“A COMPARATIVE STUDY ON TRADING OF SPOT

MARKET VS OPTIONS IN NSE"

IN
SHAREKHAN LIMITED
VIJAYAWADA.

A Project report submitted to

In partial fulfilment of the requirements for the award of degree of

ANDHRA LOYOLA COLLEGE (Autonomous), vijyawada-8

Accredited at A+ Grade with a CGPA 3.66/4.00 in III cycle by NAAC
MASTER OF BUSINESS ADMINISTRATION

Submitted by

VALLABHANENI GOPICHAND

(Registration No: Y17MBA110015)

UNDER THE GUIDANCE OF

DR.S.POORNA PRABHAT

DEPARTMENT OF BUSINESS ADMINISTRATION

POST GRADUATE DEPARTMENT OF BUSINESSADMINISTRATION

ANDHRA LOYOLA COLLEGE (Autonomous), VIJAYAWADA.

(Affiliated to Krishna University, Approved by AICTE)

Vijayawada, Krishna District

(2017-2019)
 CERTIFICATE

This is to certify that this project entitled “at A COMPARATIVE

STUDY ON TRADING OF SPOT MARKET VS OPTIONS IN NSE at
SHAREKHAN LIMITED” is bonafide work done and submitted by
Mr.VALLABHANENI GOPICHAND, Register No.Y17MBA110015 in
partial fulfilment of the requirement for the award of the degree of “MASTER
OF BUSINESS ADMINISTRATION” in “Andhra Loyola College (A”
(Affiliated To Krishna University, Vijayawada), Vijayawada during the year
2017-2019.

DR.S.POORNA PRABHAT Dr. B. G. K. MURTHY

Project Guide Head of Department M.B.A

DECLARATION
 I VALLABHANENI GOPICHAND , student of Master of Business Administration
(MBA) with stream of finance, Department of MBA, ANDHRA LOYOLA COLLEGE,
Vijayawada here by declare that the project work initiated on “ A COMPARATIVE

STUDY ON TRADING OF SPOT MARKET VS OPTIONS IN NSE” is the

genuine work done by me under the guidance of DR.S.POORNA PRABHAT, Assistant
Professor, Department of Business Management in partial fulfilment of the requirement for
the award of my M.B.A. degree in KRISHNA UNIVERSITY,MACHILIPATNAM.

I also hereby declare that this is done with my own efforts and this has not been
submitted elsewhere for the award of any degree in part or in full.

Place: VIJAYAWADA VALLABHANENI GOPICHAND

Date: (Y17MBA110015)
 ACKNOWLEDGEMENT

It is a pleasure to convey my heartiest regards to Rev. Fr. Dr. G.A.PETER

KISHORE, S.J, Principal, Andhra Loyola College and Rev.Fr. Dr. A. REX ANGELO,
S.J, Vice Principal, Post-Graduation Section, Andhra Loyola College for their support in
completing my project work.

My sincere and grateful thanks to Dr. B.G.K. MURTHY, HOD, PG Department of

Business Administration Andhra Loyola College and special thanks to my guide
DR.S.POORNA PPRABHAT, for his valuable time and support in preparation of my
project work.

I would also like to thank “SHAREKHAN LIMITED” for giving me this

opportunity to undergo a project study program in their esteemed organization. I am also
thankful to Mr, HR Manager at Share khans for his patient and valuable guidance in
accomplishing the study.

VALLABHANENI GOPICHAND

(Y17MBA110015)
 INDEX

CONTENTS NAME OF THE TOPIC PAGE

CHAPTER 1 INTRODUCTION

CHAPTER 2 RESEARCH METHODOLOGY

CHAPTER 3 INDUSTRY PROFILE

CHAPTER 4 COMPANY PROFILE

CHAPTER 5 DATA ANALYSIS & INTERPRETATION

CHAPTER 6 FINDINGS & SUGGESTIONS

CONCLUSIONS AND BIBLOGRAPHY

 Chapter-1
INTRODUCTION
INSTRODUCTION TO DERIVATIVES

Investors use financial instruments such as Derivatives &

Futures to hedge risks. These risks can be financial liabilities, commodity price
fluctuations or other factors. Financially stronger companies or share market
dealers accept these risks and use various strategies to make profits out of it.

In the investment industry, a ‘Derivative’ is a contract

whose price is decided on the basis of one or more underlying assets. The
underlying asset can be a currency, stock, commodity or a security (that bears
interest). Sometimes, Derivatives are also used for trading in specific sectors
such as foreign exchange, equity, treasury bills, electricity, weather,
temperature, etc. For example, Derivatives for the energy market are called
Energy Derivatives. According to the Securities Contract (Regulation) Act,
1956 the term “derivative” includes:
A security derived from a debt instrument, share, loan,
whether secured or unsecured, risk instrument or contract for differences or any
other form of security; a contract which derives its value from the prices, or
index of prices, of underlying Securities.

ORIGIN OF DERIVATIVES:

While trading in derivatives products has grown tremendously in recent times,

the earliest evidence of these types of instruments can be traced back to ancient
Greece. Even though derivatives have been in existence in some form or the
other since ancient times, the advent of modern day derivatives contracts is
attributed to farmers’ need to protect themselves against a decline in crop prices
due to various economic and environmental factors. Thus, derivatives contracts
initially developed in commodities. The first “futures” contracts can be traced to
the Yodoya rice market in Osaka, Japan around 1650. The farmers were afraid
of rice prices falling in the future at the time of harvesting. To lock in a price
(that is, to sell the rice at a predetermined fixed price in the future), the farmers
entered into contracts with the buyers.

These were evidently standardized contracts, much like

today’s futures contracts. In 1848, the Chicago Board of Trade (CBOT) was
established to facilitate trading of forward contracts on various commodities.
From then on, futures contracts on commodities have remained more or less in
the same form, as we know them today. While the basics of derivatives are the
same for all assets such as equities, bonds, currencies, and commodities, we will
focus on derivatives in the equity markets and all examples that we discuss will
use stocks and index (basket of stocks).

DERIVATIVES IN INDIA:

In India, derivatives markets have been functioning since the nineteenth

century, with organized trading in cotton through the establishment of the
Cotton Trade Association in 1875. Derivatives, as exchange traded financial
instruments were introduced in India in June 2000.

The National Stock Exchange (NSE) is the largest exchange in India in

derivatives, trading in various derivatives contracts. The first contract to be
launched on NSE was the Nifty 50 index futures contract. In a span of one and a
half years after the introduction of index futures, index options, stock options
and stock futures were also introduced in the derivatives segment for trading.
NSE’s equity derivatives segment is called the Futures & Options Segment or
F&O Segment. NSE also trades in Currency and Interest Rate Futures contracts
under a separate segment. A series of reforms in the financial markets paved
way for the development of exchange-traded equity derivatives markets in
India. In 1993, the NSE was established as an electronic, national exchange and
it started operations in 1994. It improved the efficiency and transparency of the
stock markets by offering a fully automated screen-based trading system with
real-time price dissemination. A report on exchange traded derivatives, by the
L.C. Gupta Committee, set up by the Securities and Exchange Board of India
(SEBI), recommended a phased introduction of derivatives instruments with bi-
level regulation (i.e., self-regulation by exchanges, with SEBI providing the
overall regulatory and supervisory role).

Another, by the J.R. Varma Committee in 1998, worked out the various
operational details such as margining and risk management systems for these
instruments. In 1999, the Securities Contracts (Regulation) Act of 1956, or
SC(R)A , was amended so that derivatives could be declared as “securities”.
This allowed the regulatory framework for trading securities, to be extended to
derivatives. The Act considers derivatives on equities to be legal and valid, but
only if they are traded on exchanges.

The Securities Contracts (Regulation) Act, 1956 defines "derivatives" to

include:

1. A security derived from a debt instrument, share, loan whether secured or

unsecured, risk instrument, or contract for differences or any other form of
security.

2. A contract which derives its value from the prices, or index of prices, of
underlying securities.
At present, the equity derivatives market is the most active derivatives market in
India. Trading volumes in equity derivatives are, on an average, more than three
and a half times the trading volumes in the cash equity markets.

Before derivatives trading began, NSE and BSE were all-electronic equity spot
markets. By international standards, they were small markets. Derivatives
trading, which started in June 2000, was a turning point in many ways. And
after all the changes had fallen into place, NSE and BSE were both amongst the
top 10 exchanges in the world by the number of transactions.
At NSE, at the outset, there was only one contract: Nifty futures. A full set of
equity derivatives products was only available by November 2001. The 9/11
attacks on the World Trade Centre in the US were the first important event
surrounding which index derivatives trading came to be of interest. Starting
from November 2001, the growth in the number of contracts traded at NSE has
been remarkable: an average compounded growth of 5.1% per month. Few
derivatives exchanges worldwide have obtained such a hectic pace of growth in
the early years after launch.
In early 2002, the market had a new technique (options and futures) for
expressing old ideas (views on individual stocks). The idea of trading an index
was something new. Gradually, knowledge about the index percolated within
the community, and the share of index derivatives went up to over 80% of the
overall equity derivatives trading.
There has also been a shift away from equity derivatives. Currency derivatives
trading commenced at NSE in August 2008 with a limited form of currency
futures trading. At the time, trading was permitted in only futures on the rupee-
dollar rate, options and swaps were banned, participations by FIIs and NRIs was
banned. Yet, currency derivatives trading rapidly gained prominence at NSE,
rising to above 10% of the overall NSE derivatives business within six months.
Milestones in the development of Indian Derivative Market

November 18, L.C. Gupta Committee set up to draft a policy framework

1996
for introducing derivatives

May 11, 1998 L.C. Gupta committee submits its report on the policy
Framework

May 25, 2000 SEBI allows exchanges to trade in index futures

June 12, 2000 Trading on Nifty futures commences on the NSE

June 4, 2001 Trading for Nifty options commences on the NSE

July 2, 2001 Trading on Stock options commences on the NSE

November 9, 2001 Trading on Stock futures commences on the NSE

August 29, 2008 Currency derivatives trading commences on the NSE

August 31, 2009 Interest rate derivatives trading commences on the NSE

February 2010 Launch of Currency Futures on additional currency pairs

October 28, 2010 Introduction of European style Stock Options

October 29, 2010 Introduction of Currency Options

FUNCTIONS OF THE DERIVATIVES MARKET:

 The derivatives market performs a number of economic functions. They are:

1. Prices in an organized derivatives market reflect the perception of market

participants about the future and lead the prices of underlying to the perceived
future level.
2. Derivatives, due to their inherent nature, are linked to the underlying cash

markets. With the introduction of derivatives, the underlying market witnesses

higher trading volumes because of participation by more players who would not
otherwise participate for lack of an arrangement to transfer risk.
3. 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.
4. An important incidental benefit that flows from derivatives trading is that it acts

as a catalyst for new entrepreneurial activity

5. Derivatives markets help increase savings and investment in the long run.

Transfer of risk enables market participants to expand their volume of activity.

TWO IMPORTANT TERMS:

Before discussing derivatives, it would be useful to be familiar with two

terminologies relating to the underlying markets. These are as follows:

1. SPOT MARKET:

In the context of securities, the spot market or cash market is a securities market
in which securities are sold for cash and delivered immediately. The delivery
happens after the settlement period. Let us describe this in the context of India.
The NSE’s cash market segment is known as the Capital Market (CM)
Segment. In this market, shares of SBI, Reliance, Infosys, ICICI Bank, and
other public listed companies are traded. The settlement period in this market is
on a T+2 basis i.e., the buyer of the shares receives the shares two working days
after trade date and the seller of the shares receives the money two working
days after the trade date.

2. INDEX:

Stock prices fluctuate continuously during any given period. Prices of some
stocks might move up while that of others may move down. In such a situation,
what can we say about the stock market as a whole? Has the market moved up
or has it moved down during a given period? Similarly, have stocks of a
particular sector moved up or down? To identify the general trend in the market
(or any given sector of the market such as banking), it is important to have a
reference barometer which can be monitored. Market participants use various
indices for this purpose. An index is a basket of identified stocks, and its value
is computed by taking the weighted average of the prices of the constituent
stocks of the index. A market index for example consists of a group of top
stocks traded in the market and its value changes as the prices of its constituent
stocks change. In India, Nifty Index is the most popular stock index and it is
based on the top 50 stocks traded in the market. Just as derivatives on stocks are
called stock derivatives, derivatives on indices such as Nifty are called index
derivatives.

DEFINITIONS OF BASIC DERIVATIVES:

There are various types of derivatives traded on exchanges across the world.
They range from the very simple to the most complex products. The following
are the three basic forms of derivatives, which are the building blocks for many
complex derivatives instruments .Knowledge of these instruments is necessary
in order to understand the basics of derivatives. We shall now discuss each of
them in detail.
TYPES OF DERIVATIVES
The most commonly used derivatives contracts are forwards, futures and
options.
Here various derivatives contracts that have come to be used are given briefly:
1. Forwards
2. Futures
3. Options
4. Warrants
5. LEAPS
6. Baskets
7. Swaps
8. Swaptions

1. FORWARDS:

A forward contract or simply a forward is a contract between two parties to buy

or sell an asset at a certain future date for a certain price that is pre-decided on
the date of the contract.

The future date is referred to as expiry date and the pre-decided price is referred
to as Forward Price. It may be noted that Forwards are private contracts and
their terms are determined by the parties involved.

