Derivative summer internship project in share khan pvt limited. final.1(franky's).doc

DERIVATIVES (FUTURES & OPTIONS) in Share khan Stock broking Co.Ltd.

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A PROJECT REPORT OF STUDY ON DERIVATIVES (FUTURES & OPTIONS)

AT SHAREKHAN STOCKBROKING CO. LTD.

Project report submitted in

Partial fulfillment for the award of

POST GRADUATE DIPLOMA IN MANAGEMENT

(PGDM)

Submitted by: T.SRINIVAS

Bearing Roll No=010-012-36

RATAN GLOBAL BUSINESS SCHOOL(RGBS) RAVELLY, TOOPRAN (M) MEDAK (DIST)

(2010-2012)


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DECLARATION

I hereby declare that the project titled “DERIVATIVES (FUTURES

& OPTIONS)” done at SHAREKHAN STOCK BROKING COMPANY

submitted by me as part of partial fulfillment for the award of the POST

GRADUATE DIPLOMA IN MANAGEMENT, at RATAN GLOBAL BUSINESS

SCHOOL (RGBS), Hyderabad. It is a record of bonafide work done by me.

I also declare that this report has to my knowledge is my own

and is neither submitted to any other university nor published any time

before.

Name and address of student:

Signature of the student

Date:

Place:


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ACKNOWLEDGEMENT

I take this opportunity to acknowledge, all the people who rendered their

valuable advice in completing my project.

I take privilege to thank Mr.B.RATAN REDDY, Principal, RATAN GLOBAL

BUSINESS SCHOOL, for management for guiding and supporting me to carry out

the project work very smoothly.

I extend my sincere thanks and gratitude to the person who has

been kind in giving me an Opportunity to do a project work in share khan ltd.

Mr. K.P. SINGH, Branch Manager.

Last but not least, I am thankful to my parents and to all my friends for

their wholehearted support and suggestions, which helped me in completing this

project.

T.SRINIVAS


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ABSTRACT

Derivatives are risk management instruments, which derive

their value from an underlying asset. The underlying asset can be

bullion, index, share, bonds, currency, interest etc.

SEBI set up a 24-member committee under Chairmanship of

Dr.L.C. Gupta to develop the appropriate regulatory framework for

derivatives trading in India. The committee submitted its report in

March 1998. On May 11, 1998 SEBI accepted the recommendations of

the committee and approved the phased introduction of derivatives

trading in India beginning with stock index futures. SEBI also approved

the “suggestive bye-laws” recommended by the committee for

regulation and control of trading and settlement of derivatives

contracts.

My study is to know about the investors’ familiarity and

awareness of the derivative market and their profit/loss positions in

trading in types of derivatives.


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CONTENTS

1. INTRODUCTION ........................................................................................................................ 7

1.1 A study on derivatives: ......................................................................................................7 1.2 Objectives of the study: .....................................................................................................8

1.3 Need of the study:..............................................................................................................8 1.4 Scope of the study: ............................................................................................................9

1.5 Research methodology: .....................................................................................................9

2. COMPANY PROFILE ................................................................................................................ 10

2.1 Introduction to the company ............................................................................................ 10

2.2 Work structure of share khan: .......................................................................................... 12 2.3 Product and services offered by share khan:..................................................................... 12

3. LITERATURE REVIEW .............................................................................................................. 14

3.1 Industry profile: ............................................................................................................... 14 3.2 Regulation of stock exchanges: ....................................................................................... 16

3.3 Securities and exchange board of India (SEBI): .......................................................... 17 3.4 Nse - nifty: ...................................................................................................................... 20

3.5 Theoretical framework: ................................................................................................... 23 3.6 Types of derivatives: ....................................................................................................... 25

2.6.1 FORWARDS: ........................................................................................................... 25 2.6.2 FUTURES: ............................................................................................................... 25

2.6.3 OPTIONS: ................................................................................................................ 25 2.6.4 Warrants: .................................................................................................................. 25

2.6.5 LEAPS: .................................................................................................................... 26 2.6.6 BASKETS: ............................................................................................................... 26

2.6.7 SWAPS: ................................................................................................................... 26

4. FUTURES: ............................................................................................................................... 28

4.1 TYPES OF OPTIONS: .................................................................................................... 32

4.2 On the basis of the market movements: ............................................................................ 32 4.3 On the basis of exercise of option: ................................................................................... 32

4.4 Reasons to choose sharekhan limited: ............................................................................ 37 4.5 Benefits: ......................................................................................................................... 38

5. DATA ANALYSIS AND NTERPRETATION ................................................................................... 39

5.1 Tata Motors Limited ........................................................................................................ 39

5.2 Futures and equities: ........................................................................................................ 40 5.3 Call option: ...................................................................................................................... 41


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6. RELIANCE COMMUNICATIONS................................................................................................ 46

6.1 Futures and equities: ........................................................................................................ 48

6.2 Put option: ....................................................................................................................... 50 5.3 Hedging ........................................................................................................................... 54

7. IDBI ........................................................................................................................................ 54

8. IOC ......................................................................................................................................... 63

8.1 Futures and equity: .......................................................................................................... 64

8.2 Call option: ...................................................................................................................... 65

9. FINDINGS AND CONCLUSIONS ................................................................................................ 71

BIBLIOGRAPHY ................................................................................................................. 74


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1. INTRODUCTION

1.1 A study on derivatives:

Derivatives have vital role to play in enhancing shareholder value by ensuring access to

the cheapest source of funds. Active use of derivatives instruments allows the overall business

risk profile to be modified, thereby providing the potential to improve earning quality by

offsetting undesired risk.

Under my project report, I have studied various trends that come in the way of

Derivatives market. Because impression is usually given that losses arose from derivatives are

extremely complex and difficult to understand financial strategies. So after interviewing with

different brokers, investors and dealers, I have tried to give a solution to these complexities.

I have also found out that what would be the future of derivative market in India on

the basis of interviews and observations of brokers, dealers and investors regarding future, I have

found out that derivatives can indeed be used safely and successfully provided a sensible control

and management strategy is established and executed. Inspite of that more awareness should be

done and technical expertise knowledge should be more expanded.

A derivative is a security whose value depends on the value of an underlying asset.

Underlying asset can be bullion, index, share, bonds, currency, interest etc. Derivative securities

have been very successful innovation in capital market.

The emergence of the market for derivative products, most notably forwards, futures and

options, can be traced back to the willingness of risk adverse economic agents to guard themselves

against uncertainties arising out of fluctuations in asset prices. By their very nature, financial

markets are marked by a very high degree of volatility. Through the use of derivative products, is

possible to partially or fully transfer price risks by a locking - in asset prices. As instruments of


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risk management, these generally do not influence the fluctuation in the underlying asset prices.

However, by locking-in asset prices, derivative products minimize the impact of

fluctuations in asset prices on the profitability and cash flow situation of risk-averse investor.

1.2 Objectives of the study:

The main objectives of my final project report are as follows:-

To study various trends in derivative market.

Comparison of the profits/losses in cash market and derivative market.

To find out profit/losses position of the option writer and option holder.

To study in detail the role of the future and options.

To study the role of derivatives in Indian financial market.

To find out that what would be the future and market potential of derivative market in

India.

To know the awareness & familiarity of investors, dealers and brokers hold regarding

derivatives market.

To know the experience of dealers, investors and brokers with derivatives till date.

To get knowledge about shortcomings in Indian derivative market.

1.3 Need of the study:

Different investment avenues are available for the investors. Stock market also offers

good investment opportunities to the investor alike all investments, they also carry certain

risks. The investor should compare the risk and expected yields after adjustment of tax on

various instruments. While taking an investment decision the investor may seek advice

from an expert and consultancy including stock brokers and analysts. The objective here

is to make the investor aware of the functioning of the derivatives.

Derivatives act as a risk hedging tool for the investors. The objective is to help the

investor in selecting the appropriate derivatives instrument to attain the maximum return


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and to construct the portfolio in such a manner to meet the investor needs and to decide

how best to reach the goals from the securities available.

To identify the investor objective constraints and performance, which help formulate the

investment policy?

To develop and improve the strategies in the investment policy formulated.

Stockbrokers will help in the selection of asset classes and securities in each class

depending upon their risk and return attributes.

1.4 Scope of the study: The study is limited to ―Derivatives‖ with special references to futures and

options in the Indian context .The study has only made humble attempt at evaluating derivatives

only in Indian markets.

The study is limited to the analysis made for types of instruments of derivatives .Each

strategy is analyzed according to its risk and return characteristics and derivatives performance

against the profit and policies of the company. The study is not based on the international

perspective of derivatives which exists in DOW JONES and NASDAQ.

1.5 Research methodology:

The following steps are involved in the study :

SELECTION OF SCRIP: The sample of the stocks for the purpose of collecting secondary data

has been selected on the basis of Random Sampling.

The stocks are chosen in an unbiased manner and each stock is chosen independent of the other

stocks chosen. And the scrip selected is NIFTY ‘50. The lot is of any size, profitability position

of futures, buyers and sellers & also the option holders and option writers is studied.

DATA COLLECTION: Data is collected in two forms; They are primary data and secondary

data.


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PRIMARY DATA: Data from brokers.

SECONDARY DATA:

Data from various books.

Data from internet.

Data from news papers & magazines.

2. COMPANY PROFILE

2.1 Introduction to the company

SHAREKHAN is one of the India‘s leading financial services. It provides a complete

life-cycle of investment solution in Equities, Derivatives, Commodities, IPO, Mutual Funds,

Depository Services, Portfolio Management Services and Insurance. It also offer personalized

wealth management services for High Net worth individuals with a physical presence in over

300 cities of India through more than 800 "Share Shops", and an online presence through

Sharekhan.com, India's premier online destination, we reach out to more than 800,000 trading

customers.

Share khan Limited offers online security broking and portfolio services to institutions

and large corporate houses as well as individual investors. Share khan Limited was formerly

known as SSKI Investor Services Private Limited. The company is based in Mumbai, India.

Been in the business for over 80 years, Share khan can provide you with the assistance and the

advice like no one else could.

Share khan has its customers participating in the booming commodities markets with our

membership at the Multi Commodity Exchange of India (MCX) and National Commodity &

Derivatives Exchange (NCDEX), through.sharecon.Com Ltd. With its strong support and


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business units of research, distribution & advisory, share khan aims to become a one-stop

solution to the broking and investment needs of its clients globally.

SHAREKHAN STOCK BROKING COMPANY

---your guide to the financial jungle

Share khan is one of the leading retail brokerage of Citi Venture which is running

successfully since 1922 in the country. Earlier it was the retail broking arm of the Mumbai

based SSKI (SRIPAL SRAVANTHI KANTHILAL ISWARLAL) Group, which has over eight

decades of experience in the stock broking business. Share khan offers its customers a wide

range of equity related services including trade execution on BSE, NSE, Derivatives, depository

services, online trading, investment advice etc.

Earlier with a legacy of more than 80 years in the stock markets, the SSKI group

ventured into institutional broking and corporate finance 18 years ago. SSKI is one of the

leading players in institutional broking and corporate finance activities. SSKI holds a sizeable

portion of the market in each of these segments. SSKI‘s institutional broking arm accounts for

7% of the market for Foreign Institutional portfolio investment and 5% of all Domestic

Institutional portfolio investment in the country.

