Option Strategies Kay 2016

CHAPTER-1 INTRODUCTION
CHAPTER-2 REVIEW OF LITERATURE
CHAPTER-3 COMPANY PROFILE
CHAPTER-4 DATA ANALYSIS AND
INTERPREATION
CHAPTER-5 FINDINGS, SUGGESTION &
CONCLUSION
ABSTRACT
An option is a contract written by a seller that conveys to the buyer the right — but not the
obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a
particular asset, at a particular price (Strike price / Exercise price) in future. In return for
granting the option, the seller collects a payment (the premium) from the buyer. Exchange
traded options form an important class of options which have standardized contract features
and trade on public exchanges, facilitating trading among large number of investors. They
provide settlement guarantee by the Clearing Corporation thereby reducing counterparty risk.
Options can be used for hedging, taking a view on the future direction of the market, for
arbitrage or for implementing strategies which can help in generating income for investors
under various market conditions.
There are two types of options—call options and put options—which are explained below.
1 .Call option
A call option is an option granting the right to the buyer of the option to buy the underlying
asset on a specific day at an agreed upon price, but not the obligation to do so. It is the seller
who grants this right to the buyer of the option. It may be noted that the person who has the
right to buy the underlying asset is known as the “buyer of the call option”. The price at which
the buyer has the right to buy the asset is agreed upon at the time of entering the contract. This
price is known as the strike price of the contract (call option strike price in this case). Since the
buyer of the call option has the right (but no obligation) to buy the underlying asset, he will
exercise his right to buy the underlying asset if and only if the price of the underlying asset in
the market is more than the strike price on or before the expiry date of the Contract. The buyer
of the call option does not have an obligation to buy if he does not want to.
2 Put option
A put option is a contract granting the right to the buyer of the option to sell the underlying
asset on or before a specific day at an agreed upon price, but not the obligation to do so. It is
the seller who grants this right to the buyer of the option. The person who has the right to sell
the underlying asset is known as the “buyer of the put option”. The price at which the buyer has
the right to sell the asset is agreed upon at the time of entering the contract. This price is known
as the strike price of the contract (put option strike price in this case). Since the buyer of the put
option has the right (but not the obligation) to sell the underlying asset, he will exercise his
right to sell the underlying asset if and only if the price of the underlying asset in the market is
less than the strike price on or before the expiry date of the contract. The buyer of the put
option does not have the obligation to sell if he does not want to.
OPTION STRATEGIES
In finance an option strategy is the purchase and/or sale of one or various option positions and
possibly an underlying position.
Options strategies can favor movements in the underlying that are bullish, bearish or neutral. In
the case of neutral strategies, they can be further classified into those that are bullish on
volatility and those that are bearish on volatility. The option positions used can be long and/or
short positions in calls and/or puts at various strikes.
1. LONG CALL
2. SHORT CALL
3. LONG PUT
4. SHORT PUT
5. LONG STRADDLE
6. SHORT STRADDLE
7. LONG STRANGLE
8. SHORT STRANGLE
9. BULL CALL SPREAD STRATEGY
10. BULL PUT SPREAD STRATEGY
11. BEAR CALL SPREAD STRATEGY
12. BEAR PUT SPREAD STRATEGY
INTRODUCTION OF THE STUDY
CAPITALMARKET
the Capital Market Consists of Primary and Secondary Markets. The primary Market deals with
the issue of new instruments by the corporate Sector Such as Equity Share, Preference Shares,
and debt instruments.
PRIMARY MARKET
The primary market in which public issue of securities is made through a prospectus is a retail
market and there is no physical location. Offer for subscription to securities is made to
investing community. The secondary market or stock exchange is a market for trading and
settlement of securities that have already been issued. The investors holding securities sell
securities through registered brokers/sub-brokers of the stock exchange.
SECONDARY MARKET
The secondary market provides a trading place for the securities already issued, to be bought
and sold. It also provides liquidity to the initial buyers in the primary market to re-offer the
securities to any interested buyer at any price, if mutually accepted. An active secondary market
actually promotes the growth of the primary market and capital formation because investors in
the primary market are assured of a continuous market and they can liquidate their investments.
DEFINITION OF DERIVATIVES
Derivatives are securities whose value is derived from the some other time-varying quantity.
Usually that other quantity is the price of some other asset such as bonds, stocks, currencies, or
commodities. It could also be an index, or the temperature. Derivatives were created to support
an insurance market against fluctuations.
One of the most significant events in the securities markets has been the development and
expansion of financial derivatives. The term “derivatives” is used to refer to financial
instruments which derive their value from some underlying assets. The underlying assets could
be equities (shares), debt (bonds, T-bills, and notes), currencies, and even indices of these
various assets, such as the Nifty 50 Index. Derivatives derive their names from their respective
underlying asset. Thus if a derivative’s underlying asset is equity, it is called equity derivative
and so on. Derivatives can be traded either on a regulated exchange, such as the NSE or off the
exchanges, i.e., directly between the different parties, which is called “over-the-counter” (OTC)
trading. (In India only exchange traded equity derivatives are permitted under the law.) The
basic purpose of derivatives is to transfer the price risk (inherent in fluctuations of the asset
prices) from one party to another; they facilitate the allocation of risk to those who are willing
to take it. In so doing, derivatives help mitigate the risk arising from the future uncertainty of
prices. For example, on November 1, 2009 a rice farmer may wish to sell his harvest at a future
date (say January 1, 2010) for a pre-determined fixed price to eliminate the risk of change in
prices by that date. Such a transaction is an example of a derivatives contract. The price of this
derivative is driven by the spot price of rice which is the "underlying".
OPTIONS STRATEGIES
The emergence of the market for derivatives products, most notably options, can be traced
back to the willingness of risk-averse economic agents to guard themselves against
uncertainties arising out of fluctuations in asset prices. By their very nature, the financial
market by a very high degree of volatility. Though the use of derivative products, it is possible
to partially or fully transfer price risks by locking-in assets prices. As instruments of risk
management, these generally do not influence the fluctuations in the underlying asset prices.
However, by locking-in asset prices, derivative products minimize the impact of fluctuations in
asset price on the profitability and cash flow situations of risk- averse investors.
Derivatives are risk management instruments, which their value from an
underlying asset. The underlying asset can be bullion, index, share, bonds, currency, interest,
etc. Banks, Securities firms, companies and investors to hedge risks, to gain access to cheaper
money and to make profit, use derivatives. Derivatives are likely to grow even at a faster rate in
future.
NEED FOR THE STUDY
Option strategy is a tool for stock options trading strategy analysis, built for options traders.
Since options trading is more complex and can involve much higher risk than simple stock
trading, traders need to fully understand the options strategy before investing in it. This is
where option strategy comes to help. option strategy is a powerful tool that allows testing of
different options strategies using real-time options & stock-market information. The tool
provides an easy interface to build a stock/options position and then test it using graphs and
analytical tools. option strategy volatility analyzer is an easy-to-use historical & implied
volatility that provides the ability to analyze the historical volatility of an option compared to
its actual implied volatility for similar time periods. The strategy analysis tool provides the
ability to test the strategy under different market scenarios (volatility, underlying price and
date) and get the strategy performance, Option strategy analysis is very important need for
investment decisions.
Objectives of the study
 Examine market behavior with real time trading experience

 Learn about market characteristics by using options strategies
 Learn how markets operate with using options strategies
 Evaluate the basic advantages and disadvantages of options strategies
SCOPE OF STUDY
The scope of the study will include the analysis of the Data, which is being conducted to know
the awareness of the option Strategies use in Derivative Market & also how to get maximum
earn the profit through option strategies.
RESEARCH METHODOLAGY
The research design specifies the methods and procedures for conducting a particular study.
The type of research design applied here are
TITLE OF STUDY
The topic, which is selected for the study, is “DERIVATIVE MARKET” in the firm so the
problem statement for this study will be “OPTION STRATEGIES USE IN DERIVATIVE
MARKET”
Exploratory research
An exploratory research focuses on the discovery of ideas and is generally based on secondary
data.
DATA COLLECTION METHOD

The sources of data collection method which is being used for the studies:-
Primary source of data

On line trading from NSE
Secondary Source Of Data:

For having the detailed study about this topic, it is necessary to have some of the secondary
information, which is collected from the
LIMITATION OF STUDY
However, the study is going to be a research project, but it definitely has some of the limitation,
which is as follows:
 The Time constraint is the important limitation of this study.
 Due to the shallow knowledge about the topic, detailed study could not be conducted.
 The cost is also limited factor of this study