A forward is thus an agreement between two parties in which one party, the
buyer, enters into an agreement with the other party, the seller that he would
buy from the seller an underlying asset on the expiry date at the forward price.
Therefore, it is a commitment by both the parties to engage in a transaction at a
later date with the price set in advance. This is different from a spot market
contract, which involves immediate payment and immediate transfer of asset.
The party that agrees to buy the asset on a future date is referred to as a long
investor and is said to have a long position. Similarly the party that agrees to
sell the asset in a future date is referred to as a short investor and is said to have
a short position. The price agreed upon is called the delivery price or the
Forward Price. Forward contracts are traded only in Over the Counter (OTC)
market and not in stock exchanges. OTC market is a private market where
individuals/institutions can trade through negotiations on a one to one basis.

SETTLEMENT OF FORWARD CONTRACTS:

When a forward contract expires, there are two alternate arrangements possible
to settle the obligation of the parties: physical settlement and cash settlement.
Both types of settlements happen on the expiry date and are given below.

PHYSICAL SETTLEMENT:

A forward contract can be settled by the physical delivery of the underlying

asset by a short investor (i.e. the seller) to the long investor (i.e. the buyer) and
the payment of the agreed forward price by the buyer to the seller on the agreed
settlement date. The following example will help us understand the physical
settlement process.

CASH SETTLEMENT:

Cash settlement does not involve actual delivery or receipt of the security. Each
party either pays (receives) cash equal to the net loss (profit) arising out of their
respective position in the contract. So, in case of Scenario I mentioned above,
where the spot price at the expiry date (ST) was greater than the forward price
(F T), the party with the short position will have to pay an amount equivalent to
the net loss to the party at the long position. In our example, A will simply pay
Rs. 5000 to B on the expiry date. The opposite is the case in Scenario (III),
when ST< FT. The long party will be at a loss and have to pay an amount
equivalent to the net loss to the short party in our example, B will have to pay
Rs. 5000 to A on the expiry date. In case of

Scenario (II) where ST = FT, there is no need for any party to pay anything to
the other party. Please note that the profit and loss position in case of physical
settlement and cash settlement is the same except for the transaction costs which
is involved in the physical settlement.

DEFAULT RISK IN FORWARD CONTRACTS:

A drawback of forward contracts is that they are subject to default risk.

Regardless of whether the contract is for physical or cash settlement, there
exists a potential for one party to default, i.e. not honour the contract. It could
be either the buyer or the seller. This results in the other party suffering a loss.
This risk of making losses due to any of the two parties defaulting is known as
counter party risk. The main reason behind such risk is the absence of any
mediator between the parties, who could have undertaken the task of ensuring
that both the parties fulfil their obligations arising out of the contract. Default
risk is also referred to as counter party risk or credit risk.

2. FUTURES:

Like a forward contract, a futures contract is an agreement between two parties

in which the buyer agrees to buy an underlying asset from the seller, at a future
date at a price that is agreed upon today. However, unlike a forward contract, a
futures contract is not a private transaction but gets traded on a recognized stock
exchange. In addition, a futures contract is standardized by the exchange. All
the terms, other than the price, are set by the stock exchange (rather than by
individual parties as in the case of a forward contract). Also, both buyer and
seller of the futures contracts are protected against the counter party risk by an
entity called the Clearing Corporation. The Clearing Corporation provides this
guarantee to ensure that the buyer or the seller of a futures contract does not
suffer as a result of the counter party defaulting on its obligation. In case one of
the parties defaults, the Clearing Corporation steps in to fulfil the obligation of
this party, so that the other party does not suffer due to non-fulfilment of the
contract. To be able to guarantee the fulfilment of the obligations under the
contract, the Clearing Corporation holds an amount as a security from both the
parties. This amount is called the Margin money and can be in the form of cash
or other financial assets. Also, since the futures contracts are traded on the stock
exchanges, the parties have the flexibility of closing out the contract prior to the
maturity by squaring off the transactions in the market.

The basic flow of a transaction between three parties, namely Buyer, Seller and
Clearing Corporation is depicted in the diagram below

3. OPTIONS:

Like forwards and futures, options are derivative instruments that provide the
opportunity to buy or sell an underlying asset on a future date.

An option is a derivative contract between a buyer and a seller, where one party
(say First Party) gives to the other (say Second Party) the right, but not the
obligation, to buy from (or sell to) the First Party the underlying asset on or
before a specific day at an agreed-upon price.
1. In return for granting the option, the party granting the option collects a
payment from the other party. This payment collected is called the
“premium” or price of the option.

The right to buy or sell is held by the “option buyer” (also called the option
holder); the party granting the right is the “option seller” or “option writer”.
Unlike forwards and futures contracts, options require a cash payment (called
the premium) upfront from the option buyer to the option seller. This payment is
called option premium or option price. Options can be traded either on the stock
exchange or in over the counter (OTC) markets. Options traded on the
exchanges are backed by the Clearing Corporation thereby minimizing the risk
arising due to default by the counter parties involved. Options traded in the
OTC market however are not backed by the Clearing Corporation.

There are two types of options—call options and put options—which are
explained below.

3.1 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.

3.2 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.

4. Warrants:

Options generally have two lives of up to one year, the majority of options
traded on options exchanges having a minimum maturity of nine months.
Longer-dated options are called warrants and are generally traded over-the-
counter.

5. Leaps:
The acronym LEAPS means Long-term Equity Anticipation Securities. These
are options having a maturity of up to three years.

6. 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 options are
a form of basket options.

7. 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 portfolios 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 same currency.

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.

8. Swaptions:

Swaptions are options to buy or sell 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 swaptions markets has receiver swaptions and payer
swaptions. A receiver swaption is an option to receive fixed and pay floating. A
payer swaption is an option to pay fixed and receive floating.

Terminology of Derivatives
In this section we explain the general terms and concepts related to
derivatives.

1. Spot price (ST)

Spot price of an underlying asset is the price that is quoted for immediate
delivery of the asset.
For example, at the NSE, the spot price of Reliance Ltd. at any given time is the
price at which Reliance Ltd. shares are being traded at that time in the Cash
Market Segment of the NSE. Spot price is also referred to as cash price
sometimes

2. Forward price or futures price (F)

Forward price or futures price is the price that is agreed upon at the
date of the contract for the delivery of an asset at a specific future date.
These prices are dependent on the spot price, the prevailing interest rate
and the expiry date of the contract.

3. Strike price (K)

The price at which the buyer of an option can buy the stock (in the
case of a call option) or sell the stock (in the case of a put option) on or
before the expiry date of option contracts is called strike price. It is the
price at which the stock will be bought or sold when the option is
exercised. Strike price is used in the case of options only; it is not used for
 futures or forwards.

4. Expiration date (T)

In the case of Futures, Forwards, Index and Stock Options,

Expiration Date is the date on which settlement takes place. It is also
called the final settlement date.

5.Types of Options

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.

2. American options: American options are options that can be exercised

on any day on or before the expiry date. They can be exercised by the
buyer on any day on or before the final settlement date or the expiry date.

6. Contract size

As futures and options are standardized contracts traded on an

exchange, they have a fixed contract size. One contract of a derivatives
instrument represents a certain number of shares of the underlying asset.
For example, if one contract of BHEL consists of 300 shares of BHEL,
then if one buys one futures contract of BHEL, then for every Re 1
 increase in BHEL‘s futures price, the buyer will make a profit of 300 X 1
= Rs 300 and for every Re 1 fall in BHEL‘s futures price, he will lose Rs
300.

7. Contract Value

Contract value is notional value of the transaction in case one

contract is bought or sold. It is the contract size multiplied but the price of
the futures. Contract value is used to calculate margins etc. for contracts.
In the example above if BHEL futures are trading at Rs. 2000 the contract
value would be Rs. 2000 x 300 = Rs. 6 lacks.

8. Margins

In the spot market, the buyer of a stock has to pay the entire
transaction amount (for purchasing the stock) to the seller. For example,
if Infosys is trading at Rs. 2000 a share and an investor wants to buy 100
Infosys shares, then he has to pay Rs. 2000 X 100 = Rs.
2, 00,000 to the seller. The settlement will take place on T+2 basis; that is,
two days after the transaction date. In a derivatives contract, a person
enters into a trade today (buy or sell) but the settlement happens on a
future date. Because of this, there is a high possibility of default by any of
the parties.

Futures and option contracts are traded through exchanges and the
counter party risk is taken care of by the clearing corporation. In order to
prevent any of the parties from defaulting on his trade commitment, the
clearing corporation levies a margin on the buyer as well as seller of the
futures and option contracts. This margin is a percentage (approximately
20%) of the total contract value. Thus, for the aforementioned example, if
a person wants to buy 100 Infosys futures, then he will have to pay 20% of
 the contract value of Rs 2,00,000 = Rs 40,000 as a margin to the clearing
corporation. This margin is applicable to both, the buyer and the seller of a
futures contract.

9. Moneyless of an Option

Moneyless of an option indicates whether an option is worth exercising or

not i.e. if the option is exercised by the buyer of the option whether he will
receive money or not.

―Moneyless of an option at any given time depends on where the

spot price of the underlying is at that point of time relative to the strike
price. The premium paid is not taken into consideration while calculating
moneyless of an Option, since the premium once paid is a sunk cost and
the profitability from exercising the option does not depend on the size of
the premium. Therefore, the decision (of the buyer of the option) whether
to exercise the option or not is not affected by the size of the premium. The
following three terms are used to define the moneyless of an option.

10. In-the-money option

An option is said to be in-the-money if on exercising the option, it

would produce a cash inflow for the buyer. Thus, Call Options are in-the-
money when the value of spot price of the underlying exceeds the strike
price. On the other hand, Put Options are in-the- money when the spot
price of the underlying is lower than the strike price. Moneyness of an
option should not be confused with the profit and loss arising from holding
an option contract. It should be noted that while moneyless of an option
does not depend on the premium paid, profit/loss do. Thus a holder of an
 in-the-money option need not always make profit as the profitability also
depends on the premium paid.

11. Out-of-the-money option

An out-of-the-money option is an opposite of an in-the-money

option. An option- holder will not exercise the option when it is out-of-the-
money. A Call option is out-of-the- money when its strike price is greater
than the spot price of the underlying and a Put option is out-of-the money
when the spot price of the underlying is greater than the option‘s strike
price.

12. At-the-money option

An at-the-money-option is one in which the spot price of the

underlying is equal to the strike price. It is at the stage where with any
movement in the spot price of the underlying, the option will either
become in-the-money or out-of-the-money.

13. CONTRACT PERIODS:

At any point of time there will always be available near three months contract
periods. For e.g. in the month of June 2009 one can enter into either June
Futures contract or July Futures contract or August Futures Contract. The last
Thursday of the month specified in the contract shall be the final settlement date
for that contract at both NSE as well BSE. Thus June 29, July 27 and August 31
shall be the last trading day or the final settlement date for June Futures
contract, July Futures Contract and August Futures Contract respectively.
When one futures contract gets expired, a new futures contract will get
introduced automatically. For instance, on 30th June, June futures contract
becomes invalidated and a September Futures Contract gets activated.

14. SETTLEMENT:

Settlement of all Derivatives trades is in cash mode. There is Daily as well as

Final Settlement.

Outstanding positions of a contract can remain open till

the last Thursday of that month. As long as the position is open, the same will
be marked to market at the Daily Settlement Price, the difference will be
credited or debited accordingly and the position shall be brought forward to the
next day at the daily settlement price. Any position which remains open at the
end of the final settlement day (i.e., last Thursday) shall be closed out by the
Exchange at the Final Settlement Price which will be the closing spot value of
the underlying (Nifty or Sensex, or respective stocks as the case may be).

PARTICIPANTS IN THE DERIVATIVES MARKET

The following three broad categories of participants who trade in the derivatives
market:

1. Hedgers

2. Speculators and

3. Arbitrageurs
Hedgers:

Hedgers face risk associated with the price of an asset. They use futures 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.

Arbitrageurs:

Arbitrageurs are in business to take advantage of a discrepancy between prices

in two different markets.

For example, they see the futures price of an asset getting out of line with the
cash price; they will take offsetting positions in the two markets to lock in a
profit.

Regulation for Derivatives Trading

SEBI set up a 24-member committee under Chairmanship of Dr.L.C.Gupta to

develop the appropriate regulatory frame work for derivatives trading in India.
The committee submitted its report in March 1998. On May 11, 1998 SEBI
accepted the recommendations of the committee and approved the phased
introduction of derivatives trading in India beginning with stock index futures.
SEBI also approved the “suggestive bye-laws” recommended by the committee
for regulation and control of trading and settlement of derivatives contracts.

The provisions in the SC(R) A and the regulatory

framework developed the under govern trading in securities. The amendment of
the SC(R) A to include derivatives within the ambit of ‘securities’ in the SC(R)
A made trading in derivatives possible within the framework of the Act.
1. Any exchange fulfilling the eligibility criteria as prescribed in the L C Gupta
committee report may apply to SEBI for grant of recognition under Section 4 of
the SC(R) a, 1956 to start trading derivatives. The derivatives
exchange/segment should have a separate governing council and representation
of trading / clearing members shall be limited to maximum of 40% of the total
members of the governing council. The exchange shall regulate the sales
practices of its members and will obtain approval of SEBI before start of trading
in any derivative contract

2. The exchange shall have minimum 50 members.

3. The members of an existing segment of the exchange will not automatically

become the members of derivative segment. The members of the derivative
segment need to fulfil the eligibility conditions as laid down by the L C Gupta
committee.

