CHAPTER I

Introduction Need &scope of the Study Objectives Limitations Methodology

INTRODUCTION
A derivative is a financial instrument, whose value depends on other, more basic, underlying variables. Derivative is a product/contract which does not have any value on its own i.e. it derives its value from some underlying. The variables underlying could be prices of traded securities and stock, prices of gold or copper, prices of oranges to even the amount of snow that falls on a ski resort. Derivatives have become increasingly important in the field of finance. Options and futures are traded actively on many exchanges. Forward contracts, swaps, and different types of options are regularly traded outside exchanges by financial Institutions, banks and their corporate clients in what are termed as over-the-Counter markets-in other words; there is no single market place or an organized Exchange. The problem is either investing in futures is profitable or in options. The real motivation to use derivatives is that they are very useful in reallocating Risk either across time or across individuals with different risk bearing Preferences. Derivative instruments are basically of two types- traded on the floor of an exchange and OTC or over the counter. Trading instruments on the floor of an exchange entails little counter party risks. 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 faster rate in future.

SCOPE OF STUDY
The study is limited to derivatives with reference to five companies selected for the study and the study is restricted to only futures and options of the selected companies as sample. The companies taken for the study are GMR Infrastructure Ltd, Hindustan Unilever Ltd, Ranbaxy Laboratories Ltd, Reliance Communications Ltd and TATA Motors Ltd. The study cannot be said as totally perfect, any alteration may come. The study has made a humble attempt at evaluation of derivatives market only in the INDIAN context.

OBJECTIVES OF STUDY
To analyze the derivatives market in India. To make a comparative study of futures n options. To find the profit/loss position of futures buyer and option buyer. To study about the risk management with the help of derivatives.

DESCRIPTION OF THE METHOD

SELECTION OF THE SCRIPS
The scrips are selected on a random basis and from five different sectors. The profitability position of the futures and options is studied. The scrips taken for the study for both futures and options are GMR Infrastructure Ltd, Hindustan Unilever Ltd, Ranbaxy Laboratories Ltd, Reliance Communications Ltd and Tata Motors Ltd.

DATA COLLECTION
The mode of data collection is secondary. The data is collected from the business newspapers and internet.

ANALYSIS
The analysis consist of the tabulation of the data assessing the profitability positions of the futures n options holders and sellers, representing the data with graphs and making the interpretation using data.

LIMITATIONS OF THE STUDY

The study is limited to selected five companies. The data is of 2 months and the analysis is done on weekly basis. The data collected is from 31-12-2010 to 25-02-2012, which is the expiry date of the selected samples. This analysis cannot be taken universal. The analysis of options is limited to call options.

CHAPTER II

Review of literature

DERIVATIVES

DEFINITION
Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the "underlying". In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines "derivative" to include1. A security derived from a debt instrument, share, loan whether 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 underlying securities. Derivatives are securities under the SC(R)A and hence the trading of derivatives is governed by the regulatory framework under the SC(R)A

FACTORS DRIVING THE GROWTH OF DERIVATIVES

Over the last three decades, the derivatives market has seen a phenomenal growth. A large variety of derivative contracts have been launched at exchanges across the world. Some of the factors driving the growth of financial derivatives are: 1. Increased volatility in asset prices in financial markets, 2. Increased integration of national financial markets with the international markets, 3. Marked improvement in communication facilities and sharp decline in the costs, 4. Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies, and 5. Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns,

reduced risk as well as transactions costs as compared to individual

financial assets.

DERIVATIVES ARE USEFUL

The key motivation for such key instruments is that they are very useful in reallocating risk either across time or among individuals with different risk bearing preferences. One kind of passing on of risk is mutual insurance between two parties who face the opposite kind of risk. For e.g., in the context of currency fluctuations exporters face losses if the rupee appreciates and importers face losses if rupee depreciates. By forward contracting in dollar-rupee forward market, they supply insurance to each other and reduce risk. This sort of thing also takes place in speculative position taking the person who thinks the price will go up is long a futures and the person who thinks the prices will go down is short the futures.

Another style of functioning works by a risk-averse person buying insurance, and risk tolerant person selling insurance. An example of this may be found in options markets: an investor, who tries to protect himself against the drop in index buys, put options on index, and a risk taker sells him these options. Obviously, people will be very suspicious about entering into such trades without institutions of the clearinghouse that is a legal counterparty to both the sides of the trade. In these always derivative supply a method for people to do hedging and reduce their risks. As compared with an economy lacking facilities, it is a considerable gain. The ultimate Importance of derivative markets hence hinges upon the extent to which it helps investor to reduce the risks that they face. Some of the largest derivatives markets in the world are on treasury bills (to help control risk that is associate with the fluctuations in the stock market) and on exchange rates (to cope with currency rates).Derivatives are also very convenient in terms of international investment. For example, Japanese insurance fund housing loans in the US by buying into derivatives on real estate in the US. Such funding patterns would be harder with out derivatives.

ELIGIBILITY REQUIREMENTS BE FOR DERIVATIVES TRADING

The thrust of economic policy in India today is to encourage the competitive forces of the market place to differentiate winners form losers. A firm that unwittingly goes into derivatives trading without understanding the business is no different from a firm, which unwittingly goes into any other highly technology area. If the firm is unable to cope with the complexities of this area it would go bankrupt. Thanks to the system of margin and counter party guarantee, such bankruptcies would have no impact upon the rest of the market. The danger with the eligibility criteria is that they effectively become entry barriers. All too often, entry barriers are used by incumbents to reduce the degree of competition in the area. The basic focus of economic policy should always be to maximize the degree of competition in any industry. The brokerage industry is no exception.

DERIVATIVE PRODUCTS
Derivative contracts have several variants. The most common variants are forwards, futures, options and swaps. We take a brief look at various derivatives contracts that have come to be used. 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. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. 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 given 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. 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. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of up to three years. 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. 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 interest related cash flows between the parties in the same currency.

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Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. Swaptions: 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. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating

PARTICIPANTS IN THE DERIVATIVES MARKETS

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 e both the potential gains and losses in a speculative market. ARBITRAGEURS: 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.

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RATIONALE FOR OPTIONS AND FUTURE DEVELOPMENT Organized exchanges began trading in options on securities in 1973, whereas exchange traded debt options were not on the scene until 1982. On the other hand fixed income futures began trading in 1975, but equity related futures did not appear until 1982. When the natures of the markets are compared, one can easily discern the reasons why these differences have cropped up. This must be analyzed in the light of the fact that exchanges tend to introduce those instruments that they think will succeed and contract design is functioning of marketing. In the equity market a relatively large proportion of the total risk of a security is unsystematic. At the same time many securities display a high degree of liquidity that can be expected to maintain for long periods of time. This is because for the contracts to be successful the underlying instruments have to be traded in large quantities and with some price continuity sp that the option related transactions need not create more than a minor disturbance in the market. In the debt market a much larger proportion of the total risk of the security is systematic, another words, risk that cannot be diversified by investing in a number of securities. A finite life and a small size of comparison to equity also characterize debt instruments.

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A CHRONOLOGY

14 December 1995 18 November 1996

NSE asked SEBI for permission to trade index futures SEBI setup L.C.Gupta Committee to draft a policy frame work for index futures.

12 May 1998 07 July 19999

L.C.Gupta Committee submitted the report. RBI gave permission for OTC forward rate agreements and interest rates swaps.