It has 60 institutional clients spread over India, Far East, UK and US. Foreign

Institutional Investors generate about 65% of the organization‘s revenue, with a daily turnover

of over US$ 2million.The objective has been to let customers make informed decisions and to

simplify the process of investing in stocks.

“Mission” of the Share khan is “To educate and empower the individual

investor to make better investment decisions through

QUALITY ADVICE

INNOVATIVE PRODUCTS and

SUPERIOR SERVICE.”


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2.2 Work structure of share khan:

Ceo & chairman:Tarun shah

No. of employees:20,000(approximately)

Share khan has always believed in investing in technology to build its business. The

company has used some of the best-known names in the IT industry, like Sun Microsystems,

Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette, Verisign Financial

Technologies India Ltd, Spider Software Pvt. Ltd. to build its trading engine and content. The

Citi Venture holds a majority stake in the company. HSBC, Intel & Carlyle are the other

investors.

On April 17, 2002 Share khan launched Speed Trade and Trade Tiger, are net-based

executable application that emulates the broker terminals along with host of other information

relevant to the Day Traders. This was for the first time that a net-based trading station of this

caliber was offered to the traders. In the last six months Speed Trade has become a de facto

standard for the Day Trading community over the net. Share khan‘s ground network includes

over 700+ Shareshops in 130+ cities in India.

The firm‘s online trading and investment site www.sharekhan.com - was launched on Feb

8, 2000. The site gives access to superior content and transaction facility to retail customers

across the country.

2.3 Product and services offered by share khan:

1- Equity Trading Platform (Online/Offline).

2- Commodities Trading Platform (Online/Offline).

3- Portfolio Management Service.

4- Mutual Fund Advisory and Distribution.

5- Insurance Distribution

6- Forex.


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3. LITERATURE REVIEW

3.1 Industry profile:

A capital market is a market for securities (debt or equity), where business enterprises

(companies) and governments can raise long-term funds. It is defined as a market in which

money is provided for periods longer than a year, as the raising of short-term funds takes place

on other markets (e.g., the money market). The capital market includes the stock market (equity

securities) and the bond market (debt). U.S. Securities and Exchange Commission. Capital

markets may be classified as primary markets and secondary markets.

PRIMARY MARKET:

In primary markets, new stock or bond issues are sold to investors. It is also known as

new issues market.

SECONDARY MARKET:

In the secondary markets, existing securities are sold and bought among investors

or traders, usually on a securities exchange, over-the-counter, or elsewhere .It is also known as

old issues market.

DEFINITION OF STOCK EXCHANGE: "Stock exchange means the body of individuals whether incorporated or not, constituted for

the purpose of assisting, regulating or controlling the business of buying, selling or dealing in

securities."

It is an association of member brokers for the purpose of self-regulation and protecting

the interests of its members. It can operate only if it is recognized by the Government under the

http://en.wikipedia.org/wiki/Security_(finance)

http://en.wikipedia.org/wiki/Debt

http://en.wikipedia.org/wiki/Equity_(finance)

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Government

http://en.wikipedia.org/wiki/Money_market

http://en.wikipedia.org/wiki/Stock_market

http://en.wikipedia.org/wiki/Bond_market

http://en.wikipedia.org/wiki/Primary_market

http://en.wikipedia.org/wiki/Secondary_market

http://en.wikipedia.org/wiki/Securities_exchange

http://en.wikipedia.org/wiki/Over-the-counter_(finance)


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securities contracts (regulation) Act, 1956. The recognition is granted under section 3 of the Act

by the central government, Ministry of Finance.

„Recognized Stock Exchange‟ means a stock exchange, which is for the time being

recognized by the Central Government under Section 4 of the SC(R) A.

As per Section 2(h), the term ―securities‖ include-

(i) Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a

like nature in or of any incorporated company or other body corporate,

(ii) Derivative,

(iii) Units or any other instrument issued by any collective investment scheme to the investors in

such schemes,

(iv) Security receipts as defined in clause (zg) of section 2 of the Securisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI)

(v) Units or any other such instrument issued to the investors under any mutual fund scheme,

(vi) any certificate or instrument issued to an investor by any issuer being a special purpose

distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such

entity, and acknowledging beneficial interest of such investor in such debt or receivable,

including mortgage debt, as the case maybe.

(vii) Government securities,

(viii) Such other instruments as may be declared by the Central Government to be securities, and

(ix) Rights or interests in securities.

BYLAWS:

Besides the above act, the securities contracts (regulation) rules were also made in 1957 to

regulate certain matters of trading on the stock exchanges. There are also bylaws of the

exchanges, which are concerned with the following subjects.

Opening/closing of the stock exchanges, timing of trading, regulation of bank transfers,

regulation of badla or carryover business, control of the settlement and other activities of the


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stock exchange, fixation of margins, fixation of market prices or making up prices, regulation of

taravani business (jobbing), etc., regulation of brokers trading, brokerage charges, trading rules

on the exchange, arbitration and settlement of disputes, settlement and clearing of the trading etc.

3.2 Regulation of stock exchanges:

The securities contracts (regulation) act is the basis for operations of the stock exchanges in

India. No exchange can operate legally without the government permission or recognition. Stock

exchanges are given monopoly in certain areas under section 19 of the above Act to ensure that

the control and regulation are facilitated. Recognition can be granted to a stock exchange

provided certain conditions are satisfied and the necessary information is supplied to the

government. Recognition can also be withdrawn, if necessary. Where there are no stock

exchanges, the government can license some of the brokers to perform the functions of a stock

exchange in its absence.

Why do we need a regulatory body for investor protection in India?

India is an ‗informationally‘ weak market.

Boosting capital market demands restoring the confidence of lay investors who have been

beaten down by repeated scams.

Progressively softening interest rates and an under performing economy have eroded

investment options, and require enhanced investing skills.

SECURITIES CONTRACTS (REGULATION) ACT, 1956

The Securities Contracts (Regulation) Act, 1956 [SC(R)A] was enacted to prevent

undesirable transactions in securities by regulating the business of dealing therein and by

providing for certain other matters connected therewith. This is the principal Act, which governs

the trading of securities in India.

Listing of Securities


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Where securities are listed on the application of any person in any recognized stock

exchange, such person shall comply with the conditions of the listing agreement with that stock

exchange (Section 21). Where a recognized stock exchange acting in pursuance of any power

given to it by its bye-laws, refuses to list the securities of any company, the company shall be

entitled to be furnished with reasons for such refusal and the company may appeal to Securities

Appellate Tribunal (SAT) against such refusal.

Delisting of Securities

A recognized stock exchange may delist the securities of any listed companies on such

grounds as are prescribed under the Act. Before delisting any company from its exchange, the

recognized stock exchange has to give the concerned company a reasonable opportunity of being

heard and has to record the reasons for delisting that concerned company. The concerned

company or any aggrieved investor may appeal to SAT against such delisting.(Section 21A).

3.3 Securities and exchange board of India (SEBI):

SEBI was set up as an autonomous regulatory authority by the Government of India in 1988

" to protect the interests of investors in securities and to promote the development of, and to

regulate the securities market and for matters connected therewith or incidental thereto." It is

empowered by two acts namely the SEBI Act, 1992 and the securities contract (regulation) Act,

1956 to perform the function of protecting investor's rights and regulating the capital markets.

Objectives of SEBI:

As an important entity in the market it works with following objectives:

1. It tries to develop the securities market.

2. Promotes Investors Interest.

3. Makes rules and regulations for the securities market.

Functions of SEBI:

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1. Regulates Capital Market

2. Checks Trading of securities.

3. Checks the malpractices in securities market.

4. It enhances investor's knowledge on market by providing education.

5. It regulates the stockbrokers and sub-brokers.

6. To promote research and investigation.

7. Investor education and training of the Intermediaries.

8. Inspection and enquiries.

BOMBAY STOCK EXCHANGE

This stock exchange, Mumbai, popularly known as "BSE" was established in 1875 as ―The

Native share and stock brokers association", as a voluntary non-profit making association. It has

evolved over the years into its present status as the premiere stock exchange in the country. It

may be noted that the stock exchanges the oldest one in Asia, even older than the Tokyo Stock

exchange which was founded in 1878.

The exchange, while providing an efficient and transparent market for trading in securities,

upholds the interests of the investors and ensures redressed of their grievances, whether against

the companies or its own member brokers. It also strives to educate and enlighten the investors

by making available necessary informative inputs and conducting investor education programs .

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public

representatives and an executive director is the apex body, which decides the policies and

regulates the affairs of the exchange.

BSE INDICES:

In order to enable the market participants, analysts etc., to track the various ups and

downs in the Indian stock market, the Exchange has introduced in 1986 an equity stock index

called BSE-SENSEX that subsequently became the barometer of the moments of the share prices

in the Indian stock market. It is a "Market capitalization-weighted" index of 30 component

http://www.economywatch.com/financial-regulatory-body/securities-and-exchange-board-of-india.html


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stocks representing a sample of large, well-established and leading companies. The base year of

Sensex is 1978-79. The Sensex is widely reported in both domestic and international markets

through print as well as electronic media.

Sensex is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30-component stocks

from different industries related to particular base period. The total market value of a company

is determined by multiplying the price of its stock by the number of shares outstanding.

Statisticians call an index of a set of combined variables (such as price and number of shares) a

composite Index. An Indexed number is used to represent the results of this calculation in order

to make the value easier to work with and track over a time. It is much easier to graph a chart

based on Indexed values than one based on actual values world over majority of the well-known

Indices are constructed using ―Market capitalization weighted method ".

In practice, the daily calculation of SENSEX is done by dividing the aggregate market

value of the 30 companies in the Index by a number called the Index Divisor. The Divisor is the

only link to the original base period value of the SENSEX. The Divisor keeps the Index

comparable over a period of time and if the reference point for the entire Index maintenance

adjustments. SENSEX is widely used to describe the mood in the Indian Stock markets. Base

year average is changed as per the formula.

NATIONAL STOCK EXCHANGE The NSE was incorporated in Nov 1992 with an equity capital of Rs. 25 crs. The

International securities consultancy (ISC) of Hong Kong has helped in setting up NSE. ISC has

prepared the detailed business plans and installation of hardware and software systems. The

promotions for NSE were financial institutions, insurances companies, banks and SEBI capital

market ltd, Infrastructure leasing and financial services ltd and stock holding corporation ltd.

It has been set up to strengthen the move towards professionalization of the capital market

as well as provide nationwide securities trading facilities to investors.

NSE is a national market for shares PSU bonds, debentures and government securities since

infrastructure and trading facilities are provided.


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3.4 Nse - nifty:

The NSE on April 22, 1996 launched a new equity Index. The NSE-50. The new Index

which replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the

new segment of futures and options.“Nifty “means National Index for Fifty Stocks.

The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an

aggregate market capitalization of around Rs. 1, 70,000 crs. All companies included in the Index

have a market capitalization in excess of Rs 500 crs each and should have traded for 85% of

trading days at an impact cost of less than 1.5%.

The base period for the index is the close of prices on Nov 3, 1995, which makes one year of

completion of operation of NSE‘s capital market segment. The base value of the Index has been

set at 1000.

NSE - MIDCAP INDEX:

The NSE midcap Index or the Junior Nifty comprises 50 stocks that represents 21 board

Industry groups and will provide proper representation of the midcap segment of the Indian

capital Market.