4. The clearing and settlement of derivatives trades shall be through a SEBI

approved clearing corporation / house. Clearing corporation / houses complying
with the eligibility conditions as laid down by the committee have to apply to
SEBI for grant of approval.

5. Derivative brokers/dealers and clearing members are required to see

registration from SEBI.

6. The minimum contract value shall not be less than 2 Lakh rupees. Exchanges
should also submit details of the futures contract they propose to introduce.

7. The trading members are required to have qualified approved user and sales
person who have passed a certification programme approved by SEBI. While
from the purely regulatory angle, a separate exchange for trading would be a
better arrangement. Considering the constraints in infrastructure facilities, the
existing stock (cash) exchanges may also be permitted to trade derivatives
subject to the following conditions.
I. Trading should take place through an on-line screen based trading system.

II. An independent clearing corporation should do the clearing of the derivative

market.

III. The exchange must have an online surveillance capability, which monitors
positions, price and volumes in real time so as to deter market manipulation
price and position limits should be used for improving mar et quality.

IV. Information about trades quantities, and quotes should be disseminated by

the exchange in the real time over at least two information-vending networks,
which are accessible to investors in the country.

V. The exchange should have at least 50 members to start derivatives trading.

VI. The derivatives trading should be done in a separate segment with separate
membership that is, all members of the cash market would not automatically
become members of the derivatives market.

VII. The derivatives market should have a separate governing council which
should not have representation of trading by clearing members beyond whatever
percentage SEBI may prescribe after reviewing the working of the present
governance system of exchanges.

VIII. The chairman of the governing council of the derivative division /

exchange should be a member of the governing council. If the chairman is
broker / dealer, then he should not carry on any broking or dealing on any
exchange during his tenure.

IX. No trading/clearing member should be allowed simultaneously to be on the

governing council both derivatives market and cash market.
 Chapter-2
RESEARCH METHODOLOGY
NEED OF THE STUDY

Nowadays derivatives instruments are booming and these are

efficient financial instruments by the financial advisors to hedge risk. These are
also proved practically as efficient financial instruments to reduce risk. So there
is a lot of scope to develop more in this derivative market. Some sections of
people unaware of these. These types of instruments will reduce the effort of
recession on market by attracting the investors with low risk. An investor can
choose the right underlying or portfolio for investment which is risk free.

 The study would explain how risk in cash market can be compensated
with options.
 The study would explain how risk in cash market can be compensated
with options.
 The study elucidates the role of options in Indian market. This project
will help to the students, investors to understand the options and scenario.
 The main purpose was to know about derivatives market in India and its
functioning.
 Derivatives markets are complex in nature, it act as tool to reduce the risk
and maximize the return on investment.
 This is aimed to analyse all possible payoffs which an investor would
have to make if one takes certain positions in the market.
SCOPE OF THE STUDY:

 The study is based on derivatives with special reference to options traded

in Indian context.
 The study is based on only NSE index for the month of 2018.
 This study is based on only few strategies of options i.e. call sell, call
buy, and put sell, put buy. And spot buy and spot sell.
 The study is based on only one month contracts in derivatives market.
OBJECTIVES:

1. To understood the concept of financial derivatives in India.

2. To analyse the fluctuations of stock prices.
3. To compare payoff in underlying and derivatives.
4. To analyse hedging effectiveness
5. Based on study suggestions.
RESEARCH METHODOLOGY

The methodology involves reducing the risk by hedging with derivatives in

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

COLLECTION OF DATA SOURCES:

1. PRIMARY DATA

2. SECONDARY DATA

PRIMARY DATA:
Raw data or primary data is a term for data collected at source. This
type of information is obtained directly from first hand sources by means of
surveys, observations and experimentation but not subjected to any processing
or manipulation, this is called Primary data.

As my study on Derivatives is related to the Historical data, there is

no need of Primary Data.

SECONDARY DATA:

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

For Example

The secondary data needed for the study was collected from published sources
such as,
  Reference from textbooks and journals,
 Magazines,
 Internet.
The study carried with the co-operation of the management who
permitted to carry on the study and provided the requisite data.

TOOLS FOR METHODOLOGY

The data collection is made on the basis of “Time Series Data “collection
model. There are different tools available for study of performance of selected
companies Payoffs in different periods.

The data analysis companies are selected in random from list of

NSE stocks that are suitable to our study. Also the periods are selected on
random basis. So here the technique which is used to analyse the data that are
used for the study is “Random Sampling Technique “

The tool which is used to measure the Payoffs of the collected

data is “Standard Deviation”

STANDARD DEVIATION:

The standard deviation measures the spread of the data about

the mean value. It is useful in comparing sets of data which may have the same
mean but a different range. It is calculated by using following formula:
LIMITATIONS:

 This study is purely based on by considering the Indian stock markets

only.
 This study is limited up to NSE stocks.
 Any brokerage charge and tax is not considered.
 This study limited to call option and put option in derivatives.
 To know the entire activities of stock exchange is very difficult as it takes
a long period to understood
 CHAPTER-3
COMPANY PROFILE

SHAREKHAN
Background

Sharekhan was founded by Mumbai-based entrepreneur Shripal Morakhia in

2000. Sharekhan pioneered the online retail broking industry and leveraged
on the first wave of digitization, when dematerialization (demat) of securities
came into effect and electronic trading was introduced in the stock exchanges.
In India, Sharekhan has over 4800+ employees, and is present in over 575
cities through 150 branches, more than 2,600 business partners. The company
has 1.6 Million clients and on an average, executes more than 4 lakh trades
per day

Sharekhan is one of the top retail brokerage houses in India with a strong
online trading platform. The company provides equity based products
(research, equities, derivatives, depository, margin funding, etc.). It has one of
the largest networks in the country with 704 share shops in 280 cities and
India’s premier online trading portal www.sharekhan.com. With their
research expertise, customer commitment and superior technology, they
provide investors with end-to-end solutions in investments. They provide
trade execution services through multiple channels - an Internet platform,
telephone and retail outlets. Sharekhan was established by Morakhia family in
1999-2000 and Morakhia family, continues to remain the largest shareholder.

It is the retail broking arm of the Mumbai-based SSKI [SHANTILAL

SHEWANTILAL KANTILAL ISWARNATH LIMITED] Group. SSKI
which is established in 1930 is the parent company of Sharekhan ltd. With a
legacy of more than 80 years in the stock markets, the SSKI group ventured
into institutional broking and corporate finance over a decade ago. Presently
SSKI is one of the leading players in institutional broking and corporate
finance activities. Sharekhan offers its customers a wide range of equity
related services including trade execution on BSE, NSE, and Derivatives.
Depository services, online trading, Investment advice, Commodities, etc.

Sharekhan Ltd. is a brokerage firm which is established on 8th February 2000

and now it is having all the rights of SSKI. The company was awarded the
2005 Most Preferred Stock Broking Brand by Awwaz Consumer Vote. It is
first brokerage Company to go online. The Company's online trading and
investment site - www.Sharekhan.com - was also launched on Feb 8, 2000.
This site gives access to superior content and transaction facility to retail
customers across the country. Known for its jargon-free, investor friendly
language and high quality research, the content-rich and research oriented
portal has stood out among its contemporaries because of its steadfast
dedication to offering customers best-of-breed technology and superior
market information. Share khan has one of the best states of art web portal
providing fundamental and statistical information across equity, mutual funds
and IPOs. One can surf across 5,500 companies for in-depth information,
details about more than 1,500 mutual fund schemes and IPO data. One can
also access other market related details such as board meetings, result
announcements, FII transactions, buying/selling by mutual funds and much
more.

Share khan’s management team is one of the strongest in the sector and has
positioned Sharekhan to take advantage of the growing consumer demand
for financial services products in India through investments in research, pan-
Indian branch network and an outstanding technology platform. Further,
Share khan’s lineage and relationship with SSKI Group provide it a
unique position to understand and leverage the growth of the financial
services sector.
Reason why you should choose Share Khan

1. Experience:

SSKI has more than eight decades of trust and credibility

in the Indian stock market. In the Asia Money Broker’s poll held recently, SSKI
won the ‘India’s best broking division in February 2000, it has been providing
institutional-level research and broking services to individual investors.

2. Technology:

With our online trading account you can buy and sell
shares in an instant from any PC with an Internet connection. You will get
access to our powerful inline trading tools that will help you take complete
control over your investment in shares.

3. Accessibility:
In addition to our online and phone trading services, we
also have a ground network of 240 share shops across 110 cities in India where
you can get personalized services.

4. Knowledge:
In a business where the right information at the right
time can translate into direct profit, you get access to wide range of information
on our content- rich portal, Sharekhan.com. You will also get a useful set of
knowledge-based tools that will empower you to take informed decisions.
5. Convenience:

You can all our Dial-n-Trade number to get investment

and execute your transaction. We have a dedicated call-center to provide this
service via a toll-free number from anywhere in India.

6. Customer service:
Our customer service team will assist you for any help
that you need relating to transactions, billing, demat and other queries, our
customer service can be contacted via a toll-free number, email or live chat on
sharekhan.com

7. Investment Advice:
Sharekhan has dedicated research teams for fundamental
and technical research. Our analysts constantly track the pulse of the market and
provide timely investment advice to you in the form of daily research emails,
online chat, printed reports on SMS on your phone.Cutomers of Share Khan
Experience language, presentation style, content or for that matter the online
trading facility find a common thread; one that helps the customers make
informed decisions and simplifies investing in stocks. The common thread of
empowerment is what Sharekhan’s all about! Sharekhan is also about focus.
Share khan does not claim expertise in too many things. Sharekhan’s expertise
lies in stocks and that’s what he talks about with authority. So when he says that
investing in stocks should not be confused with trading in stocks or a portfolio-
based strategy is better than betting on a single horse, it is something that is
spoken with years of focused learning and experience in the stock markets. And
these beliefs are reflected in everything Sharekhan does for customers.

To sum up, Sharekhan brings to customers a user-friendly online trading

facility, coupled with a wealth of content that will help customers stalk the right
shares.

Those of customers who feel comfortable dealing with a human being

and would rather visit a brick-and-mortar outlet than talk to a PC; Sharekhan
offers customers the facility to visit (or talk to) any of sharekhan’s share shops
across the country. In fact Sharekhan runs India’s largest chain of share shops
with over hundred outlets in 80 cities!

A Sharekhan outlet offers the following services:

Online BSE and NSE execution (through BOLT & NEAT terminals) free access
to investment advice from Sharekhan value line (a monthly publication with
reviews of recommendations, stocks to watch out for etc.)

1. Daily research reports and market review (High Noon & Eagle Eye)

2. Pre-market Report (Morning Cuppa)

3. Daily trading calls based on Technical Analysis

4. Cool trading products (Darling Derivatives and Market Strategy)

5. Personalized Advice

6. Live Market Information

7. Depository Services: Demat & Remat Transactions

8. Derivatives Trading (Futures and Options)

9. Commodities Trading

10. IPOs & Mutual Funds Distribution

11. Interner-based Online Trading: Speed Trade
 Live Terminal and Single terminal for NSE Cash, NSE F&O &
BSE.
 Integration of On-line trading, Saving Bank and Demat Account.
 Instant cash transfer facility against purchase & sale of shares.
 Competitive transaction charges.
 Instant order and trade confirmation by E-mail.
 Streaming Quotes (Cash & Derivatives).
 Personalized market watch.
 Single screen interface for Cash and derivatives and more.
 Provision to enter price trigger and view the same online in market watch.

SPEEDTRADE

SPEEDTRADE is an internet-based software application that enables you to

buy and sell in an instant. It is ideal for active traders and jobbers who transact
frequently during day’s session to capitalize on intra-day price movement.
Features
 Instant order Execution and Confirmation.
 Single screen trading terminal for NSE Cash, NSE F&O & BSE.
 Technical Studies.
 Multiple Charting.
 Real-time streaming quotes, tic-by-tic charts.
 Market summary (Cost traded scrip, highest clue etc.)
 Hot keys similar to broker’s terminal.
 Alerts and reminders.
  Back-up facility to place trades on Direct Phone lines.
 Live market debts.

DIAL-N-TRADE

Along with enabling access for trade online, the

CLASSIC and SPEEDTRADE ACCOUNT also gives Dial-n-trade
services. With this service, one can dial share khan’s dedicated phone
lines 1800-22-7500, 3970-7500. Beside this, Relationship Managers
are always available on Office Phone and Mobile to resolve customer
queries.

SHARE MOBILE

Share khan had introduced Share Mobile, mobile

based software where one can watch Stock Prices, Intra Day Charts,
Research & Advice and Trading Calls live on the Mobile.
(As per SEBI regulations, buying-selling shares through a mobile phone are not
yet permitted.)

PREPAID ACCOUNT

Customers pay Advance Brokerage on trading

Account and enjoy uninterrupted trading in their Account. Beside this,
great discount are also available (up to 50%) on brokerage.
Prepaid Classic Account: - Rs. 2000Prepaid Speed trade Account: - Rs.
6000
IPO ON-LINE

Customers can  apply to all the forthcoming

IPOs online. This is quite hassle-free, paperless a n d t i m e s a v i n g .
Simply allocate fund to IPO Account, Apply for the IPO and
S i t   B a c k   & Relax.