CHAPTER-2
REVIEW OF LITERATURE
REVIEW OF LITERATURE
If you are one of those who want to gain huge profits from stock options, then it is very
important for you to understand the meaning of option trading. At times it can be difficult to
learn the exact difference between trading in the stock market and trading in the stock options
market. In fact If you are one of those who want to gain huge profits from stock options, then it
is very important for you to understand the meaning of option trading. At times it can be
difficult to learn the exact difference between trading in the stock market and trading in the
stock options market.
Options Trading for Directionless Markets provides an in-depth exploration of the most
effective ways in which to trade within a market where the market is neither trending up or
down, and gives traders practical advice on trading profitably.
Options trading is becoming an increasingly popular investment tool, fuelled by

an electronic marketplace, greater transparency, stock exchanges introducing their own options
and increased globalization. A directionless market - one where the market is not trending up or
down - is the most common, but also the most difficult to trade. Based on the author's highly
successful seminars, and his decades of experience as an options trader, this book gives you
practical guidance on how to trade profitably.
Option Strategies for Directionless Markets provides an in-depth exploration of the most
effective tools for trading a directionless market. The author describes and explains each
strategy, covering key issues such as market outlook, risk-reward parameters, option selection,
trade execution, and managing and exiting the trade. To enhance the practical learning
experience, there are numerous exercises, examples and references.
“Guy Cohen is the master when it comes to taming the complexities of options. From
buying calls and puts to straddle and strangle, Guy explains these strategies in a clear and
concise manner that options traders of any level can understand. His chapter on options and
taxes is especially welcomed (and needed). The Bible of Options Strategies is a
straightforward, easy-to-use reference work that should occupy a space on any options trader’s
"
--Bernie Schaeffer, Chairman and CEO, Schaeffer’s Investment Research,
Inc.
an active commodity broker, leads the reader through the process of buying and selling options
-- from mastering the basics of puts and calls, to understanding the tax implications of options
transactions, to evaluating various options strategies and the best ways to implement them.
Valuable for both the beginner and seasoned investor.
--Samuel N. Malkind
Bestselling options author Michael C. Thomsett provides first comprehensive guide for
defensive options strategies involving puts
February 16, 2009 (New York, NY) – The turbulence of the stock market in recent financial
quarters has made one thing clear—it pays to invest in defense.
While most options traders focus on calls—the right to purchase stock if prices rise—the 2008
stock market crash demonstrated just how misguided this singular emphasis can be. Thousands
of investors suffered massive losses they could have avoided through the careful, defensive use
of strategies based on puts—the right to sell stock—instead of calls.
And now for the first time, there's a comprehensive, balanced guide to using puts to create
profits, protect stock positions, and hedge against all types of serious risk. From renowned
options trading expert Michael C. Thomsett comes Put Options Strategies for Smarter
Trading: How to Protect and Build Capital in Turbulent Markets,
"As chronic optimists, American traders focus mostly on calls with far less interest in puts,"
says Thomsett. "The 2008 stock market showed just how misguided this singular emphasis can
be, with many people suffering through severe paper and actual losses, many of which could
have been managed effectively with a wise defensive put-based strategy."
 Use long puts to ensure paper profits in stock or to offset losses, even when stocks
decline steeply and quickly
 Apply puts in straddles and spreads, in multi-part strategies that prevent losses and
hedge risks
 Identify opportunities to create cash flow by selling limited-risk naked puts to create
cash flow
 These indispensable techniques are for any investor anticipating a market decline, now
or in the future. It includes dozens of easy-to-understand tables, graphics, and examples,
which makes it easy for any investor to apply these strategies successfully.
HISTORY OF DERIVATIVES
Trading in Derivatives of Securities commenced in June 2000 with the enactment of enabling
legislation in early 2000. Derivatives are formally defined to include: (a) a Security derived
from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract
for differences or any others from of Security, and (b) a contract Which derives its value from
the price, or index of prices, or underlying Securities. Derivatives Trading in India are Legal
and valid only if such contracts are traded on a recognized Stock exchange, thus precluding
OTC derivatives. Derivatives trading commenced in India in June 2000 after SEBI granted the
approval to this effect in May 2000. SEBI permitted the derivative segment of two Stock
exchanges, i.e. NSE and BSE, and their clearing house/ corporation to commerce trading and
settlement in approved derivative contracts. To begin with, SEBI approved trading in index
futures contracts based on S & P CNX Nifty Index and BSE-30 (Sensex) Index. This was
followed by approval for trading in options based on these two indices and Options on
individual securities. The derivatives trading on the NSE commenced with S&P CNX Nifty
Index futures on June 12, 2000 .The trading in S&P CNX Nifty Index Options Commenced on
July 4, 2001 and trading in Options on individual securities commenced on July 2, 2001. Single
stock futures were launched on November 9, 2001. In June 2003, SEBI-RBI approved the
trading on interest rate derivative instruments. The mini derivative future & Option contract on
S&P CNX Nifty was introduced for trading on January 1, 2008 while the long term option
Contracts on S&P CNX Nifty were introduced for trading on March- 3-2008.
INTRODUCTION TO DERIVATIVES
One of the most significant events in the securities markets has been the development and
expansion of financial derivatives. The term “derivatives” is used to refer to financial
instruments which derive their value from some underlying assets. The underlying assets could
be equities (shares), debt (bonds, T-bills, and notes), currencies, and even indices of these
various assets, such as the Nifty 50 Index. Derivatives derive their names from their respective
underlying asset. Thus if a derivative’s underlying asset is equity, it is called equity derivative
and so on. Derivatives can be traded either on a regulated exchange, such as the NSE or off the
exchanges, i.e., directly between the different parties, which is called “over-the-counter” (OTC)
trading. (In India only exchange traded equity derivatives are permitted under the law.) The
basic purpose of derivatives is to transfer the price risk (inherent in fluctuations of the asset
prices) from one party to another; they facilitate the allocation of risk to those who are willing
to take it. In so doing, derivatives help mitigate the risk arising from the future uncertainty of
prices. For example, on November 1, 2009 a rice farmer may wish to sell his harvest at a future
date (say January 1, 2010) for a pre-determined fixed price to eliminate the risk of change in
prices by that date. Such a transaction is an example of a derivatives contract. The price of this
derivative is driven by the spot price of rice which is the "underlying”
Derivative Products initially emerged as hedging devices against fluctuations in commodity

prices, and commodity-Linked derivatives remained the sole form of such products for almost
three hundred years. Financial derivatives came into spotlight in the post-1970 period due to
growing instability in the financial markets. Since their emergence, these products have become
very popular and by 1990s, they accounted for about two-thirds of total transaction in
derivatives products, In recent years, the Market for Financial Derivatives has grown
tremendously in terms of variety of instruments available, their, complexity and also turnover.
In the class of equity derivatives the world over, futures and options on stock indices have
gained more popularity than on individual Stocks. Especially among institutional investors,
who are major users of index-Linked Derivative Even Small investors find these useful due to
high correlation of The popular indexes with various portfolios and ease of use.
DERIVATIVE -CONCEPT AND MEANING

The term “Derivative” itself indicates that it has no value. The Value of a derivative is entirely
derived from the value of a cash asset. A derivative Contract, Product, instrument or simply
“derivative” is to be sharply distinguished from the underlying cash asset, which is an asset
bought or sold in the market on normal delivery terms .A simple derivative instrument hedges
the risk component of an underlying asset. That, if the cost of Materials goes up by 15%, the
Contract price will also go up by 10%.This is also a kind of derivative contract. Thus
derivatives cover a lot of common transactions. “Derivatives are special types of off-balance
sheet instruments in which no principal is ever paid”
“Derivatives involves payments/receipt of income generated by the underling Assets on a
notional principal” “Derivatives are instrument which make Payment calculated using price of
interest rates derived from on balance sheet or cash Instruments, but do not actually employ
those cash instruments to Fund payment”
THE NEED OF DERIVATIVES MARKET

The derivatives market performs a number of economic functions:
1. They help in transferring risks from risk adverse people to risk Oriented people.
2. They help in the discovery of future as well as current prices.
3. They catalyze entrepreneurial activity.
4. They increase the volume traded in markets because of participation
of risk adverse people in greater number.
DERIVATIVE PRODUCT
Derivative contracts have several variants. The most common variants are Forwards, Future,
Options and Swaps. We take a brief look at various derivatives contracts that have come to be
used.
Forwards: A forward contract is a customized contract between two entities, where settlement
takes place on a specific date the future at today’s pre-agreed price.
Future: A Future contract is agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. Futures contracts are Special types of forward contracts in
the sense that farmer are standardized exchange-traded contracts.
Options: Option are of two types-calls and puts. Calls give the buyer the right buy not the
obligation to buy a given quantity of the underlying asset, at a given price on or before a given
future date. Puts give the buyer the right. But not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given date.
Warrants: Option generally have lives of up to one year, the majority of options traded on
options exchanges having a maximum maturity of nine months. Longer-dated options are called
warrants and are generally traded over-he-counter.
LEAPS: The acronym LEAPS means long-term Equity Anticipation Securities These is option
having a maturity of up to three years.
Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is
usually a moving average of a basket of assets. Equity index option is a form of basket options.
Swaps: Swaps are private agreements between two parties to exchange cash flows in the future
according to a prearranged formula. They can be regarded as Portfolio of forward contracts.
The two commonly used swaps are:
Interest rate Swaps : These entail swapping only the interest related cash flows between the
parties in the same current.
Currency Swaps: These entail swapping both principal and interest between
the parties, with the cash flows in one direction being in a different currency than those in the
opposite direction.
Swaption: Swaption are options to sell swap that will become operative at the
expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls
and puts, the swaptios market has receive fixed and pay floating. A player swaption is an option
to pay fixed and receive floating.
PARTICIPANTS IN THE DERIVATIVE MARKETS
The following three board categories of participants:
HEDGERS:
Hedgers face risk associated with the price of an asset. They use future or options markets to
reduce or eliminate this risk.
SPECULATORS:
Speculators wish to bet on future movements in the price of an asset. Futures and options
contracts can give them an extra leverage; that is, they can increase both the potential gains and
potential losses in a speculative venture.
ARBITRAGERS:
Arbitrageurs are in business to take of a discrepancy between prices in two different markets, if,
for, example, they see the futures price of an asset getting out of line with the cash price, price,
they will take off setting position 9n the tow markets to lock in a profit.
FUNCTION OF THE DERIVATIVE MARKETS
In spite of the fear and criticism with which the derivative markets are commonly looked at,
these markets perform a number of economic functions.
 Prices in an organized derivatives market reflect the perception of market participants

