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A Comparative Study

On
Risk Management in Spot Markets with Option Derivatives (with reference to
Bonanza Limited, Vijayawada)

A project report submitted to the JNTU, Kakinada

In partial fulfillment of the requirement for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION


Submitted By
ADUSUMALLI HEMANTH KUMAR
Redg:17B81E0002

Under the Esteemed Guidance of


Sri K.V.SRIDHAR,MBA
Asst. Professor,
Department of Management Studies.

Department of Management Studies,


SIR C R REDDY COLLEGE OF ENGINEERING,
ELURU – 534007, WEST GODAVARI DISTRICT, A.P., INDIA,
(APPROVED BY AICTE, NEW DELHI, AFFILIATED TO JNTUK, KAKINADA)
(2017-2019)
DECLARATION

I, hereby declare that this project report with reference to the A Comparative Study on Risk
Management in Spot Markets with Option Derivatives.” on is a bonafide work done and
submitted to the JNTU, KAKINADA, DEPARTMENT OF MANAGEMENT STUDIES,
SIR.C.R.REDDY COLLEGE OF ENGINEERING is an original work carried-out by me and
is not to submitted to any other purpose are published any time before. The information and
findings of this report are based upon the information collected by me during the study
period.

PLACE :ELURU ADUSUMALLI HEMANTH KUMAR

DATE : Regd. No. 17B81E0002


ACKNOWLEDGEMENT

I sincerely express my humble thanks to Dr. G. SAMBASIVA RAO, Principal, Sir


C.R. Reddy College of Engineering, for his blessing and encouragement.

I express my sincere gratitude and thanks to Dr. K. KRISHNAIAH CHOUDARY,


HOD, Department of Management Studies, Sir C.R. Reddy College of Engineering, Eluru,
for his encouragement, continuous support and timely, valuable suggestions.

I would like to extend my sincere thanks to Sri K.V.SRIDHAR, Department of MBA


in Sir C.R. Reddy College of Engineering for his cooperation and completion of this project
work.

I express my sincere thanks to Sri. T.SHIV BADRINATH (Manager) for his


cooperation and valuable guidance in accomplishing the study and also to the staff of with
reference to on BONANZA LIMITED.

A.HEMANTH KUMAR
Regd. No.17B81E0002
CERTIFICATE

This is to certify that the project report entitled “ A Comparative Study on Risk Management
in Spot Markets with Option Derivatives.” with reference to Bonanza Limited,

Vijayawada is being submitted by A.Hemanth kumar, in partial fulfillment of the


requirement for the award of the Degree in Master of Business Administration to
Jawaharlal Nehru Technological University, Kakinada. It is bonafide work carried by him
under my guidance and supervision.

Dr. K.K. CHOWDARY, MBA, Ph.D. Sri K.V.SRIDHAR


Head of the Department Asst. Professor & Project Guide

PLACE : ELURU
DATE :
TABLE OF CONTENTS

CHAPTERS CONTENTS PAGE NO

CHAPTER-I THEORETICAL FRAME WORK 1-24

CHAPTER-II RESEARCH METHODOLOGY 25-28

 Title of the study


 Need for the study
 Scope of the study
 Objectives of the study

CHAPTER-III INDUSTRY PROFILE 29-55

COMPANY PROFILE

CHAPTER-IV DATA ANALYSIS 56-70

&

INTERPRETATION

CHAPTER-V FINDINGS & SUGGESTIONS 71-73

CHAPTER-VI 74-75
ANNEXURE BIBILOGRAPHY
CHAPTER-I

1
INTRODUCTION

Derivatives are known to be among the most dominant money related


instruments. The word subordinate originates from the word 'to determine'. It
demonstrates that it has no free esteem. A subsidiary is an agreement whose
esteem is gotten from the estimation of another benefit, known as the basic
resource, which could be an offer, a securities exchange list, a financing cost,
a ware, or a cash. The hidden is the recognizable proof tag for a subordinate
contract. At the point when the cost of the basic changes, the estimation of the
subordinate likewise changes. Without a basic resource, derivatives don't have
any importance.

For instance, the estimation of a gold futures contract gets from the
estimation of the basic resource i.e., gold. The costs in the derivatives
showcase are driven by the spot or money advertise cost of the basic resource,
which is gold in this precedent. Derivatives deal with market dangers -
instability in loan fees, cash rates, product costs, and offer costs.

The rise of the market for subsidiary items, most eminently advances,
futures and options, can be followed back to the ability of hazard loath
financial specialists to protect themselves against vulnerabilities emerging out
of changes in resource costs. By their very nature, the money related markets
are set apart by a high level of unpredictability. Using subsidiary items, it is
conceivable to somewhat or completely exchange value chances by securing
resource costs. As instruments of hazard the executives, these for the most part
don't impact the changes in the hidden resource costs. In any case, by securing
resource costs, subordinate items limit the effect of changes in resource costs
on the productivity and income circumstance of hazard unwilling financial
specialists.

Derivatives are chance administration instruments which gets their


incentive from a fundamental resource. Hidden resource can be Bullion,
Index, Share, Currency, Bonds, Interest, and so on.

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EMERGENCE OF FINANCIAL DERIVATIVE PRODUCTS

Derivatives are known to be among the most dominant money related


instruments. The word subordinate originates from the word 'to determine'. It
demonstrates that it has no free esteem. A subsidiary is an agreement whose
esteem is gotten from the estimation of another benefit, known as the basic
resource, which could be an offer, a securities exchange list, a financing cost,
a ware, or a cash. The hidden is the recognizable proof tag for a subordinate
contract. At the point when the cost of the basic changes, the estimation of the
subordinate likewise changes. Without a basic resource, derivatives don't have
any importance.

For instance, the estimation of a gold futures contract gets from the
estimation of the basic resource i.e., gold. The costs in the derivatives
showcase are driven by the spot or money advertise cost of the basic resource,
which is gold in this precedent. Derivatives deal with market dangers -
instability in loan fees, cash rates, product costs, and offer costs.

The rise of the market for subsidiary items, most eminently advances,
futures and options, can be followed back to the ability of hazard loath
financial specialists to protect themselves against vulnerabilities emerging out
of changes in resource costs. By their very nature, the money related markets
are set apart by a high level of unpredictability. Using subsidiary items, it is
conceivable to somewhat or completely exchange value chances by securing
resource costs. As instruments of hazard the executives, these for the most part
don't impact the changes in the hidden resource costs. In any case, by securing
resource costs, subordinate items limit the effect of changes in resource costs
on the productivity and income circumstance of hazard unwilling financial
specialists.

Derivatives are chance administration instruments which gets their


incentive from a fundamental resource. Hidden resource can be Bullion,
Index, Share, Currency, Bonds, Interest, and so on.

3
DERIVATIVES DEFINED

Subsidiary is an item whose esteem is gotten from the estimation of at


least one fundamental factors, called bases (hidden resource, record, or
reference rate), in a legally binding way. The basic resource can be value,
forex, ware or some other resource. For instance, wheat ranchers may wish to
pitch their reap at future date to wipe out danger of an adjustment in costs by
that date. Such an exchange is a case of a subordinate. The cost of this
subsidiary is driven by the spot cost of wheat which is the "basic".

The term Derivative has been characterized in Securities Contracts


(Regulation) Act 1956, as:

• A security got from an obligation instrument, share, credit whether


secure or unbound, hazard instrument or contract for contrasts or some other
type of security.

• A contract, which gets its incentive from the costs, or record of costs,
of fundamental securities.

MEANING OF DERIVATIVE

The Derivatives Market is implied as the market where trade of


derivatives happens. Derivatives are one kind of securities whose cost is
gotten from the basic resources. What's more, estimation of these derivatives
is dictated by the changes in the hidden resources. These basic resources are
most generally stocks, securities, monetary forms, financing costs, items and
market lists. As Derivatives are just contracts between at least two gatherings,
anything like climate information or measure of downpour can be utilized as
basic resources. The Derivatives can be named Future Contracts, Forward
Contracts, Options, Swaps and Credit Derivatives.

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HISTORY OF DERIVATIVES

Right on time forward contracts in the US tended to dealers' worries


about guaranteeing that there were purchasers and merchants for products.
Anyway 'credit hazard" remained a difficult issue. To manage this issue, a
gathering of Chicago agents shaped the Chicago Board of Trade (CBOT) in
1848. The essential goal of the CBOT was to give a brought together area
known ahead of time for purchasers and dealers to consult forward contracts.
In 1865, the CBOT went above and beyond and recorded the principal 'trade
exchanged" derivatives contract in the US, these agreements were called
'futures contracts". In 1919, Chicago Butter and Egg Board, a turn off of
CBOT, was redesigned to permit futures exchanging. Its name was changed to
Chicago Mercantile Exchange (CME). The CBOT and the CME remain the
two biggest sorted out futures trades, undoubtedly the two biggest "money
related" trades of any sort on the planet today.

The primary stock record futures contract was exchanged at Kansas


City Board of Trade. Right now the most prominent stock record futures
contract on the planet depends on S&P 500 file, exchanged on Chicago
Mercantile Exchange. Amid the mid eighties, money related futures turned
into the most dynamic subsidiary instruments producing volumes ordinarily
more than the item futures. Record futures, futures on T-bills and Euro-Dollar
futures are the three most famous futures contracts exchanged today. Other
well known global trades that exchange derivatives are LIFFE in England,
DTB in Germany, SGX in Singapore, TIFFE in Japan, MATIF in France,
Eurex and so forth.

DERIVATIVES IN INDIA

The derivatives exchanging on the NSE initiated with S&P CNX Nifty
Index futures on June 12, 2000. The exchanging file options started on June 4,
2001 and exchanging options on individual securities initiated on July 2, 2001.
Single stock futures were propelled on November 9, 2001. Today, both
regarding volume and turnover, NSE is the biggest derivatives trade in India.
At present, the derivatives contracts have a limit of 3-month lapse cycles.

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Three contracts are accessible for exchanging, with multi month, 2 months and
3 months expiry. Another agreement is presented on the following exchanging
day following the expiry of the close month contract.

