CHAPTER-I

INTRODUCTION

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 INTRODUCTION

The emergence of the market for derivatives products, most notably

forwards, futures and options, can be traced back to the willingness of risk-averse
economic agents to guard themselves against uncertainties arising out of
fluctuations in asset prices. By their very nature, the financial markets are marked
by a very high degree of volatility. Through the use of derivative products, it is
possible to partially or fully transfer price risks by locking-in asset prices. As
instruments of risk management, these generally do not influence the fluctuations
in the underlying asset prices. However, by locking-in asset prices, derivative
products minimize the impact of fluctuations in asset prices on the profitability
and cash flow situation of risk-averse investors.
Derivatives are risk management instruments, which derive their value from
an underlying asset. The underlying asset can be bullion, index, share, bonds,
currency, interest, etc. Banks, Securities firms, companies and investors to hedge
risks, to gain access to cheaper money and to make profit, use derivatives.
Derivatives are likely to grow even at a faster rate in future.

DEFINITION OF DERIVATIVES
“Derivative is a product whose value is derived from the value of an
underlying asset in a contractual manner. The underlying asset can be equity,
forex, commodity or any other asset”.
 Securities Contracts (Regulation) Act, 1956 (SCR Act) defines “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.

HISTORY OF DERIVATIVES MARKETS

Early forward contracts in the US addressed merchants concerns about

ensuring that there were buyers and sellers for commodities. However “credit
risk” remained a serious problem. To deal with this problem, a group of Chicago;
businessmen formed the Chicago Board of Trade (CBOT) in 1948. The primary

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intention of the CBOT was to provide a centralized location known in advance
for buyers and sellers to negotiate forward contracts. In 1965, the CBOT went one
step further and listed the first “exchange traded” derivatives contract in the US;
these contracts were called “futures contracts”. In 1919, Chicago Butter and Egg
Board, a spin-off CBOT was reorganized to allow futures trading. Its name was
changed to Chicago Mercantile Exchange (CME). The CBOT and the CME
remain the two largest organized futures exchanges, indeed the two largest
“financial” exchanges of any kind in the world today.
The first stock index futures contract was traded at Kansas City Board of
Trade. Currently the most popular stock index futures contract in the world is
based on S&P 500 indexes, traded on Chicago Mercantile Exchange. During the
Mid eighties, financial futures became the most active derivative instruments
generating volumes many times more than the commodity futures. Index futures,
futures on T-bills and Euro-Dollar futures are the three most popular futures
contracts traded today. Other popular international exchanges that trade derivates
are LIFFE in England, DTB in Germany, SGX in Singapore, TIFFE in Japan
MATIF in France, Eurex etc.

THE GROWTH OF DERIVATIVES

Over the last three decades, the derivatives markets have seen a phenomenal
growth. A large variety of derivative contracts have been launched at exchanges
across the world. Some of the factors driving the growth of financial derivatives
are:
 Increased volatility in asset prices in financial markets.
 Increased integration of national financial markets with the international
markets.
 Marked improvement in communication facilities and sharp decline in their
costs.
 Development of more sophisticated risk management tools, providing
economic agents a wider choice of risk management strategies, and
 Innovations in the derivates markets, which optimally combine the risks and
returns over a large number of financial assets leading to higher returns,
reduced risk as well as transaction costs as compared to individual financial
assets.

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TYPES OF DERIVATIVES
The following are the various types of derivatives.
FORWARDS:
A forward contract is a customized contract between two entities, where
settlement takes place on a specific date in the future at today’s pre-agreed price.

FUTURES:
A futures contract is an agreement between two parties to buy or sell an
asset at a certain time in the future at a certain price. Futures contracts are special
types of forward contracts in the sense that the former are standardized exchange
traded contracts.

OPTIONS:
Options are of two types-calls and puts. Calls give the buyer the right but
not the obligation to buy a given quantity of the underlying asset, at a given price
on or before a give future date. Puts give the buyer the right, but not the obligation
to sell a given quantity of the underlying asset at a given price on or before a
given date.

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

LEAPS:
The acronym LEAPS means long-term Equity Anticipation securities.
These are options having a maturity of up to three years.

BASKETS:
Basket options are options on portfolios of underlying assets. The
underlying asset is usually a moving average of a basket of assets. Equity index
options are a form of basket options.

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 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 related cash flows between the parties in the
same currency.

Currency Swaps:
These entail swapping both principal and interest between the parties, with
the cash flows in on direction being in a different currency than those in the
opposite direction.

SWAPTION:
Swaptions are options to buy or sell a swap that will become operative at
the expiry of the options. Thus a swaption is an option on a forward swap. Rather
than have calls and puts, the swaptions market has received 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 received floating.

PARTICIPANTS IN THE DERIVATIVE MARKETS

The following three broad categories of participants:

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.

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ARBITRAGERS:
Arbitrageurs are in business to take of a discrepancy between prices in two
different markets, if, for, example, they see the futures price of an asset getting
out of line with the cash price, they will take offsetting position in the two
markets to lock in a profit.

FUNCTION OF THE DERIVATIVE MARKETS:

In spite of the fear and criticism with which the derivative markets are commonly
looked at, these markets perform a number of economic functions.
 Prices in an organized derivatives market reflect the perception of market
participants about the future and lead the price of underlying to the
perceived future level. The prices of derivatives converge with the prices
of the underlying at the expiration of the derivate contract. Thus
derivatives help in discovery of future as well as current prices.
 Derivatives market helps to transfer risks from those who have them but
may not like them to those who have an appetite for them.
 Derivative due to their inherent nature, are linked to the underlying cash
markets. With the introduction of derivatives, the underlying market
witness higher trading volumes because of participation by more players
who would not otherwise participate for lack of an arrangement to transfer
risk.
 Speculative trades shift to a more controlled environment of derivatives
market. In the absence of an organized derivatives market, speculators
trade in the underlying cash markets. Margining, Monitoring and
surveillance of the activities of various participants become extremely
difficult in these kinds of mixed markets.
 An important incidental benefit that flows from derivatives trading is that
it acts as a catalyst for new entrepreneurial activity. The derivatives have a
history of attracting many bright, creative, Well-educated people with an
entrepreneurial attitude. They often energize others to create new
businesses, new products and new employment opportunities, the benefit
of which are immense.
 Derivatives trading acts as a catalyst for new entrepreneurial activity.
 Derivatives markets help increase saving and investment in long run.
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INTRODUCTION OF FUTURES

Futures markets were designed to solve the problems that exist in forward
markets. A futures contract is an agreement between two parties to buy or sell
an asset as a certain time in the future at a certain price. But unlike forward
contract, the futures contracts are standardized and exchange traded. To
facilitate liquidity in the futures contract, the exchange specifies certain
standard underlying instrument, a standard quantity and quality of the
underlying instrument that can be delivered, (or which can be used for
reference purpose in settlement) and a standard timing of such settlement. A
futures contract may be offset prior to maturity by entering into an equal and
opposite transaction. More than 90% of futures transactions are offset this way.
The standardized items in a futures contract are:
 Quantity of the underlying
 Quality of the underlying
 The date and the month of delivery
 The units of price quotation and minimum price change
 Location of settlement

DEFINITION
A future contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types
of forward contracts in the sense that the former are standardized exchange-
traded contracts.

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SCOPE OF THE STUDY
The Study is limited to “Derivatives” with special reference to Futures and
Option is the Indian context and the Inter-Connected Stock Exchange have been
Taken as a representative sample for the study. The study can’t be said as totally
perfect. Any alteration may come. The study has only made a humble Attempt at
evaluation derivatives market only in India context. The study is not based on the
international perspective of derivatives markets, which exists in NASDAQ,
CBOT etc.

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OBJECTIVES OF THE STUDY
 To analyze the derivatives market in India
 To analyze the operations of futures and options
 To find the profit/loss position of futures buyer and also the option writer
and option holder.
 To study about risk management with the help of derivatives.

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LIMITATIONS OF THE STUDY

The following are the limitation of this study.

 The scrip chose for analysis is M/s. KOTAK STOCK BROCKING
LTD. the contract taken is JUNE 2022. Ending one-month contract.
 The data collected is completely restricted to the M/s. KOTAK STOCK
BROCKING LTD of JUNE 2022

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 NATURE OF THE PROBLEM

The turnover of the stock exchange has been tremendously increasing from last 10
years. The number of trades and the number of investors, who are participating,
have increased. The investors are willing to reduce their risk, so they are seeking
for the risk management tools.
Prior to SEBI abolishing the BADLA system, the investors had this system as a
source of reducing the risk, as it has many problems like no strong margining
system, unclear expiration date and generating counter party risk. In view of
this problem SEBI abolished the BADLA system.
After the abolition of the BADLA system, the investors are seeking for a
hedging system, which could reduce their portfolio risk. SEBI thought the
introduction of the derivatives trading, as a first step it has set up a 24 member
committee under the chairmanship of Dr. L.C. Gupta to develop the
appropriate framework for derivatives trading in India, SEBI accepted the
recommendation of the committee on May 11, 1998 and approved the phase
introduction of the derivatives trading beginning with stock index futures.
There are many investors who are willing to trade in the derivatives segment,
because of its advantages like limited loss unlimited profit by paying the small
premiums.

THE DEVELOPMENT OF DERIVATIVES

Holding portfolios of securities is associated with the risk of the possibility that
the investor may realize his returns, which would be much lesser than what he
expected to get. There are various factors, which affect the returns:
1. Price or dividend (interest)
2. Some are internal to the firm like

 Industrial policy
 Management capabilities
 Consumer’s preference
 Labour strike, etc.
These forces are to a large extent controllable and are termed as non systematic
risks. An investor can easily manage such non-systematic by having a well-

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diversified portfolio spread across the companies, industries and groups so that a
loss in one may easily be compensated with a gain in other.
There are yet other of influence which are external to the firm, cannot be
controlled and affect large number of securities. They are termed as systematic
risk.
They are:
1. Economic
2. Political
3. Sociological changes are sources of systematic risk.
For instance, inflation, interest rate, etc. their effect is to cause prices of nearly
all-individual stocks to move together in the same manner. We therefore quite
often find stock prices falling from time to time in spite of company’s earnings
rising and vice versa.
Rational Behind the development of derivatives market is to manage this
systematic risk, liquidity in the sense of being able to buy and sell relatively
large amounts quickly without substantial price concession.

In debt market, a large position of the total risk of securities is systematic. Debt
instruments are also finite life securities with limited marketability due to their
small size relative to many common stocks. Those factors favor for the purpose
of both portfolio hedging and speculation, the introduction of a derivatives
securities that is on some broader market rather than an individual security.

GLOBAL DERIVATIVES MARKET

The global financial centers such as Chicago, New York, Tokyo and London
dominate the trading in derivatives. Some of the world’s leading exchanges for
the exchange-traded derivatives are:
 Chicago Mercantile Exchange (CME) & London International
financial Futures Exchange (LIFFE) (for currency & Interest
rate futures)
 Philadelphia Stock Exchange (PSE), London stock Exchange
(LSE) & Chicago Board options exchange (CBOE) (for
currency options)

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  New York Stock Exchange (NYSE) and London Stock
Exchange (LSE).
 (for equity derivatives)
 Chicago Mercantile Exchange (CME) and London Metal
Exchange (LME).
 (for commodities)
These exchanges account for a large portion of the trading volume in the
respective derivatives segment.

NSE’s DERIVATIVES MARKET

The derivatives trading on the NSE commenced with S&P CNX Nifty index
futures on June 12, 2000. The trading in index options commenced on June 4,
2001 and trading in options on individual securities commenced on June 2,
2001, Single stock futures were launched on November 9, 2001. Today, both
in terms of volume and turnover, NSE is the largest derivatives exchange in
India. Currently, the derivatives contracts have a maximum of 3-month
expiration cycles. Three contracts are available for trading, with 1 month, 2
month & 3 month expiry. A new contract is introduced on the next trading
day following of the near month contract.

REGULATORY FRAMEWORK
The trading of derivatives is governed by the provisions contained in the S C
(R) Act, the SEBI Act, and the regulations framed there under the rules and
byelaws of stock exchanges.
In this chapter we look at the broad regulatory frame work for derivatives
trading and the requirement to become a member and authorized dealers of the
F&O segment and the position limits as they apply to various participants.

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 Regulation for Derivative Trading:
SEBI set up a 24-member committed under Chairmanship of Dr.L.C.Gupta
develop the appropriate regulatory framework for derivative trading in India.
The committee submitted its report in March 1998. On May11, 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 he “suggestive bye-laws” recommended by the committee
for regulation and control of trading and settlement of Derivative contract.

The provision in the SC(R) Act governs the trading in the securities. The
amendment of the SCR Act to include “DERIVATIVES” within the ambit of
securities in the SCR Act made trading in Derivatives possible within the
framework of the Act.
 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 SCR Act, 1956
to start Derivatives Trading.
 The exchange shall have minimum 50 members.
 The members of an existing segment of the exchange will not
automatically become the members of the derivatives segment. The
members of the derivatives segment need to fulfill the eligibility
conditions as lay down by the L. C. Gupta committee.
 The clearing and settlement of derivatives trades shall be through a
SEBI approved clearing corporation/clearing house. Clearing
Corporation/Clearing House complying with the eligibility
conditions as lay down by the committee have to apply to SEBI for
grant of approval.