about the future and lead the price of underlying to the perceived future level. The
prices of derivatives converge with the prices of the underlying at the expiration of the
derivate contract. Thus derivatives help in discovery of future as well as current prices.
 Derivatives market helps to transfer risks from those who have them but may not like
them to those who have an appetite for them.
 Derivative due to their inherent nature, are linked to the underlying cash markets. With
the introduction of derivatives, the underlying market witness higher trading volumes
because of participation by more players who would not otherwise participate for lack
of an arrangement to transfer risk.
 Speculative trades shift to a more controlled environment of derivatives market. In the
absence of an organized derivatives market, speculators trade in the underlying cash
markets. Margining, Monitoring and surveillance of the activities of various participants
become extremely difficult in these kinds of mixed markets.
 An important incidental benefit that flows from derivatives trading is that it acts as a
catalyst for new entrepreneurial activity. The derivatives have a history of attracting
many bright, creative, Well-educated people with an entrepreneurial attitude. They often
energize others to create new businesses, new products and new employment
opportunities, the benefit of which are immense.
 Derivatives trading acts as a catalyst for new entrepreneurial activity.
 Derivatives markets help increase saving and investment in long run.
CHAPTER-3
COMPANY PROFILE
OVERVIEW:
KARVY, is a premier integrated financial services provider, and ranked among the top
five in the country in all its business segments, services over 16 million individual investors in
various capacities, and provides investor services to over 300 corporate, comprising the who is
who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock
broking, Depository Participants, Distribution of financial products - mutual funds, bonds,
fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory
Services, Merchant Banking & Corporate Finance, placement of equity, IPO’s, among others.
Karvy has a professional management team and ranks among the best in technology, operations
and research of various industrial segments.
EARLY DAYS:
The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small
group of practicing Chartered Accountants who founded the flagship company …Karvy Consultants
Limited. Company started with consulting and financial accounting automation, and carved inroads
into the field of registry and share accounting by 1985. Since then, they have utilized their experience
and superlative expertise to go from strength to strength…to better their services, to provide new
ones, to innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated
financial service enterprise.
Thus over the last 20 years Karvy has traveled the success route, towards building a reputation
as an integrated financial services provider, offering a wide spectrum of services. And we have
made this journey by taking the route of quality service, path breaking innovations in service,
versatility in service and finally…totality in service. Their highly qualified manpower, cutting-
edge technology, comprehensive infrastructure and total customer-focus has secured for them
the position of an emerging financial services giant enjoying the confidence and support of an
enviable clientele across diverse fields in the financial world.
Mile Stones:
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KARVY GROUP COMPANIES
(1) KARVY CONSULTANTS LIMITED
As the flagship company of the Karvy Group, Karvy Consultants Limited has always remained
at the helm of organizational affairs, pioneering business policies, work ethic and channels of
progress.
Having emerged as a leader in the registry business, the first of the businesses that Karvy
ventured into, company have now transferred this business into a joint venture with Computer
share Limited of Australia, the world’s largest registrar. With the advent of depositories in the
Indian capital market and the relationships that Company have created in the registry business,
Karvy believe that they were best positioned to venture into this activity as a Depository
Participant. Karvy were one of the early entrants registered as Depository Participant with
NSDL (National Securities Depository Limited), the first Depository in the country and then
with CDSL (Central Depository Services Limited). Today, Karvy service over 6 lakhs customer
accounts in this business spread across over 250 cities/towns in India and are ranked amongst
the largest Depository Participants in the country. With a growing secondary market presence,
they have transferred this business to Karvy Stock Broking Limited (KSBL), their associate and
a member of NSE, BSE and HSE.
The corporate website of the company, “www.karvy.com”, gives access to in-depth information
on financial matters including Mutual Funds, IPOs, Fixed Income Schemes, Insurance, Stock
Market and much more. A link called ‘Resource Center’, devoted solely to research conducted
by team of experts on various financial aspects like ‘Sector Research’, deals exclusively with
in-depth analysis of the key sectors of the Indian economy. Besides, a host of other links like
‘My Portfolio’ which acts as a personalized and customized financial measure, makes this site
extremely informative about investment options, market trends, news and also about our their
company and each of the services offered here.
(2) KARVY STOCK BROKING LIMITED

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely
towards attaining diverse goals of the customer through varied services. Creating a plethora of
opportunities for the customer by opening up investment vistas backed by research-based
advisory services. Here, growth knows no limits and success recognizes no boundaries.
Helping the customer create waves in his portfolio and empowering the investor completely is
the ultimate goal.
Karvy is a Member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE),
and The Hyderabad Stock Exchange (HSE).
(3) KARVY INVESTORS SERVICES LIMITED
Merchant Banking- Recognized as a leading merchant banker in the country, Karvy are
registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing
on opportunities in corporate consolidations, mergers and acquisitions and corporate
restructuring, which have earned us the reputation of a merchant banker. Raising resources for
corporate or Government Undertaking successfully over the past two decades have given us the
confidence to renew company focus in this sector.
Karvy quality professional team and their work-oriented dedication have propelled company to
offer value-added corporate financial services and act as a professional navigator for long term
growth of companies clients, which includes leading corporate, State Governments, foreign
institutional investors, public and private sector companies and banks, in Indian and global
markets.
Karvy financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers,

spin-offs, joint ventures, privatization and takeover defense mechanisms have elevated
company relationship with the client to one based on unshakable trust and confidence.
(4) KARVY COMPUTERSHARE PVT. LIMITED
Karvy have traversed wide spaces to tie up with the world’s largest transfer agent, the leading
Australian company, Computershare Limited. The company that services more than 75 million
shareholders across 7000 corporate clients and makes its presence felt in over 12 countries across 5
continents has entered into a 50-50 joint venture with KARVY.
Mutual Fund Services

Karvy have attained a position of immense strength as a provider of across-the-board transfer
agency services to AMCs, Distributors and Investors.
Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche AMC and UTI
swear by the quality and range of services that company offer. Besides providing the entire
back office processing, Karvy provide the link between various Mutual Funds and the investor,
including services to the distributor, the prime channel in this operation.
Karvy service enhancements such as ‘Karvy Converz', a full-fledged call center, a top-line
website (www.karvymfs.com), the ‘m-investor' and many more, creating a galaxy of customer
advantages. www.karvymfs.com
Issue Registry
In company voyage towards becoming the largest transaction-processing house in the Indian
Corporate segment, KARVY have mobilized funds for numerous corporate, and emerged as the
largest transaction-processing house for the Indian Corporate sector. With an experience
of handling over 700 issues, Karvy today, has the ability to execute voluminous transactions
and hard-core expertise in technology applications have gained company the No.1 slot in the
business. Karvy is the first Registry Company to receive ISO 9002 certification in India
that stands testimony to its stature
Corporate Shareholder Services
Karvy has been a customer centric company since its inception. Karvy offers a single platform
servicing multiple financial instruments in its bid to offer complete financial solutions to the
varying needs of both corporate and retail investors where an extensive range of services are
provided with great volume-management capability.
Today, Karvy is recognized as a company that can exceed customer expectations which is the
reason for the loyalty of customers towards Karvy for all his financial needs. An opinion poll
commissioned by “The Merchant Banker Update” and conducted by the reputed market
research agency, MARG revealed that Karvy was considered the “Most Admired” in the
registrar category among financial services companies.
(5) KARVY GLOBAL SERVICES LIMITED
The specialist Business Process Outsourcing unit of the Karvy Group. The legacy of expertise
and experience in financial services of the Karvy Group serves us well as company enter the
global arena with the confidence of being able to deliver and deliver well.
Here company offer several delivery models on the understanding that business needs are
unique and therefore only a customized service could possibly fit the bill. KARVY service
matrix has permutations and combinations that create several options to choose from.
KARVY is in re-engineering and managing processes or delivering new efficiencies,