24 May 2000

SIMEX choose NIFTY for trading futures and options of an Indian index

25 May 2000

SEBI gave permission to NSE and BSE to do index futures trading

09 June 12 June 2000 31 August 2000

Trading of BSE Sensex futures commenced at BSE Trading of nifty futures commenced at NSE Trading of futures and options on Nifty to commence at SIMEX

13

FUTURES

INTRODUCTION
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What we know as the futures market of today came from some humble beginnings. Trading in futures originated in Japan during the 18th century and was primarily used for the trading of rice and silk. It wasn't until the 1850s that the U.S. started using futures markets to buy and sell commodities such as cotton, corn and wheat. A futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something, for a set price, that a seller has not yet produced. But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commoditiesremember, buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than exchange physical goods. Thats why futures are used as financial instruments by not only producers and consumers but also speculators. The consensus in the investment world is that the futures market is a major financial hub, providing an outlet for intense competition among buyers and sellers and, more importantly, providing a center to manage price risks. The futures market is extremely liquid, risky, and complex by nature, but it can be understood if we breakdown how it functions. While futures are not for the risk-averse, they are useful for a wide range of people. Future contracts

Future contracts are organized/ standardized contracts, which are traded the exchanges. These contracts, being standardized and traded on the exchanges are very liquid in nature. In futures market, clearing corporation/ house provides the settlement guarantee Futures markets were designed to solve the problems that exist in forward markets. A futures

contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference

15

purposes in settlement) and a standard timing of such settlement. A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way. The standardized items in a futures contract are: Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotation and minimum price change Location of settlement Commodity futures contracts are trades of specific commodity to be delivered at the contracted price, irrespective of any changes of market price, subject to both buyers and sellers being allowed to liquidate the contract by cash settlement of price differences between the contracted price and liquidated price not later than the last trading session of the contract month.

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Every futures contract is a forward contract. They

Are entered into through exchange, traded on exchange and clearing Corporation/house provides the settlement guarantee for trades. Are of standard quantity; standard quality (in case of commodity Have standard delivery time and place)

FUNCTIONS OF FUTURES MARKETS

FLOW-CHART OF BUYING / SELLING ORDERS

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Market system
Various measures are adopted at the Exchange to provide participants with fair transparent, effective and safety marketplace through the market management. Investors' funds are well protected through the margin and segregation system imposed to FCM and investors have nothing worry about their funds deposited. 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 a contract trades. The index futures contracts on the NSE have one- month, two-month and three-month expiry cycles which expire on the last Thursday of the

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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 specified 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. Also called as lot size. 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. Cost of carry: 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. Initial margin: The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin. Marking-to-market: In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor's gain or loss depending upon the futures closing price. This is called marking-to-market. Maintenance margin: This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.

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PROCEDURE
Futures contracts are standardized contracts developed by futures exchanges. In developing futures contract, an exchange should specify the details about the nature of agreement between the seller & buyer. It should specify the asset contract size the date of delivery quotation of prices alternative asset etc. Details about the futures contracts including the quantity & the quality are relevant in terms of commodity futures. In contrast for financial futures the quality of asset is not relevant since there can be no quality variation in a contract involving the currencies.

FUTURES PAYOFFS
Futures contracts have linear payoffs. In simple words, it means that the losses as well as profits for the buyer and the seller of a futures contract are unlimited. These linear payoffs are fascinating as they can be combined with options and the underlying to generate various complex payoffs.

Payoff for buyer of futures: Long futures

The payoff for a person who buys a futures contract is similar to the payoff for a person who holds an asset. He has a potentially unlimited upside as well as a potentially unlimited downside. Take the case of a speculator who buys a two-month Nifty index futures contract when the Nifty stands at 2220. The underlying asset in this case is the Nifty portfolio. When the index moves up, the long futures position starts making profits, and when the index moves down it starts making losses. Figure below shows the payoff diagram for the buyer of a futures contract. Figure: Payoff for a buyer of Nifty futures The figure shows the profits/losses for a long futures position.estor bought futures when the index was at 2220. If the index goes up, his futures position starts making profit. If the index falls, his

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futures

position

starts

showing

losses

Payoff for seller of futures: Short futures

The payoff for a person who sells a futures contract is similar to the payoff for a person who shorts an asset. He has a potentially unlimited upside as well as a potentially unlimited downside. Take the case of a speculator who sells a two-month Nifty index futures contract when the Nifty stands at 2220. The underlying asset in this case is the Nifty portfolio. When the index moves down, the short futures position starts making profits, and when the index moves up, it starts making losses. Figure below shows the payoff diagram for the seller of a futures contract Figure: Payoff for a seller of Nifty futures The figure shows the profits/losses for a short futures position. The investor sold futures when the Index was at 2220. If the index goes down, his futures position starts making profit. If the index
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rises, his futures position starts showing losses.

PRICING FUTURES
Pricing of futures contract is very simple. Using the cost-of-carry logic, we calculate the fair value of a futures contract. Every time the observed price deviates from the fair value, arbitragers would enter into trades to capture the arbitrage profit. This in turn would push the futures price back to its fair value. The cost of carry model used for pricing futures is given below:

Where: r= Cost of financing (using continuously compounded interest rate) T =Time till expiration in years E= 2.71828

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Example: Security XYZ Ltd trades in the spot market at Rs.1250. Money can be invested at 12% p.a. The fair value of a one-month futures contract on XYZ is calculated as follows:

Variation of basis over time

The figure shows how basis changes over time. As the time to expiration of a contract reduces the basis reduces. Towards the close of trading on the day of settlement, the futures price and the spot price converge. The closing price for the June 28 futures contract is the closing value of Nifty on that day.

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OPTIONS

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INTRODUCTION TO OPTIONS
Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an up-front payment. An option gives a person the right but not the obligation to buy or sell something. An option is between two parties wherein the buyer receives a privilege for which he pays a fee and the seller accepts an obligation for which he receives a fee. The premium is the price negotiated and set when the option is bought or sold a person who buys an option is said to be long in the option. A person who sells an option is said to be short in the option.

OPTION TERMINOLOGY
Index options: These options have the index as the underlying. Some options are European while

others are American. Like index futures contracts, index options contracts are also cash settled. Stock options: Stock options are options on individual stocks. Options currently trade on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price. Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer. Writer of an option: The writer of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. There are two basic types of options, call options and put options.

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 Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price. Option price/premium: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium. Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity. Strike price: The price specified in the options contract is known as the strike price or the exercise price. American options: American options are options that can be exercised at any time up to the expiration date. Most exchange-traded options are American. European options: European options are options that can be exercised only on the expiration date itself. European options are easier to analyze than American options, and properties of an American option are frequently deduced from those of its European counterpart. In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be inthe-money when the current index stands at a level higher than the strike price (i.e. spot price > strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price. At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cash flow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price).

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 Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cash flow if it were exercised immediately. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, them call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. Intrinsic value of an option: The option premium can be broken down into two components intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, (St K)] which means the intrinsic value of a call is the greater of 0 or (St K). Similarly, the intrinsic value of a put is Max[0, K St],i.e. the greater of 0 or (K St). K is the strike price and St is the spot price. Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option's time value, all else equal. At expiration, an option should have no time value. TRADE IN OPTIONS 1. Investors belonging to the following categories depending on their financial goals and investment objectives generally consider trading in options 2. Investors who want to participate in the market without trading or holding a large stock portfolio 3. Investors who have strong views on the market and its futures movement and want to take advantage of the same 4. Investors who follow the equities market closely 5. Investors who want to protect the value of their diversified equities portfolio

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OPTIONS PAYOFFS
The optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited, however the profits are potentially unlimited. For a writer, the payoff is exactly the opposite. His profits are limited to the option premium, however his losses are potentially unlimited. These non-linear payoffs are fascinating as they lend themselves to be used to generate various payoffs by using combinations of options and the underlying. We look here at the six basic payoffs.

Payoff profile of buyer of asset: Long asset

In this basic position, an investor buys the underlying asset, Nifty for instance, for 2220, and sells it at a future date at an unknown price, St. Once it is purchased, the investor is said to be "long" the asset. Figure below shows the payoff for a long position on the Nifty. Payoff for investor who went Long Nifty at 2220: The figure shows the profits/losses from a long position on the index. The investor bought the index at 2220. If the index goes up, he profits. If the index falls he looses.

Payoff profile for seller of asset: Short asset

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In this basic position, an investor shorts the underlying asset, Nifty for instance, for 2220, and buys it back at a future date at an unknown price, St. Once it is sold, the investor is said to be "short" the asset. Figure below shows the payoff for a short position on the Nifty.