Mutual Fund Online

Investors can apply to Mutual Funds of
Reliance, Franklin Templeton Investments, ICICIPrudential, SBI,
Birla, Sundaram, HDFC, DSP Merrill Lynch, PRINCIPAL and TATA
with share khan.
.

Zero Balance ICICI Saving Account

Share khan had  tied-up with ICICI bank
for Zero Balance Account for Share khan’s
Clients.  N o w   t h e i r   c u s t o m e r s   c a n   h a v e   a   Z e r o   B a l a n c e   S a v i n g   A
c c o u n t w i t h I C I C I   B a n k   a f t e r   y o u r   demat account creation with share
khan.

SHAREKHAN BNP PARIBHAS

 ABOUT SHAREKHAN – ALWAYS THE FIRST
Founded in 2000 and a subsidiary of BNP Paribas since November
2016, share khan was one of the first brokers to offer online trading in India.
With 16 lakh customers, 153 branches and more than 2400 business partners
spread across over 575 locations, share khan is one of the largest brokers in
India. Share khan offers a wide range of savings & investment solutions
including equities, futures and options. Currency trading, portfolio management,
research and mutual funds and investor education. On an average, share khan
executes more than 400,000 trades daily 

Guiding India's retail stock investors for 16 years

 Registered with NSE and BSE for capital market, futures and options and
currency segments and CDSL and NSDL for depository services.
 A full-service stock broking firm providing online services right from online
account opening to trading and investments.
 Created India’s best online trading platforms: Website (www.sharekhan.com),
Trade Tiger (the ultimate desktop trading software), Share khan App (available
for Android and iOS devices) and Sharekhan Mini (a low bandwidth website
especially for mobile browsers) 
 A strong brick-and-mortar network with over 2600 outlets in 575+ cities
 Research-based financial advice on all asset classes to suit all investing and
trading styles
 Dedicated Education and training courses for investors and traders in
association with Online Trading Academy

About our group

BNP Paribas is a leading bank in Europe with an international reach. It

has a presence in 75 countries, with more than 189,000 employees. It has had a
presence in India for over 150 years having established its first branch in
Kolkata, in 1860. With this unparalleled experience of the Indian market, it is
among the leading corporate banks in the country. Through its branches in eight
key cities — Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore,
Ahmedabad and Pune — BNP Paribas offers sophisticated solutions in its three
core businesses — corporate and institutional banking, investment solutions and
retail banking — many of them in association with strong local partners. The
bank also offers services for individual clients in Wealth Management.

PARTNERS IN SUCCESS

In the past 16 years, we have joined hands with some of the smartest
professionals and entrepreneurs of the country to expand our brick-and-mortar
network and connect to our customers better. Today we have more than 2,000
business partners in 525 cities and we think of them as our extended family.

SHAREKHAN: MAKING A DIFFERENCE QUIETLY

In a remote hamlet near village Vadivelampalayam, bright little Nandhini would

often dream of going to school to learn about the bigger world outside. But her
father Ganeshamoorthy, an agricultural laborer, was not able to fulfill her dream
because the nearest school was about 12.5km away and there was no direct
transport from their place to the school. With a sense of regret and tearful eyes
Nandhini would watch the older children take an overcrowded state government
bus (the only one to the city) to go to school every day.

Then, one day a miracle happened. Nandhini ran up to her father and described
to him how a bus had come all the way to the hamlet to pick up the school’s
 students. On making enquiries her father learnt that the school had indeed
started a bus service for the students in the area! Nandhini’s dream was about to
come true. Her father enrolled her at the school and today Nandhini, a student of
Lower Kindergarten, travels to school safely and dares to dream of a better life.
Not many know that Sharekhan is the reason why Nandhini and many other
children residing within a radius of about 25km of Isha Vidhya Matriculation
School in Sandegoundenpalayam village of Coimbatore can now look forward
to a brighter future. Social responsibility has always been at the core of Share
khan’s business model and the company quietly funded the purchase of three
new SML S7 buses for the school in September this year.

THE BANK FOR A CHANGING WORLD

A leading bank in Europe, BNP Paribas has strong roots anchored in Europe’s
banking history. It supports clients and employees in today’s changing world.
Moreover, it is positioned as a leading bank in the Eurozone and a prominent
international banking institution.

AWARDS

The Asset, Triple A Treasury, Trade and Risk Management Awards 2016

 Best Bank for Overall Service Category for Liquidity Management, India
 Best Working Capital Solution, India for Novation Electrical & Digital Systems
Private Limited
 Best Cash Management Solution, India for Publicis Groupe

BNP PARIBHAS COMPLETE ACQUISITION OF SHAREKHAN

 BNP Paribas S.A on Thursday said it has completed the
acquisition of retail brokerage firm share khan after receiving approvals from all
authorities.

The Foreign Investment Promotion Board, which had rejected BNP Paribas’
proposal to buy share khan in June this year, had approved it later in October.
The transaction was first announced in July 2015.
With this, the Mumbai-based brokerage Sharekhan has become a subsidiary of
BNP Paribas and will join Personal Invest. 

BNP Paribas also said that Share khan’s CEO Tarun Shah has announced his
retirement. Jaideep Arora, who is a director at Sharekhan and has been with the
brokerage since its founding in 2000, will replace Shah as CEO with immediate
effect.
“Sharekhan will serve as a platform for the Group’s strategy in India to offer a
comprehensive range of products from pure brokerage to asset based investment
services including mutual funds and savings products.

Sharekhan is the largest standalone retail brokerage in the country and the third
largest in terms of customer base after ICICI Direct and HDFC
Securities .Sharekhan is one of the pioneers of online trading in India. It offers a
broad range of financial products and services including securities brokerage,
mutual fund distribution, loan against shares, ESOP financing, IPO financing
and wealth management.

Sharekhan Branches
Sharekhan has a network branches and franchise offices in over 575 cities
across India and UAE. Sharekhan also has 34 Online Trading Academy centres
to guide retail investors.

As of Dec 2015; Sharekhan had:

 Number of Sharekhan Branches: 153

 Number of Sharekhan Franchisee: 2,229
 Number of Sharekhan Retail Customers: 13 Lakh
Sharekhan branches and franchisee covers almost every corner of India ranging
from metro cities to small towns.

Sharekhan Branch Locator / Sharekhan Franchisee Locator

To find Sharekhan branch or franchisee office in your neighbourhood; visit

‘Contact us’ section of the Sharekhan website.

In Sharekhan Branch Locator section on the website, the local offices are
categorized by state and city.

You can use the branch finder for:

 Sharekhan branches in Mumbai

 Sharekhan branches in India
 Sharekhan branches in Hyderabad
 Sharekhan branch in Pune
 Sharekhan branches in Chennai

BOARD OF DIRECTORS OF SHAREKHAN LTD:

Name Board Title Age
Relationships
Jaideep 8 Relationships Chief Executive Officer and Whole- --
Arora Time Director
Shankar 8 Relationships Whole-Time Director --
Vailaya
Jimmy 35 Relationships Baring Private Equity Asia 41
Lachmanda
s Mahtani

Marc 19 Relationships Citi Venture Capital International 66

Desaedeleer
 CHAPTER- 4
INDUSTRY ANALYSIS

HISTORY OF WORLD STOCK BROKING INDUSTRY

The first stock exchange in London was officially formed in

1773, a scant 19 years before the New York Stock Exchange. Whereas the
London Stock Exchange (LSE) was handcuffed by the law restricting shares,
the New York Stock Exchange has dealt in the trading of stocks, for better or
worse, since its inception. The NYSE wasn't the first stock exchange in the
U.S., however, that honour goes to the Philadelphia Stock Exchange, but it
quickly became the most powerful. Formed by brokers under the spreading
boughs of a buttonwood tree, the New York Stock Exchange made its home on
Wall Street. The exchange's location, more than anything else, led to the
dominance that the NYSE quickly attained. It was in the heart of all the
business and trade coming to and going from the United States, as well as the
domestic base for most banks and large corporations. By setting listing
requirements and demanding fees, the New York Stock Exchange became a
very wealthy institution.

The NYSE faced very little serious domestic competition for

the next two centuries. Its international prestige rose in tandem with the
burgeoning American economy and it was soon the most important stock
exchange in the world. The NYSE had its share of ups and downs during the
same period, too. Everything from the Great Depression to the Wall Street
bombing of 1920 left scars on the exchange - the 1920 bombing left 38 dead
and also left literal scars on many of Wall Street's prominent buildings. The less
literal scars on the exchange came in the form of stricter listing and reporting
requirements.

On the international scene, London emerged as the major

exchange for Europe, but many companies that were able to list internationally
still listed in New York. Many other countries including Germany, France, the
Netherlands, Switzerland, South Africa, Hong Kong, Japan, Australia and
Canada developed their own stock exchanges, but these were largely seen as
proving grounds for domestic companies to inhabit until they were ready to
make the leap to the LSE and from there to the big leagues of the NYSE. Some
of these international exchanges are still seen as dangerous territory because of
weak listing rules and less rigid government regulation. Despite the existence of
stock exchanges in Chicago, Los Angeles, Philadelphia and other major centres,
the NYSE was the most powerful stock exchange domestically and
internationally. In 1971, however, an upstart emerged to challenge the NYSE
hegemony.
HISTORY OF INDIAN STOCK MARKET

Indian stock market marks to be one of the oldest stock market

in Asia. It dates back to the close of 18th century when the East India Company
used to transact loan securities. In the 1830s, trading on corporate stocks and
shares in Bank and Cotton presses took place in Bombay. Though the trading
was broad but the brokers were hardly half dozen during 1840 and 1850. An
informal group of 22 stockbrokers began trading under a banyan tree opposite
the Town Hall of Bombay from the mid-1850s, each investing a (then) princely
amount of Rupee 1. This banyan tree still stands in the Horniman Circle Park,
Mumbai. In 1860, the exchange flourished with 60 brokers. In fact the 'Share
Mania' in India began with the American Civil War broke and the cotton supply
from the US to Europe stopped. Further the brokers increased to 250.

The informal group of stockbrokers organized themselves as

the Native Share and Stockbrokers Association which, in 1875, was formally
organized as the Bombay Stock Exchange (BSE). BSE was shifted to an old
building near the Town Hall. In 1928, the plot of land on which the BSE
building now stands (at the intersection of Dalal Street, Bombay Samachar
Marg and Hammam Street in downtown Mumbai) was acquired, and a building
was constructed and occupied in 1930. Premchand Roychand was a leading
stockbroker of that time, and he assisted in setting out traditions, conventions,
and procedures for the trading of stocks at Bombay Stock Exchange and they
are still being followed. Several stock broking firms in Mumbai were family run
enterprises, and were named after the heads of the family. The following is the
list of some of the initial members of the exchange, and who are still running
their respective business: D.S. Prabhudas & Company (now known as DSP,
and a joint venture partner with Merrill Lynch), Jamnadas Morarjee (now
known as JM), Champaklal Devidas (now called Cifco Finance) ,Brijmohan
Laxminarayan In 1956, the Government of India recognized the Bombay Stock
Exchange as the first stock exchange in the country under the Securities
Contracts (Regulation) Act. The most decisive period in the history of the BSE
took place after 1992. In the aftermath of a major scandal with market
manipulation involving a BSE member named Harshad Mehta, BSE responded
to calls for reform with intransigence. The foot-dragging by the BSE helped
radicalise the position of the government, which encouraged the creation of the
National Stock Exchange (NSE), which created an electronic marketplace. NSE
started trading on 4 November 1994. Within less than a year, NSE turnover
exceeded the BSE. BSE rapidly automated, but it never caught up with NSE
spot market turnover. The second strategic failure at BSE came in the following
two years. NSE embarked on the launch of equity derivatives trading. BSE
responded by political effort, with a friendly SEBI chairman (D. R. Mehta)
aimed at blocking equity derivatives trading.

The BSE and D. R. Mehta succeeded in delaying the onset of equity derivatives
trading by roughly five years. But this trading, and the accompanying shift of
the spot market to rolling settlement, did come along in 2000 and 2001 - helped
by another major scandal at BSE involving the then President Mr. Anand Rathi.
NSE scored nearly 100% market share in the runaway success of equity
derivatives trading, thus consigning BSE into clearly second place. Today, NSE
has roughly 66% of equity spot turnover and roughly 100% of equity
derivatives turnover.