company’s service meets up to the most stringent of international standards. Their outsourcing
models are designed for the global customer and are backed by sound corporate and operations
philosophies, and domain expertise. Providing productivity improvements, operational cost
control, cost savings, improved accountability and a whole gamut of other advantages.
KARVY operate in the core market segments that have emerging requirements for specialized
services. Their wide vertical market coverage includes Banking, Financial and Insurance
Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and
Healthcare.
(6) KARVY COMMODITIES BROKING LIMITED
At Karvy Commodities, they are focused on taking commodities trading to new dimensions of
reliability and profitability. They have made commodities trading, an essentially age-old
practice, into a sophisticated and scientific investment option.
Company enables trade in all goods and products of agricultural and mineral origin that include
lucrative commodities like gold and silver and popular items like oil, pulses and cotton through
a well-systematized trading platform.
The technological and infrastructural strengths and especially the street-smart skills make them
an ideal broker. Their service matrix is holistic with a gamut of advantages, the first and
foremost being their legacy of human resources, technology and infrastructure that comes from
being part of the Karvy Group.
Their wide national network, spanning the length and breadth of India, further supports these
advantages. Regular trading workshops and seminars are conducted to hone trading strategies
to perfection. Every move made is a calculated one, based on reliable research that is converted
into valuable information through daily, weekly and monthly newsletters, calls and intraday
alerts. Further, personalized service is provided here by a dedicated team committed to giving
hassle-free service while the brokerage rates offered are extremely competitive.
Karvy’s commitment to excel in this sector stems from the immense importance that
commodity broking has to a cross-section of investors & dash; farmers, exporters, importers,
manufacturers and the Government of India itself.
(7)KARVY INSURANCE BROKING PRIVATE LIMITED
At Karvy Insurance Broking Pvt. Ltd., they provide both life and non-life insurance products to
retail individuals, high net-worth clients and corporate. With the opening up of the insurance
sector and with a large number of private players in the business, they are in a position to
provide tailor made policies for different segments of customers. In their journey to emerge as a
personal finance advisor, they will be better positioned to leverage their relationships with the
product providers and place the requirements of their customers appropriately with the product
providers. With Indian markets seeing a sea change, both in terms of investment pattern
and attitude of investors, insurance is no more seen as only a tax saving product but also
as an investment product. By setting up a separate entity, we would be positioned to provide
the best of the products available in this business to their customers.
KARVY have wide national network, spanning the length and breadth of India, further supports
these advantages. Further, personalized service is provided here by a dedicated team committed
in giving hassle-free service to the clients.
KARVY Alliances
Karvy Computershare Private Limited is a 50:50 joint venture of Karvy Consultants Limited
and Computershare Limited, Australia. Computershare Limited is world's largest -- and only
global -- share registry, and a leading financial market services provider to the global securities
industry.
The joint venture with Computershare, reckoned as the largest registrar in the world, servicing
over 60 million shareholder accounts for over 7,000 corporations across eleven countries
spread across five continents. Computershare manages more than 70 million shareholder
accounts for over 13,000 corporations around the world.
Karvy Computershare Private Limited, today, is India's largest Registrar and Share Transfer
Agent servicing over 300 corporate and mutual funds and 16 million investors.
Quality Policy
To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by
combining its human and technological resources, to provide superior quality financial
services. In the process, Karvy will strive to exceed Customer's expectations.
Quality Objectives
As per the Quality Policy, Karvy will:
Build in-house processes that will ensure transparent and harmonious relationships with its clients and
investors to provide high quality of services.
Establish a partner relationship with its investor service agents and vendors that will help in keeping up
its commitments to the customers.
Provide high quality of work life for all its employees and equip them with adequate knowledge & skills
so as to respond to customer's needs.
Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in
business ethics.
Use state-of-the art information technology in developing new and innovative financial products and
services to meet the changing needs of investors and clients.
Strive to be a reliable source of value-added financial products and services and constantly guide the
individuals and institutions in making a judicious choice of same.
Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory
authorities) proud and satisfied.
Achievements
Among the top 3 stock brokers in India (4% of NSE volumes)
India's No. 1 Registrar & Securities Transfer Agents
Top most Depository Participants
Largest Network of Branches & Business Associates
ISO 9002 certified operations by DNV
Among top 10 Investment bankers
Largest Distributor of Financial Products
Adjudged as one of the top 50 IT uses in India by MIS Asia

Full Fledged IT driven operations
CHAPTER4
DATA ANALYSIS
&
INTERPRETATION
OPTIONS
INTRODUCTION TO OPTIONS
In finance an option strategy is the purchase and/or sale of one or various option positions and
possibly an underlying position. Options strategies can favor movements in the underlying that
are bullish, bearish or neutral. In the case of neutral strategies, they can be further classified
into those that are bullish on volatility and those that are bearish on volatility. The option
positions used can be long and/or short positions in calls and/or puts at various strikes
An investment strategy in which one enters a position on option contracts without other, opposite
options to hedge the risk. Unlike more complex spreads and straddles, which involve the
purchase or sale of multiple options in order to profit in different ways, naked options are
straightforward calls or puts. An investor using naked option strategies makes a profit or loss
depending on the movement of the underlying asset. Naked options are also called uncovered
options. See also: Covered options.
Before you buy or sell options you need a strategy, and before you choose an options strategy,
you need to understand how you want options to work in your portfolio. A particular strategy is
successful only if it performs in a way that helps you meet your investment goals. If you hope
to increase the income you receive from your stocks, for example, you'll choose a different
strategy from an investor who wants to lock in a purchase price for a stock she'd like to own.
One of the benefits of options is the flexibility they offer—they can complement portfolios in
many different ways. So it's worth taking the time to identify a goal that suits you and your
financial plan. Once you've chosen a goal, you'll have narrowed the range of strategies to use.
As with any type of investment, only some of the strategies will be appropriate for your
objective.
Some options strategies, such as writing covered calls, are relatively simple to understand and
execute. There are more complicated strategies, however, such as spreads and collars, that
require two opening transactions. These strategies are often used to further limit the risk
associated with options, but they may also limit potential return. When you limit risk, there is
usually a trade-off.
Simple options strategies are usually the way to begin investing with options. By mastering
simple strategies, you'll prepare yourself for advanced options trading. In general, the more
complicated options strategies are appropriate only for experienced investors.
Once you've decided on an appropriate options strategy, it's important to stay focused. That
might seem obvious, but the fast pace of the options market and the complicated nature of
certain transactions make it difficult for some inexperienced investors to stick to their plan. If it
seems that the market or underlying security isn't moving in the direction you predicted, it's
possible that you'll minimize your losses by exiting early. But it's also possible that you'll miss
out on a future beneficial change in direction. That's why many experts recommend that you
designate an exit strategy or cut-off point ahead of time, and hold firm. For example, if you
plan to sell a covered call, you might decide that if the option moves 20% in-the-money before
expiration, the loss you'd face if the option were exercised and assigned to you is unacceptable.
But if it moves only 10% in-the-money, you'd be confident that there remains enough chance of
it moving out-of-the-money to make it worth the potential loss.
There are two types of options—call options and put options—which are explained below.
1 .Call option
A call option is an option granting the right to the buyer of the option to buy the underlying
asset on a specific day at an agreed upon price, but not the obligation to do so. It is the seller
who grants this right to the buyer of the option. It may be noted that the person who has the
right to buy the underlying asset is known as the “buyer of the call option”. The price at which
the buyer has the right to buy the asset is agreed upon at the time of entering the contract. This
price is known as the strike price of the contract (call option strike price in this case). Since the
buyer of the call option has the right (but no obligation) to buy the underlying asset, he will
exercise his right to buy the underlying asset if and only if the price of the underlying
asset in the market is more than the strike price on or before the expiry date of the
contract. The buyer of the call option does not have an obligation to buy if he does not want to.
2 Put option
A put option is a contract granting the right to the buyer of the option to sell the underlying
asset on or before a specific day at an agreed upon price, but not the obligation to do so. It is
the seller who grants this right to the buyer of the option. The person who has the right to sell
the underlying asset is known as the “buyer of the put option”. The price at which the buyer has
the right to sell the asset is agreed upon at the time of entering the contract. This price is known
as the strike price of the contract (put option strike price in this case). Since the buyer of the put
option has the right (but not the obligation) to sell the underlying asset, he will exercise his
right to sell the underlying asset if and only if the price of the underlying asset in the
market is less than the strike price on or before the expiry date of the contract. The buyer
of the put option does not have the obligation to sell if he does not want to.
Options can be divided into two different categories