Payoff for investor who went Short Nifty at 2220: The figure shows the profits/losses from a short position on the index. The investor sold the index at 2220. If the index falls, he profits. If the index rises, he looses.

Payoff profile for buyer of call options: Long call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price, more is the profit he makes. If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option. Figure below gives the payoff for the buyer of a three month call option (often referred to as long call) with a strike of 2250 bought at a premium of 86.60.

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Payoff for buyer of call option: The figure shows the profits/losses for the buyer of a three-month Nifty 2250 call option. As can be seen, as the spot Nifty rises, the call option is in-the-money. If upon expiration, Nifty closes above the strike of 2250, the buyer would exercise his option and profit to the extent of the difference between the Nifty-close and the strike price. The profits possible on this option are potentially unlimited. However if Nifty falls below the strike of 2250, he lets the option expire. His losses are limited to the extent of the premium he paid for buying the option.

Payoff profile for writer of call options: Short call

A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price exceeds the strike price, the buyer will exercise the option on the writer. Hence as the spot price increases the writer of the option starts making losses. Higher the spot price, more is the loss he makes. If upon expiration the spot price of the underlying is less than the strike price, the buyer lets his option expire un-exercised and the writer gets to keep the premium.

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Payoff for writer of call option: The figure shows the profits/losses for the seller of a three-month Nifty 2250 call option. As the spot Nifty rises, the call option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes above the strike of 2250, the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the Nifty -close and the strike price. The loss that can be incurred by the writer of the option is potentially unlimited, whereas the maximum profit is limited to the extent of the up-front option premium of Rs.86.60 charged by him.

Payoff profile for buyer of put options: Long put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price, more is the profit he makes. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option. Figure below gives the payoff for the buyer of a three month put option (often referred to as long put) with a strike of 2250 bought at a premium of 61.70. Payoff for buyer of put option:

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The figure shows the profits/losses for the buyer of a three-month Nifty 2250 put option. As can be seen, as the spot Nifty falls, the put option is in-the-money. If upon expiration, Nifty closes below the strike of 2250, the buyer would exercise his option and profit to the extent of the difference between the strike price and Nifty-close. The profits possible on this option can be as high as the strike price. However if Nifty rises above the strike of 2250, he lets the option expire. His losses are limited to the extent of the premium he paid for buying the option.

Payoff profile for writer of put options: Short put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price happens to be below the strike price, the buyer will exercise the option on the writer. If upon expiration the spot price of the underlying is more than the strike price, the buyer lets his option unexercised and the writer gets to keep the premium. Figure below gives the payoff for the writer of a three month put option (often referred to as short put) with a strike of 2250 sold at a premium of 61.70.

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Payoff for writer of put option: The figure shows the profits/losses for the seller of a three-month Nifty 2250 put option. As the spot Nifty falls, the put option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes below the strike of 2250, the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the strike price and Nifty-close. The loss that can be incurred by the writer of the option is a maximum extent of the strike price (Since the worst that can happen is that the asset price can fall to zero) whereas the maximum profit is limited to the extent of the up-front option premium of Rs.61.70 charged by him.

PRICING OPTIONS An option buyer has the right but not the obligation to exercise on the seller. The worst that can happen to a buyer is the loss of the premium paid by him. His downside is limited to this premium, but his upside is potentially unlimited. This optionality is precious and has a value, which is expressed in terms of the option price. Just like in other free markets, it is the supply and demand in the secondary market that drives the price of an option. There are various models which help us get close to the true price of an option. Most of these are variants of the celebrated Black-Scholes model for pricing European options. Today most calculators and spread-sheets come with a built-in Black-Scholes options pricing formula so to price options we don't really need to memorize the formula. All we need to know is the variables that go into the model. The Black-Scholes formulas for the prices of European calls and puts on a non-dividend paying stock are:

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The Black/Scholes equation is done in continuous time. This requires continuous compounding. The r that figures in this is ln(l + r). Example: if the interest rate per annum is 12%, you need to use ln1.12 or 0.1233, which is the continuously compounded equivalent of 12% per annum.

N() is the cumulative normal distribution. N(d1) is called the delta of the option which is a measure of change in option price with respect to change in the price of the underlying asset.

is a measure of volatility is the annualized standard deviation of continuously compounded returns on the underlying. When daily sigma are given, they need to be converted into annualized sigma.

THE GREEKS Delta ( )

is the rate of change of option price with respect to the price of the underlying asset. For example, the delta of a stock is 1. It is the slope of the curve that relates the option price to the price of the underlying asset. Suppose the of a call option on a stock is 0.5. This means that when the stock price changes by one, the option price changes by about 0.5, or 50% of the change in the stock price. Figure below shows the delta of a stock option.

34

Figure

as slope:

Expressed differently,

is the change in the call price per unit change in the spot. = N(d1) for a call. The

= ?C/?S.

In the Black-Scholes formula, of a put is always negative.

of a call is always positive and the

Gamma() is the rate of change of the option's Delta ( asset. Theta ( ) ) with respect to the price of the underlying asset.

In other words, it is the second derivative of the option price with respect to price of the underlying

of a portfolio of options, is the rate of change of the value of the portfolio with respect to the passage of time with all else remaining the same. portfolio. same. We can either measure is also referred to as the time decay of the is the change in the portfolio value when one day passes with all else remaining the "per calendar day" or "per trading day". To obtain the per calendar

35

day, the formula for Theta must be divided by 365; to obtain divided by 250. Vega

Theta per trading day, it must be

The Vega of a portfolio of derivatives is the rate of change in the value of the portfolio with respect to volatility of the underlying asset. If sensitive to small changes in volatility. If is high in absolute terms, the portfolio's value is very is low in absolute terms, volatility changes have

relatively little impact on the value of the portfolio Rho ( The ) of a portfolio of options is the rate of change of the value of the portfolio with respect to the

interest rate. It measures the sensitivity of the value of a portfolio to interest rates. FUTURES AND OPTIONS An interesting question to ask at this stage is - when would one use options instead of futures? Options are different from futures in several interesting senses. At a practical level, the option buyer faces an interesting situation. He pays for the option in full at the time it is purchased. After this, he only has an upside. There is no possibility of the options position generating any further losses to him (other than the funds already paid for the option). This is different from futures, which is free to enter into, but can generate very large losses. This characteristic makes options attractive to many occasional market participants, who cannot put in the time to closely monitor their futures positions. Buying put options is buying insurance. To buy a put option on Nifty is to buy insurance which reimburses the full extent to which Nifty drops below the strike price of the put option. This is attractive to many people, and to mutual funds creating "guaranteed return products". The Nifty index fund industry will find it very useful to make a bundle of a Nifty index fund and a Nifty put option to create a new kind of a Nifty index fund, which gives the investor protection against extreme drops in Nifty. Selling put options is selling insurance, so anyone who feels like earning revenues by selling insurance can set himself up to do so on the index options market. More generally, options offer "nonlinear payoffs" whereas futures only have "linear

36

payoffs". By combining futures and options, a wide variety of innovative and useful payoff structures can be created.

DISTINCTION BETWEEN FUTURES AND OPTIONS FUTURES OPTIONS

Exchange traded, with innovation. Exchange defines the product Price is zero, strike price moves Price is zero Linear payoff Both long and short at risk

Same as futures Same as futures Strike price is fixed, price moves. Price is always positive. Nonlinear payoff. Only short at risk.

37

CHAPTER III
Industry Profile

38

INDUSTRY PROFILE
ABOUT STOCK EXCHANGE: A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as, other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. HISTORY OF STOCK EXCHANGE: In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first broker. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government Securities during the 14th century. This was only possible because these were independent city states ruled by a council of influential citizens, not by a Duke. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.Importance of stock market:

39

Function and Purpose: The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'tre of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. ROLE OF STOCK EXCHANGES:

Raising capital for businesses. Mobilizing savings for investment. Facilitating company growth. Redistribution of wealth. Corporate governance. Creating investment opportunities for small investors. Government capital-raising for development projects.