 Derivatives broker/dealers and Clearing members are required to

seek registration from SEBI. This is in addition to their registration
as brokers of existing stock exchanges. The minimum net worth for
clearing members of the derivatives clearing corporation/house

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 shall be Rs.300 lakh. The net worth of the member shall be
computed as follows:
 Capital + Free reserves
 Less non-allowable assets viz.,
 Fixed Assets
 Pledged securities
 Member’s card
 Non-allowable securities (unlisted securities)
 Bad deliveries
 Doubtful debts and advance
 Prepaid expenses
 Intangible Assets
 30% marketable securities
 The Minimum contract value shall not be less than Rs.2 Lakhs.
Exchange should also submit details of the futures contract they
purpose to introduce.
 The trading members are required to have qualified approved user
and sales persons who have passed a certification programmed
approved by SEBI.
 The L.C.Gupta committee report requires strict enforcement of
“know your customer” rule and requires that every client shall be
registered with the derivates broker. The members of the
derivatives segment are also required to make their clients aware of
the risks involved in derivatives trading by issuing to the client the
Risk Disclosure and obtain a copy of the same duly signed by the
clients.
ELIGIBILITY OF ANY STOCK TO ENTER IN DERIVATIVES MARKET
 Non promoter holding (free float capitalization) not less than
Rs.750crores from last 6 months.
 Daily Average Trading value not less than 5 crores in last 6 months.
 At least 90% of Trading days in last 6 months.
 Non Promoters Holding at least 30%.
 BETA not more than 4 (previous last 6 months)

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 DESCRIPTION OF THE METHOD
The following are the steps involved in the study.
Selection of the Scrip:
The scrip selection is done on a random and the scrip selected is M/s. KOTAK
STOCK BROCKING LTD. The Lot is 100. Profitability position of the
futures buyers and seller and also the option holder and option writers is
studied.
Data Collection:
The data of the M/s. KOTAK STOCK BROCKING LTD has been collected
from the “The Economic Times” and internet. The data consist of the JUNE
Contract and period of Data Collection is from 29th MARCH 2022 to 29th
JUNE 2022.
Analysis:
The analysis consist of the tabulation of the data assessing the profitability
position of the futures buyers and sellers and also option holder and the option
Writer, representing the data with graphs and making the interpretation using
Data.

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 CHAPTER-II
REVIEW OF LITERATURE

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 REVIEW OF LITERATURE

Swarup K. S. (2003) empirically found that equity investors first enter capital
market though investment in primary market. The main reason for slump in equity
offering is lack of investor confidence in the primary market. It appeared from the
analysis that the investors give importance to own analysis as compared to
brokers‟ advice. They also consider market price as a better indicator than analyst
recommendations. Accordingly number of suggestive measures in terms of
regulatory, policy level and market oriented were suggested to improve the
investor confidence in equity primary markets.

Leyla Şenturk Ozer, Azize Ergeneli and Mehmet Baha Karan (2004) studied that
the risk factor is one of the main determinants of investment decisions. Market
participants that are rational investors ultimately should receive greater returns
from more risky investments. They also concluded that the crisis and resulting
deep recession in 2002 changed many things, including market confidence of
investors and financial analysts. In addition to decreasing trading volume of
Istanbul Stock Exchange (ISE), the number of individual investors reduced and
investment horizon of investors shortened and liquid instruments.

JenniferReynolds-Moehrle (2005) used a sample of derivative user and non-user

firms; they came to know that analysts‟ forecast accuracy increased and that
unexpected earnings are incorporated into subsequent earnings forecasts to a
greater extent subsequent to disclosure of sustained hedging activity.
Additionally, the findings indicated an increase in the earnings- return relation in
the hedging activity period.

Rajeswari, T. R. and Moorthy, V. E. R. (2005) said that expectations of the

investors influenced by their perception and human generally relate perception to
action. The study revealed that the most preferred vehicle is bank deposit with
mutual funds and equity on fourth and sixth respectively. The survey also
revealed that the investment decision is made by investors on their own, and other

18
sources influencing their selection decision are news papers, magazine, brokers,
television and friends or relatives.

Chris Veld and Yulia V. Veld-Merkoulova (2006) found that investors consider
the original investment returns to be the most important benchmark, followed by
the risk-free rate of return and the market return. Study found that investors with
longer time horizon would generally be better off investing in stocks compared to
investors with shorter time horizon. They knew through the question on risk
perceptions that investors who are more risk tolerant would benefit from relatively
larger investment in stocks. Their study showed the investors optimize their utility
by choosing the alternative with the lowest perceived risk.

G.N.Bajpai (2006) showed that continuously monitors performance through

movements of share prices in the market and the threats of takeover improves
efficiency of resource utilisation and thereby significantly increases returns on
investment. As a result, savers and investors are not constrained by their
individual abilities, but facilated by the economy‟s capability to invest and save,
which inevitably enhances savings and investment in the economy. Thus, the
capital market converts a given stock of investible resources into a larger flow of
goods and services and augments economic growth. The study concluded the
investors and issuers can take comfort and undertake transactions with confidence
if the intermediaries as well as their employees (i.) follow a code of conduct and
deal with probity and (ii) are capable of providing professional services.

J. K. Nayak (2006) interpreted the preferred mode of investment is first equity,

banks, mutual fund and then any other in a descending order. It means Investor‟s
faith has increased and their risk taking ability has also increased. One thing that
could be drawn from this study is that problems are mostly broker related and
therefore that is one area where reforms are required. The investors feel that the
amount of knowledge available on the equity market is not satisfactory. Investors,
it appears, need to be educated more. Investors still considered the capital market
as highly risky. But from the investment pattern from the descriptive statistics it
seems that the number of people willing to invest in capital market has increased.

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Narender L. Ahuja (2006) expressed Futures and options trading helps in hedging
the price risk and also provides investment opportunity to speculators who are
willing to assume risk for a possible return. They can also help in building a
competitive edge and enable businesses to smoothen their earnings because non-
hedging of the risk would increase the volatility of their quarterly earnings. At the
same time, it is true that too much speculative activity in essential commodities
would destabilize the markets and therefore, these markets are normally regulated
as per the laws of the country.

Randall Dodd and Stephany Griffith-Jones (2006) studied that derivatives markets
serve two important economic purposes: risk shifting and price discovery.
Derivatives markets can serve to determine not just spot prices but also future
prices (and in the options the price of the risk is determined). In the research,
interviews with representatives from several major corporations revealed that they
sometimes prefer to use options as a means to hedge. They also argued derivatives
have a potential to encourage international capital inflows.

K. Ravichandran (2007) argued the younger generation investors are willing to

invest in capital market instruments and that too very highly in Derivatives
segment. Even though the knowledge to the investors in the Derivative segment is
not adequate, they tend to take decisions with the help of the brokers or through
their friends and were trying to invest in this market. He also argued majority the
investors want to invest in short-term funds instead of long-term funds that prefer
wealth maximization instruments followed by steady growth instruments.
Empirical study also shows that market risk and credit risk are the two major risks
perceived by the investors, and for minimizing that risk they take the help of news
paper and financial experts. Derivatives acts as a major tool for reducing the risk
involved in investing in stock markets for getting the best results out of it. The
investors should be aware of the various hedging and speculation strategies, which
can be used for reducing their risk. Awareness about the various uses of
derivatives can help investors to reduce risk and increase profits. Though the
stock market is subjected to high risk, by using derivatives the loss can be
minimized to an extent.

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Nicole Branger and Beate Breuer (2007) showed that investors can benefit from
including derivatives into their portfolios. For retail investors, however, a direct
investment in derivatives is often too complicated. They argued if the investor can
trade only in the stock and money market account, the exposure of his portfolio to
volatility risk will be zero, and the relation between the exposure to stock
diffusion risk and jump risk will be fixed. They

proved through documentation both theoretically and empirically that investors

can increase their utility significantly by trading plain vanilla options. And also
told that in a complete market and with continuous trading, it does not matter
which derivatives an investor uses to realize his optimal asset allocation. But with
incomplete markets, and in particular, discrete trading, on the other hand, the
choice of derivatives may actually matter a lot. This problem particularly sever for
retail investor, who are hindered from implementing their optimal payoff profile
by too high minimum investment amounts, high transaction costs or margin
requirements, short-selling restrictions and may be also lack of knowledge.

Philipp Schmitz and Martin Weber (2007) exposed that the trading behavior is
also influenced if the underlying reaches some exceptional prices. The probability
to buy calls is positively related to the holding of the underlying in the portfolio,
meaning that investors tend to leverage their stock positions, while the relation
between put purchases and portfolio holdings of the underlying is negative. They
also showed higher option market trading activity is positively correlated with
past returns and volatility, and negatively correlated with book-to-market ratios.
In addition they report that investors open and close long and short call positions
if past week's return is positive and write puts as well as close bought and written
put positions if the past returns are negative.

B. Das, Ms. S. Mohanty and N. Chandra Shil (2008) studied the behavior of the
investors in the selection of investment vehicles. Retail investors face a lot of
problem in the stock market. Empirically they found and concluded which are
valuable for both the investors and the companies having such investment
opportunities. First, different investment avenues do not provide the same level of
satisfaction. And majority of investors are from younger group.
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Gupta and Naveen Jain (2008) found that majority of the investors are from
younger group and as per occupation, salaried persons are more inclined towards
investment. Study also argued education qualification is the major influenced
factor in investment. Their most preferred investment is found to be shares
followed by mutual funds. Empirically they found and argued the Indian stock
market is considerably dominated by the speculating crowd, the large scale of day
trading and also fact the futures trading in individual stocks is several times the
value of trading in cash segment. They also found the largest proportions of the
investors are worried about too much volatility of the market. For trader and
speculators, price volatility is an opportunity to make quick profits. In the study,
high proportions of investors have a very favorable opinion about the capital
market regulation.

Prasanna P. K. (2008) empirically fond that foreign investors invested more in

companies with a higher volume of shares owned by general public. Foreign
investors choose the companies where family shareholding of promoters is not
essential. The study concluded that corporate performance is the major
influencing factor for investment decision for any investor. As far as financial
performance is concerned the share return and earnings per share are significant
factors influencing investment decision. The study concluded that it is required to
understand when FII withdraw their funds and when they pump in more money.

Deleep Kumar P M and Deyanandan M N (2009) analyzed the opinion of retail

investors on the major market reforms as well as their investment performance.
The study revealed introduction of derivatives trading and internet trading are
found useful by only a marginal group of investors. The empirical results of the
study concluded that even though SEBI claims itself to be the champion of
investor protection, it has not been successful in instilling a sense of confidence in
the minds of majority of investors.

G. Ramakrishna Reddy and Ch. Krishnudu (2009) summarized that a majority of

the investors are quite unaware of corporate investment avenues like equity,
mutual funds, debt securities and deposits. They are highly aware of traditional
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investment avenues like real estate, bullion, bank deposits, life insurance schemes
and small saving schemes.Study argued the primary motive of investment among
the small and individual investors is to earn a regular income either in form of
interest or dividend on the investment made. The other motives like capital gains,
tax benefits, and speculative profits are stated to be the secondary motives of
investment. From empirical research they argued to motivate the people to invest
their savings in the stock market to be achieved only if the regulatory authorities
succeed in providing a manipulation free stock market.

K. Logeshwari and V. Ramadevi (2009) advocated that a commodities market

provides a platform for the investors as well as hedgers to protect their economic
interests as well as increase their investible wealth. Commodity prices are
generally less volatile than the stocks. Therefore it‟s relatively safer to trade in
commodities. But the volume being traded in commodities is much less than the
stock market. This is because of the two reasons that the investors are less aware
about the commodities market and their risk perception.

Nidhi Walia and Ravi Kiran (2009) studied that to satisfy the needs of investors‟
mutual funds are designing more lucrative and innovative tools considering the
appetite for risk

taking of individual investors. A successful investor is one who strives to achieve

not less than rate of return consistent with risk assumed. They also argued as per
observation by survey responses of the individual investor‟s fact is clear that
overall among other investment avenues capital market instruments are at the
priority of investors but level of preference varies with different category/ level of
income, and an association exists between income status of investors and their
preference for capital market instrument with return as objective.

Vinay Mishra and Harshita Bhatnagar (2009) documented that Derivatives are
considered to be extremely versatile financial instruments, as they help to manage
risks, lower funding costs, enhance yields and diversify portfolios. The
contributions made by derivatives have been so great that they have been credited
with having „changed the face of finance‟ in the world. Derivatives markets are
23
an integral part of capital markets in developed as well as in emerging market
economies. These instruments assist business growth by disseminating effective
price signals concerning exchange rates, indices and reference rates or other
assets, thereby, rendering both cash and derivatives markets more efficient.
Ashutosh Vashishtha and Satish Kumar (2010) studied encompasses scope an
analysis of historical roots of derivative market of India. The emergence of
derivatives market is an ingenious feat of financial engineering that provides an
effective and less costly solution to the problem of risk that is embedded in the
price unpredictability of the underlying asset. In India, since its inception
derivatives market has exhibited exponential growth both in terms of volume and
number of traded contracts. They argued that NSE and BSE has added more
products in their derivatives segment but still it is far less than the depth and
variety of products prevailing across many developed capital markets.

Daniel Dorn (2010) concluded market for OTC derivatives have grown rapidly
during the last decade in many Asian and European countries. Investors often face
a choice between dozens of OTC options that differ only slightly in their
attributes. He argued that professional advice can help uninformed investor better
navigate the menu of choices, unless issuers raise complexity or offer advisors
incentives to share in industry profit.

David Nicolaus (2010) studied that retail derivatives allow retail investors to
pursue sophisticated trading, investment strategies and hedging financial
instruments. Retail investors‟ motivation for improving the after tax return of
their household portfolio represents a major driver of the derivatives choice of the
products and that provide only little equity exposure for the investor. The
derivatives reveal the divergent belief of retail investors about

the future price level of the underlying as these can be tailored to specific demand
of the investor. He argued the potential role of search costs and financial advice
on the portfolio decisions of retail investors, the flexibility of retail derivatives
and low issuance costs are likely to emphasize the existing frictions in financial
retail markets such as an increase of strategies and heuristics used by retail

24
investors to cope with the complex decision situation or an inadequate disclosure
of conflicts of interest in financial retail markets.

Gaurav Kabra, Prashant Mishra and Manoj Dash (2010) studied key factors
influencing investment behaviour and ways these factors impacts investment risk
tolerance and decision making process among men and women and those different
age groups. They said that not all investments will be profitable, as investor will
not always make the correct investment decisions over the period of years.
Through evidence they proved that security as the most important criterion; there
is no significant difference of security, opinion, hedging in all age group. But
there is significant difference of awareness, benefits and duration in all age group.
From the empirical results they concluded the modern investor is a mature and
adequately groomed person.