Options can be divided into two different categories depending upon the primary exercise styles
associated with options. These categories are:
1. European Options: European options are options that can be exercised only on the
expiration date. All options based on indices such as Nifty, Mini Nifty, Bank Nifty, CNX IT
traded at the NSE are European options which can be exercised by the buyer (of the option)
only on the final settlement date or the expiry date.
2. American options: American options are options that can be exercised on any day on or
before the expiry date. All options on individual stocks like Reliance, SBI, and Infosys traded at
the NSE are American options. They can be exercised by the buyer on any day on or before the
final settlement date or the expiry data
OPTION TERMINOLOGY
 Index options: These options have the index as the underlying. In India, they have a
European style settlement. E.g. Nifty options, Mini Nifty options etc.
 Stock options: Stock options are options on individual stocks. A stock option contract
gives the holder the right to buy or sell the underlying shares at the specified price. They
have an American style settlement.
 Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/writer.
 Writer / seller of an option: The writer / seller of a call/put option is the one who
receives the option premium and is thereby obliged to sell/buy the asset if the buyer
exercises on him.
 Call option: A call option gives the holder the right but not the obligation to buy an
asset by a certain date for a certain price.
 Put option: A put option gives the holder the right but not the obligation to sell an asset
by a certain date for a certain price.
 Option price/premium: Option price is the price which the option buyer pays to the
option seller. It is also referred to as the option premium.
 Expiration date: The date specified in the options contract is known as the expiration
date, the exercise date, the strike date or the maturity.
 Strike price: The price specified in the options contract is known as the strike price or
the exercise price.
 In-the-money option: An in-the-money (ITM) option is an option that would lead to a

positive cash flow to the holder if it were exercised immediately. A call option on the
index is said to be in-the-money when the current index stands at a level higher than the
strike price (i.e. spot price > strike price). If the index is much higher than the strike
price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is
below the strike price.
 At-the-money option: An at-the-money (ATM) option is an option that would lead to
zero cash flow if it were exercised immediately. An option on the index is at-the-money
when the current index equals the strike price (i.e. spot price = strike price).
 Out-of-the-money option: An out-of-the-money (OTM) option is an option that would
lead to a negative cash flow if it were exercised immediately. A call option on the index
is out-of-the-money when the current index stands at a level which is less than the strike
price (i.e. spot price < strike price). If the index is much lower than the strike price, 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: The option premium can be broken down into two
components - intrinsic value and time value. The intrinsic value of a call is the amount
the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it
another way, the intrinsic value of a call is Max[0, (St — K)] which means the intrinsic
value of a call is the greater of 0 or (St — K). Similarly, the intrinsic value of a put is
Max[0,K — St],i.e. the greater of 0 or (K — St). K is the strike price and St is the spot
price.
 Time value of an option: The time value of an option is the difference between its
premium and its intrinsic value. Both calls and puts have time value. An option that is
OTM or ATM has only time value. Usually, the maximum time value exists when the
option is ATM. The longer the time to expiration, the greater is an option's time value,
all else equal. At expiration, an option should have no time value.
OPTIONS PAYOFFS
The atonality characteristic of options results in a non-linear payoff for options. In simple
words, it means that the losses for the buyer of an option are limited. However the profits are
potentially unlimited. For a writer (seller), the payoff is exactly the opposite. His profits are
limited to the option premium, however his losses are potentially unlimited. These nonlinear
payoffs are fascinating as they lend themselves to be used to generate various payoffs by using
combinations of options and the underlying. We look here at the six basic payoffs.
Payoff profile of buyer of Asset: Long Asset
In this basic position, an investor buys the underlying asset, Nifty shares for instance, for Rs.
4820, and sells it at a future date at an unknown price, St. Once it is purchased, the investor is
said to be "long" the asset. Figure shows the payoff for a long position on Nifty. The figure
shows the profits/losses from a long position on Nifty the investor bought ABC Ltd. at Rs.
4820. If the share price goes up, he profits. If the share price falls he loses.
Payoff profile for seller of Asset: Short Asset
In this basic position, an investor shorts the underlying asset, ABC Ltd. shares for instance, for
Rs. 4820, and buys it back at a future date at an unknown price, St. Once it is sold, the investor
is said to be "short" the asset. Figure shows the payoff for a short position on ABC Ltd. The
figure shows the profits/losses from a short position on ABC Ltd. The investor sold ABC Ltd.
at Rs. 4820. If the share price falls, he profits. If the
share price rises, he loses.
Payoff profile for buyer of call options: Long call

A call option gives the buyer the right to buy the underlying asset at the strike price specified in
the option. The profit/loss that the buyer makes on the option depends on the spot price of the
underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher
the spot price more is the profit he makes. If the spot price of the underlying is less than the
strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid
for buying the option. Figure gives the payoff for the buyer of a three month call option (often
referred to as long call) with a strike of 4800 bought at a premium of 86.60. The figure shows
the profits/losses for the buyer of a three-month Nifty 4800 call option. As can be seen, as the
spot Nifty rises, the call option is in-the-money. If upon expiration, Nifty closes above the
strike of 4800, the buyer would exercise his option and profit to the extent of the difference
between the Nifty-close and the strike price.
Payoff profile for writer (seller) of call options: Short call
A call option gives the buyer the right to buy the underlying asset at the strike price specified in
the option. For selling the option, the writer of the option charges a premium. The profit/loss
that the buyer makes on the option depends on the spot price of the underlying. Whatever is the
buyer's profit is the seller's loss. If upon expiration, the spot price exceeds the strike price, the
buyer will exercise the option on the writer.
The figure shows the profits/losses for the seller of a three-month Nifty 4800 call
option. As the spot Nifty rises, the call option is in-the-money and the writer starts making
losses. If upon expiration, Nifty closes above the strike of 4800, the buyer would exercise his
option on the writer who would suffer a loss to the extent of the difference between the Nifty-
close and the strike price. The loss that can be incurred by the writer of the option is potentially
unlimited, whereas the maximum profit is limited to the extent of the up-front option premium
of Rs.86.60 charged by him.
Payoff profile for buyer of put options: Long put
A put option gives the buyer the right to sell the underlying asset at the strike price specified in
the option. The profit/loss that the buyer makes on the option depends on the spot price of the
underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower
the spot price, more is the profit he makes.
.
The figure shows the profits/losses for the buyer of a three-month Nifty 4800 put option. As
can be seen, as the spot Nifty falls, the put option is in-the money. If upon expiration, Nifty
closes below the strike of 4800, the buyer would exercise his option and profit to the extent of
the difference between the strike price and Nifty-close. The profits possible on this option can
be as high as the strike price. However if Nifty rises above the strike of 4800, he lets the option
expire. His losses are limited to the extent of the premium he paid for buying the option.
Payoff profile for writer (seller) of put options: Short put

A put option gives the buyer the right to sell the underlying asset at the strike price specified in
the option. For selling the option, the writer of the option charges a premium. The profit/loss
that the buyer makes on the option depends on the spot price of the underlying. Whatever is the
buyer's profit is the seller's loss.
The figure shows the profits/losses for the seller of a three-month Nifty 4800 put option. As the
spot Nifty falls, the put option is in-the-money and the writer starts making losses. If upon
expiration, Nifty closes below the strike of 4800, the buyer would exercise his option on the
writer who would suffer a loss to the extent of the difference between the strike price and Nifty
close. The loss that can be incurred by the writer of the option is a maximum extent of the
strike price (Since the worst that can happen is that the asset price can fall to zero) whereas the
maximum profit is limited to the extent of the upfront option premium of Rs.61.70 charged by
him.
OPTION STRATEGIES
1. LONG CALL
2. SHORT CALL
3. LONG PUT
4. SHORT PUT
5. LONG STRADDLE
6. SHORT STRADDLE
7. LONG STRANGLE
8. SHORT STRANGLE
9. BULL CALL SPREAD STRATEGY
10. BULL PUT SPREAD STRATEGY
11. BEAR CALL SPREAD STRATEGY
12. BEAR PUT SPREAD STRATEGY
LONG CALL STRATEGY
For aggressive investors who are very bullish about the prospects for a stock / index, buying
calls can be an excellent way to capture the upside potential with limited downside risk.
Market Opinion?
Bullish to Very Bullish
When to Use?
This strategy appeals to an investor who is generally more interested in the dollar amount of his
initial investment and the leveraged financial reward that long calls can offer. The primary
motivation of this investor is to realize financial reward from an increase in price of the
underlying security. Experience and precision are keys to selecting the right option (expiration
and/or strike price) for the most profitable result. In general, the more out-of-the-money the call
is the more bullish the strategy, as bigger increases in the underlying stock price are required
for the option to reach the break-even point.
Risk vs. Reward
Maximum Profit: Unlimited
Maximum Loss: Limited to the net premium paid
Upside Profit at Expiration:
Stock Price - Strike Price - Premium Paid
(Assuming Stock Price above BEP)
Your maximum profit depends only on the potential price increase of the underlying security; in
theory it is unlimited. At expiration an in-the-money call will generally be worth its intrinsic
value. Though the potential loss is predetermined and limited in dollar amount, it can be as
much as 100% of the premium initially paid for the call. Whatever your motivation for
purchasing the call, weigh the potential reward against the potential loss of the entire premium
paid.
Break-Even-Point (BEP)?
BEP: Strike Price + Premium Paid
Before expiration, however, if the contract's market price has sufficient time value remaining,
the BEP can occur at a lower stock price.
Volatility
If Volatility Increases: Positive Effect
If Volatility Decreases: Negative Effect bullish on Nifty on 24th October , when the Nifty is
at 7691.10. He buys a call option with a strike price of Rs. 7800 at a premium of Rs. 36.35,
expiring on 25th October. If the Nifty goes above 4836.35, Mr. XYZ will make a net profit
(after deducting the premium) on exercising the option. In case the Nifty stays at or falls
below 4800, he can forego the option (it will expire worthless) with a maximum loss of the
premium.
Strategy :Buy call Option