The base period for the index is Nov 4, 1996, which signifies two years for completion of

operations of the capital market segment of the operations. The base value of the Index has been

set at 1000.

At present, there are 24 stock exchanges recognized under the securities contract

(regulation) Act, 1956. They are


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List of Stock Exchanges recognized under the securities contract (regulation) Act, 1956

NAME OF THE STOCK EXCHANGE YEAR

Bombay stock exchange,

Ahmadabad share and stock brokers association

Calcutta stock exchange association Ltd,

Delhi stock exchange association Ltd,

Madras stock exchange association Ltd,

Indoor stock brokers association,

Bangalore stock exchange,

Hyderabad stock exchange,

Cochin stock exchange,

Pune stock exchange Ltd,

U.P stock exchange association Ltd,

Ludhiana stock exchange association Ltd,

Jaipur stock exchange Ltd,

Gauhathi stock exchange Ltd,

Mangalore stock exchange Ltd,

1875

1957

1957

1957

1957

1958

1963

1943

1978

1982

1982

1983

1983-84

1984


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Maghad stock exchange Ltd, Patna,

Bhubaneswar stock exchange association Ltd,

Over the counter exchange of India, Bombay,

Saurasthra Kutch stock exchange Ltd,

Vadodara stock exchange Ltd,

Coimbatore stock exchange Ltd,

The Meerut stock exchange Ltd,

1National stock exchange Ltd,

Integrated stock exchange,

1985

1986

1989

1989

1990

1991

1991

1991

1991,1999


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3.5 Theoretical framework:

DERIVATIVES:

The emergence of the market for derivatives products, most notably forwards, futures and

options, can be tracked back to the willingness of risk-averse economic agents to guard themselves

against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial

markets are marked by a very high degree of volatility. Through the use of derivative products, it is

possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk

management, these generally do not influence the fluctuations in the underlying asset prices. However,

by locking-in asset prices, derivative product minimizes the impact of fluctuations in asset prices on

the profitability and cash flow situation of risk-averse investors.

Derivatives are risk management instruments, which derive their value from an

underlying asset. The underlying asset can be bullion, index, share, bonds, currency, interest, etc..

Banks, Securities firms, companies and investors to hedge risks, to gain access to cheaper money and

to make profit, use derivatives. Derivatives are likely to grow even at a faster rate in future.

DEFINITION:

Derivative is a product whose value is derived from the value of an underlying asset in a

contractual manner. The underlying asset can be equity, forex, commodity or any other asset.

1. Securities Contracts (Regulation) Act, 1956 (SCR Act) defines ―derivative‖ to be secured or

unsecured, risk instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of an underlying

securities.


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Emergence of Financial derivative products:

Derivative products initially emerged as hedging devices against fluctuations in commodity prices,

and commodity-linked derivatives remained the sole form of such products for almost three hundred years.

Financial derivatives came into spotlight in the Post-1970 period due to growing instability in the financial

markets. However since their emergence, these products have become very popular and by 1990s, they

accounted for about two-thirds of total transactions in derivative products. In recent years, the market for

financial derivatives has grown tremendously in terms of variety of instrument available, their complexity

and also turnover.

In the class of equity derivatives the worlds over futures and options on stock indices have gained

more popularity than on individual stocks, especially among institutional investors, who are major

users of index-linked derivatives. Even small investors find these useful due to high correlation of the

popular indexes with various portfolios and ease o use. The lower costs associated with index

derivatives vis-à-vis derivative products based on individual securities is another reason for their

growing use.

PARTICIPANTS:

The following three broad categories of participants in the derivatives market.

HEDGERS

Hedgers face risk associated with the price of an asset. They use futures or options markets to

reduce or eliminate this risk.

SPECULATORS

Speculators wish to bet on future movements in the price of an asset. Futures and options

contracts can give them an extra leverage; that is, they can increase both the potential gains

and potential losses in a speculative venture.

ARBITRAGEURS


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Arbitrageurs are in business to take of a discrepancy between prices in two different markets,

if, for, example, they see the futures price of an asset getting out of line with the cash price,

they will take offsetting position in the two markets to lock in a profit.

FUNCTIONS OF DERIVATIVES MARKETS:

The following are the various functions that are performed by the derivatives markets. They are:

Prices in an organized derivatives market reflect the perception of market participants about the

future and lead the price of underlying to the perceived future level.

Derivatives market helps to transfer risks from those who have them but may not like them to

those who have an appetite for them.

Derivatives trading acts as a catalyst for new entrepreneurial activity.

Derivatives markets help increase saving and investment in long run.

3.6 Types of derivatives:

The following are the various types of derivatives. They are:

2.6.1 FORWARDS:

A forward contract is a customized contract between two entities, where settlement takes place

on a specific date in the future at today‘s pre-agreed price.

2.6.2 FUTURES:

A futures contract is an agreement between two parties to buy or sell an asset at a certain time i

at a certain price.

2.6.3 OPTIONS:

Options are of two types-calls and puts. Calls give the buyer the right but not the obligation

to buy a given quantity of the underlying asset, at a given price on or before a give future date. Puts

give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a

given price on or before a given date.

2.6.4 Warrants:

Options generally have lives of up to one year; the majority of options traded on options exchanges

having a maximum maturity of nine months. Longer-dated options are called warrants and are

generally traded over-the counter.


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2.6.5 LEAPS:

The acronym LEAPS means long-term Equity Anticipation securities. These are options

having a maturity of up to three years.

2.6.6 BASKETS:

Basket options are options on portfolios of underlying assets. The underlying asset is usually a

moving average of a basket of assets. Equity index options are a form of basket options.

2.6.7 SWAPS:

Swaps are private agreements between two parties to exchange cash flows in the future

according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two

commonly used Swaps are:

Interest rate Swaps:

These entail swapping only the related cash flows between the parties in the same currency.

Currency Swaps:

These entail swapping both principal and interest between the parties, with the cash flows in on

direction being in a different currency

SWAPTION:

Swaptions are options to buy or sell a swap that will become operative at the expiry of the

options. Thus a swaption is an option on a forward swap.

RATIONALE BEHIND THE DEVELOPMENT OF DERIVATIVES:

Holding portfolios of securities is associated with the risk of the possibility that the investor

may realize his returns, which would be much lesser than what he expected to get. There are various

factors, which affect the returns:

Price or dividend (interest)

Some are internal to the firm like-

Industrial policy


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Management capabilities

Consumer‘s preference

Labour strike, etc.

These forces are to a large extent controllable and are termed as non systematic risks. An investor

can easily manage such non-systematic by having a well-diversified portfolio spread across the

companies, industries and groups so that a loss in one may easily be compensated with a gain in other.

There are yet other of influence which are external to the firm, cannot be controlled and affect

large number of securities. They are termed as systematic risk. They are:

1. Economic

2. Political

3. Sociological changes are sources of systematic risk.

For instance, inflation, interest rate, etc. their effect is to cause prices of nearly all-individual

stocks to move together in the same manner. We therefore quite often find stock prices falling

from time to time in spite of company‘s earning rising and vice versa. Rationale behind the

development of derivatives market is to manage this systematic risk, liquidity in the sense of

being able to buy and sell relatively large amounts quickly without substantial price concession.

In debt market, a large position of the total risk of securities is systematic. Debt

instruments are also finite life securities with limited marketability due to their small size relative

to many common stocks. Those factors favour for the purpose of both portfolio hedging and

speculation, the introduction of derivatives securities that are on some broader market rather than

an individual security.


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4. FUTURES:

DEFINITION

Futures contract is an agreement two parties to buy or sell an asset a certain time in the future

at a certain price. To facilitate liquidity in the futures contract, the exchange specifies certain standard

features of the contract. The standardized items on a futures contract are:

Quantity of the underlying.

The date and the month of delivery.

The units of price quotations and minimum price change.

Location of settlement.

FEATURES OF FUTURES:

Futures are highly standardized.

The contracting parties need not pay any down payments.

Hedging of price risks.

They have secondary markets too.

TYPES OF FUTURES :

On the basis of the underlying asset they derive, the futures are divided into two types:

Stock futures:

The stock future is the futures that have the underlying asset as the individual securities.

Index futures:

Index futures are the futures, which have the underlying asset as an index.


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MARGINS:

Margins are the deposits which reduce counter party risk, arise in a futures contract. These

margins are collect in order to eliminate the counter party risk. There are three types of margins:

Initial Margins

Whenever a futures contract is signed, both buyer and seller are required to post initial

margins. Both buyer and seller are required to make security deposits that are intended to guarantee

that they will infact be able to fulfill their obligation. These deposits are initial margins and they are

often referred as purchase price of futures contract.

Marking to market margins

The process of adjusting the equity in an investor‘s account in order to reflect the

change in the settlement price of futures contract is known as MTM margin.

Maintenance margin

The investor must keep the futures account equity equal to or greater than certain percentage of

the amount deposited as initial margin. If the equity goes less than the percentage of the initial margin,

then the investor receives a call for an additional deposit of cash known as maintenance margin to bring

the equity up to the initial margin.

Pricing the Futures:

The Fair value of the futures contract is derived from a model known as the cost of carry

model. This model gives the fair value of the contract.

Cost of Carry model:

The relationship between futures prices and spot prices can be summarized in terms of what is

known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the

asset less the income earned on the asset.

F=S (1+r-q) t

where

F- Futures price

S- Spot price of the underlying

r- Cost of financing


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q- Expected Dividend yield

t - Holding Period.

Futures terminology:

Spot price:

The price at which an asset trades in the spot market.

Futures price:

The price at which the futures contract trades in the futures market.

Contract cycle:

The period over which contract trades. The index futures contracts on the NSE have one-

month, two –month and three-month expiry cycle which expire on the last Thursday of the

month. Thus a January expiration contract expires on the last Thursday of January and a

February expiration contract ceases trading on the last Thursday of February. On the Friday

following the last Thursday, a new contract having a three-month expiry is introduced for

trading.

Expiry date:

It is the date specifies in the futures contract. This is the last day on which the contract will

be traded, at the end of which it will cease to exist.

Contract size:

The amount of asset that has to be delivered under one contract. For instance, the contract

size on NSE‘s futures market is 50 nifties.

Basis:

In the context of financial futures, basis can be defined as the futures price minus the spot

price. There will be a different basis for each delivery month for each contract, In a normal market,

basis will be positive. This reflects that futures prices normally exceed spot prices.

Basis=futures price-spot price

Open Interest:

Total outstanding long or short position in the market at any specific time. As total long

positions in the market would be equal to short positions, for calculation of open interest, only one

side of the contract is counted.


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Multiplier:

It is a pre-determined value used to arrive at the contract size. It is the price per index point.

Tick size:

It is the minimum price difference between two quotes of similar nature.

OPTION:

Option is a type of contract between two persons where one grants the other the right to

buy a specific asset at a specific price within a specific time period. Alternatively the contract

may grant the other person the right to sell a specific asset at a specific price within a specific

time period. In order to have this right The option buyer has to pay the seller the option

premium.

The assets on which option can be derived are stocks, commodities, indexes etc. If the

underlying asset is the financial asset, then the option are financial option like stock options, currency

options, index options etc, and if options like commodity option.