Rajiv Gupta (2010) argued in Capital Market 2009-10 IPO-QIP Report there have
been several noticeable trends over the past five years. First, the size of offerings
by Indian issuers has been growing and there are more and larger size global
offerings reflecting the maturing and increasing depth of the Indian capital
markets. Second, India has become a destination and region in its own right for 13
raising capital - previously companies could not raise more than a few hundred
million, but now have capital issues like Reliance Power, in excess of Rs. 13,200
crore ($ 3 billion). While the ADR/GDR markets remain attractive, fewer
companies are using that route as Indian markets have become strong and have
the appetite for large transactions. Third, Indian capital markets now attract
companies across sectors, rather than in any single sector.

R R Rajamohan (2010) analyzed the role of the financial knowledge is important

in decision making in information intensive assets like stocks and other risky
securities. Hence, reading habit, as a proxy for financial knowledge. Younger
people have greater labor flexibility than older people; if the returns on their
investments turn out to be low, they could work more or retire later. Hence age an
important factor to be considered in household portfolio analysis.

25
Sheng-Hung Chen and Chun-Hung Tsai (2010) wanted to identifying key factors
influencing individual investor‟s decision to make portfolio choices is of
importance to understand their heterogeneous investment behavior. Through
conjoint analysis examine how individual investors derive their preferences for
financial assets. Study stated female investors tend to be more detail oriented;
elder is more likely to have low level of risk tolerance; the level of education is
thought to impact on a person‟s ability to accept risk; increasing income level of
individual investor is associated with increased levels of risk tolerance. At last
they argued single investors are more risk tolerance than married investors.

Shyan-Rong Chou, Gow-Liang Huang and Hui-Lin Hsu (2010) expressed that
faced with the series of financial events leading to the current turmoil, unpleasant
investor experience has become common and personal experiences and reports of
such are demonstrated in risk and attitudes to risk. The paper showed that
investors are able to choose an investment with potential risk and returns to suit
their own preferences. Products of lower potential profit are tolerated when the
risk associated with those products is similarly low. In their study they found that
attitude to risk is very similar for both the genders. The study shows most stock
trading is transacted by individual rather than institutional investors, therefore the
capital gains and losses from stock price fluctuations are felt first-hand by
individual investors.

Yu-Jane Liu, Ming-Chun Wang and Longkai Zhao (2010) found options are
important investment financial instruments as their flexibility makes financial
market complete. Accordingly, options are complicated for those who do not
educate themselves on the subject. Study found a trader who is more professional,
sophisticated, and experienced is less susceptible to isolate his decision-making
sets and simplify complicated investment strategies to form his portfolios. The
study revealed that traders in option markets don‟t trade call/put contracts to such
a great degree. In general, most investors prefer to trade front-month or near-the-
money. Trading in a futures market for option traders, this suggests that almost
half of the investors are trading in both options and futures market.

26
Gopikrishna Suvanam & Amit Trivedi (2011) studied derivative trading is
essential tool for the health of markets as they enhance price discovery and
supplement liquidity. In a span of a year and a half after that index options, stock
options and lastly stock futures were introduced, derivatives volumes have grown
to multiples of cash market volumes and have been a mode of speculation and
hedging for market participants, not possible otherwise through cash markets. The
investor invests for a certain period, the issuer of the product

constantly uses derivatives segment to hedge his positions to create the desired
payoff for its clients.

M. Sathish, K. J. Naveen and V. Jeevanantham (2011) studied in the options

available to investors are different and the factors motivating the investors to
invest are governed by their socio-economic. They argued that instead of
investing directly, the investors particularly, small investors may go for indirect
investment because they may not be in a position to undertake fundamental and
technical analysis before they decide about their investment options. Their
empirical study showed that majority of the investors of mutual funds is also
belongs to equities who give the first preference to that avenue which gives good
return. From the study, concluded that lack of knowledge as the primary reason
for not investing in investment vehicle.

S. Gupta, P. Chawla and S. Harkant (2011) stated financial markets are constantly
becoming more efficient providing more promising solutions to the investors.
Study also proved that occupation of the investor is not affected in investment
decision. The most preferred investment avenue is insurance with least equity
market. The study also argued that return on investment and safety are the most
preferred attributes for the investment decision instead of liquidity.

S. Saravanakumar, S. Gunasekaran and R. Aarthy (2011) showed the upswing in

capital market allows the investors to harvest handsome return in their
investments, but day-trader in stock market hard to take advantage in bullish and
bearish market conditions by holding long or short positions. Now the derivative
instruments offer them to hedge against the adverse conditions in the stock
27
market. They argued that secondary market is the most preferred than primary
market and cash market is the most preferred market than derivatives market
because of high risk when derivatives market is preferred than cash market for
higher return.

28
HISTORY OF FUTURES

Merton Miller, the 1990 Nobel Laureate had said that “financial futures
represent the most significant financial innovation of the last twenty years”.
The first exchange that traded financial derivatives was launched in Chicago in
the year 1972. A division of the Chicago Mercantile Exchange, it was called the
international monetary market (IMM) and traded currency futures. The brain
behind this was a man called Leo Melamed, acknowledged as the “father of
financial futures” who was then the Chairman of the Chicago Mercantile
Exchange. Before IMM opened in 1972, the Chicago Mercantile Exchange sold
Contracts whose value was counted in millions. By 1990, the underlying value
of all contracts traded at the Chicago Mercantile Exchange totaled 50 trillion
dollars.
These currency futures paved the way for the successful marketing of a
dizzying array of similar products at the Chicago Mercantile Exchange, the
Chicago Board of Trade and the Chicago Board Options Exchange. By the
1990s, these exchanges were trading futures and options on everything from
Asian & American Stock indexes to interest-rate swaps, and their success
transformed Chicago almost overnight into the risk-transfer capital of the
world.

29
DISTINCTION BETWEEN FUTURES & FORWARDS CONTRACTS

Forward contracts are often confused with futures contracts. The confusion is
primarily because both serve essentially the same economic functions of
allocating risk in the presence of futures price uncertainty. However futures are
a significant improvement over the forward contracts as they eliminate
counterparty risk and offer more liquidity. Comparison between two as follows:

FUTURES FORWARDS
1. Trade on an Organized Exchange 1. OTC in nature
2. Standardized 2. Customized
3. More Liquidity 3. Less Liquidity
4. Require Margin payment 4. No Margin Payment
5. Follows daily settlement 5. Settlement happens at end of
Period

Table 2.1
FEATURES OF FUTURES:
 Futures are highly standardized.
 The contracting parties need not pay any down payments.
 Hedging of price risks.
 They have secondary markets to.
TYPES OF FUTURES:
On the basis of the underlying asset they derive, the futures are divided into two
types:
 Stock futures
 Index futures

30
 PARTIES IN THE FUTURES CONTRACT:

There are two parties in a future contract, the buyer and the seller. The
buyer of the futures contract is one who is LONG on the futures contract and
the seller of the futures contract is who is SHORT on the futures contract.
The pay off for the buyer and the seller of the futures of the contracts are
as follows:

PAY-OFF FOR A BUYER OF FUTURE

Figure 2.1
CASE 1:- The buyer bought the futures contract at (F); if the future price goes
to E1 then the buyer gets the profit of (FP).

CASE 2:- The buyer gets loss when the future price goes less then (F), if the
future price goes to E2 then the buyer gets the loss of (FL).

31
 PAY-OFF FOR A SELLER OF FUTURES:

Figure 2.2

F – FUTURES PRICE
E1, E2 – SETTLEMENT PRICE

CASE 1:- The seller sold the future contract at (f); if the future goes to E1 then
the seller gets the profit of (FP).

CASE 2:- The seller gets loss when the future price goes greater than (F), if the
future price goes to E2 then the seller gets the loss of (FL).

32
 MARGINS
Margins are the deposits which reduce counter party risk, arise in a futures
contract. These margins are collect in order to eliminate the counter party
Risk. There are three types of margins:
Initial Margins:
Whenever a futures contract is signed, both buyer and seller are required to post
initial margins. Both buyer and seller are required to make security deposits
that are intended to guarantee that they will infact be able to fulfill their
obligation. These deposits are initial margins and they are often referred as
purchase price of futures contract.
Marking to market margins:
The process of adjusting the equity in an investor’s account in order to reflect
the change in the settlement price of futures contract is known as MTM margin.
Maintenance margin:
The investor must keep the futures account equity equal to or greater than
certain percentage of the amount deposited as initial margin. If the equity goes
less than that percentage of initial margin, then the investor receives a call for
an additional deposit of cash known as maintenance margin to bring the equity
up to the initial margin.
ROLE OF MARGINS
The role of margins in the futures contract is explained in the following
example. ’A’ sold an M/s. KOTAK. JUNE futures contract to ‘B’ at Rs.148;
the following table shows the effect of margins on the contract. The contract
size of KOTAK is 100.

The initial margin amount is say Rs.14000/-, the maintenance margin is 65% of
initial margin.
PRICING FUTURES
Pricing of futures contract is very simple. Using the cost-of-carry logic, we
calculate the fair value of the futures contract. Every time the observed price
deviates from the fair value, arbitragers would enter into trades to captures the
arbitrage profit. This is turn would push the futures price back to its fair value.
The cost-of-carry model used for pricing futures is given below.
F = Sert
33
 Where:
F = Futures Price
S = Spot price of the underlying
R = cost of financing (using continuously compounded Interest
rate)
T = Time till expiration in years
e = 2.71928
(OR)
F=S (1+r-q) t
Where:
F = Futures price
S = Spot price of the underlying
q = Expected Dividend yield
r = Cost of financing (or) interest rate
t = Holding Period
.
FUTURES TERMINOLOGY

Spot price:
The price at which an asset trades in the spot market.
Futures price:
The price at which the futures contract trades in the futures market.

Contract cycle:
The period over which contract trades. The index futures contracts on the NSE
have one-month, two–month and three-month expiry cycle which expire on the last
Thursday of the month. Thus a JUNE expiration contract expires on the last
Thursday of JUNE and a February expiration contract ceases trading on the last
Thursday of February. On the Friday following the last Thursday, a new contract
having a three-month expiry is introduced for trading.
Expiry date:
It is the date specifies in the futures contract. This is the last day on which the
contract will be traded, at the end of which it will cease to exist.

34
Contract size:
The amount of asset that has to be delivered under one contract. For instance,
the contract size on NSE’s futures market is 50 Nifties.

Basis:
In the context of financial futures, basis can be defined as the futures price
minus the spot price. These will be a different basis for each delivery month for each
contract. In a normal market, basis will be positive. This reflects that futures prices
normally exceed spot prices.
Cost carry:
The relationship between futures prices and spot prices can be summarized in
terms of what is known as the cost of carry. This measures the storage cost plus the
interest that is paid to finance the asset less the income earned on the asset.

Initial margin:
The amount that must be deposited in the margin account at the time a futures
contract is first entered into is known as initial margin.

Marking-to-market:
In the futures market, at the end of each trading day, the margin account is
adjusted to reflect the investor’s gain or loss depending upon the futures closing
price. This is called marking-to-market.

Maintenance margin:
This is somewhat lower than the initial margin. This is set to ensure that the
balance in the margin account never becomes negative. If the balance in the margin
account falls below the maintenance margin, the investor receives a margin call and
is expected to top up the margin account to the initial margin level before trading
commences on the next day.

35
INTRODUCTION OF OPTIONS
In this section, we look at the next derivative product to be traded on the NSE,
namely options. Options are fundamentally different from forward and futures
contracts. An option gives the holder of the option the right to do something. The
holder does not have to exercise this right. In contrast, in a forward or futures
contract, the two parties have committed themselves to doing something. Whereas it
costs nothing (except margin requirement) to enter into a futures contracts, the
purchase of an option requires as up-front payment.

DEFINITION
Option is a type of contract between two persons where one grants the other
the right to buy a specific asset at a specific price within a specific time period.
Alternatively the contract may grant the other person the right to sell a specific asset
at a specific price within a specific time period. In order to have this right. The
option buyer has to pay the seller of the option premium. The assets on which option
can be derived are stocks, commodities, indexes etc. If the underlying asset is the
financial asset, then the option are financial option like stock options, currency
options, index options etc, and if options like commodity option.

HISTORY OF OPTIONS
Although options have existed for a long time, they we traded OTC, without
much knowledge of valuation. The first trading in options began in Europe and the
US as early as the 19th century. It was only in the early 1900’s that a group of firms
set up what was known as the put and call Brokers and Dealers Association with the
aim of providing a mechanism for bringing buyers and sellers together. If someone
wanted to buy an option, he or she would contact one of the member firms. The
firms would then attempt to find a seller or writer of the option either from its own
client of those of other member firms. If no seller could be found, the firm would
undertake to write the option itself in return for a price.
This market however suffered from two deficiencies. First, there was no
secondary market and second, there was no mechanism to guarantee that the writer
of the option would honor the contract. In 1973, Black, Merton and scholes
invented the famed Black-Scholes formula. In April, 1973 CBOE was set up
36
specifically for the purpose of trading options. The market for option contract sold
each day exceeded the daily volume of shares traded on the NYSE. Since then, there
has been no looking back.
Option made their first major mark in financial history during the tulip-bulb
mania in seventeenth-century Holland. It was one of the most spectacular get rich
quick binges in history. The first tulip was brought into Holland by a botany
professor from Vienna. Over a decade, the tulip became the most popular and
expensive item in Dutch gardens.
The more popular they became, the more Tulip bulb prices began rising. That
was when options came into the picture. They were initially used for hedging. By
purchasing a call option and tulip bulbs, a dealer who was committed to a sales
contract could be assured of obtaining a fixed number of bulbs for a set price.
Similarly, tulip bulb growers could assure themselves of selling their bulbs at a set
price by purchasing put options. Later, however, options were increasingly used by
speculators who found that call options were an effective vehicle for obtaining
maximum possible gains on investment. As long as tulip prices continued to
skyrocket, a call buyer would realize returns far in excess of those that could be
obtained by purchasing tulip bulbs themselves. The writers of the put options also
prospered as bulb prices spiraled since writers were able to keep the premiums and
the options were never exercised. The tulip bulb market collapsed in 1936 and a lot
of speculators lost huge sums of money. Hardest hit were put writers who were
unable to meet their commitments to purchase tulip bulbs.