Current Nifty 7691.1
Call Option Strike Price (Rs.) 7800
Mr. XYZ
Pays Premium (Rs.) 36.35
Break Even Point (Rs.) (Strike Price+

Premium) 7836.35
Unlimited profit
Limited Loss
The payoff chart (Long call)

SHORT CALL STRATEGY
When you buy a Call you are hoping that the underlying stock / index would rise. When you
expect the underlying stock index to fall you do the opposite. When an investor is very bearish
about a stock / index and expects the prices to fall, he can sell Call options. This position offers
limited profit potential and the possibility of large losses on big advances in underlying prices.
Although easy to execute it is a risky strategy since the seller of the Call is exposed to
unlimited risk
Market Opinion?
A Call option means an Option to buy. Buying a Call option means an investor expects the
underlying price of a stock / index to rise in future. Selling a Call option is just the opposite of
buying a Call option. Here the seller of the option feels the underlying price of a stock / index is
set to fall in the future.
When to use: Investor is very aggressive and he is very
Bearish about the stock /index.
Risk: Unlimited
Reward: Limited to the amount of premium
Break-even Point: Strike Price + Premium
bearish about Nifty and expects it to fall. He sells a Call option with a strike price of Rs.
7800 at a premium of Rs. 154, when the current Nifty is at 7894. If the Nifty stays at 4800
or below, the Call option will not be exercised by the buyer of the Call and Mr. xyz can
retain the entire premium of Rs. 154
Strategy : Sell Call Option

Current Nifty index 7894
Call Option Strike Price (Rs.) 7800
Mr.XYZ
receives Premium (Rs.) 154
Break Even Point (Rs.)(Strike Price
+Premium) 7954
The payoff schedule

On expiry Nifty closes at Net Payoff from the Call Options(Rs.)
7600 154
7700 154
7800 154
7900 54
7954 0
8000 -46
8100 -146
8200 -246
Limited Profit
Unlimited Loss
The payoff chart (Short call)

LONG PUT STRATEGY
Buying a Put is the opposite of buying a Call. When you buy a Call you are bullish about the
stock / index. When an investor is bearish, he can buy a Put option. A Put Option gives the
buyer of the Put a right to sell the stock (to the Put seller) at a pre-specified price and thereby
limit his risk
Market Opinion?
A long Put is a Bearish strategy. To take advantage of a falling market an investor can buy Put
options.
When to use: Investor is bearish about the stock / index.
Risk: Limited to the amount of Premium paid. (Maximum loss if stock / index expires at or
above the option strike price).
Reward: Unlimited
Break-even Point: Stock Price – Premium\
bearish on Nifty on 24th Sep, when the Nifty is at 7894. He buys a Put option with a strike
price Rs.7800 at a premium of Rs.52, expiring on 31st Oct. If the Nifty goes below 7748,
Mr. XYZ will make a profit on exercising the option. In case the Nifty rises above 4800, he
can forego the option (it will expire worthless) with a maximum loss of the premium.
Strategy : Buy Put Option
Current Nifty index 7894

Put Option Strike Price (Rs.) 7800
Mr. XYZ Pays Premium (Rs.) 52
Break Even Point (Rs.)(Strike Price - Premium) 4748
The payoff schedule
On expiry Nifty closes at Net Payoff from Put option (Rs.)
7400 248
7500 148
7600 48
7748 0
7800 -52
4900 -52
5000 -52
5100 -52
Unlimited Profit
Limited Loss
The Payoff Chart Long put

SHORT PUT STRATEGY
Selling a Put is opposite of buying a Put. An investor buys Put when he is bearish on a stock.
An investor Sells Put when he is Bullish about the stock – expects the stock price to rise or stay
sideways at the minimum. When you sell a Put, you earn a Premium (from the buyer of the
Put). You have sold someone the right to sell you the stock at the strike price. If the stock price
increases beyond the strike price, the short put position will make a profit for the seller by the
amount of the premium.
When to Use: Investor is very Bullish on the stock / index. The main idea is to make a short
term income.
Risk: Put Strike Price – Put Premium.
Reward: Limited to the amount of Premium received.
Breakeven: Put Strike Price – Premium
bullish on Nifty when it is at 7891.10. He sells a Put option with a strike price of Rs. 4800
at a premium of Rs. 170.50 expiring on 31st Oct. If the Nifty index stays Above 7800, he
will gain the amount of premium as the Put buyer won’t exercise his option. In case the
Nifty falls below 7800, Put buyer will exercise the option and the Mr. will start losing
money. If the Nifty falls below 4629.50, which is the breakeven point, Mr. XYZ will lose
the premium and more depending on the extent of the fall in Nifty
Strategy : Sell Put Option

Current Nifty index 7891.1
Put Option Strike Price (Rs.) 7800
Mr. XYZ
receives Premium (Rs.) 170.5
Break Even Point (Rs.) (Strike Price -Premium) 7629.5
The payoff schedule
On expiry Nifty Closes at Net Payoff from the Put Option (Rs.)
7100 -529.5
7200 -429.5
7400 -229.5
7600 -29.5
7629.5 0
7800 170.5
8000 170.5
8200 170.5
Limited profit
Unlimited Loss
The Payoff Chart Short Put

LONG STRADDLE
A Straddle is a volatility strategy and is used when the stock price / index is expected to show
large movements. This strategy involves buying a call as well as put on the same stock / index
for the same maturity and strike price, to take advantage of a movement in either direction, a
soaring or plummeting value of the stock / index. If the price of the stock / index increases, the
call is exercised while the put expires worthless and if the price of the stock / index decreases,
the put is exercised, the call expires worthless.
When to Use: The investor thinks that the underlying stock / index will experience significant
volatility in the near term.
Risk: Limited to the initial premium paid.
Reward: Unlimited
Breakeven:
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
Nifty is at 7750 on 27th-July . An investor, Mr. A enters along straddle by buying a May Rs
7800 Nifty Put for Rs. 85 and a Aug Rs. 7800 Nifty Call for Rs. 122. The net debit taken to
enter the trade is Rs 207, which is also his maximum possible loss.
Strategy : Buy Put + Buy Call

Nifty index Current Value 7750
Call and Put Strike Price (Rs.) 7800

Mr. A pays Total Premium (Call + Put) (Rs.) 207
Break Even Point (Rs.) 8007(U)
(Rs.) 7593(L)
The payoff schedule
On expiry Net
Nifty closes Net Payoff from Put purchased Net Payoff from Call purchased Payoff
at (Rs.) (Rs.) (Rs.)
7100 615 -122 493
7200 515 -122 393
7300 415 -122 293
7400 315 -122 193
7500 215 -122 93
7534 181 -122 59
7593 122 -122 0
7600 115 -122 -7
7700 15 -122 -107
7800 -85 -122 -207
7900 -85 -22 -107
8000 -85 78 -7
8007 -85 85 0
8066 -85 144 59
8100 -85 178 93
8400 -85 278 193
8300 -85 378 293
8400 -85 478 393
Unlimited Profit
Limited Loss
Buy call
Unlimited Profit
Limited Loss
Buy put
=
Long Straddle
SHORT STRADDLE
A Short Straddle is the opposite of Long Straddle. It is a strategy to be adopted when the
investor feels the market will not show much movement. He sells a Call and a Put on the same
stock / index for the same maturity and strike price. It creates a net income for the investor. If
the stock / index does not move much in either direction, the investor retains the Premium as
neither the Call nor the Put will be exercised.
When to Use: The investor thinks that the underlying stock / index will experience very little
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:
· Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
· Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Nifty is at 7450 on 27th July. An investor, Mr. A, enters into a short straddle by selling a
May Rs 7500 Nifty Put for Rs. 85 and a May Rs. 7500 Nifty Call for Rs. 122. The net
credit received is Rs. 207, which is also his maximum possible profit
Strategy : Sell Put + Sell Call
Call and Put Strike Price (Rs.) 7800
Mr. A receives Total Premium (Rs.) (Call + Put) (Rs.) 207
Break Even Point (Rs.) 8007
(Rs.) 7593
The payoff schedule