PROPERTIES OF OPTION:

Options have several unique properties that set them apart from other securities. The following are

the properties of option:

Limited Loss

High leverages potential

Limited Life

PARTIES IN AN OPTION CONTRACT:

Buyer of the option:

The buyer of an option is one who by paying option premium buys the right but not the

obligation to exercise his option on seller/writer.

Writer/seller of the option:


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The writer of the call /put options is the one who receives the option premium and is their by

obligated to sell/buy the asset if the buyer exercises the option on him.

4.1 TYPES OF OPTIONS:

The options are classified into various types on the basis of various variables. The following are

the various types of options.

1.On the basis of the underlying asset:

On the basis of the underlying asset the option are divided into two types:

INDEX OPTIONS

The index options have the underlying asset as the index.

STOCK OPTIONS:

A stock option gives the buyer of the option the right to buy/sell stock at a specified price.

Stock option is options on the individual stocks, there are currently more than 50 stocks are

trading in the segment.

4.2 On the basis of the market movements:

On the basis of the market movements the option are divided into two types. They are:

CALL OPTION

A call option is bought by an investor when he seems that the stock price moves upwards. A

call option gives the holder of the option the right but not the obligation to buy an asset by a certain date

for a certain price.

PUT OPTION

A put option is bought by an investor when he seems that the stock price moves downwards.

A put option gives the holder of the option right but not the obligation to sell an asset by a certain date

for a certain price.

4.3 On the basis of exercise of option:

On the basis of the exercising of the option, the options are classified into two categories.

AMERICAN OPTION

American options are options that can be exercised at any time up to the expiration date, most

exchange-traded option are American.


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.EUROPEAN OPTION

European options are options that can be exercised only on the expiration date itself. European

options are easier to analyze than American options.

PAY OFF PROFILE FOR BUYER OF CALL OPTION:

S - Strike price OTM - Out of the money

SP - Premium/ Loss ATM - At the money

E1 - Spot price 1 ITM - In the money

E2 - Spot price 2

SR - Profit at spot price E1

CASE 1: (Spot price > Strike price)

As the spot price (E1) of the underlying asset is more than strike price (S). the buyer gets profit of

(SR), if price increases more than E1 then profit also increase more than SR.

CASE 2: (Spot price < Strike price)

As a spot price (E2) of the underlying asset is less than strike price (s).The buyer gets loss of

(SP), if price goes down less than E2 then also his loss is limited premium (SP)

PAY-OFF PROFILE FOR SELLER OF A CALL OPTION:

The pay-off of seller of the call option depends on the spot price of the underlying asset.

S - Strike price ITM - In the money

SP - Premium /profit ATM - At the money

E1 - Spot price 1 OTM - Out of the money

E2 - Spot price 2



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As the spot price (E1) of the underlying is less than strike price (S). the seller gets the profit of

(SP), if the price decreases less than E1 then also profit of the seller does not exceed (SP).


As the spot price (E2) of the underlying asset is more than strike price (S) the seller gets loss of

(SR), if price goes more than E2 then the loss of the seller also increase more than (SR).

PAY-OFF PROFILE FOR BUYER OF A PUT OPTION

The pay-off of the buyer of the option depends on the spot price of the underlying asset.


SP - Premium /profit OTM - Out of the money

E1 - Spot price ATM - At the money

E2 - Spot price 2



As the spot price (E1) of the underlying asset is less than strike price (S). the buyer gets the profit

(SR), if price decreases less than E1 then profit also increases more than (SR).


As the spot price (E2) of the underlying asset is more than strike price (s), the buyer gets loss of (SP),

if price goes more than E2 than the loss of the buyer is limited to his premium (SP).

PAY-OFF PROFILE FOR SELLER OF A PUT OPTION

The pay-off of a seller of the option depends on the spot price of the underlying asset.


SP - Premium/ profit ATM - At the money

E1 - Spot price 1 OTM - Out of the money

E2 - Spot price 2



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As the spot price (E1) of the underlying asset is less than strike price (S), the seller gets the loss of

(SR), if price decreases less than E1 than the loss also increases more than (SR).


As the spot price (E2) of the underlying asset is more than strike price (S), the seller gets profit of

(SP), if price goes more than E2 than the profit of seller is limited to his premium (SP).

Factors affecting the price of an option

The following are the various factors that affect the price of an option they are:

Stock price: The pay –off from a call option is an amount by which the stock price exceeds the

strike price. Call options therefore become more valuable as the stock price increases and vice versa.

The pay-off from a put option is the amount; by which the strike price exceeds the stock price. Put

options therefore become more valuable as the stock price increases and vice versa.

Strike price: In case of a call, as a strike price increases, the stock price has to make a larger

upward move for the option to go in-the-money. Therefore, for a call, as the strike price increases

option becomes less valuable and as strike price decreases, option become more valuable.

Time to expiration: Both put and call American options become more valuable as a time to

expiration increases.

Volatility: The volatility of a stock price is measured of uncertain about future stock price

movements. As volatility increases, the chance that the stock will do very well or very poor increases.

The value of both calls and puts therefore increase as volatility increase.

Risk-free interest rate: The put options prices decline as the risk-free rate increases where as the

prices of call always increase as the risk-free interest rate increases.

Dividends: Dividends have the effect of reducing the stock price on the x- dividend rate. This has a

negative effect on the value of call options and a positive effect on the value of put options.

PRICING OPTIONS

The black- scholes formula for the price of European calls and puts on a non-dividend paying

stock are:


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CALL OPTION

C = SN(D1)-Xe-r t

N(D2)

PUT OPTION

P = Xe-r t

N(-D2)-SN(-D1)

C = VALUE OF CALL OPTION

S = SPOT PRICE OF STOCK

N= NORMAL DISTRIBUTION

V= VOLATILITY

X = STRIKE PRICE

r = ANNUAL RISK FREE RETUR

t = CONTRACT CYCLE

d1 = in (S/X) + (r+ v2/2)t

v\/t

d2 = d1- v\/t

Options Terminology:

Strike price

The price specified in the options contract is known as strike price or Exercise price.

Options premium

Option premium is the price paid by the option buyer to the option seller.

Expiration Date

The date specified in the options contract is known as expiration date.

In-the-money option

An In the money option is an option that would lead to positive cash inflow to the holder if it exercised

immediately.

At-the-money option

An at the money option is an option that would lead to zero cash flow if it is exercised immediately


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Out-of-the-money option

An out-of-the-money option is an option that would lead to negative cash flow if it is exercised

immediately.

Intrinsic value of money

The intrinsic value of an option is the expiration value or the fair value.

Time value of an option

The time value of an option is the difference between its premium and its intrinsic value.

4.4 Reasons to choose sharekhan limited:

Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In

the Asia Money broker's poll held recently, SSKI won the 'India's best broking house for 2004'

award. Ever since it launched Share khan as its retail broking division in February 2000, it has

been providing institutional-level research and broking services to individual investors.

Technology

With their online trading account one can buy and sell shares in an instant from any PC

with an internet connection. Customers get access to the powerful online trading tools that will

help them to take complete control over their investment in shares.

Knowledge

In a business where the right information at the right time can translate into direct profits,

investors get access to a wide range of information on the content-rich portal,

www.sharekhan.com.

Investors will also get a useful set of knowledge-based tools that will empower them

to take informed decisions.

Convenience

One can call Sharekhan’s Dial-N-Trade number to get investment advice and execute his/her

transactions. They have a dedicated call-center to provide this service via a Toll Free Number

1800-22-7500 & 39707500 from anywhere in India.


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Customer Service

Its customer service team assist their customer for any help that they need relating to

transactions, billing, demat and other queries. Their customer service can be contacted via a toll

free number, email or live chat on www.sharekhan.com.

Investment Advice

Sharekhan has dedicated research teams of more than 30 people for fundamental and

technical research. Their analysts constantly track the pulse of the market and provide timely

investment advice to customer in the form of daily research emails, online chat, printed reports

etc.

4.5 Benefits: Free Depository A/c

Instant Cash Transfer

Multiple Bank Option.

Secure Order by Voice Tool Dial-n-Trade.

Automated Portfolio to keep track of the value of your actual purchases.

Personalized Price and Account Alerts delivered instantly to your Mobile Phone & Email

address.

Special Personal Inbox for order and trade confirmations.

On-line Customer Service via Web Chat.

Buy or sell even single share

Anytime Ordering.

Share khan Ltd.: BSE Cash-INB011073351; F&O-INF011073351; NSE –

INB/INF231073330; MAPIN – 100008375; DP: NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-

CDSL-271-2004; PMS INP00000066; Mutual Fund: ARN 20.Sharekhan Commodities Pvt. Ltd.:

MCX-10080; NCDEX-00132; MAPIN – 100013912.

http://www.sharekhan.com/


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5. DATA ANALYSIS AND NTERPRETATION 5.1 Tata Motors Limited

Tata Motors Ltd (NSE: TATAMOTORS, BSE: 500570, NYSE: TTM) is a

multinational corporation headquartered in Mumbai, India. Part of the Tata Group, it was

formerly known as TELCO (TATA Engineering and Locomotive Company).Tata Motors is

India‘s largest automobile company, with consolidated revenues of USD 20 billion in 2009-10. It

is the leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors

has products in the compact, midsize car and utility vehicle segments. The company is the

world's fourth largest truck manufacturer, the world's second largest bus manufacturer, and

employs 24,000 workers. Since first rolled out in 1954, Tata Motors has produced and sold over

4 million vehicles in India. Established in 1945, when the company began manufacturing

locomotives, the company manufactured its first commercial vehicle in 1954. Tata Motors is a

dual-listed company traded on both the Bombay Stock Exchange, as well as on the New York

Stock Exchange. Tata Motors in 2005, was ranked among the top 10 corporations in India with

an annual revenue exceeding INR 320 billion.