STOCK BROKING INDUSTRY IN INDIA

 The functioning of stock broking in India was started in 1875.
The BSE oldest stock broking of India. History of Indian stocks trading starts
with the 318 person taking membership in Stock Brokers Association and
Native Share, which is known by name as Bombay Stock Exchange (BSE). In
the year 1965, BSE got a permanent acknowledgment from Government of
India which was most required. The NSE arrives 2nd to the BSE in the terms of
status. NSE and BSE represent themselves as the synonyms of the Indian stock
market. History of stock market in India is almost same as history of BSE.
An up-beat mood of marketplace was lost abruptly with the Harshad Mehta
scam. This came to the public knowledge that Harshad Mehta, who is also
called as big-bull and giant of Indian stock market which diverted huge fund
from banks by fraudulent means. He also played with millions of shares of
many companies. For preventing such frauds, Government formed SEBI,
through Act in 1992. The SEBI is statutory body which regulates and controls
functioning of brokers, stock exchanges, portfolio manager investment advisors,
sub-brokers, etc. SEBI obliged several tough measures to protect interest of
investor. Now with inception of the online trade and every day settlements
chances for fraud are nil, top official of SEBI. Sensex crossed 5000 mark in
year 1999 and 6000 mark in year 2000. Foreign institutional investor (FII) is
investing in stock markets in India on very large scale. Liberal economic
policies pursue by successive Government attracted many foreign institutional
investors towards large scale. The impulsive behavior and action of market
dedicated it tag - 'volatile market.' The factors which affected market in past
were the good monsoon, rise to power of BJP etc. The result of cricket matches
between Pakistan and India also affected movements of stock broking in India.
National Democratic Alliance which was led by BJP, in 2004 the public
election unsuccessfully tried for riding on market sentiment to power. NDA is
voted out of the power and sensex recorded biggest fall in day amidst fears
which Congress-Communist coalitions would have stall economic reform
 India, after US hosts the large number of the listed companies.
The Global investors now seek India as preferred location for the investment.
Stock market now also appeals to the middle class Indians. Most of the Indian
working in foreign country now diverts their savings to the stocks. This new
phenomenon is result of diminished interest rate from banks and opening of the
online trading. Stock brokers based in the India are opening office in different
country mainly to cater needs of the Non Resident Indians. They can sell or buy
stocks online while returning from work places. The recent incidents which led
to the growing interests among all Indian middle class is initial public offer
announced by ONGC, Maruti Udyog Limited, Tata Consultancy Services and
many big names like such. A bullish run of stock market can associated with
steady growth of  6% in GDP, growth of Indian company to MNCs, the large
potential of the growth in fields of mass media, telecommunication, education ,
IT sectors and tourism backed by the economic reforms ensures that  the Indian
stock market continue its bull run. The Indian broking industry has grown
significantly over the last decade in terms of both size and scope. The
relationship between the stock broker and the investor has always been very
rocky and also very beneficial to both of them. The broker who has an inside
knowledge about the companies and also the share market can always help the
investor make the right investment decision and thereby charge a fee for the
services offered. Since the small time investor may be new to the market, the
knowledge accumulated by the broker as per his experience can be hugely
beneficial to the small investor who may be a first timer and a new entrant to the
stock market. If the advice given to the first timer is beneficial to him, then
there may be many more first timers who would have been introduced to the
stock broker by the benefitted one.
 The domestic capital markets revived in FY2017, after a year of
lackluster performance, supported by favorable market sentiment, healthy
foreign institutional investment (FII) inflow, as well as growing domestic
institutional investor (DII) participation in the market. Equity turnover at the
exchanges registered a robust growth of ~35% in FY2017 supported by the
revival in the capital markets and the base effect given the subdued performance
in FY2016, which was a period of de-growth. The Average Daily Turnover
(ADTO) increased to Rs. 4.05 trillion in FY2017, from Rs. 3.01 trillion in
FY2016. The impact of demonization remained limited, with the growth in the
market turnover slowing down in Q3 FY2017, to again pickup in the following
quarter.

Both the decline in market volumes in FY2016 as well as their

improvement in FY2017 was led by the derivatives or the futures and options
(F&O) segment which witnessed a 9% decline and a 36% growth in the two
years respectively. The share of the derivative segment in the total market
turnover increased further to 94%, from ~93% during the period FY2013 to
FY2016. The total turnover for the derivatives segment increased to Rs. 944
trillion in FY2017 (ADTO of 3.81 trillion) from Rs 693 trillion (ADTO of 2.80
trillion) in FY2016, registering a growth of 36%. The healthy traction continued
in Q1 FY2018 with a total F&O turnover of Rs. 328 trillion.

The options segment witnessed a growth of 38% in ADTO in

FY2017, surpassing the growth in both futures (24%) and cash (21%) segment,
with the markets adjusting to the higher lot size requirement for derivative
trading. The options growth rate remained healthy in Q1 FY2018, at 45% (over
FY2017 level), as against 23% and 21% for futures and cash segment
respectively. The options segment remains the most active in the derivatives
market accounting for 84% of derivative turnover in FY2017 (86% in Q1 FY
2018), with index options accounting for 77% of the derivatives turnover (79%
in Q1 FY2018)

The total cash turnover in FY2017 stood at Rs. 60.54 trillion,

registering a growth of 22% over Rs. 49.71 trillion in FY2016. After a healthy
start to the fiscal, cash volumes dropped in Q3 FY2017 (turnover of 13 trillion
in Q3 FY2017, 10% lower than Q2 FY2017) following the demonetization
drive of the GOI. However, volumes picked up in Q4 FY2017. The large scale
intra-promoter group transfer of equity shares across several listed entities in
March 2017 pursuant to revision in the tax regime further fuelled the transaction
volumes. After a healthy performance in H1 FY2017, the commodities market
registered a downward slide post demonetization, with the effect most
pronounced in the bullion segment. The commodity markets registered a
turnover of Rs. 29.07 trillion (ADTO of Rs. 0.22 trillion) in H2 FY2017, as
compared to volume of Rs. 18.52 trillion (ADTO of Rs. 0.28 trillion) in
Q2FY2017. The turnover further reduced to Rs. 13.57 trillion (ADTO of Rs.
0.21 trillion) in Q1 FY2018. The strong performance of the equity markets also
resulted in a shift in investor preference towards equity and mutual funds as
compared to commodities as asset classes.

Currency trading volumes of brokerage houses remained

volatile in the past nine quarters after growing sizably in Q4 FY2015. Currency
volumes in Q4 FY2016 were ~11% higher than the volumes in Q4 FY2015;
however, in Q4 FY2017, the volumes declined by ~17% from the volumes in
Q4 FY2016. Due to demonetization, the volumes surged by 66% on a month-
on-month basis in November 2016. Appreciation of the Rupee during Q4
FY2017 did not impact the volumes which declined to Rs. 19.4 trillion from Rs.
21.4 trillion in Q3 FY2017. ADTO, which spiked to Rs. 0.35 trillion during Q3
FY2016 largely on account of demonetization, declined to Rs. 0.32 trillion
during Q4 FY2017. During Q1 FY2018, volumes rebounded to Rs. 22.43
trillion with ADTO spiking to Rs. 0.37 trillion, which is higher than the ADTO
in the previous three quarters. INDIAN BROKERAGE INDUSTRY September
2017 ICRA LIMITED.

Resource mobilization in equity markets, through a mix of

channels like public issuances (including IPO follow-on public offering or FPO,
and rights issues), qualified institutional placement (QIP) and preferential
placement, remained healthy in FY2017, with a total quantum of Rs. 887 billion
raised during the year from 561 offerings. The aggregate resource mobilsation,
however, was lower than the record level of Rs. 984 billion in FY2016.

While public issuances remain healthy, with 8% growth in the

funds raised during FY2017, the aggregate amount raised declined on account
of dip in preferential placement and QIP which reported a de-growth of 42%,
albeit on a small scale, and 12% respectively. During FY2017, Rs. 359 billion
was raised through a mix of IPOs and rights issue (Rs. 333 billion in FY2016).
A key characteristic of the primary market was the performance of the IPO
issuances during the year with a gradual diversification in the sectoral mix of
entities accessing capital markets.

Despite their increasing focus of the broader credit markets on

consumer-finance businesses, the capital market lending space (which is largely
retail) for ICRA sample of brokers picked up in FY2017, post a subdued
performance in the previous fiscal. With the recent change in SEBI guidelines
allowing brokers to offer margin funding facility with lower margins than those
mandated by RBI to NBFCs, ICRA expects margin funding book to further
increase during FY2018.

Buoyed by the healthy response to the IPOs, there has been a

surge in interest in IPOs to capitalize on the listing gains. This is evidenced by
the high participation of the non-institutional investor (NII) category; The
median subscription level for the NII category stood at 83 times for the IPOs in
FY2017, as against 2 times for FY2016. This in turn has created a market for
providing funding to the HNI investors for investing in the IPOs. Pegged at Rs.
600 to Rs. 650 billion, the IPO funding market is expected to remain active in
the current fiscal as well with a number of prominent IPOs lined up.

With a large number of clients opting to conduct transactions

online, the relevance of brick and mortar stores has partly reduced. Furthermore,
ever since their emergence in the Indian brokerage landscape, discount
brokerage houses (DBH) have forced the older players to re-think the
mechanics of their existing models repeatedly. Most industry players have
consolidated their networks and prefer to have fewer branches per city. There
nevertheless remain a large number of customer interactions through branches,
and the branches also impart a level of psychological comfort to customers.

ICRA expects the broking industry revenue pool to increase to

Rs. 180 billion to Rs. 190 billion in FY2018, registering a 15-20% y-o-y growth
on the back of healthy volume growth coupled with rise in cash volumes. The
volume growth is expected to be about 20-25% in FY2018, supported by
positive investor sentiment and a benign capital market outlook. The IPO
pipeline for FY2018 is expected to encourage retail participation and activity
levels on the exchanges. Growing retail segment would lend support to the
overall blended yields in light of competitive pressure.

The recent margin trading guidelines by SEBI is expected to have

an encouraging effect on cash volumes. Given the higher yields in the cash
segment, this would augur well for the brokerage houses. Margin trading would
also help support the income profile and shore up the profitability of full-service
brokerage houses given the price based competition from discount brokerage
houses. While the brokerage houses were allowed to offer margin trading earlier
as well, the strict guidelines made the product uncompetitive as compared to the
facilities offered by NBFCs. Margin funding, thus, was conducted out of the
NBFC arms of the brokerage houses. The revised guidelines make margin
funding a viable product for brokerage houses.

Supported by the resurgence in capital markets, the total

revenues for the sample pool of brokerage houses analysed by ICRA (referred
to as ICRA pool) reported a healthy growth of 22% in FY2017. While the
revenue stream continues to be dominated by brokerage revenues, attributing to
87% of total revenues, the depository income and distribution income reported a
healthy growth in FY2017. With brokers increasingly favouring expansion
through franchisees rather than branches, cost structure and operational
efficiencies have improved which is likely to protect brokerage houses during
challenging times. Accordingly the net profit of the ICRA pool of brokerage
houses has reported a 56% growth in FY2017 to Rs 10 billion. Going forward, a
further improvement in the profitability of brokers is expected in FY2018
driven by higher revenues due to uptick in the equity markets, higher interest
income and control on expenses provided the brokers are able to maintain their
credit costs in margin lending business.

Credit rating agency ICRA expects the broking industry to see continued
improvement in its performance by 12-15 per cent in the rest of FY17.

“Following a lukewarm FY2016 partly on account of challenging operating

environment, impact due to the increase in minimum contract size for option
trading and the withdrawal of liquidity enhancement schemes that were
introduced earlier, H1 FY2017 saw aggregate equity market volumes recover by
14 per cent and average daily turnover (ADTO) increase by 15 per cent,” the
note from ICRA said. It added that going forward, the credit profiles of medium
and large brokerage houses shall witness greater de-linking from the volatility
of the domestic equity markets as they improve revenue diversification and
improve usage of cost-light business models. Given continued focus on
lowering cost structures while expanding reach into under-penetrated regions,
ICRA’s near to medium term outlook for the profitability of these brokerage
houses remains positive.

Karthik Srinivasan, Senior Vice President, ICRA Ltd, said,

“Though the H1 FY2017 performance has been better than H1 FY2016, any
adverse impact of the recent rate hike by the US Federal Reserve, delayed pick-
up in growth and corporate profitability following the demonetization and
global volatilities could partly impact broking volumes during the second half.
However increasing activity levels by the DIIs could partly alleviate concerns
on reduction of trading volumes. Hence, we estimate equity market volumes
growth rate of 12-15% for FY2017.”

MAJOR STOCK BROKING COMPANIES IN INDIA

1. ICICI SECURITIES LIMITED

2. HDFC SECURITIES LIMITED

3. SHAREKHAN LTD.

4. ZERODHA

5. AXIS SECURITIES LTD.

6. KOTAK SECURITIES LTD.

7. ANGEL BROKING PRIVATE LTD.

8. MOTILAL OSWAL SECURITIES LTD.

9. INDIA INFOLINE LTD.

10. KARVY STOCK BROKING LTD.

ICICI SECURITIES LIMITED
ICICI Direct is a Banking Equity Broker being a Banking Broker enjoys Brand
value, with highest account in equity market ICICI Direct leading in chart in
UCC activation in 2017. In 2000 ICICI Bank started its broking arm ICICI
direct. High Brand value allow ICICI direct to charge high brokerage. ICICI
Direct offer Bunch of Product to their client – equity, derivatives, currency, MF,
Insurance, FD/Bonds, Loans, NPS if we consider products they offer then ICIC
Direct top of the chart. ICICI Direct is Top 10 stock brokers who has HO in
Mumbai.

 3 – IN – 1 Account
 Rs 30 – 100 Per lot Option Trading Commission
 03% – 0.05% Intraday Future Trading Commission
 30% – 0.50% Delivery Brokerage
 Wing range of investing products
 More than 100 location presence in India
 Trade Racer – Online Trading Platform
 Learning Online Classes where you can learn about stock market.
 975 Rs 3 – in – 1 Account opening charges and Rs 500 AMC 
 High Brokerage and Transaction Charges

HDFC SECURITIES LIMITED

 HDFC Securities is another Banking Broker who enjoy Banking Client
base and High Brand Value. In the year 2002, HDFC Securities started in
Broking business. It has now more than 200 Branches and 516546 active Client
Base (NSE- Oct 17 UCC data).