Net
On expiry Nifty Net Payoff from Put sold Net Payoff from Call sold Payoff
closes at (Rs.) (Rs.) (Rs.)
7100 -615 122 -493
7200 -515 122 -393
7300 -415 122 -293
7400 -315 122 -193
7500 -215 122 -93
7537 -181 122 -59
7593 -122 122 0
7600 -115 122 7
7700 -15 122 107
7800 85 122 207
7900 85 22 107
8000 85 -78 7
8007 85 -85 0
8066 85 -144 -59
8100 85 -178 -93
8200 85 -278 -193
8300 85 -378 -293
Limited Profit
Unlimited Loss
Sell call
Limited profit
Unlimited Loss
Sell Put
=
Short Straddle
LONG STRANGLE
A Strangle is a slight modification to the Straddle to make it cheaper to execute. This strategy
involves the simultaneous buying of a slightly out-of-the-money (OTM) put and a slightly out-
of-the-money (OTM) call of the same underlying stock / index and expiration date. Here again
the investor is directional neutral but is looking for an increased volatility in the stock / index
and the prices moving significantly in either direction. Since OTM options are purchased for
both Calls and Puts it makes the cost of executing a Strangle cheaper as compared to a Straddle,
When to Use: The investor thinks that the underlying stock / index will experience very high
levels of
Risk: Limited to the initial premium paid
Reward: Unlimited
Breakeven:
· Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
· Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
Nifty is at 7500 in Aug. An investor, Mr. A, executes a Long Strangle by buying a Rs. 7300
Nifty Put for a premium of Rs. 23 and a Rs 7700 Nifty Call for Rs 43. The net debit taken
to enter the trade is Rs. 66, which is also his maxi mum possible l
Strategy : Buy OTM Put + Buy OTM Call

Buy Call Option Strike Price (Rs.) 8000
Mr. A pays Premium (Rs.) 43
Buy Put Option Strike Price (Rs.) 7600
Mr. A pays Premium (Rs.) 23
The payoff schedule

On expiry Net
Nifty Net Payoff from Put sold Net Payoff from Call Payoff
closes at (Rs.) sold (Rs.) (Rs.)
7100 477 -43 434
7200 377 -43 334
7300 277 -43 234
7400 177 -43 134
7500 77 -43 34
7537 43 -43 0
7600 -23 -43 -66
7700 -23 -43 -66
7800 -23 -43 -66
7900 -23 -43 -66
8000 -23 -43 -66
8066 -23 23 0
8100 -23 57 34
8200 -23 157 134
8300 -23 257 234
8400 -23 357 334
Unlimited Profit
Limited Loss
Buy OTM Call
Unlimited Profit
Limited Loss
Buy OTM Put

=
Long Strangle
SHORT STRANGLE
A Short Strangle is a slight modification to the Short Straddle. It tries to improve the
profitability of the trade for the Seller of the options by widening the breakeven points so that
there is a much greater movement required in the underlying stock / index, for the Call and Put
option to be worth exercising. This strategy involves the simultaneous selling of a slightly out-
of-the-money (OTM) put and a slightly out-of-themoney (OTM) call of the same underlying
stock and expiration date.
When to Use: This options trading strategy is taken when the options investor thinks that the
underlying stock will experience little volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:
· Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
· Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Nifty is at 7500 in Aug . An investor, Mr. A, executes a Short Strangle by selling a Rs. 7300
Nifty Put for a premium of Rs. 23 and a Rs. 7700 Nifty Call for Rs 43. The net credit is Rs.
66, which is also his maximum possible gain
Strategy : Sell OTM Put + Sell OTM Call

Sell Call Option Strike Price (Rs.) 8000
Mr. A receives Premium (Rs.) 43
Sell Put Option Strike Price (Rs.) 7600
Mr. A receives Premium (Rs.) 23
The payoff schedule

On Net Payoff from Put Sold Net Payoff from Call Sold Net
expiry
Nifty Payoff
closes at (Rs.) (Rs.) (Rs.)
7100 -477 43 -434
7200 -377 43 -334
7300 -277 43 -234
7700 -177 43 -134
7500 -77 43 -34
7534 -43 43 0
7600 23 43 66
7700 23 43 66
7800 23 43 66
7900 23 43 66
8000 23 43 66
8066 23 -23 0
8100 23 -57 -34
8200 23 -157 -134
8300 23 -257 -234
Limited profit
Unlimited Loss
Sell Put
Limited profit
Unlimited Loss
Sell OTM Put
=
Short Strangle
BULL CALL SPREAD STRATEGY

BUY CALL OPTION, SELL CALL OPTION
A bull call spread is constructed by buying an in-the money (ITM) call option, and selling
another out-of-the-money (OTM) call option. Often the call with the lower strike price will be
in-the-money while the Call with the higher strike price is out-of-the-money. Both calls must
have the same underlying security and expiration month. The net effect of the strategy is to
bring down the cost and breakeven on a Buy Call (Long Call) Strategy.
When to Use: Investor is moderately bullish.

Risk: Limited to any initial premium paid in establishing the position. Maximum loss occurs
where the underlying falls to the level of the lower strike or below.
Reward: Limited to the difference between the two strikes minus net premium cost. Maximum
profit occurs where the underlying rises to the level of the higher strike or above
Break-Even-Point (BEP): Strike Price of Purchased call + Net Debit Paid
Buys a Nifty Call with a Strike price Rs. 7800 at a premium of Rs. 170.45 and he sells a
Nifty Call option with a strike price Rs. 8 200 at a premium of Rs. 35.40. The net debit here is Rs.
135.05 which is also his maximum loss
Strategy : Buy a Call with a lower strike (ITM) +Sell a Call with a higher strike (OTM)
Nifty index Current Value 7891.1
Buy ITM Call Option Strike Price (Rs.) 7800
Mr. XYZ Pays Premium (Rs.) 170.45
Sell OTM Call Option Strike Price (Rs.) 8200
Mr. XYZ Receives Premium (Rs.) 35.4
Mr. XYZ Receives Receives 35.4
Net Premium Paid (Rs.) 135.05
Break Even Point (Rs.) 7935.05
The payoff schedule

On expiry Nifty Net Payoff from Put Net Payoff from Call Sold Net Payoff
closes at Sold (Rs.) (Rs.) (Rs.)
7200 -170.45 35.4 -135.05
7300 -170.45 35.4 -135.05
7700 -170.45 35.4 -135.05
7500 -170.45 35.4 -135.05
7600 -170.45 35.4 -135.05
7700 -170.45 35.4 -135.05
7800 -170.45 35.4 -135.05
8000 -70.45 35.4 -35.05
8038 -35.4 35.4 0
8100 29.55 35.4 64.95
8200 129.55 35.4 164.95
8300 229.55 -64.6 164.95
8400 329.55 -164.6 164.95
8500 429.55 -264.6 164.95
8600 529.55 -364.6 164.95
Unlimited Profit
Limited Loss
Buy Low Strike Call
Limited profit
Unlimited Loss
Sell OTM Put
=
Call Purchase
Buy Low Strike Call
BULL PUT SPREAD STRATEGY

SELL PUT OPTION, BUY PUT OPTION
A bull put spread can be profitable when the stock / index is either range bound or rising. The
concept is to protect the downside of a Put sold by buying a lower strike Put, which acts as an
insurance for the Put
sold. The lower strike Put purchased is further OTM than the higher strike Put sold ensuring
that the investor receives a net credit, because the Put purchased (further OTM) is cheaper than
the Put sold. This strategy is equivalent to the Bull Call Spread but is done to earn a net credit
(premium) and collect an income.
When to Use: When the investor is moderately bullish.
Risk: Limited. Maximum loss occurs where the underlying falls to the level of the lower strike
or below
Reward: Limited to the net premium credit. Maximum profit occurs where underlying rises to
the level of the higher strike or above.
Breakeven: Strike Price of Short Put - Net Premium Received
:
Mr. XYZ sells a Nifty Put option with a strike price of Rs. 7800 at a premium of Rs. 21.45
and buys a further OTM Nifty Put option with a strike price Rs. 7600 at a premium of Rs.
3.00 when the current Nifty is at 7191.10, with both options expiring on 31st July.
Strategy : Sell a Put +Buy a Put

Nifty index Current Value 7991.1
Mr. XYZ Pays Premium (Rs.) 21.45
Mr. XYZ Receives Premium (Rs.) 3
Net Premium Paid (Rs.) 18.45

Break Even Point (Rs.) 7781.55
The payoff schedule
On expiry Net Payoff from Put Net Payoff from Call Net
Nifty Sold (Rs.) Sold (Rs.) Payoff
closes at (Rs.)
7300.00 267 -478.55 -
181.55
7400.00 197 -378.55 -
181.55
7500.00 97 -278.55 -
181.55
7600.00 -3 -178.55 -
181.55
7700.00 -3 -78.55 -81.55
7781.55 -3 3.00 0.00

7800.00 -3 21.45 18.45
7900.00 -3 21.45 18.45
8000.00 -3 21.45 18.45
8100.00 -3 21.45 18.45
8200.00 -3 21.45 18.45
8300.00 -3 21.45 18.45
8400.00 -3 21.45 18.45
8500.00 -3 21.45 18.45
8600.00 -3 21.45 18.45

Unlimited Profit
Limited Loss
Buy Low Strike Put
Limited profit
Unlimited Loss
Sell OTM Put
=
BULL PUT SPREAD STRATEGY
BEAR CALL SPREAD STRATEGY

