“A COMPARATIVE STUDY ON STOCK OPTIONS AND

INDEX OPTIONS IN NSE”

Synopsis submitted in partial fulfillment of the requirement for the award of degree of

MASTER OF COMMERCE (FINANCIAL ANALYSIS)

Of

BANGALORE UNIVERSITY

by
YESHWANTH R
Reg. No. 16BTCFC012

Under the Guidance of

C.A. S. Lakshmi Narayan
CHARTERED ACCOUNTANT

SESHADRIPURAM COLLEGE
Post Graduate Department of Commerce and Management
# 27, Nagappa Street, Seshadripuram Bengaluru– 560020

2017-2018
 TABLE OF CONTENT
SL. NO PARTICULARS
1 INTRODUCTION
2 LITERATURE REVIEW
3 NEED FO THE STUDY
4 4.1 OBJECTIVES
4.2 HYPOTHESIS
5 SCOPE OF STUDY
6 METHODOLOGY
7 DATA COLLECTION
8 PLAN OF ANALYSIS
9 CHAPTER SCHEME
1. INTRODUCTION
The BSE and NSE - Most of the trading in the Indian stock market takes place on this
two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock
Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other
hand, was founded in 1992 and started trading in 1994. However, both exchanges
follow the same trading mechanism, trading hours, settlement process, etc. At the last
count, the BSE had about 4,700 listed firms, whereas the rival NSE had about 1,200.
Out of all the listed firms on the BSE, only about 500 firms constitute more than 90%
of its market capitalization; the rest of the crowd consists of highly illiquid shares.
Derivatives meaning
Derivatives are financial instruments whose value is derived from other underlying
assets. There are mainly four types of derivative contracts such as futures, forwards,
options & swaps. However, Swaps are complex instruments that are not traded in the
Indian stock market.

Options Contract –
An ‘Option’ is a type of security that can be bought or sold at a specified price within
a specified period of time, in exchange for a non-refundable upfront deposit. An
options contract offers the buyer the right to buy, not the obligation to buy at the
specified price or date.
There are two types of Options:

 Call Option
 Put Option
Options, which give you a right to buy the underlying asset, are called Call Options.
On the other hand, the Options that give you a right to sell the underlying asset are
called Put Options.

Index Option - These Options have Index as the underlying asset. For example,
options on Nifty 50, Bank Nifty etc.

Stock Option - These Options have individual stocks as the underlying asset.
Examples include Options on Maruti Suzuki, Mahindra & Mahindra, Bajaj Auto etc.
2. LITERATURE REVIEW –

Sneha Seth (2017) Option trading is very attractive for small pocket traders. By taking
position in options, one can reduce their cost significantly. Let’s take an example,
suppose you wish to buy 12,000 shares of ABC Ltd., which is currently trading at Rs
130 level. Rs 130 call option of the same company is quoting Rs 5. Lot size for the
company is 6000. In case you decide to buy stocks, your investment would be
(130*12,000) = Rs 15,60,000. But if you choose to go options way, to take the same
exposure, you will have to buy two lots for which your investment would come to
(5*2*6000) = Rs 60,000. This means your cost of investment in options trading is just
3% to 4% of the investment required in stock trading.

Dhirendra Kumar CEO – Value Research (2015) It's an old saying that in a gold
rush, the miners may or may not make money, but those who sell them the picks and
shovels get rich. This is certainly true of parts of the stock markets, especially short-
term trading by individuals. The other day, while reading the story of Nitin Kamath,
the man who has set up Zerodha, India's first and largest discount stock broker, I was
struck by the fact he is one of those who has gone over from being a gold digger to a
seller of picks and shovels. As narrated by Kamath himself, he was trading on the
markets since he was 17 years old. However, after receiving two big shocks on the
markets, one during the dotcom crash and the second in 2009, he apparently decided to
switch from digging to providing shovels to others

Rakesh Jhunjhunwala (2014) Rare Enterprise is of the view that India is a country
where people save $600 billion a year, but market investment is not even $6 billion.
This $600 billion is going to be $1 trillion by 2020-2021. In 1993, 17% of savings
came to the stock market but in 2007, only 11% did so. If 10 per cent of the savings is
to come, stock markets are going to get $100 billion of local money a year. And there
is no reason why it can't happen. The relevant framework is in place, he says. He is
extremely bullish on growth prospects of the Indian economy, believes that the
country is entering a new phase of economic growth. He sees India growing by 9% by
2017-2018 and 10% by 2018-2019.
Ram Sahgal (2017) Early trends emerging on Nifty derivatives show that traders and
investors are factoring in up to 5-6 per cent rise or fall in the bellwether index during
the action-packed month of December, which could witness a jump in volatility in
anticipation of or actual outcomes of the RBI and US Fed interest rate meets, and more
importantly, Gujarat poll results. The strategy of buying calls and puts on Nifty is
called long strangle in options parlance. The buyer tends to benefit if the index rises or
falls as the jump in the bullish or bearish bet outweighs the combined price of the two
options. The strategy is played when outcomes of imminently significant events are
uncertain.

Santanu Chakraborty (2016) The domestic popularity of index options, which allow
traders to bet on the future of the underlying index, has helped NSE beat rivals from
the U.S. and Europe. India’s global supremacy is notable both for the fact that options
trading in the country only started in 2001, and for just how dominant a single
exchange is in what’s theoretically a competitive market, with NSE battling BSE Ltd.,
Asia’s oldest exchange. The former is widely seen as succeeding over its rivals thanks
to better technology.

3. NEED FOR THE STUDY –

In recent times the Derivative markets have gained importance in terms of their vital
role in the economy. The increasing investments in derivatives (domestic as well as
overseas) have attracted my interest in these criteria. Through the use of derivative
products, it is possible to partially or fully transfer price risks by locking-in asset
prices. As the volume of trading is tremendously increasing in derivatives market, this
analysis will be of immense help to the investors to either in Stock Options or Index
Options.

4.1 OBJECTIVES –
 To analyze the performance of Stock Options and Nifty 50 - Index Options
 To make a comparative study of Stock Options and Index Options
 To analyze the risks and return analysis of trading in Stock Options and Index
Options
4.2 HYPOTHESIS

There is no Significant Risk and Return on Stock options and Index

options

5. SCOPE OF THE STUDY –

The study focuses on “Derivatives” which is currently performing in the stock market
with special reference to Stock options of top automobile companies and Nifty 50
Index options. National Stock Exchange has been taken as a representative sample for
the study. The study can’t be said as totally perfect. Any alteration may come. The
study has only made a humble attempt at evaluation derivatives market only in India
context.

6. METHODOLOGY –
The study is a descriptive research. It reports the trading difference between the Stock
option and Index options to know the risk and returns involved. The data is collected
from the NSE website.

7. DATA COLLECTION –
Secondary data -
The secondary data for the comparative study will be collected through the website of
NSE India and other website, Stock magazines, E Journals and Newspaper.

8. PLAN OF ANALYSIS –
The analysis is based on Descriptive Statistics using tables and graphs.

09. CHAPTER SCHEME

CHAPTER - 1 INTRODUCTION
CHAPTER - 2 RESEARCH DESIGN
CHAPTER - 3 DATA ANALYSIS AND INTERPRETATION
CHAPTER - 4 FINDINGS, CONCLUSION AND SUGGESTIONS