IMPORTANCE OF DERIVATIVES

Consequently, derivatives are winding up progressively critical in world


markets as a device for hazard the executives.

• Derivative instruments can be utilized to limit chance. Derivatives are


utilized to isolate the dangers and exchange them to parties willing to tolerate
these dangers. The sort of supporting that can be gotten by utilizing
derivatives is less expensive and more helpful than what could be acquired by
utilizing money instruments. It is so in light of the fact that, when we use
derivatives for supporting, real conveyance of the hidden resource isn't at all
fundamental for settlement purposes. The benefit or misfortune on subordinate
arrangement alone is balanced in the subsidiary market.

• Moreover, derivatives don't make any new hazard. They basically


control dangers and exchange them to the individuals who are eager to tolerate
these dangers. To refer to a typical precedent, let us accept that Mr. X claims a
vehicle. In the event that he doesn't take protection, he runs a major hazard.
Assume he purchases protection, (a subordinate instrument on the vehicle) he
lessens his hazard. Hence, having a protection arrangement lessens the danger
of owing a vehicle. So also, supporting through derivatives diminishes the
danger of owning a predefined resource, which might be an offer, money and
so forth.

• Hedging hazard through derivatives isn't like hypothesis. The increase


or misfortune on a subordinate arrangement is probably going to be balanced
by a comparable misfortune or addition in the benefits of basic resources.
'Balancing of dangers' in an essential property of supporting exchanges.
However, in theory one purposely goes out on a limb transparently. At the
point when organizations know well that they need to confront chance in
having resources, it is smarter to exchange these dangers to the individuals

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who are prepared to tolerate them. Along these lines, they need to
fundamentally go for subordinate instruments.

• All subordinate instruments are easy to work. Treasury administrators


and portfolio directors can fence all dangers without experiencing the dreary
procedure of supporting every day and sum/share independently.

• All subsidiary items are ease items. Organizations can fence a


significant segment of their asset report introduction, with a low edge
prerequisite.

• Derivatives likewise offer high liquidity. Similarly as derivatives can


be contracted effectively, it is likewise workable for organizations to escape
positions in the event that that advertise responds something else. This
additionally does not include much expense.

Subsequently, derivatives are alluring as well as important to support


the mind boggling exposures and volatilities that the organizations by and
large face in the money related markets today.

FACTORS DRIVING THE GROWTH OF DERIVATIVES

In the course of the most recent three decades, the subordinates


advertise has seen an exceptional development. An expansive assortment of
subordinate contracts have been propelled at trades over the world. A portion
of the variables driving the development of money related subsidiaries are:

 Increased instability in resource costs in monetary markets,


 Increased joining of national budgetary markets with the universal
markets,
 Marked improvement in correspondence offices and sharp decrease in
their expenses,
 Development of increasingly advanced hazard the board apparatuses,
giving financial specialists a more extensive decision of hazard the
board procedures, and

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 Innovations in the subsidiaries markets, which ideally join the dangers
and returns over countless resources prompting higher returns,
diminished hazard just as exchanges costs when contrasted with
individual budgetary resources.

PARTICIPANTS IN THE DERIVATIVE MARKETS

There are three major players in their derivatives trading.

1. Hedgers.
2. Speculators.
3. Arbitrageurs.

HEDGERS

The party, which manages the risk, is known as “Hedger”. Hedgers


seek to protect themselves against price changes in a commodity in which they
have an interest.

SPECULATORS

They are traders with a view and objective of making profits. They are
willing to take risks and they bet upon whether the markets would go up or
come down.

ARBITRAGEURS

Risk less profit making is the prime goal of arbitrageurs. They could be
making money even without putting their own money in, and such
opportunities often come up in the market but last for very short time frames.
They are specialized in making purchases and sales in different markets at the
same time and profits by the difference in prices between the two centers.

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USAGE

Derivatives are used by investors to:

 provide leverage (or gearing), such that a small movement in the


underlying value can cause a large difference in the value of the
derivative;
 speculate and make a profit if the value of the underlying asset moves
the way they expect (e.g., moves in a given direction, stays in or out of
a specified range, reaches a certain level);
 hedge or mitigate risk in the underlying, by entering into a derivative
contract whose value moves in the opposite direction to their
underlying position and cancels part or all of it out;
 obtain exposure to the underlying where it is not possible to trade in
the underlying (e.g., weather derivatives);
 create option ability where the value of the derivative is linked to a
specific condition or event (e.g. the underlying reaching a specific
price level).

DERIVATIVE MARKET AND FINANCIAL RISK

Subsidiaries assume a crucial job in hazard the board of both money


related and non-budgetary establishments. However, in the present world, it
has turned into a rising worry that subordinate market activities may
destabilize the effectiveness of monetary markets. In today's' reality the
organizations the monetary and non-money related firms are utilizing forward
contracts, future contracts, alternatives, swaps and different blends of
subsidiaries to oversee hazard and to build returns. The facts confirm that
development of subordinates showcase uncover the expanding market interest
for hazard overseeing instruments in the economy. Yet, the significant concern
is that, the principle parts of Over the Counter (OTC) subsidiaries are
financing costs and cash swaps. In this way, the economy will endure clearly
whether the subsidiary instruments are abused.

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HEDGING

A Hedge is a venture position proposed to balance potential


misfortunes that might be brought about by a buddy speculation.

A hedge can be built from numerous kinds of money related


instruments, including stocks, trade exchanged assets, protection, forward
contracts, swaps, choices, numerous sorts of over-the-counter and subsidiary
items, and prospects contracts.

 Supporting is only a component to decrease or control dangers


associated with capital market. Different hazard engaged with
capital market:-
 Price chance
 Liquidity hazard
 Operational chance

Supporting assumes a vital job to battle these dangers.

Supporting does not intend to augment return. It so happens that at


some point in spite of forcing supporting inventers may bring boundless
benefit all things considered supporting does not manage natural product.
Supporting demonstrates its shading just if there should arise an occurrence of
misfortunes by constraining it.

In a straightforward model, a mill operator may purchase wheat that


will be changed over into flour. In the meantime, the mill operator will
contract to sell an equivalent measure of wheat, which the mill operator does
not by and by claim, to another merchant. The mill operator consents to
convey the second part of wheat at the season of flour is prepared fro advertise
and at the value ebb and flow at the season of understanding. On the off
chance that the cost of wheat decays amid the period between the mill
operator's buy of the grain and the flour's passage onto the market, there will
likewise be a subsequent drop in the cost of flour. That misfortune must be
supported by the mill operator. In any case, since the mill operator has an

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agreement to sell wheat at the more established, more expensive rate, the mill
operator compensates for this misfortune on the flour deal by the addition on
the wheat deals.

Terms in Hedging

Long Hedge:

Long hedge is the transaction when we hedge our position in cash market
by going long in derivatives market.

For example, let us assume that we are going to receive funds in the near
future and we want to invest it into capital market. Also we expect the market
to go up in the near future, which is not desirable for us as we would have to
invest more money. The risk can be hedged by making use of derivatives such
as F&O

Short Hedge:

Short hedge is the hedge accomplished by going short in the derivatives


market.

For example, we have a portfolio which we went to liquidate in the near


future. Meanwhile prices of the scrip may go down, which is not favorable for
us. Thus to protect our portfolio value we can go short in the derivative
market.

Cross Hedge:

When derivatives of the underlying assets we have, are not available, we


use derivatives on any other related underlying, that are available. This is
called as cross hedge.

For example, derivatives on jet fuel are not available in the market, for
hedging against prices of it we may use crude oil derivatives which are related
with the jet prices.

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CATEGORIES OF HEDGEABLE RISK

There are shifting sorts of hazard that can be secured against with a fence.
Those sorts of dangers include:

• Commodity hazard: The hazard that emerges from potential


developments in the estimation of ware contracts, which incorporate farming
items, metals, and vitality items.

• Credit hazard: The hazard that cash owing won't be paid by an


obligor. Since credit chance is the normal business of banks, however an
undesirable hazard for business dealers, an early market created among banks
and merchants that included selling commitments at a limited rate.

• Currency hazard: It is otherwise called Foreign Exchange Risk


supporting is utilized both by money related speculators to redirect the dangers
they experience when contributing abroad and by non-monetary on-screen
characters in the worldwide economy for whom multi-cash exercises are a
vital fiendishness as opposed to an ideal condition of introduction.

• Interest rate chance: The hazard that the overall estimation of an


enthusiasm bearing obligation, for example, an advance or a security, will
compound because of a loan fee increment. Loan fee dangers can be supported
utilizing fixed-salary instruments or financing cost swaps.

• Equity chance: The hazard that one's ventures will deteriorate in view
of securities exchange elements making one lose cash.

• Volatility chance: It is the risk that a conversion scale development


postures to a financial specialist's portfolio in a remote cash.

• Volumetric chance: The hazard that a client requests pretty much of


an item than anticipated.

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Derivatives permit hazard identified with the cost of the basic resource
for be exchanged starting with one gathering then onto the next.

Example

• A wheat rancher and a mill operator could sign a futures contract to


trade a predetermined measure of money for a predefined measure of wheat
later on. The two gatherings have scaled down a future hazard: for the wheat
rancher, the vulnerability of the cost, and for the mill operator, the
accessibility of wheat. Be that as it may, there is as yet the hazard that no
wheat will be accessible on account of occasions unspecified by the
agreement, for example, the climate, or that one gathering will renege on the
agreement. Despite the fact that an outsider, called a clearing house,
guarantees a futures contract, not all derivatives are safeguarded against
counter-party hazard.

• From another point of view, the rancher and the mill operator both
decrease a hazard and gain a hazard when they sign the futures contract: the
rancher diminishes the hazard that the cost of wheat will fall underneath the
cost determined in the agreement and procures the hazard that the cost of
wheat will transcend the cost indicated in the agreement (in this manner losing
extra salary that he could have earned). The mill operator, then again, procures
the hazard that the cost of wheat will fall underneath the cost indicated in the
agreement (in this way paying more later on than he generally would have)
and diminishes the hazard that the cost of wheat will transcend the cost
determined in the agreement. In this sense, one gathering is the back up plan
(daring person) for one kind of hazard, and the counter-party is the safety net
provider (daring individual) for another sort of hazard.