Parent Tata group

Founder(s) JRD Tata

Headquarters Mumbai, Maharashtra, India [1]

Key people

Ratan Tata, Chairman

Ravi Kant, Vice Chairman

Carl Peter Forster, CEO

Prakash Telang, MD (India Operations)

Ravi Pisharody, President (CVBU)

Revenue 94,481.34 crore (US$20.5 billion) (2009) [2]

http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India

http://www.nse-india.com/marketinfo/equities/quotesearch.jsp?companyname=TATAMOTORS

http://en.wikipedia.org/wiki/Bombay_Stock_Exchange

http://www.bseindia.com/stockreach/stockreach.htm?scripcd=500570

http://en.wikipedia.org/wiki/NYSE

http://www.nyse.com/about/listed/lcddata.html?ticker=TTM

http://en.wikipedia.org/wiki/Multinational_corporation

http://en.wikipedia.org/wiki/Mumbai

http://en.wikipedia.org/wiki/Tata_Group

http://en.wikipedia.org/wiki/Automobile

http://en.wikipedia.org/wiki/Commercial_vehicles

http://en.wikipedia.org/wiki/Locomotives

http://en.wikipedia.org/wiki/Dual-listed_company


http://en.wikipedia.org/wiki/New_York_Stock_Exchange



http://en.wikipedia.org/wiki/Indian_rupee

http://en.wikipedia.org/wiki/Entrepreneur

http://en.wikipedia.org/wiki/JRD_Tata


http://en.wikipedia.org/wiki/Maharashtra

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Tata_Motors#cite_note-0

http://en.wikipedia.org/wiki/Ratan_Tata

http://en.wikipedia.org/wiki/Ravi_Kant

http://en.wikipedia.org/wiki/Carl_Peter_Forster

http://en.wikipedia.org/wiki/Revenue

http://en.wikipedia.org/wiki/Crore

http://en.wikipedia.org/wiki/United_States_dollar

http://en.wikipedia.org/wiki/Tata_Motors#cite_note-rediff1-1


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5.2 Futures and equities:

TIMESTAMP SPOT PRICE FUTURE PRICE EXPIRY_DT

DECEMBER

15-Dec-10 1322.9 1304.6 30-Dec-10

16-Dec-10 1347 1341.85 30-Dec-10

20-Dec-10 1351 1341.6 30-Dec-10

21-Dec-10 1350 1344.9 30-Dec-10

22-Dec-10 1365.15 1367.55 30-Dec-10

23-Dec-10 1352.75 1349.2 30-Dec-10

24-Dec-10 1306.15 1312.15 30-Dec-10

27-Dec-10 1301.1 1300 30-Dec-10

28-Dec-10 1268.9 1271.15 30-Dec-10

29-Dec-10 1273.85 1275.55 30-Dec-10

30-Dec-10 1300.15 1300.65 30-Dec-10

JANUARY

31-Dec-10 1308.35 1305.5 27-Jan-11

3-Jan-11 1308.45 1304 27-Jan-11

4-Jan-11 1298.4 1297.8 27-Jan-11

5-Jan-11 1282.8 1281.5 27-Jan-11

6-Jan-11 1261 1260.7 27-Jan-11

7-Jan-11 1190.2 1193.45 27-Jan-11

10-Jan-11 1176.7 1174.8 27-Jan-11

11-Jan-11 1158.05 1158.1 27-Jan-11

12-Jan-11 1218 1213.65 27-Jan-11

13-Jan-11 1236.7 1223.75 27-Jan-11

14-Jan-11 1182.4 1173.25 27-Jan-11

17-Jan-11 1178.85 1170.1 27-Jan-11

18-Jan-11 1199.55 1195.8 27-Jan-11

19-Jan-11 1192.75 1180.3 27-Jan-11

20-Jan-11 1194.7 1191.55 27-Jan-11

21-Jan-11 1187.4 1187.7 27-Jan-11

24-Jan-11 1188.3 1185.15 27-Jan-11

25-Jan-11 1166 1159.85 27-Jan-11

Net income 2,571.06 crore (US$557.92 million)

(2009)[2]

Total assets $15.430 billion (2009)

Total equity $763 million (2009)

Employees 25,000 [3]

http://en.wikipedia.org/wiki/Net_income



http://en.wikipedia.org/wiki/Tata_Motors#cite_note-rediff1-1

http://en.wikipedia.org/wiki/Asset


http://en.wikipedia.org/wiki/Employment

http://en.wikipedia.org/wiki/Tata_Motors#cite_note-2


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27-Jan-11 1195.85 1195.8 27-Jan-11

5.3 Call option:

TIMESTAMP EXPIRY_DT CLOSE

STRIKE

PRICE

DECEMBER 1250 1300 1350

15-Dec-10 30-Dec-10 1322.9 72 41.4 21.25

16-Dec-10 30-Dec-10 1347 103 63.75 32.95

20-Dec-10 30-Dec-10 1351 103.2 58.65 28.55

21-Dec-10 30-Dec-10 1350 101.4 57.85 26.95

22-Dec-10 30-Dec-10 1365.15 119.15 75 36.05

23-Dec-10 30-Dec-10 1352.75 103.25 57.6 22.45

24-Dec-10 30-Dec-10 1306.15 66.9 26.8 7.65

27-Dec-10 30-Dec-10 1301.1 55 16.5 3.7

28-Dec-10 30-Dec-10 1268.9 28.05 5.05 1.1

29-Dec-10 30-Dec-10 1273.85 28.05 3.35 0.5

30-Dec-10 30-Dec-10 1300.15 50.3 0.15 0.05

JANUARY 1150 1200 1250

31-Dec-10 27-Jan-11 1308.35 168 119 77.15

3-Jan-11 27-Jan-11 1308.45 166 113 76.1

4-Jan-11 27-Jan-11 1298.4 166 105 70.15

5-Jan-11 27-Jan-11 1282.8 166 94.55 60.55

6-Jan-11 27-Jan-11 1261 166 78.05 45.15

7-Jan-11 27-Jan-11 1190.2 65.25 36.6 19.65

10-Jan-11 27-Jan-11 1176.7 54.35 29.7 14.85

11-Jan-11 27-Jan-11 1158.05 41.4 23.35 10.9

12-Jan-11 27-Jan-11 1218 78.5 45.3 23.2

13-Jan-11 27-Jan-11 1236.7 87.8 50.4 25.9

14-Jan-11 27-Jan-11 1182.4 46.95 22.85 10.2

17-Jan-11 27-Jan-11 1178.85 39.9 17 6.55

18-Jan-11 27-Jan-11 1199.55 54.7 22.8 8

19-Jan-11 27-Jan-11 1192.75 41.8 14.55 4.15

20-Jan-11 27-Jan-11 1194.7 49.3 17.3 4.75

21-Jan-11 27-Jan-11 1187.4 43.4 13 2.9

24-Jan-11 27-Jan-11 1188.3 39.7 8.95 1.75

25-Jan-11 27-Jan-11 1166 16.4 1.45 0.4

27-Jan-11 27-Jan-11 1195.85 43 0.05 0.05


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PUT OPTION:

TIMESTAMP EXPIRY_DT SPOT PRICE STRIKE PRICE

DECEMBER 1250 1300 1350

15-Dec-10 30-Dec-10 1322.9 17.9 35.95 64.45

16-Dec-10 30-Dec-10 1347 9.95 20.05 40

20-Dec-10 30-Dec-10 1351 7.55 16.95 36

21-Dec-10 30-Dec-10 1350 5.4 13.3 32.15

22-Dec-10 30-Dec-10 1365.15 2.6 6.75 18.7

23-Dec-10 30-Dec-10 1352.75 2.75 7.75 23.8

24-Dec-10 30-Dec-10 1306.15 4.15 14.9 44.9

27-Dec-10 30-Dec-10 1301.1 4.2 17.05 53.35

28-Dec-10 30-Dec-10 1268.9 6.55 32.8 81.45

29-Dec-10 30-Dec-10 1273.85 3.15 27.45 75.45

30-Dec-10 30-Dec-10 1300.15 0.05 0.1 48

JANUARY 1150 1200 1250

31-Dec-10 27-Jan-11 1308.35 5.7 11.2 21.9

3-Jan-11 27-Jan-11 1308.45 4.55 10.45 22.05

4-Jan-11 27-Jan-11 1298.4 5.15 11.05 23.5

5-Jan-11 27-Jan-11 1282.8 7.3 15.1 29.95

6-Jan-11 27-Jan-11 1261 7.95 17.65 35.4

7-Jan-11 27-Jan-11 1190.2 22.3 42.8 74.45

10-Jan-11 27-Jan-11 1176.7 31.4 54.65 88.1

11-Jan-11 27-Jan-11 1158.05 37.45 65.15 107.75

12-Jan-11 27-Jan-11 1218 15.25 31.2 57.1

13-Jan-11 27-Jan-11 1236.7 12.25 26.4 53.45

14-Jan-11 27-Jan-11 1182.4 24 49.05 87.7

17-Jan-11 27-Jan-11 1178.85 20.95 47.3 86.35

18-Jan-11 27-Jan-11 1199.55 9.65 27.4 70

19-Jan-11 27-Jan-11 1192.75 12.15 34.45 79.95

20-Jan-11 27-Jan-11 1194.7 8.45 27.45 65

21-Jan-11 27-Jan-11 1187.4 6.35 25.2 66

24-Jan-11 27-Jan-11 1188.3 4.65 24.2 66.2

25-Jan-11 27-Jan-11 1166 8.05 41.55 92.9

27-Jan-11 27-Jan-11 1195.85 0 0 0


[email protected]

ANALYSIS:

The objective of this analysis is to evaluate the profit/loss position of futures and options. This

analysis is based on sample data taken of TATA MOTORS CO. LTD scrip. This analysis considered

the Dec & Jan contract of TATA MOTORS CO. LTD. The lot size of TATA MOTORS CO. LTD is

250, the time period in which this analysis done is from 15.12.10 – 31.01.11.

Future Market

BUYER

03/01/11(bought) 1304

14/01/01(sold) 1173.5

loss= 130.75

Net loss=loss on each share*lot size

=130.75*250

=32687.5 rs.

HEDGING

Short concept(FUTURES) EQUITY

03/01/11 (sold) 1304.6

12/01/11 (buy back) 1213.65

profit= 90.3

Net profit=profit on each share*lot

size

=90.35*250

=22587.5 rs.

03/01/11 (bought) 1308.45

12/01/11 (sold) 1218

Loss= 90.45

Net loss=loss on each share*no. of shares

purchased

=90.45*250 =22612.5rs.


[email protected]

The loss occurred in equity market is covered by making hedging in futures market. By

hedging the total loss is 25rs(22612.5-22587.5) which is minimum and will be more if he would

have hedged any other day.

Entry on dec 15th

and when to exit

Max. profit max. loss

15/12/12 (bought) 1304.6 15/12/12 (bought) 1304.6

22/12/12 (sold) 1367.55 28/12/12 (sold) 1271.15

Profit= 62.95 loss=33.45

Max profit=profit per share*lot size Max loss=loss per share*lot size

=62.95*250=15737.5rs =33.45*250=8362.5rs

On any other day client will not exceed the above loss or the above profit.


[email protected]

OPTION MARKET

CALL OPTION

On 15th dec bought 6 Lots of TATA MOTORS that is 1500(250*6)

IN THE MONEY AT THE MONEY OUT OF THE MONEY

Spot price

Less:-strike price

Amount

Less:-premium

Profit/loss

1312.55

1250

62.55

72

-9.45

1312.55

1300

12.55

41.40

-28.85

1312.55

1350

-37.45

21.25

-16.2

If client enters on this particular day he will get loss at any cost.

PUT OPTION

On 13th

Jan bought 6 Lots of TATA MOTORS that is 1500(250*6)


Strike price

Less:-spot price

1250

1223.75

1200

1223.75

1150

1223.75

Amount

Less:-

26.25

12.25

23.75

26.4

-73.75

53.45

Profit/loss 14 -2.65 -20.3

Client can get profit by entering on this date at IN THE MONEY.


[email protected]

Graph showing price movement of FUTURE & MARKET

6. RELIANCE COMMUNICATIONS Looking back, looking forward

Reliance – Anil Dhirubhai Ambani Group, an offshoot of the Reliance Group founded by

Shri Dhirubhai H Ambani (1932-2002), ranks among India‘s top three private sector business

houses in terms of net worth. The group has business interests that range from

telecommunications (Reliance Communications Limited) to financial services (Reliance Capital

Ltd) and the generation and distribution of power (Reliance Infrastructure Limited).