40

REGIONAL STOCK EXCHANGES (RSE) OF INDIA The Regional Stock Exchanges in India started spreading its business operations from 1894. The first RSE to start its functioning in India was Ahmadabad Stock Exchange (ASE) followed by Calcutta Stock Exchange (CSE) in 1908. Catalog of Regional Stock Exchanges in India

Ahmadabad Stock Exchange Bangalore Stock Exchange Bhubaneswar Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Coimbatore Stock Exchange Delhi Stock Exchange Guwahati Stock Exchange Hyderabad Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange Madhya Pradesh Stock Exchange Madras Stock Exchange Magadha Stock Exchange Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange Of India Pune Stock Exchange Saurashtra Kutch Stock Exchange Uttar Pradesh Stock Exchange Vadodara Stock Exchange

BOMBAY STOCK EXCHANGE:

41

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 as 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 programmers.

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.

The

Executive director as the chief executive officer is responsible for the day to day

administration of the exchange. The average daily turnover of the exchange during the year 200001(April-March) was Rs 3984.19 crores and average number of daily trades 5.69 Lakhs.

However

the average daily turnover of the exchange during the year 2001-02 has declined to Rs.

1244.10 crores and number of average daily trades during the period to 5.17 lakhs.

The

Ban on all deferral products like BLESS AND ALBM in the Indian capital markets by SEBI

with effect from July 2, 2001, abolition of account period settlements, introduction of compulsory rolling settlements in all scripts traded on the exchanges with effect from Dec 31, 2001, etc., have adversely impacted the liquidity and consequently there is a considerable decline in the daily

42

turnover at the exchange. The average daily turnover of the exchange present scenario is 120363(laces) and number of average daily trades 1057(lakhs)

BSE INDICES:
In

order to enable the market participants, analysts etc., to trace the various ups and downs in the

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

43

per the formula new base year average = old base year average*(new market value/old market value).

NATIONAL STOCK EXCHANGE:

The

NSE was incorporated in now 1992 with an equity capital of Rs 25 crores. The International

Securities Consultancy (ISC) of Hong Kong has helped in setting up NSE. ISE 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 not an exchange in the traditional sense where brokers own and manage the exchange. A two tier administrative set up involving a company board and a governing abroad of the exchange is envisaged.
NSE

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

infrastructure and trading facilities are provided.

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.

44

The

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

market capitalization of around Rs. 1, 70,000 crores. All companies included in the Index have a market capitalization in excess of Rs 500 crores 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 NSEs 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 aboard

industry groups and will provide proper representation of the midcap segment of the Indian capital Market. All stocks in the index should have market capitalization of greater than Rs.200 crores and should have traded 85% of the trading days at an impact cost of less 2.5%.
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.
Average

daily turnover of the present scenario 258212 (Laces) and number of averages daily

trades 2160(Laces).
At

present, there are 24 stock exchanges recognized under the securities contract (regulation)

Act, 1956. They are of the Scheme at NAV based prices. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI): In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and
45

Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91 The basic objectives of the Board were identified as:

To protect the interests of investors in securities; To promote the development of Securities Market; To regulate the securities market and For matters connected therewith or incidental thereto. Since its inception SEBI has been working targeting the securities and is attending to the

fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor. Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.

46

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework for derivatives trading and suggest bye-laws for Regulation and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 12, 1998 accepted the recommendations of the committee and approved the phased introduction of derivatives trading in India beginning with Stock Index Futures.

CHAPTER IV
Company Profile

47

Circa1995. A group of professional formed a company called Probity Research & Services Pvt Ltd. The name was later changed to India Info line Ltd. The Objective was to provide unbiased and independent information to market intermediaries and investors. The quality of research soon caught the imagination of all major participants in the financial market. In a span of 2 to 3 years the client list read like the whos who of Indian Financial market. The list included consulting firms like Mc Kinsey, companies like Hindustan Lever, Banks like Citibank, Rating agencies like CRISIL, D&B, FIS, foreign brokers as well as leading Indian brokers. One fine morning in early 1999, a colleague had a crazy idea that if the company made all the research available free on the web, the number of users may well jump from 250 to 2.5 million. To make it true, the business required a reincarnation. And the pre-requisite was a death. It meant that the company put up all the information free on the website and let go of all the revenues and profits. Worse, if the new avatar failed, there would be no comebacks. The company became heavily dependent on its e-broking business for survival. The odds were against them. There was no money available from the private equity investors at any valuation. The core promoters of the company had little experience of broking. To add to it, the market was hit by a scam. They also had their share of price to pay and lessons to learn. It was difficult to retain people.

48

Although devastating for morale, but not surprising, most market observers had written them off.

There was a core group who never lost hope. They cut all possible costs and worked on a bare bones structure. They survived against all odds and started capturing Market share. The company rose from strength to strength to become the leading corporate agent in life insurance and among the top retail players in mutual fund and broking space. Our Key Milestones:

Incorporated on October 18, 1995 as Probity Research & Services. Launched Internet portal www.indianinfoline.com in May 1999.

Commenced distribution of personal financial products like Mutual Funds and RBI Bonds in April 2000.

Launched online trading in shares and securities branded as www.5paisa.com in July 2000.

Started life insurance agency business in December 2000 as a Corporate Agent of ICICI Prudential Life Insurance. Became a depository participant of NSDL in September 2001. Launched stock messaging service in May 2003.
49

 Acquired commodities broking license in March 2004. Launched portfolio management services in August 2004.

Listed on NSE and BSE on May 17, 2005. services, which is a distributor of Mortgages and other Loan products, in October 2005.

Acquired 75% stake holding in Money tree Consultancy

Acquired 100% equity of March Mont Capital Advisors Pvt Ltd in December 2005 through which we have ventured into Merchant Banking.

DSP Merrill Lynch Capital subscribed to convertible bonds aggregating Rs.80crores in December 2005. Their current stake in India Info Line is a little over 14 % as on 31st March 2007.

Bennett Coleman & Co Ltd (BCCL) invested Rs.20crores in India Info line by way of preferential allotment in December 2005. Became a depository participant of CDSL in June 2006. Merger of India Info line Securities Private Limited with India Info line Limited in January 2007. Entered into an alliance with Bank of Baroda for Baroda etrading in February 2007.

IRDA license for Insurance Broking April 20

Our Management Team:

Mr.Nirmal Jain (Chairman and Managing Director) Nirmal Jain is the founder and Chairman of India Info line Ltd.

50

 He holds an MBA degree from IIM

Ahmedabad, and is a

Chartered Accountant (All India Rank 2) and a Cost Accountant. Mr. R.Venkataraman (Executive Director) R. Venkataraman is the co-promoter and Executive Director of IndiaInfoline Ltd. He holds a B tech degree in Electronics and Electrical Communications Engineering from IIT Kharagpur and an MBA degree from IIM Bangalore. He has held the position of Assistant Vice President with G E Capital Services India Limited in their private equity division.

51

The Board of Directors:

Mr. Sat Pal Khattar (Non Executive Director) Mr. Sat Pal Khattar joined the Board with effect from April 20, 2001. Mr. Sat Pal Khattar is a lawyer by profession. Mr. Sanjiv Ahuja (Independent Director) Mr. Sanjiv Ahuja joined the Board with effect from August 28, 2002. Mr. Ahuja graduated from National University of Singapore with a degree in Computer Science and is also a Certified Public Accountant. Mr. Nilesh Vikamsey (Independent Director) Mr. Nilesh Shivji Vikamsey joined the Board with effect from February 11, 2005. Mr. Vikamsey qualified as a Chartered Accountant in 1985 and has been a member of the Institute of Chartered Accountants of India since 1985. Mr. Kranti Sinha (Independent Director) Mr. Kranti Sinha joined the Board with effect from January 27, 2005.

52

 Mr. Sinha graduated from the Agra University with a Masters degree. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen & Turbo Limited & LICHFL Care Homes Limited.