SELL ITM CALL, BUY OTM CALL
The Bear Call Spread strategy can be adopted when the investor feels that the stock / index is
either range bound or falling. The concept is to protect the downside of a Call Sold by buying a
Call of a higher strike price to insure the Call sold. In this strategy the investor receives a net
credit because the Call he buys is of a higher strike price than the Call sold. The strategy
requires the investor to buy out-of-the-money (OTM) call options while simultaneously selling
in-the-money (ITM) call options on the same underlying stock index.
When to use: When the investor is mildly bearish on market.
Risk: Limited to the difference between the two strikes minus the net premium.
Reward: Limited to the net premium received for the position i.e., premium received for the
short call minus the premium paid for the long call.
Break Even Point:
Lower Strike + Net credit
bearish on Nifty. He sells an ITM call option with strike price of Rs. 4800 at a premium of
Rs. 154 and buys an OTM call option with strike price Rs. 5000 at a premium of Rs. 49.
SELL ITM CALL, BUY OTM CALL

Mr. XYZ Receives Receives 49
Net Premium Paid (Rs.) 105
The payoff schedule

On expiry Nifty Net Payoff from Put Net Payoff from Net Payoff
closes at Sold (Rs.) Call Sold (Rs.) (Rs.)
7300 154 -49 105
7400 154 -49 105
7500 154 -49 105
7600 154 -49 105
7700 154 -49 105
7800 154 -49 105
7905 54 -49 5
8000 49 -49 0
8100 -46 51 -95
8200 -146 151 -95
8300 -246 251 -95
8400 -346 351 -95
8500 -446 451 -95
Limited profit
Unlimited Loss
Sell Low Strike Call
Unlimited Profit
Limited Loss
Buy OTM Call
=
Baer Call Spread
BEAR PUT SPREAD STRATEGY
BUY PUT, SELL PUT
This strategy requires the investor to buy an in-the-money (higher) put option and sell an out-
of-the-money (lower) put option on the same stock with the same expiration date. This strategy
creates a net debit for the investor. The net effect of the strategy is to bring down the cost and
raise the breakeven on buying a Put (Long Put). The strategy needs a Bearish outlook since the
investor will make money only when the stock price / index fall. The bought Puts will have the
effect of capping the investor’s downside. While the Puts sold will reduce the investors costs,
risk and raise breakeven point (from Put exercise point of view).
When to use: When you are moderately bearish on market direction
Risk: Limited to the net amount paid for the spread. i.e. the premium paid for long position less
premium received for short position.
Reward: Limited to the difference between the two strike prices minus the net
Premium paid for the position.
Break Even Point:

Strike Price of Long Put – Net Premium Paid
Nifty is presently at 7694. Mr.XYZ expects Nifty to fall. He buys one Nifty ITM Put with a
strike price Rs. 7800 at a premium of Rs. 132 and sells one Nifty OTM Put with strike
price Rs. 7600 at a premium Rs. 52.
Strategy : Buy a Put with a higher strike (ITM)+ Sell a Put with a lower strike (OTM)
Buy ITM put Option Strike Price (Rs.) 7800
Sell OTM put Option Strike Price (Rs.) 7600
Net Premium Paid (Rs.) 80
The payoff schedule

On expiry Net Payoff from Put Net Payoff from
Nifty closes at Sold (Rs.) Call Sold (Rs.) Net Payoff (Rs.)
7200 469 -348 120
7300 369 -248 120
7400 269 -148 120
7500 169 -48 120
7600 68 52 120
7720 -52 52 0
7700 -32 52 20
7800 -132 52 -80
7900 -132 52 -80
8000 -132 52 -80
8100 -132 52 -80
Limited profit
Unlimited Loss
Sell Low Strike Put
Unlimited Profit
Limited Loss
Buy Put
Baer Put Spread

Chapter 5
FINDINGS AND SUGGESTIONS
FINDINGS
1. To study the derivatives

2. To find of the different NEIFTY index values apply different option strategies.
3. To find out the call option and put option using various option strategies.
4. To find market volatility using option strategies to reduce risk.
5. What way we deduce the risk through using option strategies .
SUGGESTIONS
 The investors before in to the derivatives contract (Specially in future &option) should
be clearly known about their capacity to take risk & the risk involve in the trading in
future &option contract.
 If the price of the stock purchased falls due fall in the index, the loss arising form the
cash market will be compensated by the profit achieved by the selling index futures.
 Derivatives trading, as its major characteristics gives high amount of the chance to use
the leverage to the trader. So it will definitely encourage the investors to invents less &
speculative. But before speculating he should analyze the risk involve in the position &
his capabilities to absorb that risk.
 If the stock price increases due to the increase in the index, loss arising from the cash
market will be compensated by profit in the future market.
 It is very profitable to take position in the straddle & strangle. it is because, if the trader
is new in the market & uncertain about the market goes upward or downward. But if the
market remains stable, both the position is not recommended.
 if the investors or trader is taking the position in the future market. He must be first
clear about the risk & return profile of his future. The future buyer may make unlimited
profit or unlimited loss, depending on the price of the assets in the delivery market.
 It is generally studied in the future that small speculators are big loser, laree speculators
are small winners & hedger are big winner. Since profit of the large speculators for the
individual future market is small the speculators do not earn sufficient profit to
compensate for the risk of trading in future market
CONCLUSION
 Find that derivative market has been a phenomenal growth. A large variety of derivative
contract have been at exchanges across the world. Some of the factors of driving growth
of financial derivatives.
 Increased the volatility in asset price in financial market
 Increased integration of national financial market with international market.
 Market improved in communication of facilities & sharp decline in their costs.
 Development of more sophisticated risk management tools, providing economic agent a

wider choice of risk management strategies.
 Innovation in derivative market, which optimally combine the risk & returns over a
large number of financial assets leading to higher returns, reduced risk as well as
transaction cost as well as transaction
BIBLIOGRAPHY
BOOKS:
 Derivatives Dealers Module Work book-NCFM

 Lawrence G.McMillan, (1993) Option as a Strategic Investment. New York
Institute Of Finance
NEWS PAPERS:
 Economic times
 The Financial Express
 Business Standard
MAGAZINES:
 Business Today
 Business World
 Business India
WEBSITES:
 www.derivativesindia.com
 www.nesindea.com
 www.bseindia.com
 www.sebi.gov.in
 www.google.com
Project Report Format
Chapter 1
Introduction
Need for the study
Objectives
Research methodology – data collection method
Scope, limitations
Chapter 2 theory
Chapter 3 company profile
Chapter 4 data analysis & interpretation
Chapter 5 findings & suggestions
Chapter 6 conclusions
Annexure
Bibliography

Option Strategies Kay 2016

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CHAPTER-1 INTRODUCTION

CHAPTER-2 REVIEW OF LITERATURE

CHAPTER-3 COMPANY PROFILE

CHAPTER-4 DATA ANALYSIS AND

CHAPTER-5 FINDINGS, SUGGESTION &

Objectives of the study

 Examine market behavior with real time trading experience

DATA COLLECTION METHOD

Primary source of data

Secondary Source Of Data:

 The Time constraint is the important limitation of this study.

 The cost is also limited factor of this study

Options trading is becoming an increasingly popular investment tool, fuelled by

Derivative Products initially emerged as hedging devices against fluctuations in commodity

DERIVATIVE -CONCEPT AND MEANING

THE NEED OF DERIVATIVES MARKET

PARTICIPANTS IN THE DERIVATIVE MARKETS

The following three board categories of participants:

FUNCTION OF THE DERIVATIVE MARKETS

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

@ - by number of applications mobilised

* - High Networth Individual segment

** - Hyderabad Stock Exchange

(1) KARVY CONSULTANTS LIMITED

(2) KARVY STOCK BROKING LIMITED

(3) KARVY INVESTORS SERVICES LIMITED

Karvy financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers,

(4) KARVY COMPUTERSHARE PVT. LIMITED

Mutual Fund Services

Corporate Shareholder Services

(5) KARVY GLOBAL SERVICES LIMITED

KARVY is in re-engineering and managing processes or delivering new efficiencies,

(6) KARVY COMMODITIES BROKING LIMITED

(7)KARVY INSURANCE BROKING PRIVATE LIMITED

As per the Quality Policy, Karvy will:

Among the top 3 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Top most Depository Participants

Largest Network of Branches & Business Associates

ISO 9002 certified operations by DNV

Among top 10 Investment bankers

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT uses in India by MIS Asia

Options can be divided into two different categories

 In-the-money option: An in-the-money (ITM) option is an option that would lead to a

Payoff profile for buyer of call options: Long call

Payoff profile for writer (seller) of put options: Short put

Strategy :Buy call Option

Break Even Point (Rs.) (Strike Price+

The payoff chart (Long call)

Strategy : Sell Call Option

The payoff schedule

The payoff chart (Short call)

Strategy : Buy Put Option

Current Nifty index 7894

The Payoff Chart Long put

Strategy : Sell Put Option

The Payoff Chart Short Put

Strategy : Buy Put + Buy Call

Call and Put Strike Price (Rs.) 7800

The payoff schedule

Strategy : Buy OTM Put + Buy OTM Call