Reliance – ADA Group‘s flagship company, Reliance Communications, is India's

largest private sector information and Communications Company, with over 100 million


[email protected]

subscribers. It has established a pan-India, high-capacity, integrated (wireless and wire line),

convergent (voice, data and video) digital network, to offer services spanning the entire

infocomm value chain. Other major group companies — Reliance Capital and Reliance

Infrastructure — are widely acknowledged as the market leaders in their respective areas of

operation.

Graph showing price movement of FUTURE & MARKET

Type Public

(NSE: RCOM, BSE: 532712)

Industry Telecommunications

Founded 2004

Founder(s) Dhirubhai Ambani

http://en.wikipedia.org/wiki/Types_of_business_entity

http://en.wikipedia.org/wiki/Public_company


http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=RCOM&section=7


http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532712

http://en.wikipedia.org/wiki/Industry

http://en.wikipedia.org/wiki/Telecommunication

http://en.wikipedia.org/wiki/Entrepreneur

http://en.wikipedia.org/wiki/Dhirubhai_Ambani


[email protected]

6.1 Futures and equities: TIMESTAMP MARKET FUTURE EXPIRY_DT

DECEMBER

15-Dec-10 129.35 129.95 30-Dec-10

16-Dec-10 128.95 129.45 30-Dec-10

20-Dec-10 126.85 126.85 30-Dec-10

21-Dec-10 127.45 128.05 30-Dec-10

22-Dec-10 128.2 128.75 30-Dec-10

23-Dec-10 128.6 129.05 30-Dec-10

24-Dec-10 141.95 142.55 30-Dec-10

27-Dec-10 137 137.2 30-Dec-10

28-Dec-10 139.4 139.7 30-Dec-10

Headquarters Navi Mumbai, Maharashtra, India

Area served India

Key people

Anil Ambani

(Chairman)

Satish Seth

(MD)

Products

Wireless

Telephone

Internet

Television

Data Cards

Recharge Vouchers

VC

http://en.wikipedia.org/wiki/Navi_Mumbai

http://en.wikipedia.org/wiki/Maharashtra


http://en.wikipedia.org/wiki/Anil_Ambani

http://en.wikipedia.org/wiki/Chairman

http://en.wikipedia.org/wiki/Managing_Director

http://en.wikipedia.org/wiki/Product_(business)

http://en.wikipedia.org/wiki/Wireless

http://en.wikipedia.org/wiki/Telephone

http://en.wikipedia.org/wiki/Internet

http://en.wikipedia.org/wiki/Television


[email protected]

29-Dec-10 138.7 138.85 30-Dec-10

30-Dec-10 138.45 138.5 30-Dec-10

JANUARY

31-Dec-10 145.35 146.3 27-Jan-11

3-Jan-11 148.25 148.7 27-Jan-11

4-Jan-11 144.3 145.1 27-Jan-11

5-Jan-11 140.05 140.8 27-Jan-11

6-Jan-11 139.75 140.75 27-Jan-11

7-Jan-11 139.35 139.3 27-Jan-11

10-Jan-11 135.25 135.35 27-Jan-11

11-Jan-11 137.65 138.25 27-Jan-11

12-Jan-11 138.65 138.8 27-Jan-11

13-Jan-11 138.5 138.8 27-Jan-11

14-Jan-11 138.5 138.7 27-Jan-11

17-Jan-11 131.65 131.95 27-Jan-11

18-Jan-11 132.1 132.6 27-Jan-11

19-Jan-11 130.8 130.95 27-Jan-11

20-Jan-11 133.4 133.75 27-Jan-11

21-Jan-11 136.4 136.5 27-Jan-11

24-Jan-11 134.8 134.9 27-Jan-11

25-Jan-11 132.9 132.95 27-Jan-11

27-Jan-11 127.7 127.7 27-Jan-11

CALL OPTION:

TIMESTAMP SPOT PRICE STRIKE PRICE

DECEMBER 120 130 140

15-Dec-10 129.35 11.95 5.25 2.15

16-Dec-10 128.95 11.35 4.55 1.65

20-Dec-10 126.85 8.55 3 0.85

21-Dec-10 127.45 1.3 4.95 13

22-Dec-10 128.2 0.95 4.15 11.85

23-Dec-10 128.6 9.9 2.55 0.55

24-Dec-10 141.95 0.25 0.75 3.45


[email protected]

27-Dec-10 137 17.1 7.65 2.2

28-Dec-10 139.4 22.5 9.6 2.35

29-Dec-10 138.7 0.05 0.1 2.35

30-Dec-10 138.45 19.2 8.4 0.05

JANUARY

130 140 150

31-Dec-10 145.35 18.25 10.5 5.9

3-Jan-11 148.25 1.25 3.3 7.7

4-Jan-11 144.3 16.45 9.3 4.7

5-Jan-11 140.05 12.85 6.55 3.05

6-Jan-11 139.75 13.1 6.55 3.1

7-Jan-11 139.35 10.85 5.65 2.6

10-Jan-11 135.25 8.65 3.75 1.6

11-Jan-11 137.65 10.95 4.65 1.9

12-Jan-11 138.65 10.8 4.55 1.75

13-Jan-11 138.5 10.1 4.5 1.6

14-Jan-11 138.5 10.35 4.15 1.35

17-Jan-11 131.65 5.25 1.45 0.5

18-Jan-11 132.1 5 1.1 0.35

19-Jan-11 130.8 2.55 9.55 18.8

20-Jan-11 133.4 5.05 0.9 0.3

21-Jan-11 136.4 0.65 4.7 15

24-Jan-11 134.8 5.3 0.55 0.15

25-Jan-11 132.9 3.5 0.15 0.05

27-Jan-11 127.7 0.1 0.05 0.05

6.2 Put option:

TIMESTAMP SPOT PRICE

STRIKE

PRICE


15-Dec-10 129.35 2.1 5.4 12

16-Dec-10 128.95 1.75 5 13.75

20-Dec-10 126.85 1.85 5.7 13.75

21-Dec-10 127.45 1.3 4.95 13

22-Dec-10 128.2 0.95 4.15 11.85

23-Dec-10 128.6 0.75 3.5 11.5


[email protected]

24-Dec-10 141.95 0.25 0.75 3.45

27-Dec-10 137 0.2 0.85 5

28-Dec-10 139.4 0.1 0.25 2.7

29-Dec-10 138.7 0.05 0.1 2.35

30-Dec-10 138.45 0.05 0.05 1.4

JANUARY 130 140 150

31-Dec-10 145.35 1.75 4.25 9.5

3-Jan-11 148.25 1.25 3.3 7.7

4-Jan-11 144.3 1.6 4.35 9.75

5-Jan-11 140.05 2.1 5.8 12.45

6-Jan-11 139.75 2.05 5.65 12.1

7-Jan-11 139.35 2.2 6.3 13.4

10-Jan-11 135.25 3.1 8.15 15.5

11-Jan-11 137.65 2.35 6.25 12

12-Jan-11 138.65 1.9 5.6 12.45

13-Jan-11 138.5 1.85 5.5 11.9

14-Jan-11 138.5 1.7 5.25 12.1

17-Jan-11 131.65 3.5 9.75 16.05

18-Jan-11 132.1 2.55 8.2 18.8

19-Jan-11 130.8 2.55 9.55 18.8

20-Jan-11 133.4 1.35 6.9 20.4

21-Jan-11 136.4 0.65 4.7 15

24-Jan-11 134.8 0.6 5.5 16.15

25-Jan-11 132.9 0.5 7.05 14.5

27-Jan-11 127.7 2 11.45 20.8


[email protected]

ANALYSIS:

The objective of this analysis is to evaluate the profit/loss position of futures and options.

This analysis is based on sample data taken of RELIANCE COMMUNICATIONS scrip. This analysis

considered the Dec & Jan contract of RELIANCE COMMUNICATIONS. The lot size of RELIANCE

COMMUNICATIONS is 2000, the time period in which this analysis done is from 15.12.10 –

31.01.11.

Future Market

03/01/11(bought) 148.7

14/01/01(sold) 138.7

Loss= 10


=10*2000

=20000 rs.

HEDGING

Short concept(FUTURES) EQUITY

03/01/11 (sold) 148.7

18/01/11 (buy back) 132.6

profit= 16.1

Net profit=profit on each share*lot

size

=16.1*2000

=32200 rs.

03/01/11 (bought) 148.25

18/01/11 (sold) 132.1

Loss= 16.15

Net loss=loss on each share*no. of shares

purchased

=16.15*2000 =32300rs.


[email protected]

The loss occurred in equity market is covered by making hedging in futures market. By

hedging the total loss is 100rs (32300-32200) which is minimum and will be more if he would

have hedged any other day.

Entry on dec 16th

and when to exit Max. Profit max. loss

16/12/12 (bought) 129.45 16/12/12 (bought) 129.45

24/12/12 (sold) 142.55 20/12/12 (sold) 126.85

Profit= 13.1 loss=2.6

Max profit=profit per share*lot size Max loss=loss per share*lot size

=13.1*2000=26200rs =2.6*2000=5200rs

On any other day client will not exceed the above loss or the above profit.

OPTION MARKET

CALL OPTION

On 30th dec client bought 3 Lots of RELIANCE COMMUNICATIONS that is (2000*3=6000)


Spot price

Less:-strike price

138.45

120

138.45

130

138.45

140

Amount

Less:-premium

18.45

19.2

8.45

8.4

-1.55

0.05

Profit/loss

*lot size

-0.75

6000

0.05

6000

-1.5

6000

Total profit/loss -4500 300 -9000


[email protected]

If client enters on this particular day he will get profit only at strike price 130 at AT THE

MONEY.

PUT OPTION

On 25th Jan bought 3 Lots of RELIANCE COMMUNICATIONS that is 6000(2000*3)

OUT OF THE MONEY AT THE MONEY IN THE MONEY

Strike price

Less:-spot price

130

132.9

140

132.9

150

132.9

Amount

Less:-premium

-2.9

0.5

7.1

7.05

17.1

14.5

Profit/loss

*lot size

-2.4

6000

0.05

6000

2.6

6000

Total profit/loss -14400 300 15600

Client can get profit by entering on this date at AT THE MONEY & IN THE MONEY.

6.3 Hedging

As buyers think to purchase at less cost they will opt for 130 strike price and as sellers think to

sell at highest price they opt for 150 strike price. So making hedging at 130 calls & 150 put.

7. IDBI The Industrial Development Bank of India Limited (IDBI) (BSE: 500116 ) is one of

India's leading public sector banks and 4th largest Bank in overall ratings. RBI categorized IDBI

as an "other public sector bank". It was established in 1964 by an Act of Parliament to provide


http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500116?


http://en.wikipedia.org/wiki/Act_of_Parliament


[email protected]

credit and other facilities for the development of the fledgling Indian industry. It is currently 10th

largest development bank in the world in terms of reach with 1300 ATMs, 758 branches and 513

centers. Some of the institutions built by IDBI are the National Stock Exchange of India (NSE),

the National Securities Depository Services Ltd (NSDL), the Stock Holding Corporation of India

(SHCIL), the Credit Analysis & Research Ltd, the Export-Import Bank of India(Exim Bank), the

Small Industries Development Bank of India(SIDBI), the Entrepreneurship Development

Institute of India, and IDBI BANK, which today is owned by the Indian Government, though for

a brief period it was a private scheduled bank.