Services Offered By India Infoline

Heres a look at the rocketing list of whats on offer from The India Infoline Group :

Mutual Funds:-

Primary agent for the entire phalanx of leading funds. Something to suit every risk profile.

Portfolio Management:-

SEBI-registered, backed by a pool of analysts with over 200 man-years in managing portfolios.

Equity Trading and Stock Broking:53

Cash and Derivatives segments. Member - BSE and NSE, DP with NSDL.

Research & Analysis:-

Exhaustive information and data mining, covering the spectrum of Indian business, industry and financial markets.

Life Insurance:Leading corporate agent of ICICI Prudential Life Insurance Company, miles ahead of the runner-up!

Commodities Broking:Member of the Multi- Commodities Exchange (MCX). Again, rock-bottom brokerage and quality research support. Fixed Income Instruments: From Fixed

54

Deposits, Post Office Saving schemes to RBI Tax Saving and Infrastructure

Our Vision:
Its vision will not be accomplished only by maintaining high growth alone. Our vision is to emerge as the most respected financial services company in India. Needless to emphasize that it is imperative for all us to align our personal goals and values to this vision. Knowledge: Always keep yourself up-to-date by reading newspapers like Economics Times, Business standard and Business Line daily. Passing NCFM, AMFI, IRDA exams also help you to get basic domain understanding. We are in a knowledge industry and hence we cannot afford to go to a client and appear ignorant and foolish by not even knowing basic things.

Technology:
By technology, we mean that as an organization, we leverage technology to deliver best service to our clients at the least cost. Our trading interface for broking is absolutely world class. We expect our employees to be comfortable with and confident of using technology.
55

Service:
Our customer service is warm, friendly and responsive that media cannot help but rave about. Today, service is the key driver for growth in financial services. We take pride in our ability to add value that our customers can feel and appreciate. Remember we have to always ensure that simple things like ensuring customer problems are solved, requests are catered to, giving him investment ideas etc. Basically, whatever it takes to keep him served.

Awards

India Infoline has been awarded as the Best Broker in India by Finance Asia magazine. This is an annual ritual conducted by the magazine for study of best financial services firms in each country across Asia. The study was conducted from a period of 1 year from June 2007 to May 2008. The India Infoline group and its subsidiaries, is one of the leading players in the Indian financial services space

56

CHAPTER -V DATA ANALYSIS &

57

INTERPRETATION
TRADING OF FUTURES IN BHARTIAIRTEL
Date 1-Mar-12 3-Mar-12 4-Mar-12 7-Mar-12 10-Mar-12 21-Mar-12 22-Mar-12 24-Mar-12 25-Mar-12 28-Mar-12 29-Mar-12 30-Mar-12 31-Mar-12 1-Apr-12 4-Apr-12 7-Apr-12 8-Apr-12 12-Apr-12 20-Apr-12 21-Apr-12 29-Apr-12 2-May-12 Expiry 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 Open 0 0 0 0 0 0 330 336.5 340 341.9 360 363.3 5 358.2 5 356.6 5 358.1 353 362 365 380.4 384.2 387 381 High 0 0 0 0 0 0 330 336.7 5 345.1 5 351 363.2 363.3 5 362.1 5 362.9 365.5 360.5 5 367 367.7 387.4 385.9 389.1 5 386.4 5 Low 0 0 0 0 0 0 330 335.9 340 341.9 344.8 359.4 5 357.3 5 356.6 5 358.1 350.3 5 361.7 363 376.9 374.7 377.0 5 380.4 Close 332.4 5 332.4 5 332.4 5 332.4 5 332.4 5 328 330 336.3 5 344.7 5 351 352.7 5 360.8 361.4 359.8 363.6 5 360 363.4 364.1 5 383.0 5 379.5 5 379 385.4 5 LTP 0 0 0 0 0 328 330 335.9 344.4 351 352.7 5 360.8 360.9 5 359.5 363 360.4 5 363.2 5 364.0 5 382.1 380 379.2 385.1 5 Settle Price 345.55 337.8 334.45 331.65 336.65 322.75 332.65 336.35 344.75 353.65 366.6 365.3 361.4 359.8 363.65 360 363.4 364.15 383.05 379.55 379 385.45 Underlying Value 337.6 330.15 326.95 324.45 329.5 316.9 326.6 333.25 339.7 347.8 360.6 359.4 357.4 355.3 359.35 357 361.9 362.45 380.55 376.25 380.05 383.7

58

3-May-12 4-May-12 5-May-12 6-May-12 9-May-12 10-May-12 17-May-12 18-May-12 19-May-12 20-May-12 23-May-12 24-May-12 25-May-12 26-May-12

26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12 26-May-12

383.6 5 374.2 5 361.7 356.0 5 354.7 5 366.7 370.4 5 372.3 5 374.4 367.9 371.8 5 371.2 5 368.0 5 369.4

384.5 377.5 370 362.2 367.2 5 368 374.0 5 376 374.4 378.5 375.4 373.4 371.7 5 373.3

375 367.0 5 353.3 347.2 353.2 5 363.3 368.6 370 365.2 5 366 365.5 367.5 363.2 364.6 5

375.8 370.2 359.3 5 352.5 5 365.8 5 365.8 372.1 373.3 366.4 5 374.8 368.2 5 369.9 5 369.1 367.4 5

375.3 370.5 358.7 5 351.4 367 366 372.2 373.1 5 367.2 375 368.4 5 369.5 369 367.3 5

375.8 370.2 359.35 352.55 365.85 365.8 372.1 373.3 366.45 374.8 368.25 369.95 369.1 367.3

374.45 369.75 357.9 350.95 365.2 365.95 370.7 371.95 365.8 373.85 368.45 370.6 369.65 367.3

59

INTERPRETATION Here the in the month of may 1st company earning profits or increasing randomly it merans in the market bharthi airtel is bullesh lastly at the end of the may it decreases

TRADING OF FUTURES IN TATAMOTORS

Date 1-Mar-12 3-Mar-12 4-Mar-12 7-Mar-12 16-Mar12 17-Mar12 18-Mar12 21-Mar12 22-Mar12 28-Mar12 29-Mar12 30-Mar12 Expiry 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 Open 1077. 2 1210. 3 1260 1220. 45 1245 1232. 5 1231 1220 1231. 8 1289. 75 1210. 4 1235. 6 High 1285.4 5 1253.5 5 1260 1220.4 5 1250 1232.5 1231 1231.1 5 1235.5 5 1214 1233.5 1244.5 Low 1077.2 1210.3 1243 1205 1245 1232.5 1201.1 1209.0 5 1228.6 5 1289.7 5 1205 1227.8 5 Close 1222 1253.5 5 1243 1205 1247 1232.5 1201.1 1209.7 5 1228.6 5 1212.6 5 1223 1236.8 LTP 1222 1253.5 5 1243 1205 1247 1232.5 1201.1 1209.0 5 1228.6 5 1212.8 5 1228 1238.5 Settle Price 1222 1254 1243 1253 1290 1262 1201 1210 1257 1213 1223 1237 Underlying Value 1241.85 1276.5 1275.75 1227.95 1266.5 1239.95 1217.45 1221.2 1236.1 1224 1239.45 1249

60

31-Mar12 1-Apr-12 4-Apr-12 8-Apr-12 12-Apr12 13-Apr12 19-Apr12 20-Apr12 21-Apr12 27-Apr12 29-Apr12 2-May-12 4-May-12 5-May-12 6-May-12 9-May-12 12-May12 17-May12 18-May12 19-May12 20-May12 23-May12 24-May12 25-May12 26-May12

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

1214. 6 1225. 35 1233. 85 1263. 25 1222. 35 1298. 8 1290 1209. 2 1243. 95 1252. 9 1224. 85 1230 1262 1253. 05 1244 1295 1295 1299 1287 1256 1252. 7 1257 1230. 65 1221. 4 1245