• Hedging additionally happens when an individual or foundation


purchases a benefit, (for example, a product, a bond that has coupon
installments, a stock that pays profits, etc) and offers it utilizing a futures
contract. The individual or organization approaches the advantage for a
predefined measure of time, and would then be able to offer it later on at a
predetermined value as per the futures contract. Obviously, this permits the

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individual or organization the advantage of holding the benefit, while
lessening the hazard that the future selling cost will go amiss out of the blue
from the market's present evaluation of things to come estimation of the
benefit

TYPES OF EXCHANGES

OTC and exchange-traded:

In wide terms, there are two gatherings of subordinate contracts, which


are recognized by the manner in which they are exchanged the market:

Over-the-counter (OTC):

Derivatives are gets that are exchanged (and secretly arranged)


straightforwardly between two gatherings, without experiencing a trade or
other mediator. Items, for example, swaps, forward rate understandings, and
extraordinary options are quite often exchanged along these lines. The OTC
subordinate market is the biggest market for derivatives, and is to a great
extent unregulated concerning exposure of data between the gatherings, since
the OTC market is comprised of banks and other profoundly refined
gatherings, for example, multifaceted investments. Announcing of OTC sums
are troublesome on the grounds that exchanges can happen in private, without
action being noticeable on any trade. As per the Bank for International
Settlements, the all out remarkable notional sum is US$684 trillion (as of June
2008). Of this absolute notional sum, 67% are financing cost contracts, 8% are
credit default swaps (CDS), 9% are remote trade contracts, 2% are ware
contracts, 1% are value contracts, and 12% are other. Since OTC derivatives
are not exchanged on a trade, there is no focal counter-party. Subsequently,
they are liable to counter-party chance, similar to a standard contract, since
each counter-party depends on the other to perform.

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Exchange-traded derivative contracts (ETD)

Are those derivatives instruments that are exchanged by means of


particular derivatives trades or different trades. A derivatives trade is where
people exchange institutionalized contracts that have been characterized by the
trade. A derivatives trade goes about as a go-between to every related
exchange, and takes Initial edge from the two sides of the exchange to go
about as an assurance. The world's biggest derivatives trades (by number of
exchanges) are the Korea Exchange (which records KOSPI Index Futures and
Options), Eurex (which records a wide scope of European items, for example,
financing cost and list items), and CME Group (made up of the 2007 merger
of the Chicago Mercantile Exchange and the Chicago Board of Trade and the
2008 obtaining of the New York Mercantile Exchange). As indicated by BIS,
the consolidated turnover on the planet's derivatives trades totaled USD 344
trillion amid Q4 2005. A few sorts of subordinate instruments additionally
may exchange on customary trades. For example, half breed instruments, for
example, convertible bonds and additionally convertible favored might be
recorded on stock or bond trades. Additionally, warrants (or "rights") might be
recorded on value trades. Execution Rights, Cash x PRTs and different
instruments that basically comprise of a perplexing arrangement of options
packaged into a basic bundle are routinely recorded on value trades. Like
different derivatives, these traded on an open market derivatives give financial
specialists access to hazard/reward and unpredictability attributes that, while
identified with a basic item, in any case are unmistakable.

The OTC derivatives markets have the following features compared to


exchange traded derivatives:

 The administration of counter-party (credit) chance is decentralized


and situated inside individual foundations,
 There are no formal incorporated cutoff points on individual positions,
influence, or margining,
 There are no formal standards for hazard and weight sharing,

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 There are no formal standards or systems for guaranteeing market
dependability and honesty, and for protecting the aggregate premiums
of market members, and
 The OTC contracts are commonly not managed by an administrative
specialist and the trade's self-administrative association, in spite of the
fact that they are influenced in a roundabout way by national lawful
frameworks, banking supervision and market observation.

FORWARD CONTRACTS

A forward contract is a consent to purchase or sell a benefit on a


predefined date at a predetermined cost. One of the gatherings to the
agreement expect a long position and consents to purchase the basic resource
on a specific determined future date for a specific indicated pric e. The other
party accept a short position and consents to sell the benefit on a similar date
at a similar cost. Other contract subtleties like conveyance date, cost and
amount are arranged reciprocally by the gatherings to the agreement. The
forward contracts are ordinarily exchanged outside the trades.

Essential features of forward contract

 The contract is a bi party, to be performed in future with the terms


chose today. They offer gigantic adaptability to plan the agreement
regarding amount, value, conveyance time and cost
 If the gathering wishes to turn around the agreement ,it needs to
necessary go to same counter Party, which frequently results in high
costs
 The procedure of institutionalization achieves its cutoff points in sorted
out future market and They are valuable in supporting and theory
 They experience the ill effects of liquidity and default hazard forward
market supplies influence to the theorist
 Contract cost isn't accessible in open space
 On the expiry date the agreement will settle by conveyance of the
advantage

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Limitations of forward markets:

 Lack of centralization of trading


 Counter party risk
 Illiquidity

FUTURE CONTRACTS

Futures markets were intended to take care of the issues that exist in
forward business sectors. A futures contract is an understanding between two
gatherings to purchase or sell an advantage at a specific time later on at a
specific cost. Be that as it may, dissimilar to advance gets, the futures
contracts are institutionalized and trade exchanged. To encourage liquidity in
the futures gets, the trade determines certain standard highlights of the
agreement. It is an institutionalized contract with standard basic instrument, a
standard amount and nature of the basic instrument that can be conveyed, (or
which can be utilized for reference purposes in settlement) and a standard
planning of such settlement. A futures contract might be counterbalanced
before development by going into an equivalent and inverse exchange. Over
99% of futures exchanges are balanced along these lines.

FEATURES OF FUTURES CONTRACTS

 Quantity of the underlying


 Quality of the underlying
 Presence of Exchange
 Margin payment by both buyer and seller to the Exchange
 The date and the month of delivery
 Location of settlement

DISTINCTION BETWEEN FUTURES AND FORWARDS


CONTRACTS

Forward contracts are frequently mistaken for futures contracts. The


perplexity is basically in light of the fact that both serve basically the

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equivalent monetary elements of allotting hazard within the sight of future
value vulnerability. Anyway futures are a critical improvement over the
forward contracts as they dispose of counterparty hazard and offer greater
liquidity.

FUTURES TERMINOLOGY

Spot price: The cost at which an advantage exchanges the spot


advertise.

Futures price: The cost at which the futures contract exchanges the
futures showcase.

Contract cycle: The period over which an agreement exchanges. The


record futures contracts on the NSE have one-month, two-months and three
months expiry cycles which terminate on the last Thursday of the month.
Along these lines a January termination contract lapses on the last Thursday of
January and a February termination contract stops exchanging on the last
Thursday of February. On the Friday following the last Thursday, another
agreement having a three-month expiry is presented for exchanging.

Expiry date: It is the date indicated in the futures contract. This is the
latest day on which the agreement will be exchanged, toward the finish of
which it will stop to exist.

Contract size: The measure of benefit that must be conveyed under


one contract. Likewise called as part measure.

Basis: With regards to monetary futures, premise can be characterized


as the futures value less the spot cost. There will be an alternate reason for
every conveyance month for each agreement. In an ordinary market, premise
will be certain. This mirrors futures costs ordinarily surpass spot costs.

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

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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.

OPTIONS

An option is a subordinate instrument since its esteem is gotten from


the hidden resource. Options are on a very basic level unique in relation to
advance and futures contracts. It is basically a right, yet not a commitment to
purchase or sell an advantage. Options can be a call option (appropriate to
purchase) or a put option (ideal to sell). An option is important if and just if
the costs are shifting.

An option by definition has a fixed time of life, generally three to a


half year. An option is a squandering resource as in the estimation of an option
decreases has the date of development approaches and on the date of
development it is equivalent to zero.

DEFINITION:

An option is a subordinate for example its esteem is gotten from


something different. On account of the investment opportunity its esteem
depends on the fundamental stock (value). On account of the file option, its
esteem depends on the fundamental file.

19
OPTIONS TERMINOLOGY

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 the not the obligation
to sell an asset by a certain date for a certain price.

Option Price: 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 option contract is known as the
expiration date, the exercise date, the straight date or the maturity date.

Strike Price: The price specified in the option contract is known as the strike
price or the exercise price.

American option: American options are the options that the can be exercised
at the time up to the expiration date. Most exchange-traded options are
American.

European Options: European options are the options that can be exercised
only on the expiration date itself. European options are easier to analyze that
the American options and properties of an American option are frequently
deduced from those of its European counter part.

In-The-Money Option: An in-the-money option (ITM) is an option that


would lead to a positive cash flow to the holder if it were exercised
immediately. A call option in the index is said to be in the money when the
current index stands at higher level that 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 in the money. In the case of a put option, the put is in the money if the
index is below the strike price.

At-the-money option: An At-the-money option (ATM) is an option that


would lead to zero cash flow if it 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).

20
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 he 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 the 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: It is one of the components of option


premium. The intrinsic value of a call is the amount the option is in the
money, if it is in the money. If the call is out of the money, its intrinsic value
is Zero. For example X, take that ABC November-call option. If ABC is
trading at 102 and the call option is priced at 2, the intrinsic value is 2. If ABC
November-100 put is trading at 97 the intrinsic value of the put option is 3. If
ABC stock was trading at 99 an ABC November call would have no intrinsic
value and conversely if ABC stock was trading at 101 an ABC November-100
put option would have no intrinsic value. An option must be in the money to
have intrinsic value.

Time Value of an Option: The value of an option is the difference between


its premium and its intrinsic value. Both calls and puts 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 options time value. At expiration an option should have no time value.

CHARACTERISTICS OF OPTIONS

The following are the main characteristics of options:

 Options holders do not receive any dividend or interest.