 3 – in – 1 Account Opening
 Wide Range of Product – EQ , FX , MF , Insurance, Loans
 200 Branches all over India Presence
 ProTerminal – Advance Trading terminal with annual charges 1999
 999 Rs account Opening charges
 03% to 0.05% Intraday Brokerage
 30% to 0.50% Delivery Brokerage
 In-depth Research report and tools
 Online Class room – stock market training
  High Brokerage and Transaction Charges and AMC for Trading Terminal 

SHAREKHAN LIMITED
Sharekhan is one of the oldest equity Broker in India. And pioneer in the
internet base online broking in India. Sharekhan started in 2000, Member of
NSE, BSE, MCX, MCX-SX AND NCDEX. Sharekhan top of 5 stock broker in
India with 454167 Active client in NSE. (UCC data NSE Source).

 Sharekhan is one of the oldest Broker in India

 01% to 0.05% Intraday Brokerage Charges
 10% to 0.30% Delivery Brokerage Charges
 Trade Tiger – is one of the best Trading tools / terminal in Indian stock
market.
 More then 700 + Branch Office – Partner office in India
 Best Broker for Beginner trader – in-depth research and Relationship
manager support for beginner
 Regular Market inside as well as advisory in Commodity Market
 MCX Account Opening Charges – Rs 500
 MCX Brokerage Charges 0.01% Intraday Brokerage ( High compare to
other Leading Discount Brokerage )
 2 times Leverage In Intraday ( Low Compare to other Leading Broker

AXIS SECURITIES
Axis direct is Brand name of Axis Securities , one more Banking Broker enjoy
Position in top 10 share broker in India. Thanks to its Banking arm cashing high
net worth clients and corporate salary accounts in to Broking business. Axis
Bank acquire Enam securities and started its Broking Business in 2010.

 3 – in – 1 account
 Zero Brokerage in Intraday Sq up in Option Market and Rs 10 per lot if
carry forward
 01% to 0.03% Intraday Brokerage
 Swift Trader and Axis Web Trading Terminal
 20 Bunch of Products
 Research report and investment ideas
 Learn and Earn – Knowledge Series
 Strong Branch Network
 High Brokerage compare to Discount Broker , average Trading Terminal
KOTAK SECURITIES LTD.

Kotak Securities is like other banking broker Kotak Securities has good client
base. Kotak is one of the oldest stock broker in India. Kotak offer 3 – in – 1
Demat Account which cashing its high brand equity in banking business. Kotak
Bank is one of the best Brand in Private Banking Sector.

 Competitive Brokerage plan Compare to other Banking Broker

 Margin Funding available – Delivery
 Happy Hours – 50% Brokerage off between 1 pm to 2 pm.
 Double or Quits – Pay 1 paisa in loss and double brokerage in profit
 50 times intraday limit in selected stocks
 Best Research Team and Proven track record.
 Rs 750 account opening charges &Rs 500 AMC
 1200 + Branch Network
 Trading Terminal not that user friendly and Brokerage high compare to
discount broker

ANGEL BROKING PRIVATE LIMITED

 Angel Broking is one of leading traditional broker in India. Angel Broking
founded in 1987, Currently Angel has 3, 06,541 active clients (2017 – Source:
NSE)

 Option Trading Brokerage rates vary from Rs 30 – Rs 50 per lot.

 Future Trading Brokerage rates 0.01% – 0.05% on traded volume.
 3x intraday exposure in Nifty Future & other active Futures.
 More than 200 support office all over India
 ARQ automated recommendation engine for new investor.
 Angel offer mobile trading , web trading , Angel Broking Speed Pro
 Average Customer Support , High Brokerage , Average Trading web
terminal  

MOTILAL OSWAL SECURITIES LTD.

When we discussed about Traditional Broker then MotilalOswal name top of
the chart. Because of their research and Pan India presence. MotilalOswal
started in 1987 and 2, 62,000 active clients in 2017 (Source: NSE)

 2000 + Active Sub Broker Network in Pan India

 Best in house Research Team
 Rs 30 – 100 per lot option trading brokerage rates.
 01% – 0.04% Future trading brokerage rates.
 Web App , Desktop App , Mobile App with Smart Watch Support
 Margin Funding facility
 Relatively high brokerage Compare to Discount Broker Company

INDIA INFOLINE LIMITED

 India Info line diversified financial company founded by
Nirmal Jain. Of the top 10 Stock brokers in India 2018 listed in NSE. In the
year1995, Nirmal Jain started this company. Now Company have more than
3500 sub broker and 6 country presence. India Info line recently launched
5paisa Discount broking arms in India.

 Rs 555 – Account opening Charges with Rs 300 AMC

 India Info line offer multiple option in Brokerage 0.01% to 0.03% traditional
plan and fix brokerage plan also they have
 Trader terminal& TT Edege one to the best trading platform.
 5paisa School allow client to learn in-depth about stock market.
 India Info line Customer service not that satisfactory and lots of exchange
complain register in past to this broker.
 Clients Dissatisfaction and Complain logged in Exchange

KARVY STOCK BROKING LIMITED

 Karvy established a broking arm of Karvy Group as Karvy stock broking
limited in 1985.Karvy has strong presence in south India market.

 More than 10 Products they offer

 Flagship research report and advisory
 01% to 0.05% Intraday Brokerage
 10% to 0.30% Delivery Brokerage
 More then 100 + Branches and Partner Office in India
 Average Trading Terminal , High Brokerage compare to Discount
Brokers

CHAPTER- 5
DATA ANALYSIS

AND

INTERPRETATION

DATA ANALYSIS
OPTIONS STRATEGIES AVAILABLE FOR INVESTORS
STRATEGY-1 : COMPARING UNDERLYING BUY WITH CALL BUY
OPTION
Table 1 represents data of CEAT LIMITED stock prices for the month of
February in underlying market.
If the investor buys CEAT stock in underlying or spot market on 1-Feb-2018 at
a price of Rs.1884.95 in NSE. If stock price changes then his payoff in cash or
spot market throughout month in NSE is as follows.

TABLE 1 :PAYOFF FOR CEAT IN UNDERLYING MARKET

CEAT Ltd STOCK PAYOFF IN
DATE PRICE Rs PAYOFF IN %
01-Feb18 1884.95 0 0.00%
02-Feb18 1647.45 -237.5 -1259.98%
05-Feb18 1619.65 -265.3 -1407.46%
06-Feb18 1504.35 -380.6 -2019.15%
07-Feb18 1519.7 -365.25 -1937.72%
08-Feb18 1524.7 -360.25 -1911.19%
09-Feb18 1548.7 -336.25 -1783.87%
12-Feb18 1612.3 -272.65 -1446.46%
14-Feb18 1621.4 -263.55 -1398.18%
15-Feb18 1646.25 -238.7 -1266.35%
16-Feb18 1627.4 -257.55 -1366.35%
19-Feb18 1629.25 -255.7 -1356.53%
20-Feb18 1601.05 -283.9 -1506.14%
21-Feb18 1587.2 -297.75 -1579.62%
22-Feb18 1571.45 -313.5 -1663.17%
23-Feb18 1617.6 -267.35 -1418.34%
26-Feb18 1613.4 -271.55 -1440.62%
27-Feb18 1573.95 -311 -1649.91%
28-Feb18 1602.45 -282.5 -1498.71%

RETURN = -282.5
 STANDARD DEVIATION = 4.2O35396

INTERPRETATION:
From the above table, it has been seen that Loss occurs when the
CEAT share price decreases during the month of February. The investor got
losses when he buys at underlying market.
The investor got maximum loss of Rs. 380.6 on 6th February, 2018 as
the CEAT share price declines from Rs. 1884.95 to Rs. 1504.35.Here share
price not increases, so no profits incurred.
Here Standard Deviation is calculated by using following formula

GRAPH REPRESENTING UNDERLYING MARKET PRICES

OF
 CEAT LIMITED

UNDERLYING PAYOFF
1650
UNDERLYING
PAYOFF

1600

1550

1500

1450

1400
8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
b /1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1
Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe
2/ 5 6 7 8 9 12 14 15 16 19 20 21 22 23 26 27 28

TABLE 2 represents the data of CEAT Ltd stock price, strike

price of the CALL OPTION in the month of February
 If investor buys a call option of CEAT Ltd with strikeprice@Rs1900 and
premium of Rs 20 on 1stFebruary,2018, then his payoffs for the month of
February when the market prices changes are as follows
TABLE 2
CEAT Ltd STOCK STRIKE PAYOFF FOR
DATE PRICE PRICE PREMIUM CALL BUY
1-Feb-
18 1884.95 1900 -20 -20
2-Feb-
18 1647.45 1900 -20 -20
5-Feb-
18 1619.65 1900 -20 -20
6-Feb-
18 1504.35 1900 -20 -20
7-Feb-
18 1519.7 1900 -20 -20
8-Feb-
18 1524.7 1900 -20 -20
9-Feb-
18 1548.7 1900 -20 -20
12-
Feb18 1612.3 1900 -20 -20
14-
Feb18 1621.4 1900 -20 -20
15-
Feb18 1646.25 1900 -20 -20
16-
Feb18 1627.4 1900 -20 -20
19-
Feb18 1629.25 1900 -20 -20
20-
Feb18 1601.05 1900 -20 -20
21-
Feb18 1587.2 1900 -20 -20
22-
Feb18 1571.45 1900 -20 -20
23-
Feb18 1617.6 1900 -20 -20
26-
Feb18 1613.4 1900 -20 -20
27-
Feb18 1573.95 1900 -20 -20
28-
Feb18 1602.45 1900 -20 -20
GRAPH REPRESENTING THE PAYOFF FOR CALL BUY
OPTION

PAYOFF FOR CALL BUY PAYOFF FOR CALL BUY

0
8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
b /1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1 b/1
-2 /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe /Fe
1 2 5 6 7 8 9 12 14 15 16 19 20 21 22 23 26 27 28
-4

-6

-8

-10

-12

-14

-16

-18

-20

INTERPRETATION:
From the above table and graph, it shows Payoff for CEAT Ltd when we use
Call Buy with strike price of Rs.1900 and premium of Rs.20 on 1 st February,
2018.The investor executes the contract if market price is greater than strike
price .But here the market prices are below the strike price, so the investor will
not exercise his option and he occurs is the premium he paid .So the maximum
loss is here premium of Rs.20.
COMPARISION OF TRADING OF UNDERLYING MARKET
AND CALL BUY IN OPTIONS
Table3 represents the data of payoffs of both spot buy and call buy is as follows
TABLE 3-COMPARISION OF UNDERLYING BUYING AND
CALL BUY
CEAT Ltd STOCK PAYOFF FOR PAYOFF FOR
DATE PRICE SPOT BUY CALL BUY
1-Feb-18 1884.95 0 -20

2-Feb-18 1647.45 -237.5 -20

5-Feb-18 1619.65 -265.3 -20

6-Feb-18 1504.35 -380.6 -20

7-Feb-18 1519.7 -365.25 -20

8-Feb-18 1524.7 -360.25 -20

9-Feb-18 1548.7 -336.25 -20

12Feb18 1612.3 -272.65 -20

14Feb18 1621.4 -263.55 -20

15Feb18 1646.25 -238.7 -20

16Feb18 1627.4 -257.55 -20

19Feb18 1629.25 -255.7 -20

20Feb18 1601.05 -283.9 -20

21Feb18 1587.2 -297.75 -20

22Feb18 1571.45 -313.5 -20

23Feb18 1617.6 -267.35 -20

26Feb18 1613.4 -271.55 -20

27Feb18 1573.95 -311 -20

28Feb18 1602.45 -282.5 -20

GRAPH REPRESENTING BOTH UNDERLYING MARKET

AND CALL BUY IN OPTIONS
 0
1 8 1 8 1 8 1 8 1 8 1 8 1 8 18 18 18 18 18 18 18 18 18 18 18 18
eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/
/F /F /F /F /F /F /F /F /F /F /F /F /F /F /F /F /F /F /F
-501 2 5 6 7 8 9 12 14 15 16 19 20 21 22 23 26 27 28

-100

-150

-200

-250

-300

PAYOFF FOR SPOT

-350 BUY
PAYOFF FOR CALL
BUY
-400

INTERPRETATION OF COMPARING UNDERLYING

MARKET WITH CALL BUY OPTION:
The above table and graph gives information about payoffs by
comparing CEAT Ltd share in spot buy or cash buy and in Call buy or Long
Call. This strategy is used to minimize the losses incurred in spot or underlying
market by making Call buy or long call.

In long call or call buy, the investor incurred the maximum loss
of Rs.20 when the share price falls below Rs.1900.The loss is reduced by taking
a long position call option with strike price of Rs.1900 with premium
of Rs.20.Thus the investor got limited losses. Formula for calculating Payoff if
investor exercise the call option is as follows

Payoff = (Market price /spot price –Strike Price) + Premium

 In case of underlying market or spot market, the maximum loss
is Rs.380.6 when share price decreases .So the CEAT Ltd faces unlimited losses
when the investor buys the share in underlying market.

So, by using Call Buy Option strategy, the investor’s risk of

buying gets minimized. The investor gets unlimited profits when share price
increases and got limited losses that it limited to premium he paid .Otherwise he
may occur unlimited losses when buying at spot market.

Thus one can minimize their losses by using CALL BUY rather
than SPOT BUY.