PROPERTIES OF OPTION

Options have several unique properties that set them apart from other securities.
The following are the properties of option:
 Limited Loss
 High leverages potential
 Limited Life

37
PARTIES IN AN OPTION CONTRACT
Buyer/Holder/Owner of an option:
The buyer of an option is one who by paying option premium buys the right but not
the obligation to exercise his option on seller/writer.
Seller/writer of an option:
The writer of the call /put options is the one who receives the option premium and is
their by obligated to sell/buy the asset if the buyer exercises on him

TYPES OF OPTIONS
The options are classified into various types on the basis of various variables.
The following are the various types of options.

I. On the basis of the underlying asset:

On the basis of the underlying asset the option are divided into two types:
INDEX OPTIONS
These options have the index as the underlying. Some options are European
while others are American. Like index futures contract, index options contracts are
also cash settled.
STOCK OPTIONS
Stock options are options on the individual stocks. Options currently trade on
over 500 stocks in the United States. A contract gives the holder the right to buy or
sell shares at the specified price

II. On the basis of the market movements:

On the basis of the market movements the option are divided into two types.
They are:
CALL OPTION:
A call option is bought by an investor when he seems that the stock price
moves upwards. A call option gives the holder of the option the right but not the
obligation to buy an asset by a certain date for a certain price.
PUT OPTION:
A put option is bought by an investor when he seems that the stock price
moves downwards. A put option gives the holder of the option right but not the
obligation to sell an asset by a certain date for a certain price.
38
III. On the basis of exercise of option:
On the basis of the exercised of the option, the options are classified into two
categories.

AMERICAN OPTION:
American options are options that can be exercised at any time up to the
expiration date, most exchange-traded option are American.

EUOROPEAN OPTION:
European options are options that can be exercised only on the expiration date
itself. European options are easier to analyze than American options, and properties
of an American option are frequently deduced from those of its European
counterpart.

PAY-OFF PROFILE FOR BUYER OF A CALL OPTION

The pay-off of a buyer options depends on a spot price of a underlying asset. The
following graph shows the pay-off of buyer of a call option.

Figure 2.3

39
S = Strike price
SP = Premium/ profit
E1 = Spot price 1
E2 = Spot price 2
SR = Profit at spot price E1
ITM = In the money
ATM = At the money
OTM = Out of the money

CASE 1: (Spot price > Strike price) As the spot price (E1) of the underlying asset is
more than strike price (S). The buyer gets profit of (SR), if price increases more than
E1 then profit also increase more than (SR).
CASE 2: (Spot price < Strike price)
As a spot price (E2) of the underlying asset is less than strike price (s) The buyer
gets loss of (SP); if price goes down less than E2 then also his loss is limited to his
premium (SP)

PAY-OFF PROFILE FOR SELLER OF A CALL OPTION

The pay-off of seller of the call option depends on the spot price of the underlying
asset. The following graph shows the pay-off of seller of a call option:

Figure 2.4
CASE 1: (Spot price < Strike price)
As the spot price (E1) of the underlying is less than strike price (S). The seller gets
the profit of (SP), if the price decreases less than E1 then also profit of the seller
does not exceed (SP).

40
CASE 2: (Spot price > Strike price)
As the spot price (E2) of the underlying asset is more than strike price (S) the seller
gets loss of (SR), if price goes more than E2 then the loss of the seller also increase
more than (SR).

PAY-OFF PROFILE FOR BUYER OF A PUT OPTION

The pay-off of the buyer of the option depends on the spot price of the underlying
asset. The following graph shows the pay-off of the buyer of a call option.

Figure 2.5
CASE 1: (Spot price < Strike price)
As the spot price (E1) of the underlying asset is less than strike price (S). The buyer
gets the profit (SR), if price decreases less than E1 then profit also increases more
than (SR).

CASE 2: (Spot price > Strike price)

As the spot price (E2) of the underlying asset is more than strike price (s), the buyer
gets loss of (SP), if price goes more than E2 than the loss of the buyer is limited to
his premium (SP).

41
 PAY-OFF PROFILE FOR SELLER OF A PUT OPTION
The pay-off of a seller of the option depends on the spot price of the underlying
asset. The following graph shows the pay-off of seller of a put option. They are:

Figure 2.6
CASE 1: (Spot price < Strike price)
As the spot price (E1) of the underlying asset is less than strike price (S), the seller
gets the loss of (SR), if price decreases less than E1 than the loss also increases more
than (SR).
CASE 2: (Spot price > Strike price)
As the spot price (E2) of the underlying asset is more than strike price (S), the seller
gets profit of (SP), if price goes more than E2 than the profit of seller is limited to
his premium (SP).

42
 FACTORS EFFECTING THE PRICE OF AN OPTION
The following are the various factors that affect the price of an option they are:
Stock price:
The pay–off from a call option is a amount by which the stock price exceeds the
strike price. Call options therefore become more valuable as the stock price increases
and vice versa. The pay-off from a put option is the amount; by which the strike
price exceeds the stock price. Put options therefore become more valuable as the
stock price increases and vice versa.
Strike price:
In case of a call, as a strike price increases, the stock price has to make a larger
upward move for the option to go in-the-money. Therefore, for a call, as the strike
price increases option becomes less valuable and as strike price decreases, option
become more valuable.
Time to expiration:
Both put and call American options become more valuable as a time to expiration
increases.
Volatility:
The volatility of a stock price is measured of uncertain about future stock price
movements. As volatility increases, the chance that the stock will do very well or
very poor increases. The value of both calls and puts therefore increase as volatility
increase.
Risk-free interest rate:
The put options prices decline as the risk-free rate increases where as the prices of
call always increase as the risk-free interest rate increases.
Dividends:
Dividends have the effect of reducing the stock price on the x-dividend rate. This has
a negative effect on the value of call options and a positive effect on the value of put
options.

43
 PRICING OPTIONS
An option buyer has the right but not the obligation to exercise on the seller.
The worst that can happen to a buyer is the loss of the premium paid by him. His
downside is limited to this premium, but his upside is potentially unlimited. This
optionality is precious and has a value, which is expressed in terms of the option
price. Just like in other free markets, it is the supply and demand in the secondary
market that drives the price of an option.
There are various models, which help us get close to the true price of an
option. Most of these are variants of the celebrated Black-Scholes model for pricing
European options. Today most calculators and spreadsheets come with a built-in
Black-Scholes options pricing formula so to price options we don’t really need to
memorize the formula. All we need to know is the variables that go into the model.
The Black-scholes formulas for the price of European calls and puts on a non-
dividend paying stock are:
CALL OPTION

C = SN (D1)-Xe-r t N (D2)
PUT OPTION
P = Xe-r t N (-D2)-SN (-D1)
Where d1 = Ln(S/X) + (r+ v2/2) t
v\/t
And d2 = d1- v\/t
Where
CA = VALUE OF CALL OPTION
PA = VALUE OF PUT OPTION
S = SPOT PRICE OF STOCK
N = NORMAL DISTRIBUTION
VARIANCE (v) = VOLATILITY
X = STRIKE PRICE
r = ANNUAL RISK FREE RETURN
t = CONTRACT CYCLE
e = 2.71928
r = in (1+r)

44
 OPTIONS TERMINOLOGY

Option price/premium:
Option price is the price, which the option buyer pays to the option seller; it is also
referred to as the option premium.
Expiration Date:
The date specified in the options contract is known as expiration date, the exercise
date, the strike date or the maturity.
Strike price:
The price specified in the options contract is known as strike price or Exercise price.

In-the-money option:
An In-the-money (ITM) option is an option that would lead to positive cash flow to
the holder if it were exercised immediately. A call option on the index is said to be
in-the-money when the current index stands at a level higher than the strike price
(i.e. spot > strike price). If the index is much higher than the strike price, the call is
said to be deep ITM. In the case of a put, the put is ITM if the index is below the
strike price.
At-the-money option:
An at-the-money (ATM) option is an option that would lead to zero cash flow if it is
exercised immediately. An option on the index is at-the-money when the current
index equals the strike price (i.e. spot price = strike price).
Out-of-the-money option:
An out-of-the-money (OTM) option is an option that would lead to negative cash
flow if it is exercised immediately. A call option on the index is out-of-the-money
when the current index stands at a level which is less than the strike price (i.e. spot
price < strike price). If the index is much lower than the strike price, the call is said
to be deep OTM. In the case of a put, the put is OTM if the index is above the strike
price.
Intrinsic value of money:
The option premium can be broken down into two components-intrinsic value and
time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM.
If the call is OTM, its intrinsic value is zero.
Time value of an option:
45
The time value of an option is the difference between its premium and its intrinsic
value. Both CALL and PUT have time value. An option that is OTM or ATM has
only time value. Usually, the maximum time value exists when the option is ATM.
The longer the time to expiration, the greater is an option’s time value, all else equal.
At expiration, an option should have no time value.
DISTINCTION BETWEEN FUTURES AND OPTIONS

FUTURES OPTIONS

1.Exchange traded, with 1.Same in nature

Novation 2.Same in nature
2.Exchange defines the product 3.Strike price is fixed, price
3.Price is zero, strike Price moves
moves 4.Price is always positive
4.Price is zero 5.Nonlinear payoff
5.Linear payoff 6.only short at risk
6.Both long & Short at risk

Table 2.2

46
 INTRODUCTION OF FUTURES AND OPTIONS
The futures & options trading system of NSE, called NEAT-F&O trading system,
provides a fully automated screen-based trading for Nifty futures & options and
stock futures & options on a nationwide basis as well as online monitoring and
surveillance mechanism. It supports an order driven market and provides complete
transparency of trading operations. It is similar to that of trading of equities in the
cash market segment.
The software for the F&O market has been developed to facilitate efficient and
transparent trading in futures and options instruments. Keeping in view the
familiarity of trading members with the current capital market trading system,
modifications have been performed in the existing capital market trading system so
as to make it suitable for trading futures and options.
On starting NEAT (National Exchange for Automatic Trading) application, the log
on (pass word) screen appears with the following details.
1. User ID
2. Trading Member ID
3. Password – NEAT CM (default pass word)
4. New Pass Word
Note: -
1. User ID is a Unique
2. Trading Member ID is Unique & Function; it is common for all user of the
Trading Member.
3. New password–Minimum 6 Characteristic, Maximum 8 characteristics only 3
attempts are accepted by the user to enter the password to open the screen.
4. If password is forgotten the user required to inform the exchange in writing to
reset the password.

47
 TRADING SYSTEM
Nationwide online fully Automated Screen Based Trading System (SBTS)
 Price priority
 Time priority
Note: -
1. NEAT system provides open electronic consolidated limit orders book
(OECLOB)
2. Limit order means: stated quantity and stated price

Before Opening the market

User allowed to set up:
1. market watch screen
2. inquiry screens only

Open phase (open Period)

User allowed to
1. Enquiry
2. Order Entry
3. Order Modification
4. Order Cancellation
5. Order Matching
Market Closing Period
User allowed only for inquires

Surcon period
(Surveillance & Control period)
The system process the Date, for making the system, for the next trading day.
Log of the Screen (Before Surcon Period)
The screen shows: -
1. Permanent sign off
2. Temporary sign off
3. Exit
Permanent sign off: Market not updates.

48
Temporary sign off: Market up date (temporary sign off, after 5 minutes
Automatically Activate)
Exit: The user comes out sign off screen.

Local Database
Local Database is used for all inquiries made by the user for own order/trades
information. It is used for corporate manager/ Branch Manager Makes inquiries for
orders/trades of any branch manager/dealer of the trading firm, and then the inquiry
is serviced by the host. The local database also includes message of security
information.

Ticker Window
The ticker window displays information of all trades in the system. The user has the
option of selecting the security, which should be appearing in the ticker window.

Securities in ticker can be selected for each market types

The ticker window displays both derivative and capital market segment

Market Watch Window

Title Bar: Title Bar Shows: NEAT, Date & Time.
Market watch window felicitate to set only 500 scrip’s, but the user set up a
Maximum of 30 securities in one page.
Previous Trade Screen
Previous trade screen shows & allows security wise information to user for his own
trade in chronological order.
1. Request for trade modification allowed with the following conditions
 During the day only
 Must be lower than the traded quantity
 Both parties acceptance (Buyer & Seller)
 Final Decision is taken by NSE (to accept or reject)
2. Request for trade cancellation allowed with same as above conditions

49
 Outstanding order Screen
Outstanding order screen show, Status outstanding order enters by user for a
particular security (R.L. Order & SL Order) it allows: - order Modification & Orders
Cancellation.
Activity Log Screen
Activity logon screen show, all activities performed on any order by the user, in
Reversal Chronological Order

B = Buying
S = Selling orders
OC = Cancellation of order
OM = Modifying order
TC = Buy order & Sell order, involving in trade and cancelled
TM = Buy order & sell orders, involving trade is modified
It is very useful to a corporate manager to view all the activities that have been
performed on any order (or) all ordered under his branches & dealers

Order status screen

Order status screen shows, current status of “dealers” own specified orders.