 Options only capital gains.
 Options holder can enjoy a tax advantage.
 Options holders are traded an O.T.C and in all recognized stock
exchanges.
 Options holders can controls their rights on the underlying asset.
 Options create the possibility of gaining a windfall profit.
 Options holders can enjoy a much wider risk-return combinations.

21
 Options can reduce the total portfolio transaction costs.
 Options enable with the investors to gain a better return with a limited
amount of investment.

TRADING MECHANISM
A completely robotized screen-based exchanging for Index futures and

options and Stock futures and options on an across the nation premise and an

internet observing and reconnaissance instrument. It underpins an unknown

request driven market which gives total straightforwardness of exchanging

activities and works on exacting value time need. It is like that of exchanging

of values in the Cash Market (CM) portion. The NEAT-F&O exchanging

framework is gotten to by two sorts of clients. The Trading Members (TM)

approach capacities, for example, request passage, request coordinating, and

request and exchange the board. It gives huge adaptability to clients as far as

sorts of requests that can be put on the framework. Different conditions like

Immediate or Cancel, Limit/Market value, Stop misfortune, and so forth can

be incorporated with a request. The Clearing Members (CM) utilizes the

dealer workstation to monitor the exchanging member(s) for whom they clear

the exchanges. Furthermore, they can enter and set points of confinement to

positions, which an exchanging part can take.

22
CHAPTER-II
RESEARCH METHODOLOGY

23
TITLE OF THE STUDY:

A Project Report on “RISK MANAGEMENT IN SPOT


MARKETS WITH OPTION DERIVATIVES” at BONANZA
STOCK BROKING LIMITED, VIJAYAWADA.

OBJECTIVES OF THE STUDY


 To analyze the derivative products available for investors.
 To understand the applicability of derivative products.
 To understand the hedging effectiveness.
 To understand the different strategies for risk management.
 To understand how derivatives are utilized by market participants.

NEED OF THE STUDY

Generally an individual or a firm invests their money in security


markets. In order to that they may have to face a large amount risk in the
international markets. Hence it becomes necessary to look for other sources
whereby this need can be met. This study covers to know the different types of
derivatives and also to know to avoid the risk they can hedge their securities
with derivatives instruments. Not only that, this study also covers that the
strategies followed by the investors in different market conditions

SCOPE OF THE STUDY

 The study is limited to “Derivatives” With special reference to Futures


and Options traded in the Indian context
 The study cannot be said as totally perfect, any alteration may come.
The study has only made humble attempt at evaluating Derivatives
Markets only in Indian Context. The study is not based on the
International perspective of the Derivatives Markets.

24
RESEARCH METHODOLOGY

The methodology involves reducing the risk by hedging with


derivatives in NSE. The data collected for this project is basically from two
sources, they are

COLLECTION OF DATA SOURCES:

In this study, only secondary data is needed which is already


published. But some data is collected through personal opinion with concern
executives of KARVY.

SECONDARY DATA:

Secondary data means that are already available i.e., they refer to the
data which have already been collected and analyzed by someone else. When
the researcher utilizes secondary data, then he has to look into various sources
from where he can obtain them.

For Example The secondary data needed for the study was collected from
published sources such as, reference from textbooks and journals, magazines,
internet.

The study carried with the co-operation of the management who


permitted to carry on the study and provided the requisite data.

LIMITATIONS OF THE STUDY

 The study is conducted in Vijayawada only.


 The study is purely based by considering the Indian stock markets
only.
 Time period was one of the main factors as only 45days was allotted
and the topic covered in research has a wide scope.
 The study is limit up to NSE stocks.
 Any brokerage charge and tax is not considered.

25
CHAPTER-III
INDUSTRIAL PROFILE
&
COMPANY PROFILE

26
INDUSTRY PROFILE

STOCK EXCHANGE:

A Stock Exchange is a spot that gives offices to stock agents to


exchange organization stocks and different securities. A stock might be
purchased or sold just in the event that it is recorded on an exchange. In this
manner it is the gathering spot of the stock purchasers and venders.

STOCK EXCHANGE-AN OVERVIEW

Stock exchange contributes in a gigantic measure to the development


and extension of national business and to a definitive advantage and prosperity
of the national economy and its kin. They give a perfect conductor through
which gigantic measures of capital moves through the interconnected system
of money related association to every single corporate endeavor in the nation.
In this manner, stock exchange guarantees liquidity and transferability of
monetary resources that are managed.

Stock exchange gives a composed commercial center to the financial


specialists to purchase and sell securities uninhibitedly. The market offers
superbly aggressive conditions where a substantial number of venders and
purchasers take an interest. Further, stock exchange gives a sale showcase in
which individuals from the exchange take an interest to guarantee progression
of cost and liquidity to financial specialists.

The proficient working of the stock exchange is in charge of making a


conductive atmosphere for a functioning and developing essential market for
new issues. In addition, a functioning and a solid optional market in existing
securities prompts a superior brain research of desires, impressively widening
the venture enquiries and in this way, rendering the errand of raising assets by
business visionaries simpler. Great execution and standpoint for values in the
stock exchange bestows lightness to the new issue showcase.

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DEFINITION:

According to Hastings, “sock exchange or securities market comprises


all the places where buyers and sellers of stocks and bonds or their
representatives undertake transactions involving the sale of securities”.

According to section 2(3) of the securities Contract Regulation Act


1956,” The stock exchange has been defined as anybody of individual whether
incorporated or not, constituted for the purpose of assisting, regulating or
controlling the business of buying, selling or dealing in securities.”

Under the said Act, the following securities can be traded at the stock
exchange.

 Shares, scripts, stocks, bonds, debentures stocks or other marketable


securities of a like nature in or of any incorporated company or other body of
corporate.
 Government securities and Rights or interests in securities.

The stock exchange provides a marketplace for purchase and sale of


securities as above stated. It ensures the free transferability of securities,
which is the essential basis of corporate system. The private corporate system
cannot function efficiently without the existence of stock exchange in an
economy. The stock market assures the owners of corporate securities to sell
their holdings at any time and thereby provides liquidity.

MEANING

A Stock Exchange establishes anyone of individual, regardless of


whether fused or not, comprised to assist, managing or controlling the matter
of purchasing, selling or managing in securities. It fills in as a unique
commercial center for encouraging exchange in existing corporate securities at
costs that are "reasonable and impartial". A stock exchange adds to improving
the speculation chances of products and rendering of administrations, to
advance an attractive allotment of the assets among different areas of the
economy.

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The stock market is viewed as the financial gauge of a nation
demonstrating the idea of the monetary condition anytime of time. It is the
commercial center where the corporate and the administration securities are
exchanged and exchanged. It consistently gives adequate attractiveness and
value congruity to the recorded scrip's. Further, it is the main market which
can expand sensible wellbeing and reasonable and fair managing in the
purchasing and selling of securities, in this way, improving the open doors
accessible to the financial specialists on the loose.

FUNCTIONS OF STOCK EXCHANGE

The stock market is a standout amongst the most critical hotspots for
organizations to fund-raise. This enables organizations to open up to the
world, or raise extra capital for extension. The liquidity that an exchange gives
manages speculators the capacity to rapidly and effectively sell securities. This
is an alluring component of putting resources into stocks, contrasted with
different less fluid ventures, for example, land.

The costs of offers and different resources is an essential piece of the


elements of financial exercises, and can impact or be a pointer of social
inclination. Rising offer costs for example, will in general be related with
expanded business venture and the other way around. Offer costs additionally
influence the abundance of family units and their utilization. In this way,
Central banks will in general watch out for the control and conduct of the
stock market and, when all is said in done, on the smooth task of monetary
framework capacities.

Exchanges additionally go about as the clearing houses for every


exchange, implying that they gather and conveyance the offers and
certification installment to dealer of a security. This wipes out the hazard to an
individual purchaser or merchant that the counterparty could default on the
exchange.

The smooth working of every one of these exercises encourages


monetary development, in that lower, expenses and endeavor chance advance

29
the creation of products and enterprises just as business. Along these lines the
money related framework adds to expanded flourishing.

HISTORY OF STOCK EXCHANGE

The principal sorted out stock exchange in India is the Bombay Stock
Exchange (BSE), which was set up in 1875. Be that as it may, exchanging
securities used to happen a lot prior in the eighteenth century, and offer
citations small distributed in contemporary papers. Be that as it may, dealings
were not directed by any code of tenets, nor any long stretches of business
endorsed or nor was there any board of trustees to administer the lead of
individuals. Merchants congregated under some tree in open fields to transact
business.

The approach of western styled business rehearses in India in the mid


eighteenth century initiated with the foundation of the East India Company's in
India. Towards the end of the eighteenth century, the East India Company
normally ruled business in securities and credit exchanges. Proof of the
presence of exchanging stocks of banks and certain organizations is accessible
in value citations in contemporary papers. By the 1830's, there was a
discernible ascent in the volume of business in advances of corporate stocks
and offers. In 1836, the "British blokes" of Calcutta announced citation of 4
percent, 5 percent and 6 percent advances of the East India Company just as
offers of Bank of Bengal. Offers of bans like the "Organization Bank", the
"Oriental Bank", the "Contracted Mercantile Bank", the "Sanctioned Bank"
and the old "Bank of Bombay" were exchanged. In 1839, the exchanging list
was more extensive in Calcutta, where papers gave citations of bank like
"Association Bank", the "Agra Bank" and business adventures like "Bengal
Bonded Warehouse", the "Docking Company" and "Steam Tug Company".
Between 1840-50, banks perceived about six representatives and dealers in
Bombay.

30
In 1850, the Companies Act presenting restricted risk was instituted
and the period of joint stock ventures started in India. By the mid-nineteenth
century, railroads were broadened, broadcast was presented, and henceforth
correspondence extended. Therefore, the nation saw fast improvement of
business action. Interior exchange and business progressively improved and
expanded. This was trailed by a development in relating interest for Indian
products in Europe. In the long run, the merchants took an interest in this
general advancement and flourishing.