STRATEGY- 2: COMPARING FUTURE SELL WITH

PUTBUYOPTION
Table-4 represents data of TCS stock prices for the month of
April in underlying market
 If the investor sells TCS stock in future or underlying market on 2 nd April,
2018 at a price of Rs.2910 in NSE .If stock price changes then his payoff
throughout the month in futures market is as follows.

TCS
CLOSE(Rs. PAYOFF FOR PAYOFF
DATE ) FUTURE SELL IN Rs. IN %
02-Apr-18 2910 0 1.20%
03-Apr-18 2911 -1 -4.30%
04-Apr-18 2911 -1 -3.09%
05-Apr-18 2958 -48 -164.78%
06-Apr-18 2950 -40 -138.49%
09-Apr-18 2924 -14 -47.77%
10-Apr-18 2938 -28 -94.85%
11-Apr-18 3014 -104 -357.90%
12-Apr-18 3139 -229 -787.80%
13-Apr-18 3153 -243 -836.08%
16-Apr-18 3188 -278 -954.12%
17-Apr-18 3167 -257 -881.79%
18-Apr-18 3159 -249 -856.01%
19-Apr-18 3191 -281 -966.15%
20-Apr-18 3402 -492 -1692.27%
23-Apr-18 3409 -499 -1713.57%
24-Apr-18 3386 -476 -1634.54%
25-Apr-18 3470 -560 -1924.40%
26-Apr-18 3539 -629 -2162.37%
27-Apr-18 3452 -542 -1862.37%
30-Apr-18 3532 -622 -2137.80%

STANDARD DEVIATION = 7.7973

GRAPH REPRESENTING PAYOFF FOR SPOT SELL

 100
PAYOFF FOR SPOT SELL IN Rs.
0
8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
r /1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1
-100Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap Ap
2/ 3 / 4 / 5/ 6 / 9/ 10 / 1 1 / 12 / 1 3 / 1 6 / 17 / 18 / 1 9 / 20 / 2 3 / 24 / 2 5 / 26 / 27 /
-200

-300

-400

-500
PAYOFF FOR SPOT SELL IN Rs.
-600

-700

INTERPRETATION
From the above table and graph, it has been observed that after selling TCS
share, the profit or loss changes with change in share prices. Here Loss occurs
due to increase in share price .It occurred maximum loss of Rs 629 on 26 th
April ,2018 as the TCS share price increases from Rs. 2910 to Rs.3539.Since
TCS share is in Bullish market it expects profit if share price increases. Here
share price decreases so he got losses. Standard deviation is calculated to know
the deviations in Payoffs.

TABLE 5 represents Data of Payoff for TCS Put Buy for the
month of April 2018
If the investor buys a TCS Put Buy Option on 2nd April, 2018 at a price of
Rs.2910 in NSE with the strike price of Rs.2950 and Premium of Rs.60, the
Payoffs when stock prices increases in the month of April are as follows:
 TCS PUT BUY PAYOFF
CLOSE(Rs STRIKE PREMIU FOR
DATE ) PRICE@Rs.2950 M PUTBUY(Rs)
2-Apr-18 2910 2950 -60 -20
3-Apr-18 2911 2950 -60 -21
4-Apr-18 2911 2950 -60 -21
5-Apr-18 2958 2950 -60 -60
6-Apr-18 2950 2950 -60 -60
9-Apr-18 2924 2950 -60 -34
10-Apr-18 2938 2950 -60 -48
11-Apr-18 3014 2950 -60 -60
12-Apr-18 3139 2950 -60 -60
13-Apr-18 3153 2950 -60 -60
16-Apr-18 3188 2950 -60 -60
17-Apr-18 3167 2950 -60 -60
18-Apr-18 3159 2950 -60 -60
19-Apr-18 3191 2950 -60 -60
20-Apr-18 3402 2950 -60 -60
23-Apr-18 3409 2950 -60 -60
24-Apr-18 3386 2950 -60 -60
25-Apr-18 3470 2950 -60 -60
26-Apr-18 3539 2950 -60 -60
27-Apr-18 3452 2950 -60 -60
30-Apr-18 3532 2950 -60 -60

GRAPH SHOWING THE PAYOFF FOR PUT BUY OF TCS

SHARE FOR THE MONTH OF APRIL
 0
PAYOFF FOR PUTBUY
1 8 1 8 1 8 1 8 1 8 1 8 1 8 18 1 8 1 8 18 18 1 8 18 1 8 18 18 1 8 1 8 18 1 8
p r/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/ pr/
A A A A A A A A A A A A A A A A A A A A A
2/ 3 / 4/ 5/ 6 / 9/ 1 0 / 11 / 1 2 / 1 3 / 16 / 17 / 1 8 / 19 / 2 0 / 23 / 24 / 2 5 / 2 6 / 27 / 3 0 /
-10

-20

-30

-40

-50

-60 PAYOFF FOR

PUTBUY

INTERPRETATION:
From the above table and Graph, we get information about Put Buy Option of
TCS with strike price of Rs.2950 and Premium of Rs.60.Since it is a Bearish
Strategy investor buys it with the intention of decline in TCS share price. He
would get profit if prices fall below BEP. But here we observe that the TCS
share price increases, so the investor got losses which are limited to Premium of
Rs.60.Formula for calculating Payoff when investor exercise the Put Option is

Payoff = (Strike Price – Market Price) + Premium

TABLE 6 represents data of Comparison of Payoff for Future sell

and Put Buy option of TCS stock for the month of April
By comparing the payoffs for future sell and for Put Buy, we get following data
 TCS
CLOSE(Rs PAYOFF FOR PAYOFF FOR PUT
DATE ) FUTURE SELL BUY@Rs.2950
2-Apr-18 2910 0 -20
3-Apr-18 2911 -1 -21
4-Apr-18 2911 -1 -21
5-Apr-18 2958 -48 -60
6-Apr-18 2950 -40 -60
9-Apr-18 2924 -14 -34
10-Apr-
18 2938 -28 -48
11-Apr-
18 3014 -104 -60
12-Apr-
18 3139 -229 -60
13-Apr-
18 3153 -243 -60
16-Apr-
18 3188 -278 -60
17-Apr-
18 3167 -257 -60
18-Apr-
18 3159 -249 -60
19-Apr-
18 3191 -281 -60
20-Apr-
18 3402 -492 -60
23-Apr-
18 3409 -499 -60
24-Apr-
18 3386 -476 -60
25-Apr-
18 3470 -560 -60
26-Apr-
18 3539 -629 -60
27-Apr-
18 3452 -542 -60
30-Apr-
18 3532 -622 -60

GRAPH REPRESENTING PAYOFF OF FUTURE SELL AND

PUT BUY OF TCS STOCK FOR THE MONTH OF APRIL
 0
8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
r /1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1 r/1
Ap Ap Ap Ap Ap A p A p A p Ap Ap Ap Ap A p A p A p A p A p Ap Ap Ap Ap
-1002/ 3/ 4/ 5/ 6/ 9/ 10/ 11/ 12/ 13/ 16/ 17/ 18/ 19/ 20/ 23/ 24/ 25/ 26/ 27/ 30/

-200

-300

-400
PAYOFF FOR SPOT SELL
PAYOFF FOR PUT
-500 BUY@2950

-600

-700

INTERPRETATION
From the above Table and Chart gives information about
Comparison of future sell and put buy ,the TCS share is in Bullish market and
the investor prediction about price decreases went wrong ,so he got
losses .However the investor sells the future stock and share price increases
after sale so he got losses .The maximum loss on future sell is Rs 629.whereas
the ,maximum loss when he buy put option is limited to the premium of Rs.60
which he pays for the contract because he will not exercise his option .So
losses will be reduced using PUT BUY option rather than future sell in the
market.

STRATEGY -1: COMPARING BUYING IN UNDERLYING

MARKET AND CALL BUY OF NIFTY INDEX
TABLE 7 represents the data of NIFTY INDEX for the month of
February
If the investor buys NIFTY index stock in spot or underlying
market on 1 February, 2018 at Rs.11017 in NSE .If stock price changes, his
st

profit or loss in underlying market is as follows

TABLE-7: PAYOFF OF NIFTY INDEX IN UNDERLYING BUY
MARKET
NIFTY STOCK PAYOFF FOR SPOT PAYOFF FOR
DATE PRICE(Rs.) BUY(Rs) SPOT BUY IN %
01-Feb-18 11017 0 -0.09%

02-Feb-18 10761 -256 -232.73%

05-Feb-18 10667 -350 -318.10%

06-Feb-18 10498 -519 -470.86%

07-Feb-18 10477 -540 -490.42%

08-Feb-18 10577 -440 -399.52%

09-Feb-18 10455 -562 -510.17%

12-Feb-18 10540 -477 -433.19%

14-Feb-18 10501 -516 -468.46%

15-Feb-18 10546 -472 -427.97%

16-Feb-18 10452 -565 -512.57%

19-Feb-18 10378 -639 -579.65%

20-Feb-18 10360 -657 -595.99%

21-Feb-18 10397 -620 -562.36%

22-Feb-18 10383 -634 -575.75%

23-Feb-18 10491 -526 -477.40%

26-Feb-18 10583 -434 -394.30%

27-Feb-18 10554 -463 -419.99%

28-Feb-18 10493 -524 -475.76%

GRAPH REPRESENTING NIFTY STOCK WHEN BUY IN
UNDERLYING MARKET FOR THE MONTH OF FEBRUARY
 PAYOFF FOR SPOT BUY(Rs)
0
1 8 1 8 1 8 1 8 1 8 1 8 1 8 18 18 1 8 1 8 18 18 1 8 1 8 1 8 1 8 18 18
eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/
-100 1/F 2/F 5/F 6/F 7/F 8/F 9/F 2/F 4/F 5/F 6/F 9/F 0/F 1/F 2/F 3/F 6/F 7/F 8/F
1 1 1 1 1 2 2 2 2 2 2 2

-200

-300

-400

-500

PAYOFF FOR SPOT

-600 BUY(Rs)

-700

INTERPRETATION
From the above Table and Graph, it has been seen that the profit and loss
changes when the NIFTY stock index price increases or decreases .The NIFTY
stock is in Bearish market ,but the investor expects the share market to in
prices .So he incurred losses .The investor got maximum loss of Rs.639 on 19 th
February,2018 as the NIFTY share price declined from Rs.11017 to
Rs.10378.so the investor got Unlimited profits if share price increases but here
the share price decreases so he got Unlimited losses.

STANDARD DEVIATION = 1.3945

TABLE 8 REPRESENTS DATA OFNIFTY INDEX CALL BUY

OPTION FOR THE MONTH OF FEBRUARY
 If the investor buys NIFTY index Call Buy Option or Long Call at a
strike price of Rs 11000 and with a premium ofRs.40 on 1 st February 2018 with
the cash price of Rs.11017.So the Payoff for the month of February when share
price changes is as follows
TABLE 8: PAYOFF OF NIFTY INDEX CALL BUY FOR FEBRUARY
MONTH
NIFTY STRIKE
STOCK PRICE(RS PREMIUM(RS PAYOFF FOR
DATE PRICE(RS) ) ) CALL BUY(Rs)
01-Feb-18 11017 11000 -40 -23
02-Feb-18 10761 11000 -40 -40
05-Feb-18 10667 11000 -40 -40
06-Feb-18 10498 11000 -40 -40
07-Feb-18 10477 11000 -40 -40
08-Feb-18 10577 11000 -40 -40
09-Feb-18 10455 11000 -40 -40
12-Feb-18 10540 11000 -40 -40
14-Feb-18 10501 11000 -40 -40
15-Feb-18 10546 11000 -40 -40
16-Feb-18 10452 11000 -40 -40
19-Feb-18 10378 11000 -40 -40
20-Feb-18 10360 11000 -40 -40
21-Feb-18 10397 11000 -40 -40
22-Feb-18 10383 11000 -40 -40
23-Feb-18 10491 11000 -40 -40
26-Feb-18 10583 11000 -40 -40
27-Feb-18 10554 11000 -40 -40
28-Feb-18 10493 11000 -40 -40
GRAPH REPRESENTING DATA OF CALL BUY OF NIFTY
INDEX FOR FEBRUARY MONTH
 PAYOFF FOR CALL BUY(Rs)
PAYOFF FOR CALL BUY(Rs)
0
18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18
eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/
-5 1/F 2/F 5/F 6/F 7/F 8/F 9/F 2/F 4/F 5/F 6/F 9/F 0/F 1/F 2/F 3/F 6/F 7/F 8/F
1 1 1 1 1 2 2 2 2 2 2 2
-10

-15

-20

-25

-30

-35

-40

INTERPRETATION
From the above data and graph it shows that the investor buys call buy NIFTY
index in Bearish market so he got losses when share price decreases. He got
unlimited profits, if share price increases. So here he executes the contract if
share price increases. Otherwise he will not exercise his option and the loss he
incurs is the premium he paid .So the maximum loss in Call Buy is Rs.40.The
formula for calculating payoff if he exercises his option is as follows