1237.7 5 1238.2 5 1243.8 1270 1228 1244.4 1203.6 5 1246 1244 1262 1229.6 5 1233.0 5 1275.7 5 1271.7 1204.8 1295 1216.9 1208.5 1287 1263.7 5 1282.9 1259 1242.6 5 1243.5 5 1264

1209.3 5 1222.5 1221.0 5 1232.5 1200 1298.4 5 1278 1206.1 5 1226.2 5 1236.3 1207.3 1210.6 1236.6 1230.5 1244 1265.1 1280.0 5 1275.2 5 1242.1 1241 1250 1225.3 5 1214.3 5 1221 1237.1

1225.7 1231.8 1240 1240.8 1208.5 5 1237.7 5 1296.1 1241.5 5 1236.2 1239.1 1220.6 1221.6 5 1257.3 1235.8 5 1295.9 5 1275 1284.1 5 1286.7 5 1249.8 5 1252.6 5 1270.4 5 1231.6 1225 1235.7 5 1259.4 5

1228 1229.9 1240.7 5 1240.6 5 1207.8 5 1240.1 5 1296.6 1239 1235.2 5 1239.9 5 1224 1220.6 1259.7 1233 1290 1273.7 1281 1286.4 5 1249.9 5 1254.9 5 1266.5 1229.9 5 1228.2 1238 1262.0 5

1226 1232 1240 1241 1209 1238 1296 1242 1236 1239 1221 1222 1257 1236 1296 1275 1284 1287 1250 1253 1270 1232 1225 1236 1262

1248.35 1241.8 1254.2 1253.3 1219.55 1248.85 1201.3 1251.75 1243.75 1249.5 1236.85 1225.35 1259.3 1237.15 1299.95 1276.85 1287 1289 1249.15 1250.85 1268.65 1229.45 1221.85 1233.8 1262.4

61

INTERPRETATION Here in the month of March price of the Tata motors is 1212 increaing upto may month Month it means Tata motors company is in profits lastly it depreciates

62

TRADING OF FUTURES IN WIPRO

Date 1-Mar-12 3-Mar-12 4-Mar-12 7-Mar-12 10-Mar12 12-Mar12 14-Mar12 16-Mar12 22-Mar12 23-Mar12 28-Mar12 31-Mar12 1-Apr-12 4-Apr-12 5-Apr-12 7-Apr-12 8-Apr-12 12-Apr12 13-Apr12 15-Apr12 18-Apr12 21-Apr12 25-Apr12 28-Apr12 29-Apr12 Expiry 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 Open 0 0 0 0 0 455 0 0 0 0 465.0 5 476.4 478 489.1 5 484.6 5 466.1 469.9 5 466 442.8 468 452 468.6 468 456 448.0 5 High 0 0 0 0 0 455 0 0 0 0 465.0 5 485.3 482.4 490 486.4 5 476.6 470.9 5 467.2 478.9 468 459.6 5 475.6 5 470.1 5 457.6 452.8 Low 0 0 0 0 0 455 0 0 0 0 465. 05 476. 4 476. 15 485. 2 478 466. 05 463. 85 461. 95 442. 8 452. 5 447. 8 462. 9 465 446. 6 445. 55 Close 437. 7 437. 7 437. 7 437. 7 437. 7 455 455 455 455 455 465. 05 484. 95 482. 4 487. 3 485. 65 476. 2 469. 8 465. 8 478. 35 453. 15 448. 5 465. 35 469. 15 448. 15 450. 4 LTP 0 0 0 0 0 455 455 455 455 455 465. 05 485. 3 482. 4 487. 8 486 476. 5 470. 4 465. 8 478. 9 452. 5 448. 15 466. 25 468. 6 448. 05 449. 5 Settle Price 453.85 454.6 451.5 457.2 464.65 458.9 465.6 454.35 442.45 444.6 469.65 484.95 483.4 487.3 485.65 476.2 469.8 465.8 478.35 453.15 448.5 465.35 469.15 448.15 450.4 Underlying Value 443.45 444.3 441.4 447.25 454.8 449.3 456.25 445.4 434.4 436.6 461.9 480.2 476.05 481 481 472.45 465.55 460 472.4 449.8 445.4 463.15 466.2 446.6 450.3

63

2-May-12 5-May-12 6-May-12 9-May-12 12-May12 16-May12 18-May12 20-May12 23-May12 24-May12 25-May12 26-May12

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

451.2 434.1 436.1 441.7 5 437.6 5 442 439.8 5 444.8 440.3 438.5 440.6 5 436.4

454 438.6 451.9 442.1 440.7 444.8 450 448.5 442.1 5 445.2 5 441.3 5 440

444. 95 427. 15 434. 7 436. 1 432 435. 45 439. 3 436. 1 436 438. 5 429 433

450. 45 432. 25 442. 65 437. 9 433. 25 439. 4 446. 2 446. 65 439. 95 440. 5 433. 85 434. 65

449. 5 434 442 438. 2 434. 2 439. 3 445. 75 446 441 440. 8 435. 4 434. 7

450.45 432.25 442.65 437.9 433.25 439.4 446.2 446.65 439.95 440.5 433.85 434.9

447.6 432.5 442.45 436.15 433.3 439.95 446.15 447.35 440.05 439.9 435.6 434.9

INTERPRETATION Here in the month of march strike price of the wipro company is 453.85 then increases upto in the month may after it decreasingit means company running in loss closing price is 440

64

OPTIONS BHARTI AIRTEL_CE_01-03-2012_TO_26-05-2012

Strik e Pric e 440 460 460 460 200 400 440 200 480 380 Ope n 0 0 0 0 0 0 0 0 0 0 Hig h 0 0 0 0 0 0 0 0 0 0 Lo w 0 0 0 0 0 0 0 0 0 0 Settle LTP Price 0 0 0 0 0 0 0 0 0 0 2.15 0.85 0.6 0.4 128.8 3.15 1.8 139.2 0.35 8.1 Underlyi ng Value 337.6 330.15 326.95 324.45 324.45 324.45 334.85 334.85 332.5 332.5

Date 1-Mar-12 3-Mar-12 4-Mar-12 7-Mar-12 7-Mar-12 7-Mar-12 8-Mar-12 8-Mar-12 9-Mar-12 9-Mar-12

Expiry 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May-

Close 1.8 1.05 1.05 1.05 129. 3 5.2 1.8 129. 3 0.6 8.45

65

10-Mar12 25-Mar12 28-Mar12 29-Mar12 30-Mar12 31-Mar12 1-Apr-12 4-Apr-12 5-Apr-12 5-Apr-12 6-Apr-12 7-Apr-12 8-Apr-12 21-Apr12 25-Apr12 26-Apr12 27-Apr12 28-Apr12 29-Apr12 2-May-12 4-May-12 6-May-12 9-May-12 10-May12

12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

260 320 440 460 440 460 440 360 160 360 360 380 380 360 360 360 360 320 320 360 360 440 340 420

0 30 0 0 0 0 0 15.5 0 17.2 5 15.6 0 9.45 29 27 24 28.7 67 60.6 26.5 18.7 5 0.15 19 0.4

0 30 0 0 0 0 0 15. 5 0 17. 3 15. 6 0 9.4 5 29 27 28. 5 33. 5 67 60. 6 29 20. 3 0.1 5 29. 1 0.4

0 30 0 0 0 0 0 15. 5 0 17. 3 14. 9 0 7.7 5 24 24. 5 21 28. 7 67 60. 6 26. 3 15. 8 0.1 5 18 0.3

72.8 30 1.8 1.05 1.8 1.05 1.8 15.5 168. 3 17.2 5 14.9 7.85 7.75 26.1 24.5 28.5 30 67 60.6 29 17.3 0.15 28.3 0.35

0 30 0 0 0 0 0 15. 5 0 17. 3 14. 9 7.8 5 7.7 5 26. 1 24. 5 28. 5 30 67 60. 6 29 17. 8 0.1 5 29. 1 0.3 5