The American Civil War of 1860-65 had boundless effect on the


fledging India share advertise. The supply of cotton to Europe was completely
halted, and India, particularly Bombay, the cotton belt, turned into the real
provider. There was a boundless interest for Indian cotton. Fares multiplied
between1861-65. The cost of cotton shot up as the Civil War advanced. The
main part of these fares were paid in bullion. The biggest stream was in 1864-
65, the most recent year of the war. The flush of gold bullion produced various
endeavors in a rush of hypothesis. Organizations were drifted for each
comprehensible reason banks, money related affiliation, land recovery,
exchanging, cotton cleaning, squeezing, lodgings, transporting and steamer
organizations, and so forth every organization that was glided directed a
premium.

INDIAN STOCK EXCHANGES:

Origin and Growth :

Stock market exchanges in India originally started in the later piece of


the eighteenth century with the dealings of the stock exchanges of the East
India Company. Corporate exchanging of offers came into the image in 1830.
The sanctioning of the Companies Act in 1850, denoted the start of the new
time in the domain of stock markets in India. The Act contained numerous
highlights that were viewed as critical in to the extent they added to the
development and the improvement of the stock exchanges the nation over. The
presentation of constrained risk denoted the time of current joint stock
undertakings.

31
Prior to World War I:

On the eve of the First World War, the Indian Stock Market included
three exchanges. Amid this period, all imports into Indian stopped and the
Indian makes were looked with a blast. As the modern action in Europe
fixated on delivering great required for the war, the Indian enterprises grow to
provide food the interest.

Bombay stock exchange:

The primary stock exchange was known as "The Bombay Stock


Exchange" (BSE), which was set up in 1887, by formalizing the deed of
relationship of Native Shares and Stock Brokers Association. The Association
was set up in the year 1875. The Bombay Stock Exchange made a noteworthy
commitment to the development of the religion and to the improvement of the
Indian capital market.

Ahmadabad Stock Exchange:

This was the second stock exchange, of which appeared in 1894 under
the name of "The Ahmadabad Shares and Brokers Association". The central
point behind its foundation was the mushroom development of cotton material
units in this area. This exchange was composed for all intents and purposes on
the lines of the Bombay stock exchange.

Calcutta stock exchange:

This was the third stock exchange to be set up in India toward the start
of the nineteenth century. This appeared under the name of "The Calcutta
Stock Exchange Association" in 1908. The enterprises that added to its
introduction to the world were the jute business of Bengal and the coal and
mining industry of Bihar, Orissa and Bengal.

32
After World War II:

The Second World likewise brought about a sharp blast and mushroom
development of Indian businesses. The blast likewise brought about the
foundation of different stock exchanges in the nation. Amid the Second World
War, a couple of new stock exchanges, for example, Hyderabad, Bangalore,
Indore, and so forth appeared. Under the arrangements of the securities
contract (Regulation) Act, 1956 (SCRA) Central Government conceded
acknowledgment to build up stock exchange at Bombay, Ahmadabad,
Calcutta, Madras and Delhi in 1957, and stock exchange at Hyderabad and
Indore in 1958.

GUIDELINES OF STOCK EXCHANGES:

Every single stock exchange were liable to self-guideline till 1956,


whereby the guideline radiated from their own administration bodies, for
example Leading group of Governors. Presently, Indian stock exchanges are
liable to three-level guideline. The main dimension comprises the specialist
practiced by the Central Government under the Indian Constitution and
through its Ministry of Finance (Stock Exchange Division) over the working
of the stock exchanges.

The expert, in any case, is controlled principally through the Securities


Contract (Regulation) Act, 1956 (SCRA). Further, the Securities and
Exchange Board of India (SEBI) likewise controls the stock exchange so as to
ensure the enthusiasm of financial specialists and to advance the improvement
of security advertises in India. This comprises the second-level expert
establishes self-guideline whereby every single stock exchange have their very
own different standards, byelaws and guideline that are practiced through their
Governing Board.

33
Administrative Structure :

The Stock Exchange Division of Ministry of Finance has its Head


Office at Delhi and Branch workplaces at Bombay and Calcutta. The basic
elements of the Division are as per the following:

 Providing linkage among government and stock exchanges.


 Monitoring the task of the stock exchanges
 Providing counsel to defeat the untoward advancement and
emergencies.
 Ensuring the consistence of posting suppliers
 Ensuring smooth working of the stock exchange and
 Issuing licenses to specialists and merchants in securities and
furthermore in territories past the purview of perceived stock
exchanges.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):

In 1988, the Securities and Exchange Board of India (SEBI) was built
up by the Government of India through an official goals, and was in this
manner redesigned as a completely independent body (a statutory Board) in
the year 1992 with the death of the Securities and Exchange Board of India
Act (SEBI Act) on 30th January 1992. Instead of Government Control, a
statutory and self-governing administrative board with characterized duties, to
cover both improvement and guideline of the market, and free powers has
been set up. Incomprehensibly this is a positive result of the Securities Scam
of 1990-91.

The SEBI issues every now and then different principles, guidelines
and rules for advancing the improvement and adjustment of the securities
showcase in India. A couple of imperative among them are as per the
following:

34
 SEBI (Portfolio Managers) Rules and Regulation, 1992
 SEBI (Stock Brokers and Sub-Brokers) Rules and Regulation, 1992
 SEBI (Inside Trading) Regulations. 1992.
 SEBI (Merchant Bankers) Rules and Regulation,1992
 SEBI (Mutual Fund) Regulations, 1993.
 SEBI (Underwriters) Rules and Regulations, 1993.
 SEBI (Registrars to Issue and Share Transfer Agents) Rules and
Regulation. 1993.
 SEBI (Debentures Trustee) Rules and Regulation, 1993.
 SEBI (Bankers to an Issue) Rules and Regulation, 1993

GOALS:

 To ensure the enthusiasm of the financial specialists in securities.


 To advance the improvement of securities showcase.
 To manage the securities showcase.

SEBI has directed the accompanying

• Primary market
• Secondary market
• Mutual funds and
• Foreign institutional investments

35
Bombay Stock Exchange (BSE)

The Bombay Stock Exchange Limited; prevalently called The Bombay


Stock Exchange, or BSE is situated at Dalal Street, Mumbai. Set up in 1875, it
is the most seasoned stock exchange in Asia. There are around 3,500 Indian
organizations recorded with the stock exchange, and has a huge exchanging
volume. Starting at July 2005, the market capitalization of the BSE was about
Rs. 20 trillion (US $ 466 billion). The BSE SENSEX (Sensitive file),
additionally called the BSE 30, is a generally utilized market file in India and
Asia. Starting at 2005, it is among the 5 greatest stock exchanges on the planet
as far as exchanges volume. Alongside the NSE, the organizations recorded on
the BSE have a consolidated market capitalization of US$ 125.5 billion.

BSE is the primary stock exchange in the nation which acquired


perpetual acknowledgment (in 1956) from the Government of India under the
Securities Contracts (Regulation) Act 1956. BSE's significant and pre-
prominent job in the improvement of the Indian capital market is broadly
perceived. It relocated from the open objection framework to an online screen-
based request driven exchanging framework in 1995. Today, BSE is the
world's number 1 exchange as far as the quantity of recorded organizations
and the world's fifth in exchange numbers. The market capitalization as on
December 31, 2007 remained at USD 1.79 trillion.

The BSE Index, SENSEX, is India's first stock market record that
appreciates a notorious stature, and is followed around the world. It is a file of
30 stocks speaking to 12 noteworthy parts. The SENSEX is developed on a
'free-glide' approach, and is touchy to advertise suppositions and market
substances. Aside from the SENSEX, BSE offers 21 records, including 12
sectorial files. BSE has gone into a file participation concurrence with
Deutsche Borse. This understanding has made SENSEX and other BSE lists

36
accessible to speculators in Europe and America. Also, Barclays Global
Investors (BGI), the worldwide pioneer in ETFs through its Shares® image,
has made the 'Shares® BSE SENSEX India Tracker' which tracks the
SENSEX. The ETF empowers financial specialists in Hong Kong to take an
introduction to the Indian value advertise.

Targets OF BSE

 To defend the enthusiasm of contributing open having managing on the


exchanges.
 To build up and advance fair and just practices in securities exchanges.
 To advance, create and keep up very much directed market for
managing in securities.
 To advance modern improvement in the nation through productive
asset assembly by the method for interest in corporate securities.

National Stock Exchange (NSE)

The National Stock Exchange (NSE) is India's driving stock exchange


covering different urban communities and towns the nation over. NSE was set
up by driving foundations to give a cutting edge, completely computerized
screen-based exchanging framework with national reach. The Exchange has
achieved unparalleled straightforwardness, speed and effectiveness, security
and market honesty. It has set up offices that fill in as a model for the
securities business regarding frameworks, practices and systems.

NSE has assumed a reactant job in changing the Indian securities


showcase as far as microstructure, advertise practices and exchanging
volumes. The market today utilizes condition of-craftsmanship data innovation
to give an effective and straightforward exchanging, clearing and settlement
component, and has seen a few advancements in items and administrations

37
viz. demutualization of stock exchange administration, screen based
exchanging, pressure of repayment cycles, dematerialization and electronic
exchange of securities, securities loaning and obtaining, professionalization of
exchanging individuals, adjusted hazard the executives frameworks, rise of
clearing organizations to accept counter gathering dangers, market of
obligation and subordinate instruments and escalated utilization of data
innovation.

The National Stock Exchange of India Limited has beginning in the


report of the High Powered Study Group on Establishment of New Stock
Exchanges, which suggested advancement of a National Stock Exchange by
budgetary organizations (FII's) to give access to speculators from all over the
nation on an equivalent balance. In view of the suggestions, NSE was
advanced by driving Financial Institutions at the command of the Government
of India and was consolidated in November 1992 as an expense paying
organization not at all like other stock exchanges in the nation.