Payoff = (Spot Price – Strike Price) + Premium

TABLE 9 REPRESENTS DATA OF NIFTY INDEX WHEN

COMPARING IN SPOT/UNDERLYING BUY AND CALL BUY
By comparing the NIFTY index Payoffs in both underlying market and call buy
option for the month of February the investor got following results.
 TABLE 9: COMPARISON OF PAYOFFS OF UNDERLYING
BUY AND CALL BUY OF NIFTY IN FEBRUARY MONTH
NIFTY STOCK PAYOFF FOR SPOT PAYOFF FOR
DATE PRICE(Rs) BUY(Rs) CALL BUY(Rs)
01-Feb-18 11017 0 -23
02-Feb-18 10761 -256 -40
05-Feb-18 10667 -350 -40
06-Feb-18 10498 -519 -40
07-Feb-18 10477 -540 -40
08-Feb-18 10577 -440 -40
09-Feb-18 10455 -562 -40
12-Feb-18 10540 -477 -40
14-Feb-18 10501 -516 -40
15-Feb-18 10546 -472 -40
16-Feb-18 10452 -565 -40
19-Feb-18 10378 -639 -40
20-Feb-18 10360 -657 -40
21-Feb-18 10397 -620 -40
22-Feb-18 10383 -634 -40
23-Feb-18 10491 -526 -40
26-Feb-18 10583 -434 -40
27-Feb-18 10554 -463 -40
28-Feb-18 10493 -524 -40

GRAPH REPRESENTING PAYOFFS OF NIFTY IN

UNDERLYING MARKET AND CALL BUY IN THE MONTH
OF FEBRUARY
 0
1 8 1 8 1 8 1 8 1 8 1 8 1 8 18 1 8 1 8 18 1 8 1 8 18 1 8 18 18 1 8 18
eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/ eb/
F F F F F F F F F F F F F F F F F F F
-100 1/ 2/ 5/ 6/ 7/ 8/ 9/ 12 / 1 4 / 1 5 / 16 / 1 9 / 2 0 / 21 / 2 2 / 23 / 26 / 2 7 / 28 /

-200

-300

-400

-500

-600 PAYOFF FOR SPOT BUY(Rs) PAYOFF FOR CALL BUY(Rs)

-700

INTERPRETATION
The above Table and graph represents the data of Payoffs by comparing NIFTY
spot buy and Call buy/long call. The investor got unlimited losses when he buys
the share in underlying market. Whereas when he buys the call buy option or
long call position, he incurred maximum loss limited to the premium he paid on
buying the option .So this strategy is used to minimize the losses incurred in
underlying market by buying as call option. The investor got unlimited profits if
share price increases. Thus one can minimize their losses by using CALL BUY
rather than SPOT BUY.

STRATEGY-2:COMPARING PAYOFFS OF NIFTY FUTURE

SELL WITH PUYBUY
TABLE 10 REPRESENTS THE DATA OF NIFTY INDEX
FUTURE SELL FOR THE MONTH OF JANUARY
If the investor sells NIFTY index stock in future market on 1st January at a price
of Rs.10436 in NSE .If stock price changes then his Payoff in Cash or future
sell throughout the month of January is as follows.
TABLE 10:PAYOFF OF FUTURE SELL OF NIFTY IN
JANUARY MONTH
NIFTY
CLOSE(Rs PAYOFF FOR SPOT PAYOFF IN %
DATE ) SELL(Rs) CHANGE
01-Jan-18 10436 0 0.43%
02-Jan-18 10442 -6 -5.94%
03-Jan-18 10443 -7 -6.90%
04-Jan-18 10505 -69 -65.93%
05-Jan-18 10559 -123 -117.72%
08-Jan-18 10624 -188 -179.76%
09-Jan-18 10637 -201 -192.60%
10-Jan-18 10632 -196 -188.00%
11-Jan-18 10651 -215 -206.21%
12-Jan-18 10681 -245 -235.00%
15-Jan-18 10742 -306 -292.78%
16-Jan-18 10700 -264 -253.40%
17-Jan-18 10789 -353 -337.82%
18-Jan-18 10817 -381 -365.08%
19-Jan-18 10895 -459 -439.54%
22-Jan-18 10966 -530 -508.05%
23-Jan-18 11084 -648 -620.64%
24-Jan-18 11086 -650 -622.84%
25-Jan-18 11070 -634 -607.18%
29-Jan-18 11130 -694 -665.39%
30-Jan-18 11050 -614 -588.01%
31-Jan-18 11028 -592 -566.98%

GRAPH REPRESENTING THE PAYOFF OF FUTURE SELL

OF NIFTYINDEX FOR THE MONTH OF JANUARY
 PAYOFF FOR FUTURE SELL(Rs)
100

0
8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
/1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1
-100Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
1/ 2 / 3 / 4 / 5 / 8 / 9/ 10 / 11 / 12 / 15 / 1 6 / 1 7 / 1 8 / 1 9 / 22 / 23 / 24 / 25 / 2 9 / 3 0 / 3 1 /
-200

-300

-400

-500 PAYOFF FOR SPOT

SELL(Rs)
-600

-700

INTERPRETATION
The above data and graph represents NIFTY index payoff for the month of
January 2018 when it is sell in future, it is observed that the loss occurs due to
increase in share price because the investor expected that share will
decrease .So he incurred the maximum loss of Rs.694 on 29 th January, 2018 as
the NIFTY index value increases from Rs 10436 to Rs 11130.STANDARD
DEVIATION = 2.238

TABLE 11 REPRESENTS DATA OF PAYOFF FOR PUT BUY

OF NIFTY INDEX FOR THE MONTH OF JANUARY
DATE NIFTY PUT BUY PREMIUM(rs PAYOFF FOR
CLOSE(Rs STRIKE ) PUT BUY(Rs)
 ) PRICE(Rs)
01-Jan-18 10436 10450 -100 -86
02-Jan-18 10442 10450 -100 -92
03-Jan-18 10443 10450 -100 -93
04-Jan-18 10505 10450 -100 -100
05-Jan-18 10559 10450 -100 -100
08-Jan-18 10624 10450 -100 -100
09-Jan-18 10637 10450 -100 -100
10-Jan-18 10632 10450 -100 -100
11-Jan-18 10651 10450 -100 -100
12-Jan-18 10681 10450 -100 -100
15-Jan-18 10742 10450 -100 -100
16-Jan-18 10700 10450 -100 -100
17-Jan-18 10789 10450 -100 -100
18-Jan-18 10817 10450 -100 -100
19-Jan-18 10895 10450 -100 -100
22-Jan-18 10966 10450 -100 -100
23-Jan-18 11084 10450 -100 -100
24-Jan-18 11086 10450 -100 -100
25-Jan-18 11070 10450 -100 -100
29-Jan-18 11130 10450 -100 -100
30-Jan-18 11050 10450 -100 -100
31-Jan-18 11028 10450 -100 -100

If the investor Buys the Put Option of NIFTY index on 1st January, 2018 with a
strike price of Rs.10450 and pays premium of Rs.100.The stock price on
starting date is Rs.10436.Then the Payoff when the stock price increases on the
month of January is as follows

GRAPH REPRESENTING PAYOFF FOR PUT BUY OF NIFTY

INDEX FOR THE MONTH OF JANUARY
 PAYOFF FOR PUT
PAYOFF FOR PUT BUY
BUY
-75
1 8 18 18 18 18 1 8 1 8 18 18 18 1 8 18 1 8 1 8 1 8 18 18 1 8 18 1 8 1 8 1 8
n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/ n/
J/ a /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja /Ja
-801 2 3 4 5 8 9 10 11 12 1 5 16 1 7 1 8 1 9 22 23 2 4 25 2 9 3 0 3 1

-85

-90

-95

-100

INTERPRETATION
The above table and graph represents data of Payoffs of NIFTY index
for January month when investor buys Put option. He buys with intention of
decline in share price so he gets profit if share price decreases. Here share price
increases so he gets losses. In put buy strategy the investor may get unlimited
profits if share price increases and limited losses if it decreases. So here he get a
maximum loss of premium he paid. The formula if he exercises the put option is
as follows

Payoff = (Strike Price – Market Price) + Premium

TABLE 12 REPRESENTS THE COMPARISION PAYOFFS OF
FUTURE SELL AND PUT BUY OF NIFTY FOR JANUARY
MONTH
Here the data of both the payoffs for which the investor will compare in future
sell and put buy is as follows
PAYOFF FOR
NIFTY FUTURE PAYOFF FOR
DATE CLOSE(Rs) SELL(RS) PUT BUY(Rs)
01-Jan-18 10436 0 -86
02-Jan-18 10442 -6 -92
03-Jan-18 10443 -7 -93
04-Jan-18 10505 -69 -100
05-Jan-18 10559 -123 -100
08-Jan-18 10624 -188 -100
09-Jan-18 10637 -201 -100
10-Jan-18 10632 -196 -100
11-Jan-18 10651 -215 -100
12-Jan-18 10681 -245 -100
15-Jan-18 10742 -306 -100
16-Jan-18 10700 -264 -100
17-Jan-18 10789 -353 -100
18-Jan-18 10817 -381 -100
19-Jan-18 10895 -459 -100
22-Jan-18 10966 -530 -100
23-Jan-18 11084 -648 -100
24-Jan-18 11086 -650 -100
25-Jan-18 11070 -634 -100
29-Jan-18 11130 -694 -100
30-Jan-18 11050 -614 -100
31-Jan-18 11028 -592 -100
 GRAPH REPRESENTING DATA OF PAYOFFS OF NIFTY
INDEX FOR JANUARY MONTH

100

0
1 8 18 18 18 1 8 18 1 8 1 8 1 8 18 18 18 18 1 8 1 8 1 8 18 1 8 18 18 18 1 8
-100 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-
- - - - - - - - - - - - - - - - - - - - - -
0 1 02 03 04 0 5 08 0 9 1 0 1 1 12 15 16 17 1 8 1 9 2 2 23 2 4 25 29 30 3 1
-200

-300

-400

-500
PAYOFF FOR SPOT SELL
-600 PAYOFF FOR PUT BUY

-700

INTERPRETATION
From the above data and graph, the investor compare both the future sell and
put buy option of NIFTY index for the month of January. The maximum loss
when future sell is Rs.694 whereas the maximum loss when the investor buys
put option is Rs.100 which is limited to premium he paid .Since the market is
BULLISH, the investor gets losses since he expects to decrease in share
price .He will pay premium if option will not exercise that is loss.
 CHAPTER -6
FINDINGS & SUGGESTIONS

CONCLUSION AND BIBLIOGRAPHY

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

 Futures are one of the best tools for investors, who purchase shares in
cash market.
 When investors think of volatility in certain conditions they can avoid
their losses in cash market by simply participating in derivatives. i.e
selling the future underlying stock.
 The losses incurred in cash market will be set off by the profits generated
in short positions taken in futures when market becomes volatile.
 This study also shows that futures are hedging tools and cannot expect
profits by participating in it.
 This study is also shown that options can also be used for hedging and
profit making.
 Investors with long positions in cash market can avoid the risk of falling
prices by buying put option.
 Losses incurred in cash market due to fall in share price were set off by
the profits in put option.

 It was also observed that in put options, when market price increases the
investor who takes the hedging positions is getting profits. So, it gives
unique advantage to options than futures.
 Both futures and options are effective tool for effective use in hedging or
risk management.
 For BULLISH Market, CALL BUY option is better than SPOT or
UNDERLYING market. Because the investor get Unlimited profits and
unlimited losses when shares buy in underlying market but the investor
get Unlimited profits and Limited losses in Call Buy.
 For BEARISH Market, PUT BUY option is better than Future sell in
market .Because the investor get Unlimited profits and unlimited losses
when he sell in future market but the investor get Unlimited profits and
limited losses in Put Buy.
 It is observed that the investor gets Limited loss that to premium he paid
when buying options i.e.; Call buy and Put Buy rather than on underlying
market.
 The investor does not make Put sell option when the market is Bullish to
avoid unlimited losses.
 Also the investor does not make Call Sell option when the market is
Bearish to avoid unlimited losses.

SUGGESTIONS:
  Study shows that derivatives are the best available tools in modern
financial markets, but one has to be clear about the tools in derivatives
and how they can be effectively used.
 Understanding of futures & options and strike prices are to be carefully
observed at the time of hedging.
 If one has to just avoid losses in cash market, he can participate in
futures.
 If one wants to avoid losses at the time of falling prices and expect profits
when prices increases, then the best tool is options.
 In these days, premiums are too high. It is very difficult to execute the
option. So, investors should take care about paying premium.
 It is suggested to investor to go through CALL BUY option rather than
buying in underlying market.
 It is also suggested to investor to go through PUT BUY option rather than
future sell of stocks.

Conclusion:
THE INVESTOR THOSE WHO ARE INVEST IN STOCK MARKETS TO
AVOID LOSSES IN INDEX TO PUT THEIR INVESTMENTS THROUGH
DERIVATIVES IN THAT USE OPTIONS TO MINIMIZE THEIR
HEADGING AND TO FOLLOW OTHER STRATEGIES IN OPTIONS TO
MAXIMIZE THEIR PROFITS. IT’S VERY DIFFICULT TO INVEST ON
SPOT MARKETS PAYOFF IS VERY HIGH.(UNLIMITED PROFITS AND
LOSSES).

BIBLIOGRAPHY
BOOKS

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

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

WEBSITES

 www.derivativesindia.com
 www.nseindia.com
 www.sebi.gov.in
 www.economictimes.com
 www.investopedia.com
 www.angelbroking.com
 www.bonanzaonline.com
 www.managementparadise.com
 www.sharegyaan.com
 www.topsharebrokers.com
 www.icraresearch.in
 www.investallign.in
 www.thehindubusinessline.com
 www.articlesfactory.com