75.95 30 1.2 1.55 2.45 0.9 1.45 15.5 202.3 17.25 14.9 9.4 7.75 26.1 24.5 28.5 30 67 60.6 29 17.3 0.15 28.3 0.35

329.5 339.7 347.8 360.6 359.4 357.4 355.3 359.35 360.25 360.25 353.3 357 361.9 376.25 375.45 381.6 385.15 386.75 380.05 383.7 369.75 350.95 365.2 365.95

66

12-May12 12-May12 17-May12 18-May12 19-May12 19-May12 20-May12 20-May12 20-May12 23-May12 24-May12 25-May12 26-May12

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

340 360 420 340 440 360 420 400 340 360 400 400 400

27 10.6 0.15 34 0.1 13.3 0.15 0.4 33 10.1 5 0.1 0.1 0.05

28. 5 10. 9 0.1 5 34 0.1 14. 7 0.1 5 0.7 33 15. 1 0.2 0.1 5 0.0 5

26. 5 8.5 5 0.1 5 34 0.1 8.5 0.1 5 0.2 5 33 7 0.1 0.0 5 0.0 5

28.5 10.0 5 0.15 34 0.1 9.05 0.15 0.3 33 8.95 0.2 0.05 0.05

28. 5 10. 5 0.1 5 34 0.1 9.8 0.1 5 0.2 5 33 9.1 5 0.2 0.0 5 0.0 5

28.5 10.05 0.15 34 0.1 9.05 0.15 0.3 33 8.95 0.2 0.05 0

366.2 365.7 370.7 371.95 365.8 365.8 373.85 373.85 373.85 368.45 370.6 369.65 367.3

67

INTERPRETATION Here in the month of march strike price of Bharthi airtel 440 and closing price is 1.8 decreasing after in the month of may also decreasing 0.05 in the market bharthi airtel facing loses closing 0.05

OPTIONS
TATAMOTORS_CE_01-03-2012_TO_26-05-2012
Strik e Pric e 180 0 180 0 140 0 150 0 160 0 185 0 180 0 185 0 180 0 185 0 180 0 170 0 185 0 185 0 175 0 Ope n 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Hig h 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 68 Lo w 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Settle Price 22.55 25.45 82.05 45.9 37.8 13.5 14.15 8.4 7.6 4.6 4.2 4.65 1.85 2.15 3.4 Underlying Value 1241.85 1276.5 1275.75 1227.95 1262.15 1263.3 1265 1275.8 1242.1 1239.95 1217.45 1236.9 1257.3 1248.35 1241.8

Date 1-Mar-12 3-Mar-12 4-Mar-12 7-Mar-12 8-Mar-12 9-Mar-12 10-Mar-12 14-Mar-12 15-Mar-12 17-Mar-12 18-Mar-12 23-Mar-12 24-Mar-12 31-Mar-12 1-Apr-12

Expiry 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

Close 4.5 4.5 30.1 19.05 12.9 3.5 4.5 3.5 4.5 3.5 4.5 7.35 3.5 3.5 5.75

LTP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4-Apr-12 5-Apr-12 8-Apr-12 12-Apr-12 21-Apr-12 25-Apr-12 29-Apr-12 2-May-12 5-May-12 6-May-12 16-May12 17-May12 19-May12 20-May12 24-May12 25-May12 26-May12 26-May12

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

180 0 170 0 600 175 0 180 0 175 0 180 0 185 0 160 0 180 0 185 0 180 0 550 500 550 500 180 0 550

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4.5 7.35 470.1 5.75 4.5 5.75 4.5 3.5 12.9 4.5 3.5 4.5 518.1 5 566.6 518.1 5 566.6 4.5 518.1 5

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1.9 5.35 660.3 5 0.9 0.25 0.2 0.05 0 0.05 0.05 0 0 601.8 669.4 572.1 5 633.9 5 0 0

1254.2 1280.35 1253.3 1219.55 1243.75 1242.55 1236.85 1225.35 1237.15 1299.95 1215.75 1289 1250.85 1268.65 1221.85 1233.8 1262.4 1262.4

69

INTERPRETATION Here in the month of march Tata motors strike price is 1800 closing price is 4.5 it means company running in profits lastly in the month of may it decreasing

OPTIONS

70

WIPRO_CE_01-03-2012_TO_26-05-2012
Strik e Pric e 580 560 580 560 580 560 600 580 600 580 600 580 600 560 580 600 520 600 520 600 520 Ope n 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Hig h 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Lo w 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Clos e 1.75 2.75 1.75 2.75 1.75 2.75 1.1 1.75 1.1 1.75 1.1 1.75 1.1 2.75 1.75 1.1 6.5 1.1 6.5 1.1 6.5 LT P 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Settle Price 2.25 3.1 1.45 2.65 1.25 2.35 0.55 0.9 0.25 0.3 0.1 0.2 0.5 2.9 1.95 0.7 9.45 0.5 7.4 0.3 6.7 Underlyi ng Value 443.45 444.3 441.4 447.25 450.95 454.8 442.4 445.4 439.9 433.9 436.6 439.65 463.5 472.85 480.2 476.05 481 481 472.45 465.55 472.4

Date 1-Mar-12 3-Mar-12 4-Mar-12 7-Mar-12 9-Mar-12 10-Mar12 15-Mar12 16-Mar12 18-Mar12 21-Mar12 23-Mar12 24-Mar12 29-Mar12 30-Mar12 31-Mar12 1-Apr-12 4-Apr-12 5-Apr-12 7-Apr-12 8-Apr-12 13-Apr12

Expiry 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

71

15-Apr12 19-Apr12 20-Apr12 25-Apr12 26-Apr12 29-Apr12 2-May-12 3-May-12 4-May-12 6-May-12 9-May-12 12-May12 13-May12 16-May12 17-May12 20-May12 23-May12 24-May12 25-May12 25-May12 26-May12 26-May12

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

600 520 600 520 600 300 600 560 540 560 540 580 560 580 560 580 560 580 600 540 600 540

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1.1 6.5 1.1 3.5 1.1 134. 7 1.1 2.75 4.3 2.75 4.3 1.75 2.75 1.75 2.75 1.75 2.75 1.75 1.1 4.3 1.1 4.3

0 0 0 3. 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0.4 3.4 0.45 4.65 0.15 152.1 5 0.05 0.05 0.1 0.05 0.05 0 0 0 0 0 0 0 0 0 0 0

449.8 449.55 463.65 466.2 464.7 450.3 447.6 436.65 437 442.45 436.15 433.3 442.55 439.95 437.5 447.35 440.05 439.9 435.6 435.6 434.9 434.9

72

INTERPRETATION In the month of march strike price fluctuates between 580 and 560 it increases in the in the month of may at the end of the contract company running is break even point nethier profits not loses.

OPTIONS BHARTI AIRTEL_PE_01-03-2012_TO_26-05-2012

Strik e Pric e 460 480 Ope n 0 0 Hig h 0 0 Lo w Clos Settle Underlyi e LTP Price ng Value 125. 123.0 0 6 0 5 337.6 144. 139.4 0 6 0 5 330.15

Date

Expiry 26-May1-Mar-12 12 26-May3-Mar-12 12

73

4-Mar-12 7-Mar-12 8-Mar-12 10-Mar12 14-Mar12 15-Mar12 17-Mar12 18-Mar12 22-Mar12 23-Mar12 29-Mar12 30-Mar12 31-Mar12 1-Apr-12 4-Apr-12 5-Apr-12 8-Apr-12 12-Apr12 19-Apr12 20-Apr12 25-Apr12 26-Apr12 29-Apr12 2-May12 5-May-

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May-

440 460 460 460 460 440 460 440 460 460 480 460 480 340 240 240 360 480 360 480 220 380 420 440 420

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12. 9 0 9.6 5 0 0 13 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12. 9 0 9.6 5 0 0 15. 7 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 0 7.3 0 0 12 0 0 0