On its acknowledgment as a stock exchange under the Securities


Contracts (Regulation) Act, 1956 in April 1993, NSE started tasks in the
Wholesale Debt Market (WDM) section in June 1994. The Capital Market
(Equities) section initiated tasks in November 1994 and activities in
Derivatives fragment started in June 2000.NSE has been advanced by driving
budgetary establishments, banks, insurance agencies and other monetary
middle people. NSE is one of the main de-metalized stock exchanges in the
nation, where the proprietorship and the board of the Exchange is totally
separated from the privilege to exchange on it. In spite of the fact that the
driving force for its foundation originated from approach creators in the
nation, it has been set up as an open restricted organization, possessed by the
main institutional speculators in the nation.

38
 Points of interest of NSE
o Wider availability
o Screen based exchanging
o Non-exposure of the exchanging individuals personality
o Transparent exchanges
o Matching of requests
o Effective settlement of corporate advantage
o Trading in dematerialized structure

NSE has numerous firsts to its name, for example, making of the main
clearing enterprise in the nation as the National Securities Clearing
Corporation Limited (NSCCL), including the principal orderly procedure of
part assessments, fabricating a modern market observation framework, and a
nation wide high limit information organize supporting near 200,000
merchant.

NSE is the biggest stock exchange of the nation. It has a piece of the
pie of almost 70% in value exchanging and 98% in futures and options
exchanging India. All around, NSE positions among the main three stock
exchanges as far as number of agreements exchanged single stock futures, file
futures and stock options. We are among the best four of the stock exchanges
the world over as far as number of exchanges and are likewise positioned
among the best ten biggest derivatives exchanges of the world. At NSE, we
are continually moving in the direction of making a progressively
straightforward, energetic and imaginative securities advertise. This constantly
suggests our requirement for equipped individuals is consistent.

The NSE Group is involved National Securities Clearing Corporation


Ltd (NSCCL), NSE Infotech Services Ltd, NSE.IT Limited, India Index
Services and Products Limited (IISL), Dotex International Ltd., National
Securities Depository Limited (NSDL), National Commodity and Derivatives
Exchange Limited (NCDEX), National Commodity Clearing Limited (NCCL)
and Power Exchange India Limited (PXI).

39
As the main stock exchange and financial substance in the nation, we
trust in selecting the best of ability in the business. We are searching for
ability to be formed into future pioneers of our association by cross-
departmental introduction, nonstop self-advancement openings and continuous
fortification to create and upgrade client introduction and administration
potential.

BROKING FIRMS IN INDIA

Broking firms are the business substances that manage stock


exchanging. India, with an expanding capital market and a developing number
of financial specialists, has various financier firms. In Indian retail financier
industry, the business firms essentially function as specialists for purchasing
and selling of securities like offers, stocks and other budgetary instruments
and acquire commission for every one of the exchanges. There are a lot of
financier firms in India. How about we view the best financier firms in India.

Before speaking anything about best broking firms in India, we should have a
look at the Indian retail financier advertise, which is experiencing a
magnificent stage with high development rate. The absolute exchanging
volume of the Indian business organizations remained at US$ 1239.1 billion in
the year 2004, which expanded to US$ 1492.1 billion out of 2005. It is
additionally expected to reach US$ 6535.7 billion continuously 2015.

Top Broking Firms in India

Among all the Indian business organizations, the best Brokerage Firms
in India can be recorded as underneath.

40
KARVY Company

The Karvy aggregate was framed in 1983 at Hyderabad, India. Karvy


positions among the best player in practically every one of the fields it works.
Karvy Computershare Limited is India's biggest Registrar and Transfer Agent
with a customer base of about 500 blue chip corporates, overseeing over
2crore records. Karvy Stock Brokers Limited, individual from National Stock
Exchange of India and the Bombay Stock Exchange, positions among the best
5 stock intermediaries in India. With more than 6,00,000 dynamic records, it
positions among the best 5 Depositary Participant in India, enrolled with
NSDL and CDSL. Karvy Comtrade, Member of NCDEX and MCX positions
among the main 3 ware dealers in the nation.

Name Karvy Stock Broking Limited

Terminals 1700

Sub Brokers 19000

No. of Employees 3910

No. of Branches 581

Karvy Insurance Brokers is enrolled as a Broker with IRDA and


positions among the best 5 protection operator in the nation. Enlisted with
AMFI as a corporate Agent, Karvy is additionally among the best Mutual
Fund mobilizer with over Rs. 5,000crores under administration. Karvy Realty
Services, which began in 2006, has immediately settled itself as a dealer who
includes esteem, in the realty part. Karvy Global offers specialty off shoring
administrations to customers in the US.

41
Kotak Mahindra Group

Kotak Mahindra is one of India's driving banking and money related


administrations associations, offering a wide scope of monetary
administrations that incorporate each circle of life. From business banking to
stock broking, to common assets, to extra security, to venture banking, the
gathering takes into account the assorted money related requirements of the
people and corporate division.

The gathering has a total assets of over rs.100.6billion and has a


dissemination system of branches, establishments, delegate workplaces and
satellite workplaces crosswise over urban areas and towns in India, and
workplaces in New York, London, San Francisco, Dubai, Mauritius and
Singapore adjusting around 8million client accounts.

Name Kotak Securities Limited

Terminals 4320

Sub Brokers 910

No. of Employees 4008

No. of Branches 350

42
INDIA INFOLINE

The IIFL (India Infoline) gathering, including the holding organization,


India Infoline Ltd and its backups, is one of the main players in the Indian
money related administrations space. IIFL offers guidance and execution stage
for the whole scope of budgetary administrations covering items extending
from Equities and derivatives, Commodities, Wealth the board, Asset the
executives, Insurance, Fixed stores, Loans, Investment Banking, GoI securities
and other little funds instruments. IIFL as of late got an on a fundamental level
endorsement for Securities Trading and Clearing enrollments from Singapore
Exchange (SGX) preparing for IIFL to turn into the primary Indian business to
get a participation of the SGX. IIFL additionally gotten enrollment of the
Colombo Stock Exchange turning into the primary remote merchant to enter
Sri Lanka. IIFL possesses and deals with the site, www.indiainfoline.com,
which is one of India's driving on the web goals for individual money, stock
markets, economy and business.

Name India Infoline

Terminals 173

Sub Brokers 173

No. of Employees NA

No. of Branches 605

43
INDIA BULLS

In center of 1999, when web based business was just about beginning
in India, Sameer Gehlaut and his nearby IIT Delhi companion Rajiv Rattan got
together and purchased a dead securities organization with a NSE participation
and began offering financier administrations. A Few months after the fact,
their companion Saurabh Mittal likewise gone along with them. By December
1999, the organization set out on its adventure to construct one of the main
online stages in India for offering web business administrations. In January
2000, the 3 organizers fused Indiabulls Financial Services and made it as the
leader organization.

In mid 2000, Indiabulls Financial Services got investment subsidizing from


Mr. L.N. Mittal and Mr. Harish Fabiani. By 2003, Indiabulls securities had
built up a solid container India nearness and customer base through its
workplaces and on the web.

Today, Indiabulls Group has a total assets of Rs 16,796Crore and has a


solid nearness in essential parts like monetary administrations, control and
land through autonomously recorded organizations and Indiabulls Group
proceeds with its adventure of structure organizations with solid money
streams

44
Name Indiabulls

Terminals 2876

Sub Brokers NA

No. of Employees 5873

No. of Branches 522

Reliance money

Reliance Securities Limited is a Reliance Capital organization and part


of the Reliance Anil Dhirubhai Ambani Group. Dependence Securities is an
allowed client of the brand "Dependence Money" for advancing its different
items and administrations.

Dependence Securities attempts to change the manner in which


financial specialists execute in values markets and profits administrations. It
gives clients access to Equity, Derivatives, Portfolio Management Services,
Investment Banking, Mutual Funds and IPOs. It additionally offers verified
online offer exchanging stage and venture exercises in secure, financially
savvy and helpful way. To empower more extensive interest, it likewise gives
the comfort of exchanging disconnected through assortment of methods,
including Call and Trade, Branch managing Desk and its system of associates.

Dependence Money through its dish India nearness with 6,233 outlets
has more than 3.5 million clients. Dependence Capital is one of India's driving
and quickest developing private area monetary administrations organizations,
and positions among the best 3 private division money related administrations
and banking gatherings, as far as total assets.

45
Name Reliance Money

Terminals 2428

Sub Brokers 1494

No. of Employees 2037

No. of Branches 142

Angel broking

Angel Broking's tryst with greatness in client relations started in 1987.


Today, Angel has developed as a standout amongst the most regarded Stock-
Broking and Wealth Management Companies in India. With its exceptional
retail-engaged stock exchanging plan of action, Angel is focused on giving
'Genuine Value for Money' to every one of its customers.

The Angel Group is an individual from the Bombay Stock Exchange


(BSE), National Stock Exchange (NSE) and the two driving Commodity
Exchanges in the nation: NCDEX and MCX. Holy messenger is likewise
enlisted as a Depository Participant with CDSL.

Name Angel Broking

Terminals 5715

Sub Brokers NA

No. of Employees 284

No. of Branches NA

46
COMPANY PROFILE

Bonanza is a leading Financial Services & Brokerage house working


diligently can be described in a single word as a “Financial Powerhouse”.
With acknowledged industry leadership in execution and clearing services on
Exchange Traded Derivatives and cash market products. A financial
powerhouse. That’s what Bonanza is for you! Established in the year 1994,
Bonanza developed into one of the largest financial services and broking
house in India within a short span of time. Today, Bonanza is the fastest
growing financial service with 5 mega group companies under it. With diligent
effort, acknowledged industry leadership and experience, Bonanza has spread
its trustworthy expertise all over the country with pan-India presence across
more than 1784 outlets spread across 560 cities.

With a smorgasbord of services across all verticals in finance, Bonanza


offers you the perfect blend of financial services right from Equity Broking,
Advisory Services that cover Portfolio Management Services, Mutual Fund
Investments, Insurance to exceptional Depository Services.

