Event study update: Pre-budget trades

The Union Budget for 2008-08 will be tabled on 29th Feb'08. This, probably, is the most awaited of all events in the Indian financial circles. Market movements are sharp in and around Budget time.

Hypothesis:
Can one trade (with the benefit of hindsight) or take a position to earn alpha returns based on this event?

Data:

The verdict:

[A month after the announcement of the Union Budget, the benchmark indices (BSE Sensex and NSE Nifty) closed below the pre-Budget levels on seven of the last ten occasions and of the total 17 instances they ended in the red 12 times]

Trading options:

- Undertake straddle trades, which means an investor buys both the at-the-money call and at-the-money put with at least two to three months left to expiration. However, the stock price must move significantly in order for the investor to make a profit, but the downside remains restricted to the amount of premium paid.

Exactly two years ago, I had done a small study on this. [Link]