SNAP Quote Shows

Instantaneous information about a particular security can be shown on Market watch
window (which is not set up in market watch window)
Market Movement Option
Over all movement of the security, in current day, on time basis.
Market Inquiry
Market inquiry screen shows market statistics for particular market, for a particular
security.
It shows information about:-
RL Market (Regular lot Market)
RD Market (Retail Debt Market)
OL Market (Odd lot Market)
It shows following statistics:- open price, High price, Low price, Last Traded Price,
Traded Quantity, 52 weeks high/low price.
50
 MBP (Market by Price)
MBP (F6) screen shows total outstanding orders of a particular security, in the
market, Aggregate at each price in order of Best 5 prices.
It shows: -
RL Market (Regular lot Market)
SL Market (Stop Loss order)
ST order (Special Term orders)
Buy Back Order with ‘*’ symbol
P = indicate pre open position
S = indicate Security Suspend

Security/Portfolio list
It Facilitate the user to set up market watch screen
And facilitate to set up his own portfolios
ON-LINE Batch Up
It facilitates the user to take back up of all orders & trade related information, for
current day only.
ON-LINE/TABULAR SLIPS
It selects the format for conformation slips
About Window
This window displays software related version numbers details and copy right
information.
Most Activity Securities Screen
It shows most active securities, based on the total traded value during the day
Report Selection Window
It facilitates to print each copy of report at any time. These reports are
1. Open order report: For details of outstanding orders
2. Order log report: For details of orders placed, modified & cancelled
3. Trade Done-today report: For details of orders traded
4. Market Statistics report: For details of all securities traded information in a
day
Internet Broking
NSE introduced Internet trading system from February 2000.
Client place the order through brokers on order routing system.

51
 STOCK TRADES

The stock order entry screen, located at the top of the platform, allows you to buy,
sell, and sell short. The Save to Basket button can save any order that you may want to
place later.
WAP (Wireless application protocol)
NSE.IT Launches the from November 2000
1st Step-getting the permission from exchange for WAP
2nd step-approved by the SEBI (SEBI Approved only for SEBI registered members)

X.25 Address Check

X.25 Address Check is performed in the NEAT System, when the user log on into
the NEAT, system & during report down load request.

FTP (File Transfer Protocol)

1. NSE Provide for each member a separate directory (file) to know their trading
DATA, clear DATA, bill trade Report.
2. NSE Provide in addition a “common” directory also, to know circulars,
NCFM & Bhava Copy information
3. FTP is connected to each member through VSAT, leased line and Internet.
4. VSAT (FROM 4.19PM to 9.30AM), Internet (24Hours).

Bhava Copy Database

Bhava copy data provides summary information about each security, for each day
(only last 7 days bhava copy file are stored in report directory.)
Note: - Details in bhava copy-open price, high and low prices, closing prices traded
value, traded volume and No. of transactions.

Snap Shot Database

Snap shot database provides snap shot of the limit order book at many time points in
a day.
Index Database
Index Database provides information about stock market indexes.

52
 Trade Database
Trade database provides a database of every single traded order, take place in
exchange.

BASKET TRADING SYSTEM

1. Taking advantage for easy arbitration between future market and cash market
difference, NSE introduce basket-trading system by offsetting position through off
line-order-entry facility.
2. Orders are created for a selected portfolio to the ratio of their market
capitalization from 1 lakh to 30 crores.
3. Offline-order-entry facility: Generate order file in as specified format outside
the system & up load the order file into the system by invoking this facility in Basket
Trading System.

Participants in Security Market

1) Stock Exchange (registered in SEBI)-23 stock Exchanges
2) Depositaries (NSDL, CDSL)-2 Depositaries
3) Listed Securities-9, 413
4) Registered Brokers-9, 519
5) FIIs-502

Investor Education & Protection Fund

This fund used to educate & develop the awareness of the Investors. The following
funds credited to IE & PF.
1) Unpaid Dividends.
2) Due for refund (application money received for allotment).
3) Matured deposits & debentures with company.
4) Government donations.

Issue & Allotment of the Shares

1) Issued & subscribing
A. Either Physical or dematerialized.
B. Issuing capital exceed 10 crores compulsory issued in dematerialized
2) Trading compulsory in dematerialized form.
53
3) Allotment made until the beginning of the 5th day after the day issue of
prospectus.
4) Listing is possible issuing not less than 10% of the total equity and minimum of
20 Lakhs.

Holding of Shares (Voting Right) disclosing obligation

1. Any person or Director or Officer or the company
2. More than 5% share or Voting Right
3. Within 4th day inform to company is necessary
4. Company inform with in 5th day to stock exchange is compulsory
First Started
Future Trading: Chicago Board of Trading 1948
Financial Future Trading: CME (Chicago Mercantile Exchange 1919)
Stock Index Futures: Kansas City Board of trade
Option First Trade: Holland – Tulip Balabmania.

BROKER (Trading Member)

(Broker means a member in recognized stock exchange)
Eligibility: 21 Years, graduation, 2 years experience in stock market relative affairs
and
o 30 Lakhs paid up capital
o 100 Lakhs net worth
o 125 Lakhs interest free security deposit
o 25 Lakhs collatery security deposit
o 1 Lakh annual business subscription.
Necessary Infrastructure: Office Space, Manpower, Equipment
Disciplinary proceedings: Not convicted involving fraud & Dishonesty
Fitness: Not Bankrupt, not default in any stock exchange, not previously refused by
NSE, fully discharged from Debts by creditors (self declaration)
 First send application to stock exchange for broker ship-stock exchange send
that application to SEBI 30 days - SEBI satisfy above 1 & 2 points to grant
Certificate of Registration.

54
 Maximum commission of the broker 2.5% (including sub broker commission
1.5%) on cash market and feature market buy and sell values but option market 2.5%
is charged on (Strike Price + Premium value).
 Contract note issued and signed by broker or authorized signatory within
24hrs.
 On contract note printed both offices registered office & dealing office
address is must.
 Each trading member (broker) in F&O segment of NSEIL (NSE India
Limited) can have as many users are he wishes.
 Compliance officer is appointed by the Broker.
 Broker ship Transfer fee 1 Lakh.
Dominant Promoters
a) For Individual (not exceeding 4 members) his & his spouse not less than 51%-
1 person Graduation is compulsory.
b) For firm: - Not less than 51% his & his spouse, children’s & brother’s -1
person graduation is compulsory.
c) Corporate Company: - Not less than 40% of the director’s share holding (at
least 50% each director) – 2 Directors Graduation is compulsory.

55
CHAPTER-III
COMPANY PROFILE.

56
 COMPANY PROFILE

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management
Finance Limited. Uday Kotak, Sidney A.A.Pinto and Kotak & Company promoted
this company. Industrialists Harish Mahindra and Anand Mahindra took a stake in
1986, and that’s when the company changes its name to Kotak Mahindra Finance
Limited.

Since then it’s been a steady and confident journey to growth and success.

1986: - Kotak Mahindra Finance Limited starts the activity of Bill

Discounting.

1987: - Kotak Mahindra Finance Limited enters the lease and hire
purchase market.

1990: - The Auto Finance Division is started.

1991: - The Investment Banking Division is started.

1992: - Enters the Funds Syndication sector.

1995: - Brokerage and Distribution Businesses incorporated in to a

separate company - Kotak Securities Investment Banking
Division incorporated into a separate company – Kotak
Mahindra Capital Company.

1996: - The Auto Finance Business is hired off into a separate

company – Kotak Securities investment Banking Division
Incorporated into a separate company - Kotak Mahindra
Capital Company.

2002: - Enters the Mutual Fund Marker with the launch of Kotak
Mahindra asset Management Company.

2007: - Kotak Mahindra tie up with old Mutual PIC for the life
insurance business. Kotak Securities launches its on-line
broking site ( www.kotak securities .com )

2012: - Matrix sold to Friday Corporation launches insurance Services

57
2017: - Kotak Mahindra Finance Limited converts to a Commercial Bank –
The first Indian Company to do so.

2019: - Launches India growth fund, a private equity fund.

2021: - Kotak group realigns Joint Ventures in ford credit; Buys Kotak
Mahindra prime and sells ford credit Kotak Mahindra.
Launches a Real-estate Fund.

58
 CORPORATE HIERARCHY

Corporate Manager

Branch Manager

Dealer (user)

Corporate Manager:
He has the right to see all branches and dealers out standing orders, previous
traders, net positions & end of day reports to set branch order limits.
Branch Manager:
He has the right to see all branches and dealers out standing orders, previous
traders, net positions & end of day reports to set branch order limits.
Dealers (user)
He has the right to perform orders & trading activities.

Group Management : -

Mr.Uday Kotak – Executive Vice Chairman & Managing Director.

Mr.Sivaji Dam

Mr.C.Jayaram

Mr.Dipak Gupta.

KOTAK MAHINDRA GROUP

Kotak Mahindra is one of India’s leading financial institutions offering

complete financial solutions that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance to investment banking,
the group caters to the financial needs of individuals and corporate.
The group has a net worth of around Rs.2000 crore and the AUM across the
group is around 120 billion and employs over 6000 employees in its various
businesses. With a presence in 219 cities in India and offices in New York, London,
Dubai and Mauritius, it services a customer base of over 10.00,000.

59
 The group specializes in offering top class financial services catering to every
segment of the industry. The various group companies include.

 Kotak Mahindra Capital Limited

 Kotak Mahindra Securities Limited
 Kotak Mahindra Inc
 Kotak Mahindra (International) Limited
 Global Investments Opportunities Fund Limited
 Kotak Mahindra(UK) Limited Kotak Securities Limited
 Kotak Mahindra Old Mutual Life Insurance Company Limited
 Kotak Mahindra Asset Management Company Limited
 Kotak Mahindra Trustee Company Limited
 Kotak Mahindra Investments Limited
 Kotak Forex Brokerage Limited
 Kotak Mahindra Private-Equity Trustee Limited

Group Structure

Kotak
Mahindra
Bank

Kotak Kotak Kotak Kotak Kotak Kotak

Mahindra Mahindra Mahindra Mahindra
Securitie Mahindr Asset
Capital Investment Trust
Company
s s
a Prime Managemen Company
t Company

Kotak Mahindra Kotak Mahindra (UK)

Securities

Kotak Mahindra
( International)
Global Investment
Opportunities Fund
Kotak Mahindra Inc.

60
KOTAK SECURITIES LIMITED.

Kotak Securities Ltd. Is India’s leading stock broking house with a marker
share of around 8% Kotak Securities Ltd. Has been the largest in IPO distribution.

The accolades that Kotak Securities has been graced with include :
 Prime Ranking Award (2003-04) Largest Distributor of IPO’s
 Finance Asia Award (2004) – India’s best Equity House.
 Finance Asia Award (2005) – Best Broker in India.
 Euromoney Award (2005) – Best Equities House in Inida

The company has a full-fledged research division involved in Macro

Economic studies Sectoral research and Company specific Equity Research
combined with a strong and well networked sales force which helps deliver current
and up to date market information and news.

Kotak Securities Ltd is also a depository participant with National Securities

Depository Limited (NSDL) and Central Depository services Limited (CSDL),
Providing dual benefit services wherein in investors can use the brokerage services
of the company for executing the transactions and the depository services for settling
them.

Kotak Securities has 122 branches servicing more than 1,70,000 customer and
a coverage of 197 cities, kotaksecurities.com, the online division of Kotak Securities
Limited offers internet Broking services and also online IPO and Mutual Fund
Investments.

Kotak Securities Limited Manages assets over 2500 crores of Assets under
Management (AUM). The Portfoilo Management Services provide top class service,
catering to the high end of the market. Portfolio Management from Kotak Securities
comes as an answer to those who would like to grow exponentially on the crest of
the stock market, with the backing of an expert.

61
 At Kotak securities.com, acknowledge and accept that the personal details that
you inpart to us, is to be kept in strict confidentiality and to use the information only
in the manner which would be beneficial to our customers. We consider our
relationship with you as invaluable and strive to respect and safeguard your right to
privacy.

We shall protect the personal details received from you with the same degree
of care, but no less than a reasonable degree of care, to prevent the unauthorized use,
dissemination, or publication of these information as we protect our own
confidential information of a like nature.

We shall use the personal information to improve our service to you and to
keep you updated about our new product or information that may be of interest to
you. The information collected from you would be used in the right spirit and
context in which it is intended to be used. Your information would be used by us to
process your trading request and to carry out the settlements of your obligations.

We would ensure that we collect personal information only to the extent it is

necessary to administer out services in the best possible manner and what is required
under the various regulations of India Laws.

ANALYSIS
The Objective of this analysis is to evaluate the profit/loss position futures and
options. This analysis is based on sample data taken of M/s. KOTAK STOCK
BROKING LIMITEDscrip. This analysis considered the JUNE contract of kotak.
The lot size of kotak is 100, the time period in which this analysis done is from 29-
03-2022 to 29-06-2022.

62
 KOTAK STOCK FUTURES&OPTIONS

PRICE CALL OPTION PUT OPTION

(2) (3)
DATES (4)
(1)
SPOT FUTU 740 800 840 740 800 840
RE

MAR/MON/29 742.00 738.85 48.45 25.35 14.00 47.50 0 0

MAR/TUE/30 742.80 740.20 65.19 30.35 19.00 30.19 0 0

MAR/WED/31 780.00 770.05 55.25 32.25 19.30 30.95 64.95 0

JUNE/THU/01 785.00 822.95 94.00 51.80 31.90 4.80 30.55 0

JUNE/FRI/02 819.55 823.19 108.20 55.19 32.80 13.00 31.55 0

JUNE/SAT/03
TRADING HOLIDAY

JUNE/SUN/04
TRADING HOLIDAY

JUNE/MON/05 848.00 855.70 0 75.80 48.50 7.65 20.10 44.65

JUNE/TUE/06 845.00 848.75 123.00 71.35 42.25 8.90 20.25 36.55

JUNE/WED/07 776.55 774.55 0 32.60 19.05 26.3 53.75 72.75

JUNE/THU/08
MOHARAM HOLIDAY

JUNE/FRI/09 767.70 712.30 38.55 19.95 8.60 60.00 101.0 0

JUNE/SAT/10
TRADING HOLIDAY

JUNE/SUN/11
TRADING HOLIDAY

JUNE/MON/12 700.00 685.40 24.19 11.55 8.00 73.00 130.0 0

JUNE/TUE/13 685.00 692.50 24.70 9.80 8.40 0 0 0

63
JUNE/WED/14
SANKRANTHI HOLIDAY

JUNE/THU/22 690.00 696.85 21.55 9.05 0 0 0 0

JUNE/FRI/22 711.00 719.65 23.80 8.80 0 0 0 0

JUNE/SAT/22
TRADING HOLIDAY

JUNE/SUN/22
TRADING HOLIDAY

JUNE/MON/22 722.00 724.45 22.75 8.00 0 0 0 0

JUNE/TUE/20 707.05 704.05 19.95 6.70 0 0 0 0

JUNE/WED/21 695.00 682.90 31.00 77.00 13.00 0 0 0

JUNE/THU/22 697.00 660.65 3.50 1.05 0 105.5 0 0

JUNE/FRI/23 660.00 634.80 0.90 0.75 1.05 0 0 0

JUNE/SAT/24
TRADING HOLIDAY

JUNE/SUN/25
TRADING HOLIDAY

JUNE/MON/26
REPUBLIC DAY

JUNE/TUE/27 640.10 637.10 0.55 0.20 0 0 0 0

JUNE/WED/28 645.00 673.25 1.20 0.20 0 0 0 0

JUNE/THU/29 681.35 661.45 0.05 0.05 0.05 0 0 0

64
 TABLE DETAILS

 The first column explains TRADING DATE.