Bonanza believes in being technologically advanced so that we can


offer you – our tech-savvy customers - an integrated and innovative platform
to trade online as well as offline. Besides, we also have one of the finest and
most dedicated research teams with experts who have in-depth, unsurpassed
knowledge of the market place. All this and more makes Bonanza the perfect
place for you to take your first step in the direction of financial success.

Bonanza is affiliated with the best in the industry – right from the NSE,
BSE MCX, MCX-SX to CDSL, NSDL, ICEX and USE etc. These affiliations
prove our worth in the market and make Bonanza a name to reckon with.

With various titles and achievements under our belt, Bonanza looks
forward to tougher challenges and newer milestones to conquer, so that you –
our customer can get nothing less than the BEST!

47
So come join the Bonanza family. We look forward to helping you grow
financially.

VISION&VALUES:
To be one of the most trusted and globally reputed financial distribution
companies
 Customer-Centricapproach
At Bonanza, customers come first. And their satisfaction is not just our top
priority but also the driving force for us, every single day
 Transparency
Honesty is our forte. We believe in dealing on thoroughly ethical grounds,
being fair and transparent with our customers.
 Meritocracy
We recognize and appreciate efforts put in by our employees. And we, as a
matter of fact, reward and distinguish each one of them, ceaselessly.
 Solidarity
We believe in sharing a forthright and respectful relationship with our
business partners and employees. We consider them both as our team
associates, who work together. Succeed together.

MILESTONES:
 Awarded by BSE as “Major Volume Driver” - 04-05, 06-07, 07-08.
 Best Web Portal providing Integrated Property Services, 2013.
 Ranked amongst the Top 3 National Level Financial advisors 3 years
in a row - 2008 - 2009 - 2010 by UTI MF & CNBC TV 18.
 7th in terms of Sub Brokers for the year 2012-2013.
 3rd in terms of trading terminals for the year 2012-2013.
 India’s NO. 1 Valuable Financial Advisory & Stock Broking
Company.
 Top performer in Equity Segment (Retail), 2012.
 Ranked amongst the TOP 3Best Equity Brokers in 2013-2014 by UTI
MF & CNBC TV 18.
 2nd in terms of number of offices for the year 2012-2013.

48
 Top 4 in Commodity Segment in Bloomberg UTV.
 Top equity Broking House in terms of branch expansion for 2008.
 3rd in terms of number of trading accounts for 2008.

SERVICES:

EQUITY TRADING

At Bonanza, we provide quality services whose functions span beyond mere


execution of buying and selling.

COMMODITY TRADING

We provide you with the perfect platform to trade in highly valuable


commodities so that you can make the most of the thriving markets.

49
CURRENCY DERIVATIVES

Currency Derivaties is a trading segment which brings you Foreign Currency


& Interest Rate Futures Trading.

ONLINE TRADING

My-E-Trade is a pure online trading product which allows investors and


traders.

PMS

With Bonanza Portfolio’s capable and trustworthy Portfolio Management.

50
MUTUAL FUND

A Mutual Fund is a trust that pools together the savings of a number of


investors.

HEALTH CARE

Bonanza Healthcare solutions providing availability and affordability.

PROPERTIES

Bonanza Buildtech's mission is to build the largest and most productively successful.

INVESTMENT BANKING

Our Investment Banking teams focused on providing financial & strategic


business.

51
CHAPTER - IV

DATA ANALYSIS
&
INTERPRETATION

52
OPTIONS

An option is a derivative instrument since its value is derived from the


underlying asset. It is essentially a right, but not an obligation to buy or sell an
asset. Options can be a call option (right to buy) or a put option (right to sell).
An option is valuable if and only if the prices are varying.

CALL OPTION: An agreement that gives an investor the right (but not the
obligation) to buy a stock, bond, commodity, or other instrument at a specified
price within a specific time period.

There are two types of call options.

 Long Call / Call Buyer


 Short Call / Call Seller

Long Call / Call Buyer

Call Buyer is the buyer of option who gives premium to the call seller.
He has the right to execute the option. And he doesn’t have any obligation.

When an investor is Bullish about a particular security or market, he


can go for this long call option. As the share price increases, investor gets
unlimited profits. As well as, as the share price decreases he gets limited
losses. The losses are limited to the premium only.

Short Call / Call Seller

Call Seller is the seller of option who receives premium from the call
buyer. He has obligations. And he Doesn’t have any right to execute the
option..

When an investor is Bearish about a particular security or market, he


can go for this short call option. As the share price increases, investor gets
unlimited losses. As well as, as the share price decreases he gets limited
profits. The profits are limited to the premium only.

53
PUT OPTION: An option contract giving the owner the right, but not the
obligation, to sell a specified amount of an underlying security at a specified
price within a specified time. This is the opposite of a call option, which gives
the holder the right to buy shares.
There are two types of Put options.

 Long Put / Put Buyer


 Short Put / Put Seller

Long Put / Put Buyer

Put Buyer is the buyer of option who gives premium to the Put seller.
He has the right to execute the option. And he doesn’t have any obligation.

When an investor is Bearish about a particular security or market, he


can go for this long put option. As the share price decreases, investor gets
unlimited profits. As well as, as the share price increases he gets limited
losses. The losses are limited to the premium only.

Short Put / Put Seller

Put Seller is the seller of option who receives premium from the Put
Buyer. He has obligations. And he doesn’t have any right to execute the
option..

When an investor is Bullish about a particular security or market, he


can go for this short put option. As the share price decreases, investor gets
unlimited losses. As well as, as the share price increases he gets limited
profits. The profits are limited to the premium only.

54
TABLE 1: Table 1 represents payoff for NIFTY CALL BUY

CALL BUY STRIKE PRICE


@10450

NIFTY
STOCK PAYOFF FOR
DATE PRICE STRIKE PRICE PREMIUM CALL BUY

1-Jan-18 10435.55 10450 87 -87

2-Jan-18 10442.2 10450 87 -87

3-Jan-18 10443.2 10450 87 -87

4-Jan-18 10504.8 10450 87 -32.2

5-Jan-18 10558.85 10450 87 21.85

8-Jan-18 10623.6 10450 87 86.6

9-Jan-18 10637 10450 87 100

10-Jan-18 10632.2 10450 87 95.2

11-Jan-18 10651.2 10450 87 114.2

12-Jan-18 10681.25 10450 87 144.25

15-Jan-18 10741.55 10450 87 204.55

16-Jan-18 10700.45 10450 87 163.45

17-Jan-18 10788.55 10450 87 251.55

18-Jan-18 10817 10450 87 280

19-Jan-18 10894.7 10450 87 357.7

22-Jan-18 10966.2 10450 87 429.2

23-Jan-18 11083.7 10450 87 546.7

24-Jan-18 11086 10450 87 549

55
25-Jan-18 11069.65 10450 87 532.65

29-Jan-18 11130.4 10450 87 593.4

30-Jan-18 11049.65 10450 87 512.65

31-Jan-18 11027.7 10450 87 490.7

INTERPRETATION: Table 1 represents the data analysis for nifty stock


market on call buy. For the hedging of risk we can buys a nifty strike price is
10450 at Rs.87 premium, at this situation we can get that the maximum profit
of Rs.593.4 only that profits up to premium, and losses extend to infinity.

GRAPH 1: Graph 1 shows payoff for NIFTY CALL BUY

Pay off for Call Buy


700

600

500

400

300
pay off for call buy
200

100

0
01.Jän.18
03.Jän.18
05.Jän.18
07.Jän.18
09.Jän.18
11.Jän.18
13.Jän.18
15.Jän.18
17.Jän.18
19.Jän.18
21.Jän.18
23.Jän.18
25.Jän.18
27.Jän.18
29.Jän.18
31.Jän.18

-100

-200

56
TABLE 2 : Table 2 represents payoff for NIFTY SPOTBUY

SPOT BUY @10450

NIFTY
STOCK PAYOFFFOR SPOT
DATE PRICE BUY

1-Jan-18 10435.55 -14.45

2-Jan-18 10442.2 -7.8

3-Jan-18 10443.2 -6.8

4-Jan-18 10504.8 54.8

5-Jan-18 10558.85 108.85

8-Jan-18 10623.6 173.6

9-Jan-18 10637 187

10-Jan-18 10632.2 182.2

11-Jan-18 10651.2 201.2

12-Jan-18 10681.25 231.25

15-Jan-18 10741.55 291.55

16-Jan-18 10700.45 250.45

17-Jan-18 10788.55 338.55

18-Jan-18 10817 367

19-Jan-18 10894.7 444.7

22-Jan-18 10966.2 516.2

23-Jan-18 11083.7 633.7

24-Jan-18 11086 636

25-Jan-18 11069.65 619.65

57
29-Jan-18 11130.4 680.4

30-Jan-18 11049.65 599.65

31-Jan-18 11027.7 577.7

INTERPRETATION: Table 2 represents data for the spot buy of nifty


stock for 10435.55 and it shows that the various payoffs with the maximum
profit is 680.4 and with the minimum profit is 54.8. it shows risk and
uncertainty how their influences the spot buy in stock market.

GRAPH 2: Graph 2 shows payoff for NIFTY SPOT BUY

Pay Off For Spot Buy


800

700

600

500

400

300 PAY OFF FOR SPOT BUY

200

100

-100

58
TABLE 3: Table 3 represents payoff for NIFTY SPOT BUY and
CALL BUY

NIFTY
PAYOFF
STOCK
FOR SPOT PAYOFF FOR
PRICE
DATE BUY CALL BUY

1-Jan-18 10435.55 -14.45 -87

2-Jan-18 10442.2 -7.8 -87

3-Jan-18 10443.2 -6.8 -87

4-Jan-18 10504.8 54.8 -32.2

5-Jan-18 10558.85 108.85 21.85

8-Jan-18 10623.6 173.6 86.6

9-Jan-18 10637 187 100

10-Jan-18 10632.2 182.2 95.2

11-Jan-18 10651.2 201.2 114.2

12-Jan-18 10681.25 231.25 144.25

15-Jan-18 10741.55 291.55 204.55

16-Jan-18 10700.45 250.45 163.45

17-Jan-18 10788.55 338.55 251.55

18-Jan-18 10817 367 280

19-Jan-18 10894.7 444.7 357.7

22-Jan-18 10966.2 516.2 429.2

23-Jan-18 11083.7 633.7 546.7

24-Jan-18 11086 636 549

59
25-Jan-18 11069.65 619.65 532.65

29-Jan-18 11130.4 680.4 593.4

30-Jan-18 11049.65 599.65 512.65

31-Jan-18 11027.7 577.7 490.7

INTERPRETATION: Table 3 represents that the data for spot buy and
call buy on nifty stock price. And it shows payoff for spot buy and call buy
where maximum profit is 680.4 and maximum profit in call buy is 593.4 that
implies we can loss only premium in call buy.