106. 8 125. 6 125. 6 125. 6 125. 6 106. 8 125. 6 106. 8 125. 6 125. 6 144. 6 125. 6 144. 6 27.6 0.75 0.75 12.8 5 144. 6 7.55 144. 6 0.2 12.6 88.5 5 106. 8 88.5

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12. 9 0 7.2 5 0 0 12. 6 0 0 0

104.4 5 126 126.2 121.3 129.2 5 127.5 5 133.4 5 123.2 5 125.3 121.4 122.4 94.45 125.6 9.6 0 0 12.85 122.4 7.55 95.35 0 12.6 39 54.25 60.25

326.95 324.45 334.85 329.5 321.75 314.15 317.85 318.65 326.6 330.6 360.6 359.4 357.4 355.3 359.35 360.25 361.9 362.45 376.45 380.55 375.45 381.6 380.05 383.7 357.9

74

12 6-May12 13-May12 16-May12 19-May12 20-May12 25-May12 26-May12 26-May12

12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

480 440 440 420 440 440 440 460

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

5 144. 6 106. 8 106. 8 88.5 5 106. 8 106. 8 106. 8 125. 6

0 0 0 0 0 0 0 0

126.8 70.95 67.75 53.5 65.55 70.25 0 0

350.95 367.75 371.2 365.8 373.85 369.65 367.3 367.3

INTERPRETATION

75

Here in the month of march strike price 460 and closing price is 125.6 it means company is fluctuation in profits and loses upto the month of may.

OPTIONS Tata Motors PE_01-03-2012_TO_26-05-2012

Strik e Pric Ope Hig Lo Settle Underlyi e n h w Close LTP Price ng Value 180 639.4 0 0 0 0 706.7 0 5 1241.85 185 0 0 0 0 754.5 0 651.7 1275.75 180 648.9 0 0 0 0 706.7 0 5 1227.95 185 0 0 0 0 754.5 0 660.6 1263.3 180 0 0 0 0 706.7 0 612 1265 185 0 0 0 0 754.5 0 677.3 1242.1 180 606.3 0 0 0 0 706.7 0 5 1266.5 185 697.6 0 0 0 0 754.5 0 5 1221.2 180 634.2 0 0 0 0 706.7 0 5 1236.1 185 0 0 0 0 754.5 0 681.7 1236.9 180 0 0 0 0 706.7 0 613.6 1257.3 170 612.9 0 0 0 0 5 0 456.5 1224 76

Date 1-Mar-12 4-Mar-12 7-Mar-12 9-Mar-12 10-Mar12 15-Mar12 16-Mar12 21-Mar12 22-Mar12 23-Mar12 24-Mar12 28-Mar12

Expiry 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

29-Mar12 31-Mar12 1-Apr-12 5-Apr-12 13-Apr12 15-Apr12 21-Apr12 25-Apr12 29-Apr12 2-May-12 4-May-12 5-May-12 9-May-12 10-May12 13-May12 16-May12 23-May12 20-May12 25-May12 26-May12

26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12 26-May12

185 0 170 0 175 0 175 0 180 0 175 0 180 0 175 0 180 0 160 0 800 155 0 160 0 155 0 185 0 185 0 185 0 180 0 180 0 550

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

754.5 612.9 5 659.1 5 659.1 5 706.7 659.1 5 706.7 659.1 5 706.7 518.9 17.05 473.3 518.9 473.3 754.5 754.5 754.5 706.7 706.7 0.45

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

583.6 431.9 485.0 5 450.7 533.1 497.4 540.9 5 494.4 5 552.2 5 366.1 0 405.2 5 416.8 5 358.1 633.2 5 629.8 5 719.2 5 628.8 665.8 0

1239.45 1248.35 1241.8 1280.35 1248.85 1235.85 1243.75 1242.55 1236.85 1225.35 1259.3 1237.15 1276.85 1286.25 1212.05 1215.75 1229.45 1268.65 1233.8 1262.4

77

INTERPRETATION Here in the month of march company strike price is 1800and closing price 706.7and in the month of april company got profits and lastly it in the month of may decreased

78

CHAPTER-VI
Findings Suggestions Conclusion Bibliography

79

FINDINGS

The following findings are made on the basis of data analysis from the previous Chapter. Different strategies in Options are evaluated and net payoffs are found out. The study reveals the effectiveness of risk reduction using hedging strategies. It has found out that risk cannot be avoided. But can only be minimized. Through the study, it has found out that, the hedging provides a safe position on an underlying security. The loss gets shifted to a counter party. Thus the hedging covers the loss and risk. Sometimes, the market performs against the expectation. This will trigger losses. so the hedger should be a strategic and positive think The anticipation of the hedger regarding the trend of the movement in the prices of the underlying security plays a key role in the result of the strategy applied. It has been found that, all the strategies applied on historical data of the period of the study were able to reduce the loss that rose from price risk substantially. If the trader is not sure about the direction of the movement of the profits of the current position, he can counter position in the future contract and reduces the level of risks. The trader can effectively use the strategy for return enhancement provided he has the correct market anticipation. In general, the anticipation of the strategies purely for return enhancement is a risky affair, because, if the anticipation about the performance of the market and the underlying goes wrong, the position taker would end up in higher losses.

SUGGEESTIONS

80

The study reveals the effectiveness of risk reduction using hedging strategies. It has found out that risk cannot be avoided. But can only be minimized. It has been found that, all the strategies applied on historical data of the period of the study were able to reduce the loss that rose from price risk substantially.

A knowledge need to be spread concerning the risk and return of the derivative market from RBI and SEBI for retail investors.

If an investor wants to hedge with portfolios, it must consist of scrips from different industries, since they are convenient and represent true nature of the securities market as a whole.

The hedging tool to reduce the losses that may arise from the market risk. Its primary objective is loss minimization, not profit maximization .The profit from futures or shares will be offset from the losses from futures or shares, as the case may be. As a result, a hedger will earn a lower return compared to that of an unhedger. But the unhedger faces a high risk than a hedger.

The hedger will have to be a strategic thinker and also one who think positively. He should be able to comprehend market trends and fluctuations. Otherwise, the strategies adopted by him earn him earn losses.

The hedging tool is suitable in the short term period. They can be specifically adopted by the investor, who are facing high risks and has sufficient liquid cash with them. Long term investor should beware from the market, because of the volatile nature of the market.

81

 A lot more awareness needed about the stock market and investment pattern, both in spot and future market. The working of BSE Training Institute and NSE Institutes are apprehensible in this regard.

CONCLUSION

Derivative market is an innovation to cash market. Approximately its daily turnover reaches to the equal stage of cash market. The average daily turnover of the NSE derivative segment is presently the available scrips in futures and options segment.

In cash market the profit/loss of the investor depends on the market price of the underlying asset. The investors may incur huge profits or he may incur huge losses. But it derivatives segment the investor enjoys huge profits with limited downside.

In cash market the investor as to pay the total money, but in derivatives the investor has to pay premium or margins, which are some percentage of total money.

Derivatives are mostly used for hedging purpose.

In the derivatives segment the profit/loss of the option holder/option writer is purely depended on the fluctuations of the underlying asset

82

BIBILOGRAPHY
83

Books
1.

Mihir dash, Kavitha.V, Deepak.M, Sindhu S NOV 2008. A study of optimal stock &

options strategies.
2. 3. 4. 5.

NSE (National Stock Exchange 2009 NSE Conluas in Finnancial Markets). Options Future & other Derivatives By John C Hull. Jianwei Zhu, Aug 15 2000 Modular Pricing of option. BAS J M Werker and bartend Melenberg, Marth 1997 on the Pricing of Option in

Incomplete markets. Jourals: Mihir dash, Narendra Babu, Mahesh Kodogi Indian journals of finance. Speculation strategies using Investment in Option Vol-7 no.4 Nov 2007.

Websites
84

www.derivativesindia.com www.nse-india.com www.sebi.gov.in www.rediff/money/derivatives.htm www.appliederivatives.com www.derivativesreview.com www.economictimes.com

85