 Second Column (a) explains the SPOT MARKET PRICE in cash segment on that
date of Opening Balance of Equity Amount.
 Second column (b) explains the FUTURE MARKET PRICE in cash segment on that
date of Closing Balance on Future Market Amount.
 The Third column explains call Option premiums amounting 740, 800, 840.
 The Fourth column explains Put Option premiums amounting 740, 800, 840.

OBSERVATIONS AND FINDINGS

CALL OPTION
BUYERS PAY OFF:

As brought 1 lot of KOTAK that is 100, those who buy for 740, paid 48.45
premiums per share.
Settlement price is 681.35
Spot price 681.35
Strike price 740.00
Amount -58.65
Premium paid (-) 48.45
Net Loss -10.20 x 100 = -1020
Buyer Loss = Rs.1020 (Loss)
Because it is negative it is in the money contract, hence buyer will get more loss,
incase spot price decrease buyer loss also increase.
SELLERS PAY OFF:
It is in the money for the buyer, so it is in out of the money for seller; hence his
profit is also increase.
Strike price 740.00
Spot price 681.35
Amount +58.65
Premium Received 48.45
Net profit 10.20 x 100 = +1020
Seller Profit = Rs.1020 (Net Amount)

65
Because it is positive it is out of the money, hence seller will get more profit, incase
spot price increase in below strike price, seller get loss in premium level

OBSERVATIONS AND FINDINGS

PUT OPTION
BUYERS PAY OFF:
Those who have purchase put option at a strike price of 740, the premium payable is
47.50
On the expiry date the spot market price enclosed at 681.35
Strike price 740.00
Spot price 681.35
Net pay off 58.65 x 100 = 5865
Already, premium paid 48.45, so it can get profit is 5865
Because it is Positive, out of the money contract, hence buyer will get more profit,
incase spot price increase buyer get loss in premium level.
SELLERS PAY OFF:
As seller is entitled only for premium so, if he is in profit and also seller has to borne
total profit.
Spot price 681.35
Strike price 740.00
Amount -58.65 x100 =-5865
Already premium received 48.45 so, it can get loss is 5865
Because it is negative, in the money contract, Hence seller gets more loss, incase
spot price increase in above strike price seller can get profit in premium level.

66
CHAPTER-IV
DATA ANALYSIS
&
INTERPRETATION

67
SUN PHARMA
PROFILE
We are an international specialty pharma company, with a large presence in
the US and India, and a footprint across 40 other markets.
In the US, which is our largest market, we have built a strong pipeline of
generics, directly and through our subsidiaries Caraco and Sun Pharmaceutical Inc.
Taro adds strong dermatology range to this portfolio.
In India and rest of the world markets, our brands are prescribed in chronic
therapy areas like cardiology, psychiatry, neurology, gastroenterology, diabetology
etc. We are market leaders in specialty therapy areas in India.
We retain the drive for growth that marked our early days, when we had.
begun in 1983 with just 5 products. Since then, we have crossed several milestones to
emerge as a leading pharma company in India where we are the 6th largest by
prescription sales, a rank that we have retained over a Mayade. (IMS ORG Stockist
Audit, Sept. 2019)
Since the mid- nineties, we have used a combination of growth and acquisition
to drive growth. important acquisitions have included those of the US, detroit-based
Caraco Parma Labs and a plant at Halol which now holds UKMHRA and USFDA
approvals. The 2019 acquisition of Taro Pharmaceuticals doubles our US business
and brings us strengths in dermatology and pediatrics.

68
 Sunpharma Equity Table:
SYMBOL SERIES OPEN HIGH LOW CLOSE TIMESTAMP W.AVG
SUNPHARMA EQ 455 457.1 444 446.45 19-May-22 450.55
SUNPHARMA EQ 450 451.9 441.25 450 19-May-22 446.575
SUNPHARMA EQ 453.4 453.4 441 443.25 20-May-22 447.2
SUNPHARMA EQ 440 443 423 428.19 21-May-22 433
SUNPHARMA EQ 435.5 435.5 430 431.2 22-May-22 432.75
SUNPHARMA EQ 434.5 458 431.1 452.95 23-May-22 444.55
SUNPHARMA EQ 443 476 443 473.3 24-May-22 459.5
SUNPHARMA EQ 474 484.75 474 478.35 27-May-22 479.375
SUNPHARMA EQ 475.5 485 470.65 483.25 28-May-22 477.825
SUNPHARMA EQ 485 485.4 476.6 480.3 29-May-22 481
SUNPHARMA EQ 485 488.25 473.2 482.45 30-May-22 480.725
SUNPHARMA EQ 484.8 489.6 479.05 484.95 31-May-22 484.325
TOTAL 459.7819
SUNPHARMA EQ 495 495 484.95 487.3 03-June-22 489.975
SUNPHARMA EQ 487 492 482.19 489.9 04-June-22 487.075
SUNPHARMA EQ 491.5 500 485.19 488.05 05-June-22 492.575
SUNPHARMA EQ 490 503 489 500 06-June-22 496
SUNPHARMA EQ 502.5 511.75 486.9 493.35 07-June-22 499.325
SUNPHARMA EQ 494.4 496 473.65 477 11-June-22 484.825
SUNPHARMA EQ 473.05 499 468 475.8 12-June-22 483.5
SUNPHARMA EQ 477.3 488.4 461.4 485.25 12-June-22 474.9
SUNPHARMA EQ 481 487.95 474.19 483.1 19-June-22 481.05
SUNPHARMA EQ 485.4 498.19 470 474.8 19-June-22 484.075
SUNPHARMA EQ 475 484 463.19 465.4 19-June-22 473.575
SUNPHARMA EQ 466 487.85 466 484.35 19-June-22 476.925
SUNPHARMA EQ 485.3 489 470.45 484.45 19-June-22 479.725
SUNPHARMA EQ 484 496.35 476.8 488.4 20-June-22 486.575
SUNPHARMA EQ 483.5 492 482.19 485.35 21-June-22 487.075
SUNPHARMA EQ 489 491.8 482 484.75 24-June-22 486.9
SUNPHARMA EQ 487.5 491.6 471.19 473.7 25-June-22 481.375
SUNPHARMA EQ 479.95 480.65 458.1 461.45 27-June-22 469.375
SUNPHARMA EQ 462 462 435.55 448.8 28-June-22 448.775
SUNPHARMA EQ 428.05 451.5 428.05 440.85 31-June-22 439.775
TOTAL 480.1988

69
 SUNPHARMA FUTURE TABLE:

Symbol Expiry_dt Open High Low Close Settle_pr Timestamp W.avg

SUNPHARMA 30-May-22 459 459.5 445.75 448 448 19-May-22 452.625
SUNPHARMA 30-May-22 449.9 453.9 443 452.4 452.4 19-May-22 448.45
SUNPHARMA 30-May-22 452.65 452.95 443 444.85 444.85 20-May-22 447.975
SUNPHARMA 30-May-22 442.8 445 425.7 430 430 21-May-22 435.35
SUNPHARMA 30-May-22 434.4 436.9 431.5 433.19 433.19 22-May-22 434.2
SUNPHARMA 30-May-22 435 458.8 433.1 453.9 453.9 23-May-22 445.95
SUNPHARMA 30-May-22 452 476.7 450 474.65 474.65 24-May-22 463.35
SUNPHARMA 30-May-22 476.05 485.05 475.9 479.5 479.5 27-May-22 480.475
SUNPHARMA 30-May-22 478.8 485.5 472.05 483.85 483.85 28-May-22 478.775
SUNPHARMA 30-May-22 485 485 477.1 480.55 480.55 29-May-22 481.05
SUNPHARMA 30-May-22 483.05 488 473.2 482.25 482.45 30-May-22 480.6
TOTAL 458.9819
SUNPHARMA 27-June-22 489.6 491.4 484.65 487.8 487.8 31-May-22 488.025
SUNPHARMA 27-June-22 493 493 486.1 490.3 490.3 03-June-22 489.55
SUNPHARMA 27-June-22 488 494.4 485.19 490.9 490.9 04-June-22 489.775
SUNPHARMA 27-June-22 491 500.6 488.3 490.3 490.3 05-June-22 494.45
SUNPHARMA 27-June-22 492.95 504.4 490 501.75 501.75 06-June-22 497.2
SUNPHARMA 27-June-22 505.45 512.5 488.6 493.9 493.9 07-June-22 500.55
SUNPHARMA 27-June-22 495.95 496.8 475.19 477.4 477.4 11-June-22 485.975
SUNPHARMA 27-June-22 478.55 495.4 469.2 478.25 478.25 12-June-22 482.3
SUNPHARMA 27-June-22 487.8 488.9 462.6 486.65 486.65 12-June-22 475.75
SUNPHARMA 27-June-22 481 487.75 474.5 483.25 483.25 19-June-22 481.125
SUNPHARMA 27-June-22 487 499 471.7 476.05 476.05 19-June-22 485.35
SUNPHARMA 27-June-22 475.25 483.25 465.05 467.19 467.19 19-June-22 474.19
SUNPHARMA 27-June-22 468 487 468 485.05 485.05 19-June-22 477.5
SUNPHARMA 27-June-22 489.9 489.9 471.8 484.85 484.85 19-June-22 480.85
SUNPHARMA 27-June-22 482 496.4 477.35 488.8 488.8 20-June-22 486.875
SUNPHARMA 27-June-22 485.2 491.85 482.19 485.6 485.6 21-June-22 487
SUNPHARMA 27-June-22 485.25 491.2 482.45 484.19 484.19 24-June-22 486.825
SUNPHARMA 27-June-22 486.65 490.5 472.5 474.25 474.25 25-June-22 481.5
SUNPHARMA 27-June-22 479.85 479.85 458.19 461.25 461.45 27-June-22 469
TOTAL 484.9342

70
Stock Quote:

The stock Quote of Sunpharma for one year is as follows and is followed by
its fundamentals mentioned in table which gives a basic idea about the
company’s stocks.

Fundamentals

Attribute Value Date

P:E Ratio 48.47 26/01/2022

E.P.S. 8.68 Mar'22

Sales 760.57 May'22

Face value 1

Net profit
33.99 Mar'19
margin

Last bonus 1:1 21/04/22

Last
40% 24/05/22
dividend

Return on
average 19.71 Mar'19
equity

71
 SUN PHARMA
FUTURE ANALYSIS
1. If client A bought sunpharam on June 3rd and sold June 19th,then his net
obligation could be

Price of sunpharma future on June3rd = Z 489.775

Price of sunpharma on June 19 th = Z 474.19
Profit /loss = 474.19 -489.775 = -22.625
Total/loss = loss per share × lot sze
= Z 19.625 × 625 = 9765.625
2. If client B bought sunpharma futures on June 3rd and short sunpharma
futures.

He sells stock on June 25th net obligation is =481.375 - 489.975 = -8.6

He buy back sunpharma futures on 25th net obligation is = 489.55 –
4×81.5 =8.05
Hedge ratio = ∆ spot price / ∆ future price
= 8.6 / 8.05 = 1.068
Hence this strategy yields 100% of investment made is protected.
If client X bought sunpharma futures on May 19th is 452.625
1. If client on May 29th he could get maximum

Profit price as on May 29th is = Z 481.05

Profit = 481.05 - 452.625 = Z 28.425
Total profit = profit per share × lot size = 28.425 × 625 =19765.625
2. To make man loss

Buy on May 19th & sell on May 22nd 434.2

Loss = 452.625 - 434.2 =19.425 z
Hence total loss = loss/ share * lot size
=19.425 * 625
=11919.625
3. If client bought sunpharma stock on May 20th and short sunpharma after two
days make hedging.

