DERIVATIVES ASSIGNMENT

Submitted By:
Shivam Agarwal [18A1HP026]
Futures:
 Name of the Stock: TATAMOTORS
 Period Studied: 2nd May 2019 to 25th July 2019
 Total number of Observation: 58
Filters Applied:

 The data was cleaned on the basis of the number of shares. The future stock contracts which were equal to or
greater than 3.000 were taken into consideration. All the rest were ignored. These 3,000 contracts show that the
stock is Highly Liquid.
The following information are taken into consideration:

  3 months T-Bill as per RBI site is 5.6539%.

 The Transaction Cost that a brokerage company charges is 0.12% per transaction (Zerodha). We have multiplied
the charges by 4 since each market would have 2 transactions that is buy and sell.
The following observations has come out from my finding:

Futures vs Spot Basis

LTP (Future price) 1
0.5
0
Underlying Value (Spot Price) -0.5
-1
-1.5
230 -2
210 -2.5
190 021
170 234
150 -
M…J…

Date

 Basis = Spot Price – Futures Price. Basis approaches zero at the time of expiry as Futures price becomes equal to
Spot Price.
 Here the market is Contango as for most of the observations the Spot price is greater than Future Price
Normal Backwardation (Spot Price > Futures Price) 15
Contango (Spot Price < Future Price) 43

  The Theoretical Future price is calculated as Spot Price*Exponent^R*T.

 The Cost of Carry(percentage) is calculated as (Theoretical Future Price divided by Spot Price) -1. From the
report we can see that the Cost of Carry percentage mostly lies below 0.4%.

Model Data
Cash and Carry 30
Reverse Cash and Carry 28

  But when transaction cost is deducted from it then we find that there are only 4 Arbitrage Opportunities.
 The Correlation between the Spot Price and the Futures Price is very high in all the contracts.
May 0.998417 June 0.99823
July 0.997714
 0.60% Arbritrage Oppurtunity
0.40%
0.20%
0.00%
-0.20%
-0.40%
-0.60%
-0.80%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57
Observations
Theoritical F.P - F.P( in Per) Overall Transaction Cost (T.C+Brokerage)

Options:
Call Options Put Options
 Name of the Stock: TATAMOTORS CE  Name of the Stock: TATAMOTORS PE
 Period Studied: 6th May 2019 to 25th July 2019  Period Studied: 6th May 2019 to 25th July 2019
 Total Number of Observation: 48  Total Number of Observation: 36

Filters Applied:

 There were 1803 data sets till the expiry data was 25th July 2019. Then we filtered out the data on the basis of
the number of contracts. For ease, more than or equal to 800 number of Contracts for Call Option Data is
considered whereas for Put Option we have considered number of contracts to be more than or equal to 200.
These options are not so liquid.

The following observations has been made for Call Options:

 The Intrinsic Value initially was very low when as compared to Time Value. At times the Intrinsic Value was
even Zero. But gradually as the option approaches the expiry date, the Intrinsic Value and Time Value both are
 equal to Zero.
 If there comes a scenario where the Time Value is negative (Though not in this case). A negative Time Value
would mean that the option price is below the intrinsic value, so one could buy the option, hedge with the
forward and have an arbitrage.
The following observations has been made for Put Options:

 The Intrinsic Value initially was very low as compared to Time Value. At times the Intrinsic Value was even
Zero. But gradually as the option approaches the expiry date, the Intrinsic Value becomes zero whereas Time
Value for Put option is 0.05 whereas for Call option is 0. 
Call Options Put Options
In the Money 8 15
Out of the Money 40 21

Put Option Call Option

20 15
15 10
10
5 5
0 0
27-Jun-19
28-Jun-19
Date

23-Jul-19
01-Jul-19
03-Jul-19
04-Jul-19
05-Jul-19
10-Jul-19
12-Jul-19
16-Jul-19
19-Jul-19

25-Jul-19

-5
Date

11-Jul-19
01-Jul-19
04-Jul-19
08-Jul-19
09-Jul-19
10-Jul-19

11-Jul-19
12-Jul-19
15-Jul-19
16-Jul-19
17-Jul-19
18-Jul-19
19-Jul-19
22-Jul-19
24-Jul-19

Intrinsic value Time Value Intrinsic Value Time Value