Type Public (BSE: 500116‎)

Industry Banking Financial services

Founded July 1964

Headquarters Mumbai, India

Key people Type

Products Finance and insurance

Revenue 17,563.59 crore (US$3.81 billion) (2010)

Net income 1,031.13 crore (US$223.76 million) (2010)

Employees 8,989


http://en.wikipedia.org/w/index.php?title=National_Securities_Depository_Services_Ltd&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Stock_Holding_Corporation_of_India&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Credit_Analysis_%26_Research_Ltd&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Export-Import_Bank_of_India&action=edit&redlink=1

http://en.wikipedia.org/wiki/Small_Industries_Development_Bank_of_India

http://en.wikipedia.org/wiki/Entrepreneurship_Development_Institute_of_India





http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500116?

http://en.wikipedia.org/wiki/Banking

http://en.wikipedia.org/wiki/Financial_services





http://en.wikipedia.org/wiki/Finance_and_insurance







[email protected]

GRAPH SHOWING MARKET AND FUTURES PRICE MOVEMENT:


[email protected]

7.1 Futures and equities:

TIMESTAMP MARKET FUTURE EXPIRY_DT

DECEMBER

15-Dec-10 155.8 155.8 30-Dec-10

16-Dec-10 161.15 162.15 30-Dec-10

20-Dec-10 161.75 162.3 30-Dec-10

21-Dec-10 166.15 166.6 30-Dec-10

31-Dec-10 166.65 166.55 30-Dec-10

23-Dec-10 164.65 165.1 30-Dec-10

24-Dec-10 164.35 165 30-Dec-10

27-Dec-10 162.05 162.1 30-Dec-10

28-Dec-10 159.15 159.65 30-Dec-10

29-Dec-10 160.25 160.75 30-Dec-10

30-Dec-10 160.35 160.25 30-Dec-10

JANUARY

31-Dec-10 165.05 166.05 27-Jan-11

3-Jan-11 166.05 167.2 27-Jan-11

4-Jan-11 162.75 163.35 27-Jan-11

5-Jan-11 157.95 158.95 27-Jan-11

6-Jan-11 156.75 157.2 27-Jan-11

7-Jan-11 152.55 152.8 27-Jan-11

10-Jan-11 148.7 148.85 27-Jan-11

11-Jan-11 148 148.35 27-Jan-11

12-Jan-11 152.1 152.7 27-Jan-11

13-Jan-11 148.1 148.2 27-Jan-11

14-Jan-11 146.6 146.8 27-Jan-11

17-Jan-11 140.75 141.25 27-Jan-11

18-Jan-11 155.15 144.15 27-Jan-11

19-Jan-11 155.3 145.2 27-Jan-11

20-Jan-11 150.05 150.3 27-Jan-11

21-Jan-11 151.05 151.2 27-Jan-11

24-Jan-11 152.7 152.9 27-Jan-11

25-Jan-11 151.85 152 27-Jan-11

27-Jan-11 142.2 142.15 27-Jan-11


[email protected]

CALL OPTION:

TIMESTAMP SPOT PRICE

STRIKE PRICE


15-Dec-10 155.8 8.75 3.9 1.55

16-Dec-10 161.15 13.15 6.1 2.15

20-Dec-10 161.75 13 5.6 2.05

21-Dec-10 166.15 17.65 8.15 2.75

22-Dec-10 166.65 16.85 7.65 2.4

23-Dec-10 164.65 15.8 6.3 1.6

24-Dec-10 164.35 15.2 5.65 1.05

27-Dec-10 162.05 12.1 3.15 0.4

28-Dec-10 159.15 9.85 1.4 0.15

29-Dec-10 160.25 11.3 1.5 0.1

30-Dec-10 160.35 9.5 0.15 0.05

JANUARY 140 150 160

31-Dec-10 165.05 26.9 17.5 9.75

3-Jan-11 166.05 26.9 18 10.45

4-Jan-11 162.75 26.9 14.95 8

5-Jan-11 157.95 26.9 11.4 5.75

6-Jan-11 156.75 26.9 10.05 4.75

7-Jan-11 152.55 15.15 6.9 3.1

10-Jan-11 148.7 11.65 4.95 2

11-Jan-11 148 9.3 4.5 1.6

12-Jan-11 152.1 14.1 6.4 2.45

13-Jan-11 148.1 10.25 3.9 1.35

14-Jan-11 146.6 9.4 3 0.85

17-Jan-11 140.75 4.55 1.25 0.4

18-Jan-11 155.15 6.05 1.4 0.3

19-Jan-11 155.3 6.55 1.5 0.35

20-Jan-11 150.05 10.85 3.2 0.6

21-Jan-11 151.05 11.65 3.4 0.55

24-Jan-11 152.7 13.1 4.3 0.65

25-Jan-11 151.85 12 3.05 0.25

27-Jan-11 142.2 1.85 0.05 0.05


[email protected]

PUT OPTION:

TIMESTAMP MARKET SRIKE PRICE


15-Dec-10 155.8 8.75 3.9 1.55

16-Dec-10 161.15 13.15 6.1 2.15

20-Dec-10 161.75 13 5.6 2.05

21-Dec-10 166.15 17.65 8.15 2.75

22-Dec-10 166.65 16.85 7.65 2.4

23-Dec-10 164.65 15.8 6.3 1.6

24-Dec-10 164.35 15.2 5.65 1.05

27-Dec-10 162.05 12.1 3.15 0.4

28-Dec-10 159.15 9.85 1.4 0.15

29-Dec-10 160.25 11.3 1.5 0.1

30-Dec-10 160.35 9.5 0.15 0.05

JANUARY 140 150 160

31-Dec-10 165.05 26.9 17.5 9.75

3-Jan-11 166.05 26.9 18 10.45

4-Jan-11 162.75 26.9 14.95 8

5-Jan-11 157.95 26.9 11.4 5.75

6-Jan-11 156.75 26.9 10.05 4.75

7-Jan-11 152.55 15.15 6.9 3.1

10-Jan-11 148.7 11.65 4.95 2

11-Jan-11 148 9.3 4.5 1.6

12-Jan-11 152.1 14.1 6.4 2.45

13-Jan-11 148.1 10.25 3.9 1.35

14-Jan-11 146.6 9.4 3 0.85

17-Jan-11 140.75 4.55 1.25 0.4

18-Jan-11 155.15 6.05 1.4 0.3

19-Jan-11 155.3 6.55 1.5 0.35

20-Jan-11 150.05 10.85 3.2 0.6

21-Jan-11 151.05 11.65 3.4 0.55

24-Jan-11 152.7 13.1 4.3 0.65

25-Jan-11 151.85 12 3.05 0.25

27-Jan-11 142.2 1.85 0.05 0.05


[email protected]

ANALYSIS:


analysis is based on sample data taken of IDBI scrip. This analysis considered the Dec & Jan contract

of IDBI. The lot size of IDBI is 2000, the time period in which this analysis done is from 15.12.10 –

31.01.11.

Future Market

BUYER

03/01/11(bought) 167.2

14/01/01(sold) 148.725

loss= 18.475


=18.475*2000

=36950 rs.

Entry on dec 15th

and when to exit

Max. Profit No loss

15/12/10 (bought) 155.8 15/12/10 (bought) 155.8

21/12/10 (sold) 166.6 on any date (sold) at any price

Profit= 10.8 no loss

Max profit=profit per share*lot size

=10.8*2000=21600rs

On any other day client will not exceed the above profit and he don‘t have any chance

of getting loss.


[email protected]

OPTION MARKET

CALL OPTION

On 13th Jan client bought 4 Lots of IDBI that is (2000*4=8000)


Spot price

Less:-strike price

148.1

140

148.1

150

148.1

160

Amount

Less:-premium

8.1

10.25

-1.9

3.9

-11.9

1.35

Profit/loss

*lot size

-2.15

8000

2

8000

-10.55

8000

Total profit/loss -17200 16000 -84400

If client enters on this particular day he will get profit only at strike price 150 at AT

THE MONEY.

PUT OPTION

On 25th Jan bought 4 Lots of IDBI that is 8000(2000*4)


Strike price

Less:-spot price

160

151.85

150

151.85

140

151.85

Amount

Less:-premium

8.15

0.05

-1.85

1.1

-11.85

8.6


[email protected]

Profit/loss

*lot size

8.1

8000

-0.75

8000

-3.25

8000

Total profit/loss 64800 -6000 -26000

Client can get profit by entering on this date at IN THE MONEY.

HEDGING

As buyers think to purchase at less cost they will opt for 140 strike price and as sellers

think to sell at highest price they opt for 160 strike price. So making hedging at 140 calls & 160

put on 27th Jan 2011 eliminates the risk.

CALL OPTION AT 140 STRIKE PRICE PUT OPTION AT 160 STRIKE PRICE

Spot price 142.2

Less:-strike price 140

Amount 2.2

Less:-premium 1.85

Profit/loss 0.35

*lot size 2000

Total Profit/loss 700

Strike price 160

Less:-spot price 142.2

Amount 17.8

Less:-premium 17.8

Profit/loss 0

*lot size 2000

Total Profit/loss 0

By hedging the total profit is 700rs which is maximum and will be less if he would have

hedged any other day.


[email protected]

8. IOC Indian Oil Corporation, or Indian Oil, (BSE: 530965 | NSE: IOC) is an Indian state-

owned oil and gas company. It is India‘s largest commercial enterprise, ranking 125th on the

Fortune Global 500 list in 2010. Indian Oil and its subsidiaries account for a 47% share in the

petroleum products market, 34.8% share in refining capacity and 67% downstream sector

pipelines capacity in India. The Indian Oil Group of Companies owns and operates 10 of India's

19 refineries with a combined refining capacity of 65.7 million metric tons per year.

Indian Oil operates the largest and the widest network of fuel stations in the country,

numbering about 17606 (15557 regular ROs & 2049 Kisan Sewa Kendra). It has also started

Auto LPG Dispensing Stations (ALDS). It supplies Indane cooking gas to over 47.5 million

households through a network of 4,990 Indian distributors. In addition, Indian Oil's Research and

Development Center (R&D) at Faridabad supports, develops and provides the necessary

technology solutions to the operating divisions of the corporation and its customers within the

country and abroad. Subsequently, Indian Oil Technologies Limited - a wholly owned

subsidiary, was set up in 2003, with a vision to market the technologies developed at Indian Oil's

Research and Development Center. It has been modelled on the R&D marketing arms of Royal

Dutch Shell and British Petroleum.