GRAPH 3 :- Graph 3 shows payoffs for NIFTY SPOT BUY and CALL BUY

800

700

600

500

400

PAYOFF FOR SPOT BUY


300
pay off for call buy

200

100

0
07.Jän.18

23.Jän.18
01.Jän.18
03.Jän.18
05.Jän.18

09.Jän.18
11.Jän.18
13.Jän.18
15.Jän.18
17.Jän.18
19.Jän.18
21.Jän.18

25.Jän.18
27.Jän.18
29.Jän.18
31.Jän.18

-100

-200

60
TABLE 4 :- Table 4 represents payoff for NIFTY PUT BUY

NIFTY PAY OFF


STOCK STRIKE FOR PUT
DATE PRICE PRICE PREMIUM BUY

1-Jan-18 10435.55 10450 87 -89.55

2-Jan-18 10442.2 10450 87 -96.2

3-Jan-18 10443.2 10450 87 -97.2

4-Jan-18 10504.8 10450 87 -104

5-Jan-18 10558.85 10450 87 -104

8-Jan-18 10623.6 10450 87 -104

9-Jan-18 10637 10450 87 -104

10-Jan-18 10632.2 10450 87 -104

11-Jan-18 10651.2 10450 87 -104

12-Jan-18 10681.25 10450 87 -104

15-Jan-18 10741.55 10450 87 -104

16-Jan-18 10700.45 10450 87 -104

17-Jan-18 10788.55 10450 87 -104

18-Jan-18 10817 10450 87 -104

19-Jan-18 10894.7 10450 87 -104

22-Jan-18 10966.2 10450 87 -104

23-Jan-18 11083.7 10450 87 -104

24-Jan-18 11086 10450 87 -104

25-Jan-18 11069.65 10450 87 -104

29-Jan-18 11130.4 10450 87 -104

61
30-Jan-18 11049.65 10450 87 -104

31-Jan-18 11027.7 10450 87 -104

INTERPRETATION : Table 4 represents that the data analysis of nifty


stock price on PUT BUY. For the hedging of risk we can buy a nifty put for
the Rs.10450 at Rs.87 premium at this situation we can get maximum loss is
up to premium.

GRAPH 4: Graph 4 shows payoff for NIFTY PUT BUY

PAY OFF FOR PUT BUY


-80
01.Jän.18
03.Jän.18
05.Jän.18
07.Jän.18
09.Jän.18
11.Jän.18
13.Jän.18
15.Jän.18
17.Jän.18
19.Jän.18
21.Jän.18
23.Jän.18
25.Jän.18
27.Jän.18
29.Jän.18
31.Jän.18
-85

-90

-95 PAY OFF FOR PUT BUY

-100

-105

-110

62
TABLE 5:- Table 5 represents payoff for NIFTY SPOT SELL

NIFTY STOCK STRIKE PAY OFF FOR


DATE PRICE PRICE PREMIUM SPOT SELL

1-Jan-18 10435.55 10450 87 14.45

2-Jan-18 10442.2 10450 87 7.8

3-Jan-18 10443.2 10450 87 6.8

4-Jan-18 10504.8 10450 87 -54.8

5-Jan-18 10558.85 10450 87 -108.85

8-Jan-18 10623.6 10450 87 -173.6

9-Jan-18 10637 10450 87 -187

10-Jan-18 10632.2 10450 87 -182.2

11-Jan-18 10651.2 10450 87 -201.2

12-Jan-18 10681.25 10450 87 -231.25

15-Jan-18 10741.55 10450 87 -291.55

16-Jan-18 10700.45 10450 87 -250.45

17-Jan-18 10788.55 10450 87 -338.55

18-Jan-18 10817 10450 87 -367

19-Jan-18 10894.7 10450 87 -444.7

22-Jan-18 10966.2 10450 87 -516.2

23-Jan-18 11083.7 10450 87 -633.7

24-Jan-18 11086 10450 87 -636

25-Jan-18 11069.65 10450 87 -619.65

29-Jan-18 11130.4 10450 87 -680.4

63
30-Jan-18 11049.65 10450 87 -599.65

31-Jan-18 11027.7 10450 87 -577.7

INTERPRETATION: Table 5 represents that the analysis of nifty


stock price for 10450 and it shows the various payoffs on spot sell is
maximum loss is Rs.-633.7 and minimum loss is Rs. -54.8 . it shows that
risk and uncertainty how they influences’ the spot sell in stock market.

GRAPH 5: Graph 5 shows payoff for NIFTY SPOT SELL

PAY OFF FOR SPOT SELL


100

0
07.Jän.18
01.Jän.18
03.Jän.18
05.Jän.18

09.Jän.18
11.Jän.18
13.Jän.18
15.Jän.18
17.Jän.18
19.Jän.18
21.Jän.18
23.Jän.18
25.Jän.18
27.Jän.18
29.Jän.18
31.Jän.18

-100

-200

-300
PAY OFF FOR SPOT SELL
-400

-500

-600

-700

-800

64
TABLE 6: Table 6 represents payoff for NIFTY PUT BUY and SPOT
SELL

NIFTY STOCK PAY OFF FOR PAY OFF FOR SPOT


DATE PRICE PUT BUY SELL

1-Jan-18 10435.55 -89.55 14.45

2-Jan-18 10442.2 -96.2 7.8

3-Jan-18 10443.2 -97.2 6.8

4-Jan-18 10504.8 -104 -54.8

5-Jan-18 10558.85 -104 -108.85

8-Jan-18 10623.6 -104 -173.6

9-Jan-18 10637 -104 -187

10-Jan-18 10632.2 -104 -182.2

11-Jan-18 10651.2 -104 -201.2

12-Jan-18 10681.25 -104 -231.25

15-Jan-18 10741.55 -104 -291.55

16-Jan-18 10700.45 -104 -250.45

17-Jan-18 10788.55 -104 -338.55

18-Jan-18 10817 -104 -367

19-Jan-18 10894.7 -104 -444.7

22-Jan-18 10966.2 -104 -516.2

23-Jan-18 11083.7 -104 -633.7

24-Jan-18 11086 -104 -636

25-Jan-18 11069.65 -104 -619.65

65
29-Jan-18 11130.4 -104 -680.4

30-Jan-18 11049.65 -104 -599.65

31-Jan-18 11027.7 -104 -577.7

INTERPRETATION: Table 6 represents data for spot sell and put buy
of nifty stock price. And it shows payoff for spot sell and put buy where the
maximum loss in spot sell is Rs. -680.4 and maximum loss in put buy is Rs.
-104 that implies that we can loss up to the premium.

GRAPH 6:- Graph 6 shows payoffs for NIFTY SPOT BUY and CALL
BUY

100

0
19.Jän.18
01.Jän.18
03.Jän.18
05.Jän.18
07.Jän.18
09.Jän.18
11.Jän.18
13.Jän.18
15.Jän.18
17.Jän.18

21.Jän.18
23.Jän.18
25.Jän.18
27.Jän.18
29.Jän.18
31.Jän.18

-100

-200

-300
PAY OFF FOR PUT BUY
PAY OFF FOR SPOT SELL
-400

-500

-600

-700

-800

66
CHAPTER-V

FINDINGS AND SUGGESTIONS

67
FINDINGS

Changing global economic conditions making stock markets more


volatile, which in turns making them as a risky for investment. This study tries
to explain how derivatives are hedging products which can be used for
avoiding risk in financial markets. Products which are available in derivatives
such as Futures and Options are tools which are used by the investors
according to their requirement for minimizing risk.

 Options are one of the best tools for investors, who purchase shares in
cash market.
 When investors think of volatility in certain conditions they can avoid
their losses in cash market by simply participating in derivatives. i.e
selling the options underlying stock.
 The losses incurred in cash market will be set off by the profits
generated in short positions taken in futures when market becomes
volatile.
 This study also shows that bullish strategies are hedging tools and
cannot expect profits by participating in it.
 This study is also shown that options can also be used for hedging and
profit making.
 Investors with short positions in cash market can avoid the risk of
raising prices by buying call option.
 Losses incurred in cash market due to fall in share price were set off by
the profits in put option.
 It was also observed that in put options, when market price increases
the investor who takes the hedging positions is getting profits. So, it
gives unique advantage to options than futures.
 options are effective tool for effective use in hedging.

68
SUGGESTIONS

 Study shows that derivatives are the best available tools in modern
financial markets, but one has to be clear about the tools in derivatives
and how they can be effectively used.
 Understanding of futures & options and strike prices are to be carefully
observed at the time of hedging.
 If one has to just avoid losses in cash market, he can participate in
options.
 If one wants to avoid losses at the time of falling prices and expect
profits when prices increases, then the best tool is options.
 In these days, premiums are too high. It is very difficult to execute the
option. So, investors should take care about paying premium.

69
ANNEXURE

BIBILOGRAPHY

70
Books

1. Options Futures, and other Derivatives by John C Hull


2. Derivatives by Ajay Shah
3. NSE’s Certification in Financial Markets: - Derivatives Core module
4. NSE’s Certification in Financial Markets: - Option Strategies module

Websites

 www.derivativesindia.com
 www.nseindia.com
 www.sebi.gov.in
 www.appliederivatives.com
www.economictimes.com

71