Price of sunpharma stock on May20th = z447.2

Price of sunpharma stock future on May20th = z447.975
He sell stock on June 3 net obligation is = z489.975 – 447.2
= 42.775
He buy back sunpharma future on June 3 net obligation is = 447 .975 -
489.55 = 41.575
Ratio = ∆ spot price /∆ future price
= 42.775 / 41.575
Hence this strategy yeilds 100percent of investments made is protected

72
Sunpharma option analysis:
Call option table
Spot Future Strike
Data price price price
480 490 500
19-May-22 450.55 452.625 9.2 9.25 3.85
19-May-22 446.575 448.45 9.2 9.25 3.85
20-May-22 447.2 447.975 9.2 2.55 3.85
21-May-22 433 435.35 9.2 2.55 3.85
22-May-22 432.75 434.2 9.2 2.95 3.85
23-May-22 444.55 445.95 9.2 2.95 3.85
24-May-22 459.5 463.35 8.55 10.19 5.35
27-May-22 479.375 480.475 8.55 12.4 6.5
28-May-22 477.825 478.775 8.55 12.5 7.5
29-May-22 481 481.05 8.55 12.5 3.4
30-May-22 480.725 480.6 25 8 3
03-June-22 489.975 489.55 19 19 11
04-June-22 487.075 489.775 19 19 9.75
05-June-22 492.575 494.45 19 19 11
06-June-22 496 497.2 19 19 19
07-June-22 499.325 500.55 19 19 11.55
11-June-22 484.825 485.975 19 19 6.85
12-June-22 483.5 482.3 19 19 7.25
12-June-22 474.9 475.75 19 19 9.19
19-June-22 481.05 481.125 19 19 7.2
19-June-22 484.075 485.35 19 19 7.1
19-June-22 473.575 474.19 19 19 4.8
19-June-22 476.925 477.5 19 19 6.3
19-June-22 479.725 480.85 19 19 5.7
20-June-22 486.575 486.875 19 11 6
21-June-22 487.075 487 19 11 5.35
24-June-22 486.9 486.825 19 11 2.9
25-June-22 481.375 481.5 19 11 0.75
27-June-22 469.375 469 19 11 0.05

73
 Call Option Analysis

ON MAY 19th

For 480strike price For 490strike price For 500strike price

Spot price 450.55 Spot price 450.55 Spot price
Strike price - Strike price - 490.00 450.55
480.00 -39.45 Strike price -
- Call premium 9.25 500.00
29.45 Net  30.20 -49.45
Callpremium 9.20 6 lots,lot size * 3750 Call premium
Net  119250 3.85
20.25 Net 
6 lots,lot size * 45.60
3750 6 lots,lot size
*3750
75937.5 191000

ON MAY 30TH
For 480strike price For 490strike price For 500strike price

Spot price 480.725 Spot price 480.725 Spot price

Strike price -480.00 Strike price - 490.00 480.725
-0.725 -9.275 Strike price -
Callpremium 25 Call premium 8 500.00
Net 24.275 Net  1.275 19.275
6 lots,lot size * 3750 6 lots,lot size * 3750 Call premium 3.00
91031.25 4781.25 Net  19.275
6 lots,lot size *3750
61031.25

74
 ON JUNE 19TH

For 480strike price For 490strike price For 500strike price

Spot price 481.05 Spot price 481.05 Spot price 481.05

Strike price -480.00 Strike price - 490.00 Strike price -
1.05 -8.95 500.00
Callpremium 19 Call premium 19 -22.95
Net 19.95 Net  8.05 Call premium 7.2
6 lots,lot size * 3750 6 lots,lot size * 3750 Net  11.75
52312.5 30197.5 6 lots,lot size *3750
44062.5

ON JUNE 25TH
For 480strike price For 490strike price For 500strike price
Spot price 481.375 Spot price 481.375 Spot price 481.375
Strike price -480.00 Strike price - 490.00 Strike price -
1.375 -8.625 500.00
Callpremium 19 Call premium 11 19.625
Net 19.625 Net 2.375 Call premium 0.75
6 lots,lot size * 3750 6 lots,lot size * 3750 Net  19.875
51093.75 8906.25 6 lots,lot size
*3750
670312.25

75
PUT OPTION TABLE
Spot Future Strike
Date price price price
480 490 500
19-May-22 450.55 452.625 194.7 19.2 105.7
19-May-22 446.575 448.45 194.7 19.2 105.7
20-May-22 447.2 447.975 194.7 19.2 105.7
21-May-22 433 435.35 194.7 19.2 105.7
22-May-22 432.75 434.2 194.7 19.2 105.7
23-May-22 444.55 445.95 194.7 19.2 105.7
24-May-22 459.5 463.35 194.7 19.2 2
27-May-22 479.375 480.475 194.7 19.2 2
28-May-22 477.825 478.775 194.7 19.2 2
29-May-22 481 481.05 194.7 19.2 2
30-May-22 480.725 480.6 194.7 19.2 2
03-June-22 489.975 489.55 11.85 319.19 355.3
04-June-22 487.075 489.775 11.85 19 355.3
05-June-22 492.575 494.45 10.45 19 355.3
06-June-22 496 497.2 8.5 19 19
07-June-22 499.325 500.55 4 19 19.2
11-June-22 484.825 485.975 19 19.5 30
12-June-22 483.5 482.3 19.8 19.5 30
12-June-22 474.9 475.75 20 19.5 30
19-June-22 481.05 481.125 20 19.5 30
19-June-12 484.075 485.35 20 19.5 30
19-June-22 473.575 474.19 20 19.5 30
19-June-22 476.925 477.5 20 19.5 30
19-June-22 479.725 480.85 19.2 19.5 30
20-June-22 486.575 486.875 19.2 9 19.6
21-June-22 487.075 487 6 11.9 19.6
24-June-22 486.9 486.825 5.05 11.9 19.6
25-June-22 481.375 481.5 3.2 11.9 22
27-June-22 469.375 469 19 11.9 31

76
 PUT OPTION ANALYSIS
ON MAY 19TH
For 480strike price For 490strike price For 500strikeprice
Strike price Strike price Strike price
480.00 490.00
500.00 Spot price
Spot price Spot price 450.5 450.55
450.55 40.55 50.55
Call premium 19.2 Call premium
30.55 Net -27.35 105.7
Callpremium 6 lots,lot size * 3750 Net  - 55.19
194.7 102562.5 6 lots,lot size *3750
Net - 206812.5
224.19
6 lots,lot size *
3750

619562.5

ON MAY 30TH
For 480strike price For 490strike price For 500strikeprice

Strike price 480.00 Strike price 490.00 Strike price 500

Spot price 480.725 Spot price 480.725 Spot price 480.725
0.725 9.275 19.275
Callpremium 194.7 Call premium 19.2 Call premium 2
Net -223.975 Net -3.925 Net  - 19.275
6 lots,lot size * 6 lots,lot size * 3750 6 lots,lot size *3750
3750 19719.75 64781.35
727406.25

ON JUNE 19TH

For 480strike price For 490strike price For 500strikeprice

Strike price 480.00 Strike price 490.00 Strike price

Spot price 481.05 Spot price 481.05 500.00
-1.05 8.95 Spot price
Callpremium 20 Call premium 19.5 481.05
Net  -22.95 Net  -5.55 19.95
6 lots,lot size * 3750 6 lots,lot size * 3750 Call premium 30
71062.5 20812.5 Net  - 11.05
6 lots,lot size *3750
41937.5

77
Hedging Using Options
1. If client has to bought sunpharma options on June 3rd

He had to buy 480 call option and 50 put option as spot price on that day was
450.55

2. To makeperfect hedging pay of 480 call option on June 10th

=spot price -strike price-call premium

=484.825 - 489 - 19
=10.195
Pay6 off of 500 put option on June 10th
Strike price-spot price- call premium
= 500 – 484.825 – 30
= 10.25

Hedge ratio = call pay off / put pay off

= 10.195 / 10.25
=0.075
Hedge ratio of 0.07 indicates perfect hedging using option

78
GMR Group
PROFILE
GMR Group is one of the fastest growing infrastructure organisations in the country
with interests in Airports, Energy, Highways and Urban Infrastructure (including
SEZ). Employing the Public Private Partnership model, the Group has successfully
implemented several infrastructure projects in India.
GMR Infrastructure Limited is the infrastructure holding company formed to fund the
capital requirements of various infrastructure projects in the Group’s Energy,
Highways and Airport business. It undertakes the development of the infrastructure
projects through its various subsidiaries.
The Group’s commitment to inclusive growth is achieved through its Corporate
Social Responsibility arm – the GMR Varalakshmi Foundation (GMRVF). GMRVF
works with the under-privileged sections of the community in all the locations where
the Group has business interests.
GMR International
GMR Group seeks aggressive growth opportunities, by expanding its business
bandwidth and presence in the global market place in the areas of Energy, Airports
and property development around airports. International forays will help GMR
improve earnings from new opportunities, access international talent and raise
international capital at cheaper rates.
GMR International - a separate division was formed to harness these
opportunities with its head quarters at London. GMR International will embrace the
company’s Values and Beliefs and will build on its strengths to meet global standards
of entrepreneurship, flexibility and effectiveness. It will be a dedicated international
organisation with responsibility for investments and operations. As an owner,
developer and operator

79
 GMR INFRA Data Analysis:
GMR INFRA Equity Table:
SYMBOL SERIES OPEN HIGH LOW CLOSE TIMESTAMP W.AVG
GMRINFRA EQ 47.6 47.6 45.85 46.25 19-May-22 46.725
GMRINFRA EQ 46.25 46.6 45.5 46.3 19-May-22 46.05
GMRINFRA EQ 46 47.1 45.7 46.2 20-May-22 46.4
GMRINFRA EQ 46.4 46.5 45.5 45.75 21-May-22 46
GMRINFRA EQ 45.75 46.25 45.1 45.35 22-May-22 45.675
GMRINFRA EQ 45.4 45.6 44.05 44.45 23-May-22 44.825
GMRINFRA EQ 44.5 44.7 44.1 44.55 24-May-22 44.4
GMRINFRA EQ 45.19 45.95 44.65 45.1 27-May-22 45.3
GMRINFRA EQ 45.45 45.45 44.6 44.7 28-May-22 45.025
GMRINFRA EQ 45 45.2 44.7 44.95 29-May-22 44.95
GMRINFRA EQ 45.25 45.25 44.65 44.8 30-May-22 44.95
GMRINFRA EQ 45.19 46.3 45.1 45.9 31-May-22 45.7
TOTAL 45.5
GMRINFRA EQ 46.5 47.35 46.19 47.05 03-June-22 46.75
GMRINFRA EQ 47.3 47.5 46.4 46.9 04-June-22 46.95
GMRINFRA EQ 47 47.6 46.3 46.5 05-June-22 46.95
GMRINFRA EQ 47 47.3 45.25 45.65 06-June-22 46.275
GMRINFRA EQ 45.65 45.65 44 44.05 07-June-22 44.825
GMRINFRA EQ 44.25 44.5 42.2 42.8 11-June-22 43.35
GMRINFRA EQ 42.8 43.5 39.2 40.1 12-June-22 41.35
GMRINFRA EQ 40.6 41.2 39.55 41 12-June-22 40.375
GMRINFRA EQ 41.05 41.8 40.5 41.05 19-June-22 41.19
GMRINFRA EQ 41.05 41.75 39.7 40.4 19-June-22 40.725
GMRINFRA EQ 40.85 41.25 39.65 40.3 19-June-22 40.45
GMRINFRA EQ 40.5 41 40.05 40.55 19-June-22 40.525
GMRINFRA EQ 40.8 41.25 40.4 40.95 19-June-22 40.825
GMRINFRA EQ 40.5 41.2 40.45 41.1 20-June-22 40.825
GMRINFRA EQ 41 42 40.8 41.55 21-June-22 41.4
GMRINFRA EQ 41.2 41.95 40.9 41.2 24-June-22 41.425
GMRINFRA EQ 41 41.5 40.4 40.5 25-June-22 40.95
GMRINFRA EQ 41 41.1 39.4 40.1 27-June-22 40.25
GMRINFRA EQ 40.4 40.4 38.9 39.45 28-June-22 39.65
GMRINFRA EQ 38.9 39.6 38.05 39.4 31-June-22 38.825
TOTAL 42.19125

80
 GMR INFRA Futures Table:
settle_
symbol expiry_dt open high low close pr timestamp w.avg
GMRINFRA 30-May-22 48 48 45.95 46.4 46.4 19-May-22 46.975
GMRINFRA 30-May-22 46.4 46.75 45.7 46.6 46.6 19-May-22 46.225
GMRINFRA 30-May-22 46 47.35 46 46.35 46.35 20-May-22 46.675
GMRINFRA 30-May-22 46.35 46.7 45.8 46.05 46.05 21-May-22 46.25
GMRINFRA 30-May-22 46.2 46.45 45.4 45.6 45.6 22-May-22 45.925
GMRINFRA 30-May-22 45.55 45.75 44.25 44.7 44.7 23-May-22 45
GMRINFRA 30-May-22 44.55 44.9 44.3 44.8 44.8 24-May-22 44.6
GMRINFRA 30-May-22 45.2 45.65 44.95 45.19 45.19 27-May-22 45.3
GMRINFRA 30-May-22 45.45 45.45 44.75 44.85 44.85 28-May-22 45.1
GMRINFRA 30-May-22 44.85 45.25 44.8 45.05 45.05 29-May-22 45.025
GMRINFRA 30-May-22 45 45.2 44.65 44.75 44.8 30-May-22 44.925
TOTAL 45.5025
GMRINFRA 27-June-22 45.45 46.6 45.35 46.3 46.3 31-May-22 45.975
GMRINFRA 27-June-22 46.7 47.65 46.5 47.4 47.4 03-June-22 47.075
GMRINFRA 27-June-22 47.7 47.75 46.6 47.2 47.2 04-June-22 47.195
GMRINFRA 27-June-22 47.19 47.9 46.65 46.85 46.85 05-June-22 47.275
GMRINFRA 27-June-22 47.1 47.2 45.6 45.95 45.95 06-June-22 46.4
GMRINFRA 27-June-22 45.9 45.9 44.2 44.3 44.3 07-June-22 45.05
GMRINFRA 27-June-22 44.25 44.7 42.3 42.85 42.85 11-June-22 43.5
GMRINFRA 27-June-22 43 43.5 39.19 40.1 40.1 12-June-22 41.325
GMRINFRA 27-June-22 40.8 41.4 39.55 41.25 41.25 12-June-22 40.475
GMRINFRA 27-June-22 41.25 41.85 40.6 41.1 41.1 19-June-22 41.225
GMRINFRA 27-June-22 41.19 41.85 39.9 40.3 40.3 19-June-22 40.875
GMRINFRA 27-June-22 40 41.25 39.8 40.3 40.3 19-June-22 40.525
GMRINFRA 27-June-22 40.95 40.95 40 40.65 40.65 19-June-22 40.475
GMRINFRA 27-June-22 41 41.2 40.4 40.95 40.95 19-June-22 40.8
GMRINFRA 27-June-22 40.6 41.25 40.5 41.19 41.19 20-June-22 40.875
GMRINFRA 27-June-22 40.9 42.05 40.8 41.5 41.5 21-June-22 41.425
GMRINFRA 27-June-22 41.35 41.55 40.95 41.3 41.3 24-June-22 41.25
GMRINFRA 27-June-22 41.25 41.45 40.45 40.55 40.55 25-June-22 40.95
GMRINFRA 27-June-22 40.95 41 39.4 40.19 40.1 27-June-22 40.2
TOTAL 42.78198

81
Stock Quote:
The stock Quote of Gmr Infra for one year is as follows and is followed by its
fundamentals mentioned in table which gives a basic idea about the
company’s stocks.