Type State-owned enterprise

Public (BSE: 530965 NSE: IOC)

Industry Oil and Gas

Founded 1964




http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=IOC&section=7


http://en.wikipedia.org/wiki/Petroleum

http://en.wikipedia.org/wiki/Natural_gas


http://en.wikipedia.org/wiki/Fortune_Global_500

http://en.wikipedia.org/wiki/Indane

http://en.wikipedia.org/wiki/Faridabad

http://en.wikipedia.org/wiki/Royal_Dutch_Shell



http://en.wikipedia.org/wiki/British_Petroleum


http://en.wikipedia.org/wiki/Government-owned_corporation





http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=IOC&section=7

http://en.wikipedia.org/wiki/List_of_petroleum_companies


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Headquarters New Delhi, India

Key people S V Narasimhan, [[Chairman][acting]]

Products

Oil

Petroleum

Natural gas

Petrochemical

Fuel

Lubricant

Revenue 272,689.95 crore (US$60.54 billion)

(2009-10)

Net income 10,220.55 crore (US$2.27 billion) (2009-

10)

Total assets $29.672 billion (2009-10)

Total equity $11.686 billion (2009-10)

Employees 36,307 (2009)

8.1 Futures and equity: TIMESTAMP MARKET FUTURE EXPIRY_DT

DECEMBER

15-Dec-10 380.5 382.4 30-Dec-10

16-Dec-10 379.35 380.9 30-Dec-10

20-Dec-10 367.65 369.45 30-Dec-10

21-Dec-10 363.95 366.2 30-Dec-10

22-Dec-10 366.45 368.6 30-Dec-10

23-Dec-10 362.55 363.85 30-Dec-10

24-Dec-10 354.8 356 30-Dec-10

http://en.wikipedia.org/wiki/New_Delhi



http://en.wikipedia.org/wiki/Oil

http://en.wikipedia.org/wiki/Petroleum

http://en.wikipedia.org/wiki/Natural_gas

http://en.wikipedia.org/wiki/Petrochemical

http://en.wikipedia.org/wiki/Fuel

http://en.wikipedia.org/wiki/Lubricant






http://en.wikipedia.org/wiki/Asset



[email protected]

27-Dec-10 354.3 354.5 30-Dec-10

28-Dec-10 347.65 348.4 30-Dec-10

29-Dec-10 348.45 348.3 30-Dec-10

30-Dec-10 337.3 337.2 30-Dec-10

JANUARY

31-Dec-10 342.4 344.95 27-Jan-11

3-Jan-11 353.6 355.1 27-Jan-11

4-Jan-11 348.8 351.55 27-Jan-11

5-Jan-11 349.5 350.95 27-Jan-11

6-Jan-11 341.55 343.75 27-Jan-11

7-Jan-11 343.75 344.3 27-Jan-11

10-Jan-11 335.2 335.3 27-Jan-11

11-Jan-11 328.3 330.15 27-Jan-11

12-Jan-11 319.55 321.4 27-Jan-11

13-Jan-11 310.35 310.95 27-Jan-11

14-Jan-11 309.8 311.05 27-Jan-11

17-Jan-11 314.25 314.25 27-Jan-11

18-Jan-11 314 314.6 27-Jan-11

19-Jan-11 313.65 314.5 27-Jan-11

20-Jan-11 312.95 313.1 27-Jan-11

21-Jan-11 327.8 328.2 27-Jan-11

24-Jan-11 329.85 330.05 27-Jan-11

25-Jan-11 336.8 337.3 27-Jan-11

27-Jan-11 328.7 328.8 27-Jan-11

8.2 Call option: TIMESTAMP SPOT PRICE STRIKE PRICE


15-Dec-10 380.5 45 27.7 14.15

16-Dec-10 379.35 45 27.7 11

20-Dec-10 367.65 45 27.7 5.85

21-Dec-10 363.95 45 27.7 5.9

22-Dec-10 366.45 45 27.7 5


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PUT OPTION:

TIMESTAMP SPOT PRICE STRIKE PRICE

340 360 380

15-Dec-10 380.5 3 4.5 11.6

16-Dec-10 379.35 3 6 11.6

20-Dec-10 367.65 3 6 15

23-Dec-10 362.55 45 11.2 3.1

24-Dec-10 354.8 45 5.2 1.45

27-Dec-10 354.3 45 2.7 0.6

28-Dec-10 347.65 45 1.3 0.3

29-Dec-10 348.45 45 1.45 0.15

30-Dec-10 337.3 0.5 0.2 0.05

JANUARY 320 340 360

31-Dec-10 342.4 107.6 17.85 9.15

3-Jan-11 353.6 107.6 23 11.4

4-Jan-11 348.8 107.6 19 8.65

5-Jan-11 349.5 107.6 19.25 9.5

6-Jan-11 341.55 107.6 13.5 6.6

7-Jan-11 343.75 107.6 12 5.5

10-Jan-11 335.2 107.6 12 4.5

11-Jan-11 328.3 107.6 10.95 3.4

12-Jan-11 319.55 11.65 5.6 2.25

13-Jan-11 310.35 8.4 3.45 1.7

14-Jan-11 309.8 6.4 2.55 1.5

17-Jan-11 314.25 8.55 2.85 1.1

18-Jan-11 314 7.05 1.65 1.1

19-Jan-11 313.65 4 0.85 0.55

20-Jan-11 312.95 5 0.4 0.55

21-Jan-11 327.8 8.75 2.3 0.75

24-Jan-11 329.85 14 3.4 0.5

25-Jan-11 336.8 19 2.05 0.75

27-Jan-11 328.7 14.55 0.05 0.05


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21-Dec-10 363.95 3 6 18

22-Dec-10 366.45 3 6 13.05

23-Dec-10 362.55 3 7 13.05

24-Dec-10 354.8 3 9 13.05

27-Dec-10 354.3 7.75 9 13.05

28-Dec-10 347.65 9.75 13 13.05

29-Dec-10 348.45 9.75 11.5 32

30-Dec-10 337.3 1.5 11.5 34.5

320 340 360

31-Dec-10 342.4 0.45 12 15

3-Jan-11 353.6 0.85 2.3 15

4-Jan-11 348.8 0.85 2.3 15

5-Jan-11 349.5 8.3 7.95 15

6-Jan-11 341.55 8.3 8.5 15

7-Jan-11 343.75 8.3 9.9 24.7

10-Jan-11 335.2 8.3 10 24.7

11-Jan-11 328.3 8.3 10 24.7

12-Jan-11 319.55 8.3 10 24.7

13-Jan-11 310.35 14.8 31 24.7

14-Jan-11 309.8 14.8 31 48

17-Jan-11 314.25 14.8 23 48

18-Jan-11 314 11.7 23 48

19-Jan-11 313.65 9 25 48

20-Jan-11 312.95 9 25 48

21-Jan-11 327.8 2.6 25 48

24-Jan-11 329.85 0.8 25 48

25-Jan-11 336.8 0.15 3.1 48

27-Jan-11 328.7 0.15 3.1 28.45

ANALYSIS:


analysis is based on sample data taken of IOC scrip. This analysis considered the Dec & Jan contract

of IOC. The lot size of IOC is 500, the time period in which this analysis done is from 15.12.10 –

31.01.11.


[email protected]

Future Market

BUYER

04/01/11(bought) 351.55

14/01/01(sold) 311.05

Loss= 40.05


=40.05*500

=20025 rs.

Entry on dec 16th

and when to exit

No profit max. Loss

16/12/10 (bought) 380.9 16/12/10 (bought) 380.9

On any date (sold) at any price 30/12/10 (sold) 337.2

No profit 43.7

Max loss=loss per share*lot size

=43.7*500=21850rs

On any other day client will not exceed the above loss and he don‘t have any chance of

getting profit.


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OPTION MARKET

CALL OPTION

On 17th Jan client bought 6 Lots of IOC that is (500*6=3000)


Spot price

Less:-strike price

314.25

320

314.25

340

314.25

360

Amount

Less:-premium

-5.75

8.55

-25.75

2.85

-45.75

1.1

Profit/loss

*lot size

-14.3

3000

-28.6

3000

-46.85

3000

Total profit/loss -42900 -85800 -140550

If client enters on this particular day he will not get profit only at any strike price.

PUT OPTION

On 25

th Jan bought 6 Lots of IOC that is 3000(500*6)


Strike price

Less:-spot price

360

336.8

340

336.8

320

336.8

Amount

Less:-premium

23.2

0.15

3.2

3.1

-16.8

48

Profit/loss

*lot size

23.05

3000

0.1

3000

-64.8

3000

Total profit/loss 69150 300 -194400

Client can get profit by entering on this date at IN THE MONEY & AT THE MONEY.


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HEDGING

As buyers think to purchase at less cost they will opt for 320 strike price and as sellers

think to sell at highest price they opt for 360 strike price. So making hedging at 140 calls & 160

put on 12th Jan 2011 eliminates the risk.

CALL OPTION AT 320 STRIKE PRICE PUT OPTION AT 360 STRIKE PRICE

Spot price 319.55

Less:-strike price 320

Amount -0.45

Less:-premium 11.65

Profit/loss -12.1

*lot size 3000

Total Profit/loss -36300

Strike price 360

Less:-spot price 319.55

Amount 40.45

Less:-premium 24.7

Profit/loss 15.75

*lot size 3000

Total Profit/loss 47250

By hedging the total profit is 10950rs (47250-36300) which is maximum and will be less

if he would have hedged any other day.


[email protected]

9. FINDINGS AND CONCLUSIONS FINDINGS:

The scrip value of reliance communications is declined due to 2G scam problem.

IDBI has well versed exchanged in providing good sound loans to industrial sector so the share

value of IDBI increased.

As per present condition it is good to invest in banking sector.

There are many reasons that the market is going down such as political issues, inflation etc:-

Derivative market is a good return market compared to equity market.


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CONCLUSION:-

Derivative products serve the vitally important economic functions of price

discovery and risk management. The transparency, which emerges from their trading

mechanism, ensures the price discovery in the underlying market. Further they serve as

a risk management tools by facilitating the trading of risks among the market

participants. These products enable market participants to take the desired risks.

From the above project it is proved that the underlying stock values

changes according to the news. Depending on underlying stock prices the derivative

values also changes. By doing above analysis we can know when to buy, at what time to

sell and how much risk we can take. Above project has done practical analysis on three

companies for one and a half month. Se Graphs and tables are used to analyze more.

FUTURE ENHANCEMENT:-

In future I like to introduce software based on this analysis. It automatically

calculates the problem and gives us result. By using this software we can get more accurate

values. It also tells that depending on the news how the share value will fluctuate, where to buy

the options and futures and where to sell it. This software also gives the fundamental analysis on

the individual company. By using this software we can analyze more and help to take profitable

decisions.


[email protected]

LIMITATIONS OF THE STUDY:

The following are the limitations of the study:

The Scrip chosen for analysis is Nifty‘50 and the contract taken in dec 2010 is a 45 days

contract ending in Jan.

The data collected is completely restricted to the NIFTY ‘50 hence this analysis cannot

be taken universally.

The data collected is basically confined to secondary sources, with very little amount of

primary data associated with the project.

There is a constraint with regard to time allocated for the research study.

The availability of information in the form of annual reports & price fluctuations of the

companies is a big constraint to the study.

The subject of derivatives is vast. It requires extensive study and research to understand

the depth of the various instruments operating in the market.

The derivative market is a dynamic one .premiums, contract rates, strike price fluctuates

on demand and supply basis. Therefore data related to last few trading months was only

considered and interpreted.


[email protected]

BIBLIOGRAPHY

Websites:

www.derivatives.com

www.nseindia.com

www.moneycontrol.com

www.money.rediff.com

www.bseindia.com

www.sharekhan.com

www.sebi.gov.in

http://www.derivatives.com/

http://www.nseindia.com/

http://www.moneycontrol.com/

http://www.money.rediff.com/

http://www.bseindia.com/

http://www.sharekhan.com/

http://www.sebi.gov.in/

Date post:	05-Apr-2017
Category:	Economy & Finance
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Derivative summer internship project in share khan pvt limited. final.1(franky's).doc

Economy & Finance