system SL

Max Risk Budget

₹4,500

1.5% of portfolio

Recommended Position Size

1 Lots (25 Qty)

Mathematically sized

Total Trade Max Loss

₹12,000

4.00% of total capital

Est. Margin Required

₹1,25,000

42% margin utilization

SEBI & NSE Risk Management Guideline:Never allocate more than 30% of total liquid capital to a single options expiration cycle, even with defined-risk spreads. Keep a minimum of 40% free cash buffer to accommodate sudden IV spikes, margin surges, or rolling adjustment requirements.

Capital Preservation

Rigorous Risk Rules & Adjustment Protocols

Non-negotiable parameters for stop-loss triggers, portfolio caps, and firefighting adjustments when market tests your strikes.

Stop-Loss Rule

Hold to expiry.

Max Risk Budget

Zero risk

Profit-Taking Trigger

Settled at expiry.

Adjustment & Firefighting Protocols

None.

Margin & Capital Guideline:

Arbitrage margin.

Real Trade Case Study

RELIANCE Conversion Arbitrage Trade Walkthrough

June 2024Full Win

Setup Context & Rationale

Put-Call Parity dislocated by ₹15.

Legs Executed & Fill Prices

Bought Stock @ ₹2,900 / Bought 2900 PE @ ₹60 / Sold 2900 CE @ ₹75

Key Post-Trade Takeaways

100% risk-free arbitrage.

Trade Accounting

Capital Allocated:

₹7,25,000

Maximum Risk Allowed:

₹0

Realized Net P&L:

+₹3,750 risk-free profit

Common Mistakes to Avoid

❌ Ignoring transaction fees and STT

Why it happens: Taxes eat small arbitrage spreads.

Solution: Factor in all exchange and brokerage fees.

Institutional Pro Tips

★Executed primarily by high-frequency trading (HFT) firms via automated broker APIs.

Knowledge Base

Conversion (Arbitrage) FAQs

What is Put-Call Parity?

The fundamental mathematical equation: Stock Price + Put Price = Call Price + Present Value of Strike.

Alternative & Complementary Strategies

Hedging & Income

Reversal (Reverse Conversion Arbitrage)

Short stock/futures, buy an ATM Call, and sell an ATM Put at the same strike to lock in risk-free reverse arbitrage.

Learn Strategy

Hedging & Income

Box Spread (Arbitrage & Fixed Yield)

Combine a Bull Call Spread and a Bear Put Spread at identical strikes to lock in a 100% risk-free fixed cash interest yield.

Learn Strategy

Bullish

Synthetic Long Stock (Synthetic Future)

Buy an ATM Call and sell an ATM Put at the same strike to replicate 100% of the profit/loss of owning stock or futures at a fraction of the capital.

Learn Strategy

SEBI Regulatory Risk Warning:Trading in derivatives (Futures & Options) carries substantial risk of loss and is not suitable for all investors. A SEBI study revealed that 89% of individual traders in the equity F&O segment incurred net losses averaging ₹50,000 annually. Content provided here is strictly for educational, analytical, and quantitative learning purposes, and does not constitute investment advice or solicitation under SEBI (Investment Advisers) Regulations.