52 week » High : 69.275 » Low : 40.2

Fundamentals
Attribute Value Date

P:E Ratio 1,081,19 26/01/2022

E.P.S. 0.04 Mar'22

Sales 1919.35 May'22

Face value 1

Net profit margin 8.33 Mar'22

82
GMR INFRA FUTURES GRAPH

GMR INFRA
FUTURE ANALYSIS
1. If client A brought GMR on June 3rd and gold on 19th then his net obligation
could be:

Price of GMR future on June 3rd =Z 47.075

Price of GMR future on June 19th =Z 40.525
Profit/loss=40.525-47.075
Total/loss=loss per share *lot size=Z 6.5*4000=26200
2. If client B bought GMR futures on June 3rd and shirt GMR futures on June 3rd
and to make hadging .

He sell stock on June 4th net obligation is = 46.95 – 46.75 = 0.2

He buy back GMR future on June 4th net obligation is =47.075 – 4.195 = =0.05
Hedge ratio = ∆spot price /∆future price
= 0.2/0.05
=4

3. If client X bought GMR futures on May 19th is =46.725

(a) If client on May 19th is =z 46.05

Profit = 46.05 – 46.725 = z – 0.675

Total profit =profit per share *lot size=0.675*4000=2700

83
 (b) To make loss

Buy on May 19th & sell on May 24th =44.4

Loss =46.725-44.4=2.325 Z
Hence total/loss =loss/share*lot size
=2.325*4000
=9300
(c ) If client bought GMR stock on May 19th and short GMR on the same day to
male hedging.
Price of GMR stock on May19th is 46.725 Z
Price of GMR future on May 19th is z = 46 .975
He sell stock on June 3rd net obligation is =46.75 – 46.725 =0.025
He bu y back GMR future on June 3rd net obligation is = 46.975 – 47.075 = -
0.1
Hedge ratio =∆spot price /∆future price
= 0.025/0.1 = 0.25
Hencethis strategy yields 0.25% of investments made is protected

84
Gmr Infra Options Analysis :
Gmr Infra Call Options Table:
Spot Future Strike
Date price price price
42.5 45 47.5
19-May-22 46.725 46.975 2.4 0.8 0.6
19-May-22 46.05 46.225 2.4 0.8 0.6
20-May-22 46.4 46.675 1.9 1.05 0.35
21-May-22 46 46.25 1.55 0.65 0.35
22-May-22 45.675 45.925 1.25 0.4 0.25
23-May-22 44.825 45 0.65 0.3 0.19
24-May-22 44.4 44.6 0.6 0.3 0.1
27-May-22 45.3 45.3 0.8 0.25 0.1
28-May-22 45.025 45.1 0.5 0.19 0.05
29-May-22 44.95 45.025 0.35 0.1 0.05
30-May-22 44.95 44.925 0.05 0.05 0.05
03-June-22 46.75 47.075 8.1 3.4 1.9
04-June-22 46.95 47.195 8.1 3.2 1.75
05-June-22 46.95 47.275 8.1 3.05 1.65
06-June-22 46.275 46.4 8.1 2.35 1.19
07-June-22 44.825 45.05 8.1 1.35 0.65
11-June-22 43.35 43.5 8.1 0.9 0.5
12-June-22 41.35 41.325 0.95 0.5 0.3
12-June-22 40.375 40.475 1.25 0.6 0.3
19-June-22 41.19 41.225 0.95 0.45 0.3
19-June-22 40.725 40.875 0.55 0.3 0.19
19-June-22 40.45 40.525 0.55 0.25 0.1
19-June-22 40.525 40.475 0.4 0.2 0.1
19-June-22 40.825 40.8 0.35 0.19 0.1
20-June-22 40.825 40.875 0.35 0.1 0.05
21-June-22 41.4 41.425 0.4 0.1 0.05
24-June-22 41.425 41.25 0.19 0.05 0.05
25-June-22 40.95 40.95 0.05 0.05 0.05
27-June-22 40.25 40.2 0.05 0.05 0.05

85
 GMR Option Analysis
Call Option Analysis
For 42.5strike price ON MAY 19TH for 47.5strike price
for 45 strike price

Spot price 46.725 spot price 46.725

Strike price 42.5 strike price 45 spot price 46.725
4.225 1.725 strike price 47.5
Premium 2.4 premium 0.8 0.775
Net 1.85 Net 0.925 PREMIUM 0.6
6 lots ,lotsize *24000 lot size * 24000 Net 0.195
43800 22200 lot size * 24000
4200

ON MAY 30TH
For 42.5strike price for 45 strike price for 47.5strike price

Spot price 44.95 spot price 44.95 spot price 44.95

Strike price 42.5 strike price 45 strike price 47.5
2.45 -0.05
Premium 0.05 premium 0.05 2.55SS
Net 2.4 Net 0.6 PREMIUM 0.05
6 lots ,lotsize *24000 lot size * 24000 Net -2.5
57600 0 slot size * 24000
60000

86
 ON JUNE 19TH
For 42.5strike price for 45 strike price for 47.5strike price

Spot price 41.19 spot price 41.19 spot price 41.19

Strike price 42.5 strike price 45 strike price 47.5
-1.35 3.85 -6.35
Premium 0.95 Spremium 0.3
Net 0.4 premium 0.45 Net 6.05
6 lots ,lotsize *24000 Net 3.4 lot size * 24000
9600 lot size * 24000 195200
81900

ON JUNE 25TH
For 42.5strike price for 45 strike for 47.5strike price
price
Spot price spot price 40.95 spot price 40.95
40.95 strike price 45 strike price 47.5
Strike price 42.5 -4.05 -6.55
- premium 0.05 premium 0.05
1.55 Net 4 Net 6.5
Premium 0.05 lot size * lot size * 24000
Net 1.5 24000 196000
6 lots ,lotsize 96000
*24000
36000

Put Options Table :

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 Future
Date Spot price price Strike price
42.5 45 47.5
19-May-22 46.725 46.975 1 0.8 4
19-May-22 46.05 46.225 1.25 0.8 4
20-May-22 46.4 46.675 0.5 0.8 4
21-May-22 46 46.25 0.45 0.8 4
22-May-22 45.675 45.925 0.65 0.8 4
23-May-22 44.825 45 1 0.8 5.75
24-May-22 44.4 44.6 0.9 0.8 5.75
27-May-22 45.3 45.3 0.6 0.8 5
28-May-22 45.025 45.1 0.7 0.8 5
29-May-22 44.95 45.025 0.35 0.8 5
30-May-22 44.95 44.925 0.19 0.8 5
03-June-12 46.75 47.075 0.2 0.95 1.19
04-June-22 46.95 47.195 0.2 0.85 1.19
05-June-22 46.95 47.275 0.2 1.19 1.19
06-June-22 46.275 46.4 0.2 1.35 1.19
07-June-22 44.825 45.05 0.2 2 1.19
11-June-22 43.35 43.5 0.2 3 1.19
12-June-22 41.35 41.325 0.2 5.1 1.19
12-June-22 40.375 40.475 0.2 4.3 1.19
19-June-22 41.19 41.225 0.2 4 1.19
19-June-22 40.725 40.875 0.2 5 1.19
19-June-22 40.45 40.525 0.2 5 1.19
19-June-22 40.525 40.475 0.2 5 1.19
19-June-22 40.825 40.8 0.2 5 1.19
20-June-22 40.825 40.875 0.2 4.3 1.19
21-June-22 41.4 41.425 0.2 3.25 1.19
24-June-22 41.425 41.25 0.2 3.25 1.19
25-June-22 40.95 40.95 0.2 3.25 1.19
27-June-22 40.25 40.2 0.2 5.1 1.19

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 PUT OPTION ANALYSIS :
ON MAY 19TH

For 42.5strike price for 45 strike price for 47.5strike price

Strike price 42.5 strike price 45 strike price

Spot price 46.725 spot price 46.725 47.5
- 4.225 - 1.725 spot price
Premium 1 premium 0.8 46.725
Net 3.225 Net 0.925 0.775
6 lots ,lotsize *24000 lot size * 24000 premium 4
77400 77400 Net 0.195
lot size * 24000
77400

ON MAY 30TH
For 42.5strike price for 45 strike price for 47.5strike price
Strike price 42.5 strike price 45 strike price 47.5
Spot price 44.95 spot price 44.95 spot price 44.95
- 2.45 0.05 -2.55
Premium 0.19 premium 0.8 premium 0.05
Net 2.3 Net - 0.75 Net -2.5
6 lots ,lotsize *24000 lot size * 24000 slot size * 24000
55200 19000 60000

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 ON JUNE 19TH

For 42.5strike price for 45 strike for 47.5strike price

price
Strike price 42.5 strike price 45 strike price 47.5
Spot pric 41.19 spot price 41.19 spot price 41.19
1.35 3.85 6.35
Premium 0.2 premium 4 premium 1.19
Net 1.19 Net -0.19 Net 5.2
6 lots ,lotsize lot size * 2400 lot size * 24000
*24000 3600 124800

27600

ON JUNE 25TH
For 42.5strike price for 45 strike price for 47.5strike price

Strike price 42.5 strike price 45 strike price

47.5
Spot price 40.95 spot price 40.95 spot price40.95
1.55 4.05 6.55
Premium 0.2 premium 3.25 premium 1.19
Net 1.35 Net 0.8 Net 5.4
6 lots ,lotsize *24000 lot size * 24000 lot size * 24000
32400 19200 129600

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 Hedging Using Options
1. If client has to bought GMR options on June 3rd he had to buy 480 call
option and

500 put option as the spot price on that day was 46.75
2. To make perfect hedging

Pay off 480 call option on June 6th = spot price-strike price –call premium
=46.95 – 42.5 – 8.1 =3.65

Pay off of 47,5 put option on June 4th =strike price – spot price – put premium
=47.5- 46.75 – 1.19 = 2.45
Hedge ratio = call pay off / put pay off
= 3.65 / 2.45 =1.489

Hedging ratio of 1.4 indicates perfect hedging using options

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CHAPTER-V
FINDINGS
SUGGESTIONS
CONCLUSION

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FINDINGS:

To the above analysis considered, the following are the findings:

 As per present condition it is good to invest in banking sector.

 There are many reasons that the market is going down such as political issues,
Inflation etc…

 Derivative market is a good return market compared to equity market.

 Derivatives are mostly used for Hedging purposes.

 In cash market, the Investor has to pay the total money but in the Derivatives
market the Investor has to pay premiums or margins which are of some
percentage of the total money.

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SUGGESTIONS
 Derivative have existed and evolved over a long time, with roots in

commodities market .In the recent years advances in financial markets and

technology has made derivatives easy for the investors.

 The Derivatives markets is newly started in India and it’s not known by

everyone so, SEBI should act to create awareness in the people about this

derivatives market.

 Derivatives market in India is growing rapidly unlike equity markets .Trading

in derivatives requires more than average understanding of finance, being a

new concept. Maximum numbers of investors have not yet understood the full

implications of the trading in derivatives. SEBI should act to create awareness

in investors about the derivative market.

 In bullish market the call option writer incurs more losses so the investor is
suggested to go for a call option to hold, where as the put option holder suffers
in a bullish market, so he is suggested to write a put option.
 In bearish market the call option holder will incur more losses so the investor
is suggested to go for a call option to write, where as the put option writer will
get more losses, so he is suggested to hold a put option.
 The derivative market is newly started in India and it is not known by every
investor, so SEBI has to take steps to create awareness among the investors
about the derivative segment.
 In order to increase the derivatives market in India, SEBI should revise some
of their regulations like contract size, participation of FII in the derivatives
market.
 eContract size should be minimizd because small investors cannot afford this
much of huge premiums.

 SEBI has to take further steps in the risk management mechanism.

 SEBI has to take measures to use effectively the derivatives segment as a tool
of hedging.

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CONCLUSION:-

Derivative products serve the vitally important economic functions of

price discovery and risk management. The transparency, which emerges from their
trading mechanism, ensures the price discovery in the underlying market. Further they
serve as a risk management tools by facilitating the trading of risks among the market
participants. These products enable market participants to take the desired risks and
jettison the undesirable undertones.

From the above project it proved that the underlying stock values changes
according to the news. Depending on underlying stock prices the derivative values also
changes. By doing above analysis we can know when to buy, at what time to sell and
how much risk we can take. Above project has done practical analysis on four
companies for Two months. Se Graphs and tables are used to analyze more.

FUTURE ENHANCEMENT:-
In future I like to introduce software based on this analysis. It
automatically calculates the problem and gives us result. By using this software we can
get more accurate values. It also tells that depending on the news how the share value
will fluctuate, where to but the options and futures and where to sell it. This software
also gives the fundamental analysis on the individual company. By using this software
we can analyze more and help to take profitable Mayisions.

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BIBLIOGRAPHY

96
 BIBLIOGRAPHY

BOOKS:

 Derivatives Dealers Module Work book–NCFM

 Financial Markets and Services–GORDAN and NATRAJAN
 Financial Management – PRASANNA CHANDRA

NEWS PAPERS:

 Economic times
 The Hindu
 Business Standard

MAGAZINES:

 Business Today
 Business World
 Business India
WEBSITES:

 WWW.derivativesindia.com
 www.indianinfoline.com
 www.nesindia.com
 www.bseindia.com
 www.sebi.gov.in
 www.google.com

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