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A Study On "A Study of Nifty Derivatives & Risk Minimization Trading Strategy"
A Study On "A Study of Nifty Derivatives & Risk Minimization Trading Strategy"
2019
Department of Management Studies
Guru Ghasidas Vishwavidyalaya, Bilaspur (C.G.)
Title of the Project
Objectives
i. To determine the short term trend of Nifty future using the important derivatives market indicators.
ii. To determine the derivatives trading strategy on the basis of different market outlooks which will
minimize the risk exposure and at same time maximize the profit.
Introduction
The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the
value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live
stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid
contract of pre determined fixed duration, linked for the purpose of contract fulfilment to the value of a
specified real or financial asset or to an index of securities.
Derivatives in mathematics, means a variable derived from another variable. Similarly in the financial sense,
a derivative is a financial product, which has been derived from a market for another product. Without the
underlying product, derivatives do not have any independent existence in the market. Derivatives have come
into existence because of the existence of risks in business. Thus derivatives are means of managing risks.
The parties managing risks in the market are known as hedgers.
Literature Review
Chiang and Wang (2002)(4) examined the impact of futures trading on spot index volatility. Their study also
discussed the macroeconomic and asymmetric effects of futures trading on spot price volatility behaviour.
They used an asymmetric time-varying volatility model. Their empirical results showed that the trading of
futures on the Taiwan Index has stabilising impacts on spot price volatility, while the trading of MSCI futures
has no effects, except asymmetric response behaviour. Thenmozhi (2002) examined whether there was any
change in the volatility of the S&P CNX Nifty Index in India due to the introduction of Nifty futures and
whether movements in futures prices provided predictive information regarding subsequent movements in
index prices. The study shows that the inception of futures trading has reduced the volatility of spot index
returns.
Drimbetas et al. (2007) (6) reported reduction in the conditional volatility of index and consequently
increases its efficiency. 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. In recent years, the market for financial derivatives has grown tremendously both in
terms of variety of instruments available, their complexity and also turnover. In the class of equity
derivatives, 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 derivatives.
RESEARCH METHODOLOGY
The research design used in the project is Descriptive Research cum Qualitative Research.
Break even analysis, Open and Put call ratios and various other statistical tools are used.
RESEARCH/JUSTIFICATION
Trading in derivatives is risky. We are examining derivative market & some trading strategy which are
helpful to minimize risk in derivative market. We study the general problem to minimize the risk of a
position at a fixed date.
PERIOD OF STUDY
February month 2019.I have done the study of nifty futures only. I have studied the short term trend of nifty
futures for the month of Feb, 2019 only. I have used two important indicators Open Interest and Put-Call
Ratio only to determine the trend of Nifty.
SAMPLE SIZE
The sample consists of top Nifty futures having operations which consist of large, mid and small cap
categories. The sample was a judgmental sample, selected based on data availability
DATA SOURCES
Descriptive Research cum Qualitative Research data analysis will be used to describe the result obtained and
after analysis data will be presented and interpreted through Graphs, charts and tables etc.
Chapter Plan: