Project Report on India infoline : Derivatives

Description
A derivative security is a security whose value depends on the value of together more basic underlying variable. These are also known as contingent claims.

STUDY ON DERIVATIVES
(INDIAINFOLINE)
PROJECT REPORT SUBMITTED IN PARTIAL
FULFILLMENT OF
POST GRADUATE DIPLOMA IN MANAGEMENT
DECLARATION
I, XXXX bearing Roll No. XXXX here by
declare that this Project Work is a genuine piece of work done by me
and it is original. his project has not been copied from any other
source and has not been submitted for fulfillment of any other
degree!diploma. I ha"e collected the data and analy#ed the same.
Signature
Na!e
Date
AC"NO#LEDGEMENT
While most people are cooperati"e and e$tend their support for
an academic cause, incase of this summer internship programe, it has
been more so. he information gi"en was not only useful but also "ery
prompt and timely.
his project on $Stu%& 'n Deri(ati(e)* has been possible
owing to a host of reasons. %irstly, I would like to acknowledge my
special thanks and e$press my gratitude to ++++ &internal guide' and
++++ &e$ternel guide' for their kind support in guiding me as to how
should I proceed with the project. he e$perience gained during the
course of this internship has been deeply enriching. I am e$tremely
greatful to him for pro"iding us with an oppurtunity to study and focus
and "ery keen stream of the finance. (s management students the
research done for this internship will hold me in good steady. I am
thankful to them for pro"iding me a basic framework to start the thesis
with.
I would like to acknowledge my special thanks to all those people
I inter"iewed in the company for their e$tensi"e support during the
internship.
TABLE OF CONTENTS
C,APTER NUMBER
). INR*+,-I*N
• *bjecti"es of the .tudy
• .cope of the study
• /ethodology
0 IN+,.R1 PR*%I23
4 -*/P(N1 PR*%I23
5.R36I3W *% 2I3R(,R3

7- +(( (N(21.I. 8 PR3.3N(I*N
9. -*N-2,.I*N. 8 .,::3.I*N.
• .ummary 8 .uggestions
• -onclusions

:2*..(R1
;I;2I*:R(P<1
INR*+,-I*N
INTRODUCTION
( deri"ati"e security is a security whose "alue depends on the "alue of
together more basic underlying "ariable. hese are also known as
contingent claims. +eri"ati"es securities ha"e been "ery successful in
inno"ation in capital markets.
he emergence of the market for deri"ati"e products most notably
forwards, futures and options can be traced back to the willingness of
risk=a"erse economic agents to guard themsel"es against uncertainties
arising out of fluctuations in asset prices. ;y their "ery nature,
financial markets are market by a "ery high degree of "olatility.
hough the use of deri"ati"e products, it is possible to partially or fully
transfer price risks by locking > in asset prices. (s instrument of risk
management these generally don?t influence the fluctuations in the
underlying asset prices.
<owe"er, by locking=in asset prices, deri"ati"e products minimi#e the
impact of fluctuations in asset prices on the profitability and cash=flow
situation of risk=a"erse in"estor.
+eri"ati"es are risk management instruments which deri"es their "alue
from an underlying asset. ,nderlying asset can be ;ullion, Inde$,
.hare, -urrency, ;onds, Interest, etc.
O./e0ti(e) '1 t2e Stu%&
? o understand the concept of the %inancial +eri"ati"es such as
%utures and *ptions.
? o e$amine the ad"antage and the disad"antages of different
strategies along with situations.
? o study the different ways of buying and selling of *ptions.
SCOPE OF T,E STUDY
he study is limited to @+eri"ati"esA With special reference to %utures
in the Indian conte$t and the IndiaInfoline has been taken as
representati"e sample for the study.
he study cannot be said as totally perfect, any alteration may come.
he study has only made humble attempt at e"aluating +eri"ati"es
/arkets only in Indian -onte$t. he study is not based on the
International perspecti"e of the +eri"ati"es /arkets.
RESEARC, MET,ODOLOGY
he type of research adopted is descripti"e in nature and the data
collected for this study is the secondary data i.e. from Newspapers,
/aga#ines and Internet.
Li!itati'n)
? he study was conducted in <yderabad only.
? (s the time was limited, study was confined to conceptual
understanding of +eri"ati"es market in India.
INDUSTRY
PROFILE
,ISTORY OF STOC" E+C,ANGE
he only stock e$changes operating in the )B
th
century
were those of ;ombay set up in )CD7 and (hmedabad set up in )CB5.
hese were organi#ed as "oluntary non profit=making association of
brokers to regulate and protect their interests. ;efore the control on
securities trading became central subject under the constitution in
)B7E, it was a state subject and the ;ombay securities contracts
&control' (ct of )B07 used to regulate trading in securities. ,nder this
act, the ;ombay stock e$change was recogni#ed in )B0D and
(hmedabad in )B4D.
+uring the war boom, a number of stock e$changes were
organi#ed in ;ombay, (hmedabad and other centers, but they were
not recogni#ed. .oon after it became a central subject, central
legislation was proposed and a committee headed by (.+. rwala
went into the bill for securities regulation. *n the basis of the
committee?s recommendations and public discussion, the securities
contracts &regulation' (ct became law in )B79.
DEFINITION OF STOC" E+C,ANGE
@.tock e$change means any body or indi"iduals whether
incorporated or not, constituted for the purpose of assisting, regulating
or controlling the business of buying, selling or dealing in securitiesA.
It is an association of member brokers for the purpose of self=
regulation and protecting the interests of its members.
It can operate only if it is recogni#ed by the "ernment under
the securities contracts &regulation' (ct, )B79. he recognition is
granted under section 4 of the (ct by the central go"ernment, /inistry
of %inance.
BYLA#S
;esides the abo"e act, the securities contracts &regulation' rules
were also made in )BD7 to regulati"e certain matters of trading on the
stock e$changes. here are also bylaws of the e$changes, which are
concerned with the following subjects.
*pening ! closing of the stock e$changes, timing of trading,
regulation of blank transfers, regulation of ;adla or carryo"er business,
control of the settlement and other acti"ities of the stock e$change,
fi$ating of margin, fi$ation of market prices or making up prices,
regulation of tara"ani business &jobbing', etc., regulation of brokers
trading, brokerage chargers, trading rules on the e$change, arbitrage
and settlement of disputes, settlement and clearing of the trading etc.
REGULATION OF STOC" E+C,ANGES
he securities contracts &regulation' act is the basis for
operations of the stock e$changes in India. No e$change can operate
legally without the go"ernment permission or recognition. .tock
e$changes are gi"en monopoly in certain areas under section )B of the
abo"e (ct to ensure that the control and regulation are facilitated.
Recognition can be granted to a stock e$change pro"ided certain
conditions are satisfied and the necessary information is supplied to
the go"ernment. Recognition can also be withdrawn, if necessary.
Where there are no stock e$changes, the go"ernment licenses some of
the brokers to perform the functions of a stock e$change in its
absence.
SECURITIES AND E+C,ANGE BOARD OF INDIA (SEBI)-
.3;I was set up as an autonomous regulatory authority by the
go"ernment of India in )BCC @to protect the interests of in"estors in
securities and to promote the de"elopment of, and to regulate the
securities market and for matter connected therewith or incidental
theretoA. It is empowered by two acts namely the .3;I (ct, )BB0 and
the securities contract &regulation' (ct, )B79 to perform the function
of protecting in"estor?s rights and regulating the capital markets.
BOMBAY STOC" E+C,ANGE
his stock e$change, /umbai, popularly known as @;.3A
was established in )CD7 as @he Nati"e share and stock brokers
associationA, as a "oluntary non=profit making association. It has an
e"ol"ed o"er the years into its present status as the premiere stock
e$change in the country. It may be noted that the stock e$changes the
oldest one in (sia, e"en older than the okyo stock e$change, which
was founded in )CDC.
he e$change, while pro"iding an efficient and
transparent market for trading in securities, upholds the interests of
the in"estors and ensures redressed of their grie"ances, whether
against the companies or its own member brokers. It also stri"es to
educate and enlighten the in"estors by making a"ailable necessary
informati"e inputs and conducting in"estor education programs.
( go"erning board comprising of B elected directors, 0 .3;I
nominees, D public representati"es and an e$ecuti"e director is the
ape$ body, which decides is the ape$ body, which decides the policies
and regulates the affairs of the e$change.
he 3$change director as the chief e$ecuti"e offices is
responsible for the daily today administration of the e$change.
BSE INDICES
In order to enable the market participants, analysts etc., to
track the "arious ups and downs in the Indian stock market, the
3$change has introduced in )BC9 an eFuity stock inde$ called ;.3=
.3N.3X that subseFuently became the barometer of the moments of
the share prices in the Indian stock market. It is a @/arket
capitali#ation weightedA inde$ of 4E component stocks representing a
sample of large, well=established and leading companies. he base
year of sense$ )BDC=DB. he .ense$ is widely reported in both
domestic and international markets through print as well as electronic
media.
.ense$ is calculated using a market capitali#ation weighted
method. (s per this methodology the le"el of the inde$ reflects the
total market "alue of all 4E=component stocks from different industries
related to particular base period. he total market "alue of a company
is determined by multiplying the price of its stock by the nuDmber of
shared outstanding. .tatisticians call inde$ of a set of combined
"ariables &such as price and number of shares' a composite Inde$. (n
inde$ed number is used to represent the results of this calculation in
order to make the "alue easier to go work with and track o"er a time.
It is much easier to graph a chart based on Inde$ed "alues than on
based on actual "alued world o"er majority of the well=known Indices
are constructed using @/arket capitali#ation weighted methodA.
In practice, the daily calculation of .3N.3X is done by
di"iding the aggregate market "alue of the 4E companies in the inde$
by a number called the Inde$ +i"isor. he di"isor is the only link to the
original base period "alue of the .3N.3X. he +e"isor keeps the Inde$
comparable o"er a period "alue of time and if the references point for
the entire Inde$ maintenance adjustments. .3N.3X is widely used to
describe the mood in the Indian stock markets. ;ase year a"erage is
changed as per the formula new base year a"erage G old base year
a"erageH&new market "alue ! old market "alue'.
NATIONAL STOC" E+C,ANGE
he N.3 was incorporated in No", )BB0 with an eFuity capital
of Rs.07 crs. he international securities consultancy &I.-' of <ong
Iong has helped in setting up N.3. I.- has prepared the detailed
business plans and initiali#ation of hardware and software systems.
he promotions for N.3 were financial institutions, insurances,
companies, banks and .3;I capital market ltd, Infrastructure leasing
and financial ser"ices ltd and stock holding corporationsJ ltd.

It has been set up to strengthen the mo"e towards
professionali#ation of the capital market as well as pro"ide nation wide
securities trading facilities to in"estors.
N.3 is not an e$change in the traditional sense where brokers
own and manage the e$change. ( two tier administrati"e set up
in"ol"ing a company board and a go"erning aboard of the e$change is
en"isaged.
N.3 is a national market for shares P., bonds, debentures and
go"ernment securities since infrastructure and trading facilities are
pro"ided.
NSE3NIFTY
he N.3 on (pr00, )BB9 launched a new eFuity Inde$. he N.3=
7E. he new Inde$ which replaces the e$isting N.3=)EE Inde$ is
e$pected to ser"e as an appropriate Inde$ for the new segment of
future and option.
@NI%1A mean National Inde$ for fifty stocks. he N.3=7E comprises
fifty companies that represent 0E board industry groups with an
aggregate market capitali#ation of around Rs ), DE,EEE crs. (ll
companies included in the Inde$ ha"e a market capitali#ation in e$cess
of Rs. 7EE crs each and should ha"e trade for C7K of trading days at
an impact cost of less than ).7K.
he base period for the inde$ is the close of price on No" 4
)BB7, which makes one year of completion of operation of N.3?s
capital market segment. he base "alue of the inde$ has been set at
)EEE.
NSE3MIDCAP INDE+
N.3 madcap inde$ or the junior nifty comprises 7E stocks that
represent 0) board industry groups and will pro"ide proper
representation of the midcap segment of the Indian capital market. (ll
stocks in the Inde$ should ha"e market capitali#ation of more than
Rs.0EE crs and should ha"e traded C7K of the trading days at an
impact cost of less than 0.7K.he base period for the inde$ is No" 5
)BB9, which signifies 0 years for completion of operations of the
capital market segment of the operations. he base "alue of the Inde$
has been set at )EEE. ("erage daily turn o"er of the present scenario
07C0)0 &2aces' and number of a"erage daily trades 0)9E&2aces'.
(t present there are 05 stock e$changes recogni#ed under the
securities contract &regulation (ct, )B79'.
-*/P(N1 PR*%I23
T,E INDIA INFOLINE LIMITED
Origin
India Infoline 2td., was founded in )BB7 by a group of professional
with impeccable educational Fualifications and professional credentials.
Its institutional in"estors include Intel -apital &worldJs' leading
technology company, -+- &promoted by ,I go"ernment', I-I-I, +(
and Reeshanar.
India Infoline group offers the entire gamut of in"estment products
including stock broking, -ommodities broking, /utual %unds, %i$ed
+eposits, :*I Relief bonds, Post office sa"ings and life Insurance.
India Infoline is the leading corporate agent of I-I-I Prudential 2ife
Insurance -o. 2td., which is IndiaJ No. ) Pri"ate sector life insurance
company.
Www.indiainfoline.com has been the only India Website to ha"e
been listed by none other than %orbes in itJs J;est of the WebJ sur"ey
of global website, not just once but three times in a row and
counting... @( must read for in"estors in south (siaA is how they
choose to describe India Infoline. It has been rated as No.l the
category of ;usiness News in (sia by (le$ia rating.
.tock and -ommodities broking is offered under the trade name
7paisa. India Infoline -ommodities p"t 2td., a wholly owned subsidiary
of India Infoline 2td., holds membership of /-X and N-+3X
Main O./e0t) '1 t2e C'!4an&
/ain objects as contained in its /emorandum or (ssociation areL
). o engage or undertake software and internet based ser"ices,
data processing I enabled ser"ices, software de"elopment
ser"ices, selling ad"ertisement space on the site, web consulting
and related ser"ices including web designing and web
maintenance, software product de"elopment and marketing,
software supply ser"ices, computer consultancy ser"ices, 3=
-ommerce of all types including electronic financial
intermediation business and 3=broking, market research,
business and management consultancy.
0. o undertake, conduct, study, carry on, help, promote any kind
of research, probe, in"estigation, sur"ey, de"elopmental work on
economy, industries, corporate business houses, agricultural and
mineral, financial institutions, foreign financial institutions,
capital market on matters related to in"estment decisions
primary eFuity market, secondary eFuity market, debentures,
bond, "entures, capital funding proposals, competiti"e analysis,
preparations of corporate ! industry profile etc. and trade !
in"est in researched securities
VISION STATEMENT OF T,E COMPANY
@Our (i)i'n i) t' .e t2e !')t re)4e0te% 0'!4an& in t2e 1inan0ia5
)er(i0e) )4a0e In In%ia*-
Pr'%u0t)L the India Infoline p"t ltd offers the following products
A- E3.r'6ing-
B- Di)tri.uti'n
C- In)uran0e
D- PMS
E- M'rtgage)
A- E3Br'6ing
It refers to 3lectronic ;roking of 3Fuities, +eri"ati"es and
-ommodities under the brand name of 7paisa
). 3Fuities
0. +eri"ati"es
4. -ommodities
B- Di)tri.uti'n
). /utual funds
0. "t of India bonds.
4. %i$ed deposits
C- In)uran0e
). 2ife insurance policies
0. :eneral Insurance
4. <ealth Insurance Policies.
T,E CORPORATE STRUCTURE
he India Infoline group comprises the holding company, India
Infoline 2td, which has 7 wholly=owned subsidiaries, engaged in
distinct yet complementary businesses which together offer a whole
bouFuet of products and ser"ices to make your money grow.
he corporate structure has e"ol"ed to comply with oddities of
the regulatory framework but still beautifully help attain synergy and
allow fle$ibility to adapt to dynamics of different businesses.
he parent company, India Infoline 2td owns and managers the
web properties www.Indiainfoline.com and www.7paisa.com. It also
undertakes research -ustomi#ed and off=the=shelf.
Indian Infoline .ecurities P"t. 2td. is a member of ;.3, N.3 and
+P with N.+2. Its business encompasses securities broking Portfolio
/anagement ser"ices.
India Infoline.com +istribution -o. 2td., /obili#es /utual %unds
and other personal in"estment products such as bonds, fi$ed deposits,
etc.
India Infoline Insurance .er"ices 2td. is the corporate agent of I-I-I
Prudential 2ife Insurance, engaged in selling 2ife Insurance, :eneral
Insurance and <ealth Insurance products.
India Infoline -ommodities P"t. 2td. is a registered commodities
broker /-X and offers futures trading in commodities.
India Infoline In"estment .er"ices P"t 2td., is pro"ing margin funding
and N;%- ser"ices to the customers of India Infoline 2td.,
Pictorial Representation of India Infoline 2td
Manage!ent '1 In%ia In1'5ine Lt%-7
India Infoline is a professionally managed -ompany. he
promoters who run the company!s day=to=day affairs as e$ecuti"e
directors ha"e impeccable academic professional track records.
Nirmal Main, chairman and /anaging +irector, is a -hartered
(ccountant, &(ll India Rank 0'N -ost (ccount, &(ll India Rank l' and
has a post=graduate management degree from II/ (hmedabad. <e
had a successful career with <industan 2e"er, where he inter alia
handled -ommodities trading and e$port business. 2ater he was -3*
of an eFuity research organi#ation.
R. 6enkataraman, +irector, is armed with a post= graduate
management degree from II/ ;angalore, and an 3lectronics
3ngineering degree from II, Iharagpur. <e spent eight fruitful years
in eFuity research sales and pri"ate eFuity with the cream of financial
houses such as I-I-I group, ;arclays de Ooette and :.3. -apital
he non=e$ecuti"e directors on the board bring a wealth of
e$perience and e$pertise. .atpal khattar Reeshanar in"estments,
.ingapore he key management team comprises seasoned and
Fualified professionals.
Mu6e)2 Sing3 Dire0t'r7 In%ia In1'5ine Se0uritie)
P(t Lt%-
Se)2a%ri B2arat2an3 Dire0t'r7 In%ia In1'5ine- C'!
Di)tri.uti'n C' Lt%
S Srira!3 Vi0e Pre)i%ent7 Te02n'5'g&
San%ee4a Vig Ar'ra3 Vi0e Pre)i%ent7 P'rt1'5i' Manage!ent
Ser(i0e)
D2ar!e)2 Pan%&a3 Vi0e Pre)i%ent7 A5ternate C2anne5
T'ra5 Mun)2i3 Vi0e Pre)i%ent7 Re)ear02
Ani5 Ma)0aren2a)3 C2ie1 E%it'r
REVIE#
OF
LITERATURE
DERIVATIVES3
he emergence of the market for deri"ati"es products, most notably
forwards, futures and options, can be tracked back to the willingness of risk=
a"erse economic agents to guard themsel"es against uncertainties arising
out of fluctuations in asset prices. ;y their "ery nature, the financial markets
are marked by a "ery high degree of "olatility. hrough the use of deri"ati"e
products, it is possible to partially or fully transfer price risks by locking=in
asset prices. (s instruments of risk management, these generally do not
influence the fluctuations in the underlying asset prices. <owe"er, by
locking=in asset prices, deri"ati"e product minimi#es the impact of
fluctuations in asset prices on the profitability and cash flow situation of risk=
a"erse in"estors.
+eri"ati"es are risk management instruments, which deri"e
their "alue from an underlying asset. he underlying asset can be bullion,
inde$, share, bonds, currency, interest, etc.. ;anks, .ecurities firms,
companies and in"estors to hedge risks, to gain access to cheaper money
and to make profit, use deri"ati"es. +eri"ati"es are likely to grow e"en at a
faster rate in future.
DEFINITION
+eri"ati"e is a product whose "alue is deri"ed from the "alue of an
underlying asset in a contractual manner. he underlying asset can be
eFuity, fore$, commodity or any other asset.
)' .ecurities -ontracts &Regulation' (ct, )B79 &.-R (ct'
defines @deri"ati"eA to secured or unsecured, risk instrument or contract for
differences or any other form of security.
0' ( contract which deri"es its "alue from the prices, or
inde$ of prices, of underlying securities.
E!ergen0e '1 1inan0ia5 %eri(ati(e 4r'%u0t)
+eri"ati"e products initially emerged as hedging de"ices against
fluctuations in commodity prices, and commodity=linked deri"ati"es remained
the sole form of such products for almost three hundred years. %inancial
deri"ati"es came into spotlight in the post=)BDE period due to growing
instability in the financial markets. <owe"er, since their emergence, these
products ha"e become "ery popular and by )BBEs, they accounted for about
two=thirds of total transactions in deri"ati"e products. In recent years, the
market for financial deri"ati"es has grown tremendously in terms of "ariety of
instruments a"ailable, their comple$ity and also turno"er. In the class of eFuity
deri"ati"es the world o"er, futures and options on stock indices ha"e gained
more popularity than on indi"idual stocks, especially among institutional
in"estors, who are major users of inde$=linked deri"ati"es. 3"en small in"estors
find these useful due to high correlation of the popular inde$es with "arious
portfolios and ease of use. he lower costs associated with inde$ deri"ati"es
"is>a>"is deri"ati"e products based on indi"idual securities is another reason
for their growing use.
PARTICIPANTSL
he following three broad categories of participants in the deri"ati"es
market.
,EDGERSL
<edgers face risk associated with the price of an asset. hey use futures
or options markets to reduce or eliminate this risk.
SPECULATORS
.peculators wish to bet on future mo"ements in the price of an asset.
%utures and options contracts can gi"e them an e$tra le"erageN that is, they
can increase both the potential gains and potential losses in a speculati"e
"enture.
ARBITRAGERSL
(rbitrageurs are in business to take of a discrepancy between prices in
two different markets, if, for, e$ample, 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.
FUNCTIONS OF DERIVATIVE MAR"ETS
he following are the "arious functions that are performed by the
deri"ati"es markets. hey areL
? Prices in an organi#ed deri"ati"es market reflect the
perception of market participants about the future and lead the price of
underlying to the percei"ed future le"el.
? +eri"ati"es market helps to transfer risks from those who
ha"e them but may not like them to those who ha"e an appetite for them.
? +eri"ati"es trading acts as a catalyst for new
entrepreneurial acti"ity.
? +eri"ati"es markets help increase sa"ing and in"estment in
long run.
TYPES OF DERIVATIVES
he following are the "arious types of deri"ati"es. hey areL
FOR#ARDSL
( forward contract is a customi#ed contract between two entities, where
settlement takes place on a specific date in the future at today?s pre=agreed
price.
FUTURES
( futures contract is an agreement between two parties to buy or sell an
asset in a certain time at a certain priceN they are standardi#ed and traded
on e$change.
OPTIONS
*ptions are of two types=calls and puts. -alls gi"e the buyer the right but
not the obligation to buy a gi"en Fuantity of the underlying asset, at a gi"en
price on or before a gi"en future date. Puts gi"e the buyer the right, but not
the obligation to sell a gi"en Fuantity of the underlying asset at a gi"en price
on or before a gi"en date.
#ARRANTS
*ptions generally ha"e li"es of up to one yearN the majority of options
traded on options e$changes ha"ing a ma$imum maturity of nine months.
2onger=dated options are called warrants and are generally traded o"er=the
counter.
LEAPS
he acronym 23(P. means long=term 3Fuity (nticipation securities. hese
are options ha"ing a maturity of up to three years.
BAS"ETS
;asket options are options on portfolios of underlying assets. he underlying
asset is usually a mo"ing a"erage of a basket of assets. 3Fuity inde$ options
are a form of basket options.
S#APS
.waps are pri"ate agreements between two parties to e$change cash floes
in the future according to a prearranged formula. hey can be regarded as
portfolios of forward contracts. he two commonly used .waps areL
a' Interest rate .wapsL
hese entail swapping only the related cash flows between the parties in
the same currency.
b' -urrency .wapsL
hese entail swapping both principal and interest between the parties,
with the cash flows in on direction being in a different currency than those in
the opposite direction.
S#APTION
.waptions are options to buy or sell a swap that will become operati"e at the
e$piry of the options. hus a swaption is an option on a forward swap.
RATIONALE BE,IND T,E DEVELOPMENT OF DERIVATIVES
<olding portfolios of securities is associated with the risk of the possibility
that the in"estor may reali#e his returns, which would be much lesser than
what he e$pected to get. here are "arious factors, which affect the returnsL
). Price or di"idend &interest'
0. .ome are internal to the firm like=
4. Industrial policy
5. /anagement capabilities
7. -onsumer?s preference
9. 2abour strike, etc.
hese forces are to a large e$tent controllable and are termed as non
systematic risks. (n in"estor can easily manage such non=systematic by
ha"ing a well=di"ersified portfolio spread across the companies, industries
and groups so that a loss in one may easily be compensated with a gain in
other.
here are yet other of influence which are e$ternal to the firm, cannot be
controlled and affect large number of securities. hey are termed as
systematic risk. hey areL
). 3conomic
0. Political
4. .ociological changes are sources of systematic risk.
%or instance, inflation, interest rate, etc. their effect is to cause prices of
nearly all=indi"idual stocks to mo"e together in the same manner. We
therefore Fuite often find stock prices falling from time to time in spite of
company?s earning rising and "ice "ersa.
Rational ;ehind the de"elopment of deri"ati"es market is to manage this
systematic risk, liFuidity in the sense of being able to buy and sell relati"ely
large amounts Fuickly without substantial price concession.
In debt market, a large position of the total risk of securities is
systematic. +ebt instruments are also finite life securities with limited
marketability due to their small si#e relati"e to many common stocks. hose
factors fa"our for the purpose of both portfolio hedging and speculation, the
introduction of deri"ati"es securities that is on some broader market rather
than an indi"idual security.
REGULATORY FRAME#OR"
he trading of deri"ati"es is go"erned by the pro"isions contained in the .-
R (, the .3;I (ct, and the regulations framed there under the rules and
byelaws of stock e$changes.
Regulation for +eri"ati"e radingL
.3;I set up a 05 member committed under -hairmanship of +r. 2. -.
:upta de"elop the appropriate regulatory framework for deri"ati"e trading in
India. he committee submitted its report in /arch )BBC. *n /ay )), )BBC
.3;I accepted the recommendations of the committee and appro"ed the
phased introduction of deri"ati"es trading in India beginning with stock inde$
%utures. .3;I also appro"ed he @suggesti"e bye=lawsA recommended by the
committee for regulation and control of trading and settlement of +eri"ati"e
contract.
he pro"ision in the .-R (ct go"erns the trading in the securities. he
amendment of the .-R (ct to include @+3RI6(I63.A within the ambit of
securities in the .-R (ct made trading in +eri"ati"es possible with in the
framework of the (ct.
). 3ligibility criteria as prescribed in the 2. -. :upta
committee report may apply to .3;I for grant of recognition under section 5
of the .-R (ct, )B79 to start +eri"ati"es rading. he deri"ati"e
e$change!segment should ha"e a separate go"erning council and
representation of trading!clearing member shall be limited to ma$imum 5EK
of the total members of the go"erning council. he e$change shall regulate
the sales practices of its members and will obtain appro"al of .3;I before
start of rading in any deri"ati"e contract.
0. he e$change shall ha"e minimum 7E members.
4. he members of an e$isting segment of the
e$change will not automatically become the members of the deri"ati"es
segment. he members of the deri"ati"es segment need to fulfill the
eligibility conditions as lay down by the 2. -. :upta committee.
5. he clearing and settlement of deri"ati"es trades
shall be through a .3;I appro"ed clearing corporation!clearing house.
-learing -orporation!-learing <ouse complying with the eligibility conditions
as lay down ;y the committee ha"e to apply to .3;I for grant of appro"al.
7. +eri"ati"es broker!dealers and -learing members
are reFuired to seek registration from .3;I.
9. he /inimum contract "alue shall not be less than
Rs.0 2akh. 3$change should also submit details of the futures contract they
purpose to introduce.
D. he trading members are reFuired to ha"e
Fualified appro"ed user and sales persons who ha"e passed a certification
programme appro"ed by .3;I
Intr'%u0ti'n t' 1uture) an% '4ti'n)
In recent years, deri"ati"es ha"e become increasingly important in the
field of finance. While futures and options are now acti"ely traded on
many e$changes, forward contracts are popular on the *- market. In
this chapter we shall study in detail these three deri"ati"e contracts.
F'r8ar% 0'ntra0t)
( forward contract is an agreement to buy or sell an asset on a
specified future date for a specified price. *ne of the parties to the
contract assumes a long position and agrees to buy the underlying
asset on a certain specified future date for a certain specified price.
he other party assumes a short position and agrees to sell the asset
on the same date for the same price. *ther contract details like
deli"ery date, price and Fuantity are negotiated bilaterally by the
parties to the contract. he forward contracts are normally traded
outside the e$changes. he salient features of forward contracts areL
hey are bilateral contracts and hence e$posed to counter>party risk.
3ach contract is custom designed, and hence is uniFue in terms of
contract si#e, e$piration date and the asset type and Fuality.
he contract price is generally not a"ailable in public domain.
*n the e$piration date, the contract has to be settled by deli"ery of
the asset.
If the party wishes to re"erse the contract, it has to compulsorily go to
the same counterparty, which often results in high prices being
charged.
<owe"er forward contracts in certain markets ha"e become "ery
standardi#ed, as in the case of foreign e$change, thereby reducing
transaction costs and increasing transactions "olume. his process of
standardi#ation reaches its limit in the organi#ed futures market.
%orward contracts are "ery useful in hedging and speculation. he
classic hedging application would be that of an e$porter who e$pects
to recei"e payment in dollars three months later. <e is e$posed to the
risk of e$change rate fluctuations. ;y using the currency forward
market to sell dollars forward, he can lock on to a rate today and
reduce his uncertainty. .imilarly an importer who is reFuired to make a
payment in dollars two months hence can reduce his e$posure to
e$change rate fluctuations by buying dollars forward.
If a speculator has information or analysis, which forecasts an upturn
in a price, then he can go long on the forward market instead of the
cash market. he speculator would go long on the forward, wait for the
price to rise, and then take a re"ersing transaction to book profits.
.peculators may well be reFuired to deposit a margin upfront.
<owe"er, this is generally a relati"ely small proportion of the "alue of
the assets underlying the forward contract. he use of forward markets
here supplies le"erage to the speculator.
Li!itati'n) '1 1'r8ar% !ar6et)
%orward markets world=wide are afflicted by se"eral problemsL
? 2ack of centrali#ation of trading,
? IlliFuidity, and
? -ounterparty risk
In the first two of these, the basic problem is that of too much
fle$ibility and generality. he forward market is like a real estate
market in that any two consenting adults can form contracts against
each other. his often makes them design terms of the deal which are
"ery con"enient in that specific situation, but makes the contracts non=
tradable.
-ounterparty risk arises from the possibility of default by any one party to
the transaction. When one of the two sides to the transaction declares
bankruptcy, the other suffers. 3"en when forward markets trade
standardi#ed contracts, and hence a"oid the problem of illiFuidity, still the
counterparty risk remains a "ery serious
Intr'%u0ti'n t' 1uture)
%utures markets were designed to sol"e the problems that e$ist in
forward markets. ( futures contract is an agreement between two
parties to buy or sell an asset at a certain time in the future at a
certain price. ;ut unlike forward contracts, the futures contracts are
standardi#ed and e$change traded. o facilitate liFuidity in the futures
contracts, the e$change specifies certain standard features of the
contract. It is a standardi#ed contract with standard underlying
instrument, a standard Fuantity and Fuality of the underlying
instrument that can be deli"ered, &or which can be used for reference
purposes in settlement' and a standard timing of such settlement. (
futures contract may be offset prior to maturity by entering into an
eFual and opposite transaction. /ore than BBK of futures transactions
are offset this way.
+istinction between futures and forwards
%orward contracts are often confused with futures contracts. he confusion is
primarily because both ser"e essentially the same economic functions of
allocating risk in the presence of future price uncertainty. <owe"er futures
are a significant impro"ement o"er the forward contracts as they eliminate
counterparty risk and offer more liFuidity as they are e$change traded.
(bo"e table lists the distinction between the two
+3%INII*NL ( %utures contract is an agreement between two parties to
buy or sell an asset a certain time in the future at a certain price. o
facilitate liFuidity in the futures contract, the e$change specifies certain
standard features of the contract. he standardi#ed items on a futures
contract areL
? Puantity of the underlying
? Puality of the underlying
? he date and the month of deli"ery
? he units of price Fuotations and minimum price change
? 2ocation of settlement
FEATURES OF FUTURES
? %utures are highly standardi#ed.
? he contracting parties need to pay only margin money.
? <edging of price risks.
? hey ha"e secondary markets to.
TYPES OF FUTURES
*n the basis of the underlying asset they deri"e, the financial futures are
di"ided into two typesL
? .tock futures
? Inde$ futures
Partie) in t2e 1uture) 0'ntra0t
here are two parties in a future contract, the buyer and the seller. he
buyer of the futures contract is one who is 2*N: on the futures contract and
the seller of the futures contract is who is .<*R on the futures contract.
he pay off for the buyer and the seller of the futures of the contracts are
as followsL
PAY3OFF FOR A BUYER OF FUTURES
profit

%P
%
E .0 .)
%2

loss

-(.3 )L=he buyer bought the futures contract at &%'N if the future
price goes to .) then the buyer gets the profit of &%P'.
-(.3 0L=he buyer gets loss when the future price goes less then &%', if the
future price goes to .0 then the buyer gets the loss of &%2'.
P(1=*%% %*R ( .3223R *% %,,R3.L
profit
%2
.0 % .)
%P


loss
% > %,,R3. PRI-3 .), .0 > .323/3N PRI-3
-(.3 )L= he seller sold the future contract at &%'N if the future goes to
.) then the seller gets the profit of &%P'.
-(.3 0L= he seller gets loss when the future price goes greater than &%', if
the future price goes to .0 then the seller gets the loss of &%2'.

MARGINS
/argins are the deposits which reduce counter party risk, arise in a futures
contract. hese margins are collected in order to eliminate the counter
party risk. here are three types of marginsL
9) Initia5 Margin)
Whene"er a futures contract is signed, both buyer and seller are reFuired to
post initial margins. ;oth buyer and seller are reFuired to make security
deposits that are intended to guarantee that they will in fact be able to fulfill
their obligation. hese deposits are initial margins.
Mar6ing t' !ar6et !argin)
he process of adjusting the eFuity in an in"estor?s account in order to
reflect the change in the settlement price of futures contract is known as
// margin.
Maintenan0e !argin
he in"estor must keep the futures account eFuity eFual to or greater than
certain percentage of the amount deposited as initial margin. If the eFuity
goes less than that percentage of initial margin, then the in"estor recei"es a
call for an additional deposit of cash known as maintenance margin to bring
the eFuity up to the initial margin.

PRICING T,E FUTURES
he %air "alue of the futures contract is deri"ed from a model knows as the
cost of carry model. his model gi"es the fair "alue of the contract.
C')t '1 Carr&
%G. &)Qr=F'
t
Where
%= %utures price
.= .pot price of the underlying
r= -ost of financing
F= 3$pected +i"idend yield
t = <olding Period.
FUTURES TERMINOLOGY
S4't 4ri0eL
he price at which an asset trades in the spot market.
Future) 4ri0e
he price at which the futures contract trades in the futures market.
C'ntra0t 0&05e
-ontract cycle is the period o"er which contract trades. he inde$ futures
contracts on the N.3 ha"e one= month, two >month and three=month e$piry
cycle which e$pire on the last hursday of the month. hus a Manuary
e$piration contract e$pires on the last hursday of Manuary and a %ebruary
e$piration contract ceases trading on the last hursday of %ebruary. *n the
%riday following the last hursday, a new contract ha"ing a three=month
e$piry is introduced for trading.
E<4ir& %ate
It is the date specifies in the futures contract. his is the last day on which
the contract will be traded, at the end of which it will cease to e$ist.
C'ntra0t )i=eL
he amount of asset that has to be deli"ered under one contract. %or
instance, the contract si#e on N.3?s futures market is )EE nifties.
Ba)i)
In the conte$t of financial futures, basis can be defined as the futures price
minus the spot price. he will be a different basis for each deli"ery month for
each contract, In a normal market, basis will be positi"e. his reflects that
futures prices normally e$ceed spot prices.
C')t '1 0arr&L
he relationship between futures prices and spot prices can be summari#ed
in terms of what is known as the cost of carry. his measures the storage
cost plus the interest that is paid to finance the asset less the income earned
on the asset.
O4en Intere)t
*pen Interest is the total outstanding long or short position in the market at
any specific time. (s total long positions in the market would be eFual to
short positions, for calculation of open interest, only one side of the contract
is counter.

INTRODUCTION TO OPTIONS
DEFINITIONL *ption 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. (lternati"ely 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 ha"e this right. he option buyer has to pay the seller of
the option premium
he assets on which option can be deri"ed are stocks, commodities, inde$es
etc. If the underlying asset is the financial asset, then the option are
financial option like stock options, currency options, inde$ options etc, and if
options like commodity option.
PROPERTIES OF OPTION
*ptions ha"e se"eral uniFue properties that set them apart from other
securities. he following are the properties of optionL
• 2imited 2oss
• <igh le"erages potential
• 2imited 2ife
PARTIES IN AN OPTION CONTRACT
). ;uyer of the optionL
he buyer of an option is one who by paying option premium buys the right
but not the obligation to e$ercise his option on seller!writer.
0. Writer!seller of the optionL
he writer of the call !put options is the one who recei"es the option
premium and is their by obligated to sell!buy the asset if the buyer e$ercises
the option on him
TYPES OF OPTIONS
he options are classified into "arious types on the basis of "arious
"ariables. he following are the "arious types of options.
). *n the basis of the underlying assetL
*n the basis of the underlying asset the option are di"ided in to two typesL
• INDE+ OPTIONS
he inde$ options ha"e the underlying asset as the inde$.
• STOC" OPTIONS
( stock option gi"es the buyer of the option the right to buy!sell stock at a
specified price. .tock option are options on the indi"idual stocks, there are
currently more than )7E stocks, there are currently more than )7E stocks
are trading in the segment.
II. On t2e .a)i) '1 t2e !ar6et !'(e!ent)
*n the basis of the market mo"ements the option are di"ided into two
types. hey areL
• CALL OPTION
( call option is bought by an in"estor when he seems that the stock price
mo"es upwards. ( call option gi"es the holder of the option the right
but not the obligation to buy an asset by a certain date for a certain price.
• PUT OPTION
( put option is bought by an in"estor when he seems that the stock price
mo"es downwards. ( put options gi"es the holder of the option right but not
the obligation to sell an asset by a certain date for a certain price.
III- On t2e .a)i) '1 e<er0i)e '1 '4ti'n
*n the basis of the e$ercising of the option, the options are classified into
two categories.
• AMERICAN OPTION
(merican options are options that can be e$ercised at any time up to the
e$piration date, all stock options at N.3 are (merican.
• EUOROPEAN OPTION
3uropean options are options that can be e$ercised only on the e$piration
date itself. 3uropean options are easier to analy#e than (merican options.all
inde$ options at N.3 are 3uropean.
PAY3OFF PROFILE FOR BUYER OF A CALL OPTION
he pay=off of a buyer options depends on a spot price of a underlying asset.
he following graph shows the pay=off of buyer of a call option.

Profit
I/
.R
E 30 .
3)
.P */ (/
loss
. = .trike price */ = *ut of the money
.P = Premium! 2oss (/ = (t the money
3) = .pot price ) I/ = In the money
30= .pot price 0
.R= profit at spot price 3)
-(.3 )L &.pot price R .trike price'
(s the spot price &3)' of the underlying asset is more than strike price &.'.
the buyer gets profit of &.R', if price increases more than 3) then profit also
increase more than .R.
-(.3 0L &.pot price S .trike price'
(s a spot price &30' of the underlying asset is less than strike price &s'
he buyer gets loss of &.P', if price goes down less than 30 then also his
loss is limited to his premium &.P'
PAY3OFF PROFILE FOR SELLER OF A CALL OPTION
he pay=off of seller of the call option depends on the spot price of the
underlying asset. he following graph shows the pay=off of seller of a call
optionL
profit

.R
*/
.
3) I/ (/ 30
.P
loss
. = .trike price I/ = In the money
.P = Premium !profit (/ = (t the money
3) = .pot price ) */ = *ut of the money
30 = .pot price 0
.R = 2oss at spot price 30
-(.3 )L &.pot price S .trike price'
(s the spot price &3)' of the underlying is less than strike price &.'. the
seller gets the profit of &.P', if the price decreases less than 3) then also
profit of the seller does not e$ceed &.P'.
-(.3 0L &.pot price R .trike price'
(s the spot price &30' of the underlying asset is more than strike price &.'
the seller gets loss of &.R', if price goes more than 30 then the loss of the
seller also increase more than &.R'.
PAY3OFF PROFILE FOR BUYER OF A PUT OPTION
he pay=off of the buyer of the option depends on the spot price of the
underlying asset. he following graph shows the pay=off of the buyer of a
call option.
Profit
Profit
.P
3) . */ 30
I/ .R (/
loss
. = .trike price I/ = In the money
.P = Premium !profit */ = *ut of the money
3) = .pot price ) (/ = (t the money
30 = .pot price 0
.R = Profit at spot price 3)
-(.3 )L &.pot price S .trike price'
(s the spot price &3)' of the underlying asset is less than strike price &.'.
the buyer gets the profit &.R', if price decreases less than 3) then profit also
increases more than &.R'.
-(.3 0L &.pot price R .trike price'
(s the spot price &30' of the underlying asset is more than strike price &s',
the buyer gets loss of &.P', if price goes more than 30 than the loss of the
buyer is limited to his premium &.P'
PAY3OFF PROFILE FOR SELLER OF A PUT OPTION
he pay=off of a seller of the option depends on the spot price of the
underlying asset. he following graph shows the pay=off of seller of a put
optionL
profit
.P
3) . I/ 30
*/ (/
.R
2oss
. = .trike price I/ = In the money
.P = Premium! profit (/ = (t the money
3) = .pot price ) */ = *ut of the money
30 = .pot price 0
.R = 2oss at spot price 3)
-(.3 )L &.pot price S .trike price'
(s the spot price &3)' of the underlying asset is less than strike price &.',
the seller gets the loss of &.R', if price decreases less than 3) than the loss
also increases more than &.R'.
-(.3 0L &.pot price R .trike price'
(s the spot price &30' of the underlying asset is more than strike price &.',
the seller gets profit of &.P', if price goes more than 30 than the profit of
seller is limited to his premium &.P'.
%actors affecting the price of an optionL
he following are the "arious factors that affect the price of an option they
areL
.tock priceL he pay >off from a call option is a amount by which the stock
price e$ceeds the strike price. -all options therefore become more "aluable
as the stock price increases and "ice "ersa. he pay=off from a put option is
the amountN by which the strike price e$ceeds the stock price. Put options
therefore become more "aluable as the stock price increases and "ice "ersa.
.trike priceL In case of a call, as a strike price increases, the stock price has
to make a larger upward mo"e for the option to go in=the=money. herefore,
for a call, as the strike price increases option becomes less "aluable and as
strike price decreases, option become more "aluable.
ime to e$pirationL ;oth put and call (merican options become more
"aluable as a time to e$piration increases.
6olatilityL he "olatility of a stock price is measured of uncertain about
future stock price mo"ements. (s "olatility increases, the chance that the
stock will do "ery well or "ery poor increases. he "alue of both calls and
puts therefore increase as "olatility increase.
Risk=free interest rateL he 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.
+i"idendsL +i"idends ha"e the effect of reducing the stock price on the $=
di"idend rate. his has a negati"e effect on the "alue of call options and a
positi"e effect on the "alue of put options.
PRI-IN: *PI*N.
he black= scholes formula for the price of 3uropean calls and puts on a non=
di"idend paying stock areL
-(22 *PI*NL
- G .N&+)'=Xe
=r t
N&+0'
P, *PI*N
P G Xe
=r t
N&=+0'=.N&=+0'
Where
- G 6(2,3 *% -(22 *PI*N
. G .P* PRI-3 *% .*-I
NG N*R/(2 +I.RI;,I*N
6G 6*2(I2I1
X G .RII3 PRI-3
r G (NN,(2 RI.I %R33 R3,RN
t G -*NR(- -1-23
d
) G
2
n &.!X' Q &rQ "
0
!0't

d
0 G
d
)
= "
T
!
O4ti'n) Ter!in'5'g&
Stri6e 4ri0e
he price specified in the options contract is known as strike price or
3$ercise price.
O4ti'n) 4re!iu!
*ption premium is the price paid by the option buyer to the option seller.
E<4irati'n Date
he date specified in the options contract is known as e$piration date.
In=the=money optionL
(n In the money option is an option that would lead to positi"e cash inflow
to the holder if it e$ercised immediately.
At3t2e3!'ne& '4ti'nL
(t the money option is an option that would lead to #ero cash flow if it is
e$ercised immediately.
Out3'13t2e3!'ne& '4ti'nL
(n out=of=the=money option is an option that would lead to negati"e cash
flow if it is e$ercised immediately.
Intrin)i0 (a5ue '1 !'ne&L
he intrinsic "alue of an option is I/, If option is I/. If the option is */,
its intrinsic "alue is #ero.
Ti!e (a5ue '1 an '4ti'n
he time "alue of an option is the difference between its premium and
its intrinsic "alue
ANALYSIS
ANALYSIS OF ICICI L
he objecti"e of this analysis is to e"aluate the profit!loss position of
futures and options. his analysis is based on sample data taken of
I-I-I ;(NI scrip. his analysis considered the Man 0EEC contract of
I-I-I ;(NI. he lot si#e of I-I-I ;(NI is )D7, the time period in
which this analysis done is from 0C=)0=0EED to 4).E).EC.
Date Market price Future price
28-Dec-07 1226.7 1227.05
31-Dec-07 1238.7 1239.7
1-Jan-08 1228.75 1233.75
2-Jan-08 1267.25 1277
3-Jan-08 1228.95 1238.75
4-Jan-08 1286.3 1287.55
7-Jan-08 1362.55 1358.9
8-Jan-08 1339.95 1338.5
9-Jan-08 1307.95 1310.8
10-Jan-08 1356.15 1358.05
11-Jan-08 1435 1438.15
14-Jan-08 1410 1420.75
15-Jan-08 1352.2 1360.1
16-Jan-08 1368.3 1375.75
17-Jan-08 1322.1 1332.1
18-Jan-08 1248.85 1256.45
21-Jan-08 1173.2 1167.85
22-Jan-08 1124.95 1127.85
23-Jan-08 1151.45 1156.35
24-Jan-08 1131.85 1134.5
25-Jan-08 1261.3 1265.6
28-Jan-08 1273.95 1277.3
29-Jan-08 1220.45 1223.85
30-Jan-08 1187.4 1187.4
31-Jan-08 1147 1145.9

Graph:1
OBSERVATIONS AND FINDINGS
If a person buys ) lot i.e. )D7 futures of I-I-I ;(NI on 0Cth +ec, 0EED
and sells on 4)
st
Man, 0EEC then he will get a loss of ))57.B=)00D.E7 G
=C).)7 per share. .o he will get a loss of )50E).07 i.e. =C).)7 H )D7
If he sells on )5
th
Man, 0EED then he will get a profit of )50E.D7=)00D.E7
G )B4.D i.e. a profit of )B4.D per share. .o his total profit is 44CBD.7 i.e.
)B4.D H )D7
he closing price of I-I-I ;(NI at the end of the contract period is ))5D
and this is considered as settlement price.
he following table e$plains the market price and premiums of calls.
• he first column e$plains trading date
• .econd column e$plains the .P* market price in cash segment on that
date.
• he third column e$plains call premiums amounting at these strike
pricesN )0EE, )04E, )09E, )0BE, )40E and )47E.
Ca55 '4ti'n)
Date Market price 1200 1230 1260 1290 1320 1350
28-Dec-07 1226.7 67.85 53.05 39.65 32.25 24.2 18.5
31-Dec-07 1238.7 74.65 58.45 44.05 32.75 23.85 19.25
1-Jan-08 1228.75 62 56.85 39.2 30 22.9 18.8
2-Jan-08 1267.25 100.9 75.55 63.75 49.1 36.55 27.4
3-Jan-08 1228.95 75 60.1 45.85 34.5 26.4 22.5
4-Jan-08 1286.3 109.6 91.05 68.25 51.35 38.6 29.15
7-Jan-08 1362.55 170 143.3 120 100 79.4 62.35
8-Jan-08 1339.95 140 119.35 100 85 59.2 42.85
9-Jan-08 1307.95 140 101 74.35 62.05 46.65 33.15
10-Jan-08 1356.15 160.6 131 110 95.45 70.85 53.1
11-Jan-08 1435 250.7 151.8 188.9 164.7 130.9 104.55
14-Jan-08 1410 240 213.5 148 134.9 96 88.2
15-Jan-08 1352.2 155 150.05 107.5 134.9 66 52.65
16-Jan-08 1368.3 128.4 140 90 63 78.2 60.95
17-Jan-08 1322.1 128.4 140 95 67.5 50.2 39.15
18-Jan-08 1248.85 128.4 60 54 37.95 29.15 19.3
21-Jan-08 1173.2 52 36.5 26.3 24.45 14.55 9.95
22-Jan-08 1124.95 44.15 31.05 22.55 12.45 10.35 6.7
23-Jan-08 1151.45 50.25 39.3 23.25 17 16.35 8.6
24-Jan-08 1131.85 40.4 22 17.05 12.1 9.45 5.1
25-Jan-08 1261.3 80.5 62 40.85 24.55 16.15 9.75
28-Jan-08 1273.95 91.85 61.65 44.8 31.4 20.25 11.35
29-Jan-08 1220.45 46 25.95 17.45 10.5 4.05 2.95
30-Jan-08 1187.4 18.65 9.05 4.5 1.4 0.75 0.2
31-Jan-08 1147 0.45 0.5 1 1.4 0.1 0.2
Strike prices
Table:

OBSERVATIONS AND FINDINGS
CALL OPTION
BUYERS PAY OFF
? hose who ha"e purchase call option at a strike price of )09E,
the premium payable is 4B.97
? *n the e$piry date the spot market price enclosed at ))5D. (s it
is out of the money for the buyer and in the money for the seller,
hence the buyer is in loss.
? .o the buyer will lose only premium i.e. 4B.97 per share.
.o the total loss will be 9B4C.D7 i.e. 4B.97H)D7
SELLERS PAY OFF
? (s .eller is entitled only for premium if he is in profit.
? .o his profit is only premium i.e. 4B.97 H )D7 G 9B4C.D7
Put '4ti'n)
Strike prices
Date Market
price
1200 1230 1260 1290 1320 1350
28-Dec-07 1226.7 39.05 181.05 178.8 197.15 190.85 191.8
31-Dec-07 1238.7 34.4 181.05 178.8 197.15 190.85 191.8
1-Jan-08 1228.75 32.1 181.05 178.8 197.15 190.85 191.8
2-Jan-08 1267.25 22.6 25.50 178.8 41.55 190.85 191.8
3-Jan-08 1228.95 32 38.00 178.8 82 190.85 191.8
4-Jan-08 1286.3 17.65 25.00 37.05 82 190.85 191.8
7-Jan-08 1362.55 12.4 12.60 20.15 34.85 43.95 191.8
8-Jan-08 1339.95 10.15 12.00 20.05 30 42 191.8
9-Jan-08 1307.95 11.9 15.00 26.5 36 51 191.8
10-Jan-08 1356.15 9 11.00 15 25.2 33.7 47.8
11-Jan-08 1435 3.75 11.00 10 8.9 12.75 18.35
14-Jan-08 1410 3.75 11.00 8.5 12 12.4 22.45
15-Jan-08 1352.2 6.45 7.00 10 17.45 23.1 38.3
16-Jan-08 1368.3 8 8.00 11.25 13.3 22.55 35.35
17-Jan-08 1322.1 7.3 8.00 17.8 25.45 38.25 56.4
18-Jan-08 1248.85 18.15 36.60 35 67.85 76.05 112.2
21-Jan-08 1173.2 103.5 70.00 69.65 135.05 151.35 223.4
22-Jan-08 1124.95 110 138.90 138.6 170.05 210 280
23-Jan-08 1151.45 71 138.90 135 150 210 200
24-Jan-08 1131.85 99 138.90 135 150 210 200
25-Jan-08 1261.3 15.9 26.35 33 50.05 210 200
28-Jan-08 1273.95 16.7 19.00 30 45 55 81.45
29-Jan-08 1220.45 18 38.00 50 45 100 145
30-Jan-08 1187.4 27.5 60.00 85.2 120 145.05 145
31-Jan-08 1147 50 60.00 85.2 120 145.05 145
Table: 3
OBSERVATIONS AND FINDINGS
PUT OPTION
BUYERS PAY OFF
? (s brought ) lot of I-I-I that is )D7, those who buy for )0EE
paid 4B.E7 premium per share.
? .ettlement price is ))5D
.trike price )0EE.EE
.pot price ))5D.EE
74.EE
Premium &=' 4B.E7
)4.B7 $ )D7G 055).07
;uyer Profit G Rs. 055).07
;ecause it is positi"e it is in the money contract hence buyer will get
more profit, incase spot price decreases, buyer?s profit will increase.
SELLERS PAY OFF
? It is in the money for the buyer so it is in out of the money for
the seller, hence he is in loss.
? he loss is eFual to the profit of buyer i.e. 055).07.
Graph:2
OBSERVATIONS AND FINDINGS
? he future price of I-I-I is mo"ing along with the market price.
? If the buy price of the future is less than the settlement price,
than the buyer of a future gets profit.
? If the selling price of the future is less than the settlement price,
than the seller incur losses.
ANALYSIS OF SBI3
he objecti"e of this analysis is to e"aluate the profit!loss position of
futures and options. his analysis is based on sample data taken of
.;I scrip. his analysis considered the Man 0EED contract of .;I. he
lot si#e of .;I is )40, the time period in which this analysis done is
from 0C=)0=0EED to 4).E).EC.

Table: 4
Date Market Price Future price
28-Dec-07 2377.55 2413.7
31-Dec-07 2371.15 2409.2
1-Jan-08 2383.5 2413.45
2-Jan-08 2423.35 2448.45
3-Jan-08 2395.25 2416.35
4-Jan-08 2388.8 2412.5
7-Jan-08 2402.9 2419.15
8-Jan-08 2464.55 2478.55
9-Jan-08 2454.5 2473.1
10-Jan-08 2409.6 2411.15
11-Jan-08 2434.8 2454.4
14-Jan-08 2463.1 2468.4
15-Jan-08 2423.45 2421.85
16-Jan-08 2415.55 2432.3
17-Jan-08 2416.35 2423.05
18-Jan-08 2362.35 2370.35
21-Jan-08 2196.15 2192.3
22-Jan-08 2137.4 2135.2
23-Jan-08 2323.75 2316.95
24-Jan-08 2343.15 2335.35
25-Jan-08 2407.4 2408.9
28-Jan-08 2313.35 2305.5
29-Jan-08 2230.7 2230.5
30-Jan-08 2223.95 2217.25
31-Jan-08 2167.35 2169.9
Graph: 3
OBSERVATIONS AND FINDINGS
If a person buys ) lot i.e. 47E futures of .;I on 0C
th
+ec, 0EED and sells
on 4)
st
Man, 0EEC then he will get a loss of 0)9B.B=05)4.D G 054.C per
share. .o he will get a profit of 40)C).9E i.e. 054.C H )40
If he sells on )7
th
Man, 0EEC then he will get a profit of 059C.5=05)4.D G
75.D i.e. a profit of 75.D per share. .o his total profit is D00E.5E i.e. 75.D
H )40
he closing price of .;I at the end of the contract period is 0)9D.47 and
this is considered as settlement price.
he following table e$plains the market price and premiums of calls.
• he first column e$plains trading date
• .econd column e$plains the .P* market price in cash segment on that
date.
• he third column e$plains call premiums amounting at these strike
pricesN 045E, 04DE, 05EE, 054E, 059E and 05BE.
Ca55 '4ti'n)
Strike prices
Date Market
Price
2340 2370 2400 2430 2460 2490
28-Dec-07 2377.55 145 92 104.35 108 79 68
31-Dec-07 2371.15 145 92 102.95 108 72 59
1-Jan-08 2383.5 134 92 101.95 108 69.85 59
2-Jan-08 2423.35 189.8 92 123.25 105.8 90.25 76.55
3-Jan-08 2395.25 189.8 92 98.45 93.6 76.6 60.05
4-Jan-08 2388.8 189.8 92 100.95 86 74.8 60.05
7-Jan-08 2402.9 189.8 92 95.55 88.15 76.15 61.1
8-Jan-08 2464.55 190 92 128.55 118.3 99.85 84.8
9-Jan-08 2454.5 170 92 126.75 121 92.15 77.45
10-Jan-08 2409.6 170 190 84 72.25 58.8 51.85
11-Jan-08 2434.8 160 190 108.85 94.95 74.65 64.85
14-Jan-08 2463.1 218.5 190 110.8 90.2 81.5 64.8
15-Jan-08 2423.45 218.5 190 87.85 75 62.65 55.3
16-Jan-08 2415.55 96 98 102.15 95.45 68.5 61.95
17-Jan-08 2416.35 96 190 91.85 80 66 55
18-Jan-08 2362.35 96 190 62.1 50.55 44 30
21-Jan-08 2196.15 22.25 190 25.3 15 11.7 29
22-Jan-08 2137.4 22.25 190 21.05 15 11.7 10
23-Jan-08 2323.75 22.25 190 47.05 15 32.65 29.3
24-Jan-08 2343.15 104 190 48.2 40 26.45 26.3
25-Jan-08 2407.4 113.7 190 61.65 48.75 39.8 27.65
28-Jan-08 2313.35 0 0 0 0 0 0
29-Jan-08 2230.7 13 15 9 0 0 0
30-Jan-08 2223.95 13 15 9 0 0 0
31-Jan-08 2167.35 13 15 9 0 0 0
Table: 5
OBSERVATIONS AND FINDINGS
CALL OPTION
BUYERS PAY OFF
? hose who ha"e purchased call option at a strike price of 05EE,
the premium payable is )E5.47
? *n the e$piry date the spot market price enclosed at 0)9D.97.
(s it is out of the money for the buyer and in the money for the
seller, hence the buyer is in loss.
? .o the buyer will lose only premium i.e. )E5.47 per share.
.o the total loss will be )4DD5.0 i.e. )E5.47H)40
SELLERS PAY OFF
? (s .eller is entitled only for premium if he is in profit.
? .o his profit is only premium i.e. )E5.47 H )40 G )4DD5.0
Put '4ti'n)
Date Market
Price
2340 2370 2400 2430 2460 2490
28-Dec-07 2377.55 362.75 306.9 90 303 218.05 221.95
31-Dec-07 2371.15 362.75 306.9 90.6 303 218.05 221.95
1-Jan-08 2383.5 362.75 306.9 84.95 303 218.05 221.95
2-Jan-08 2423.35 60 40 73.55 303 218.05 221.95
3-Jan-08 2395.25 60 40 86 303 218.05 221.95
4-Jan-08 2388.8 60 40 87.35 303 218.05 221.95
7-Jan-08 2402.9 60 150 79 303 218.05 221.95
8-Jan-08 2464.55 60 150 50.7 303 100 221.95
9-Jan-08 2454.5 60 150 56.8 303 75.3 221.95
10-Jan-08 2409.6 60 150 74.25 303 112.8 100
11-Jan-08 2434.8 60 150 53.15 41 78.3 125
14-Jan-08 2463.1 60 150 44.25 59.95 71.35 100
15-Jan-08 2423.45 40 150 69.6 78 100 128
16-Jan-08 2415.55 75.9 150 65.05 78 135 150
17-Jan-08 2416.35 75.9 150 70.45 78 96.55 150
18-Jan-08 2362.35 75.9 70 95.05 118 96.55 150
21-Jan-08 2196.15 170 139.3 223.8 118 299 150
22-Jan-08 2137.4 170 139.3 300 118 299 150
23-Jan-08 2323.75 170 139.3 150 118 299 150
24-Jan-08 2343.15 170 139.3 117.7 118 120 150
25-Jan-08 2407.4 33.9 139.3 52.45 118 120 150
28-Jan-08 2313.35 0 0 0 0 0 0
29-Jan-08 2230.7 61.6 80.8 88 0 0 0
30-Jan-08 2223.95 61.6 80.8 88 0 0 0
31-Jan-08 2167.35 61.6 80.8 88 0 0
0
Strike prices
Table: 6
OBSERVATIONS AND FINDINGS
PUT OPTION
BUYERS PAY OFF
? (s brought ) lot of .;I that is )40, those who buy for 05EE paid
BE premium per share.
? .ettlement price is 0)9D.47
.pot price 05EE.EE
.trike price 0)9D.47
040.97
Premium &=' BE.EE
)50.97 $ )40G )CC0B.C
;uyer Profit G Rs. )CC0B.C
;ecause it is positi"e it is in the money contract hence buyer will get
more profit, incase spot price increase buyer profit also increase.
SELLERS PAY OFF
? It is in the money for the buyer so it is in out of the money for
the seller, hence he is in loss.
? he loss is eFual to the profit of buyer i.e. )CC0B.C.
Graph:4
OBSERVATIONS AND FINDINGS
? he future price of .;I is mo"ing along with the market price.
? If the buy price of the future is less than the settlement price,
than the buyer of a future gets profit.
? If the selling price of the future is less than the settlement price,
than the seller incur losses
ANALYSIS OF YES BAN"3
he objecti"e of this analysis is to e"aluate the profit!loss position of
futures and options. his analysis is based on sample data taken of
13. ;(NI scrip. his analysis considered the Man 0EEC contract of 13.
;(NI. he lot si#e of 13. ;(NI is ))EE, the time period in which this
analysis done is from 0C=)0=0EED to 4).E).EC.
Table:7
Date Market price future price
28-Dec-07 249.85 252.5
31-Dec-07 249.3 251.15
1-Jan-08 258.35 260.85
2-Jan-08 265.75 268.1
3-Jan-08 260.7 262.85
4-Jan-08 260.05 261.55
7-Jan-08 263.4 264.4
8-Jan-08 260.2 261.1
9-Jan-08 260.1 262.2
10-Jan-08 259.4 260.2
11-Jan-08 258.45 260.35
14-Jan-08 257.7 259.95
15-Jan-08 258.25 260.25
16-Jan-08 250.75 254
17-Jan-08 252.3 254.25
18-Jan-08 248 248.05
21-Jan-08 227.3 225.4
22-Jan-08 209.95 209.85
23-Jan-08 223.15 218.1
24-Jan-08 220.65 216.75
25-Jan-08 232.6 230.5
28-Jan-08 243.7 242.35
29-Jan-08 244.45 242.95
30-Jan-08 244.45 241.4
31-Jan-08 251.45 250.35
Graph: 5
OBSERVATIONS AND FINDINGS
If a person buys ) lot i.e. ))EE futures of 13. ;(NI on 0C
th
+ec, 0EED
and sells on 4)
st
Man, 0EEC then he will get a loss of 07E.47=070.7E G
=0.)7 per share. .o he will get a loss of 0497.EE i.e. =0.)7 H ))EE
If he sells on )7
th
Man, 0EEC then he will get a profit of 09E.07=070.7E G
D.D7 i.e. a profit of )9.)7 per share. .o his total loss is C707.EE i.e. D.D7
H ))EE
he closing price of 13. ;(NI at the end of the contract period is 07).57
and this is considered as settlement price.
he following table e$plains the market price and premiums of calls.
• he first column e$plains trading date
• .econd column e$plains the .P* market price in cash segment on that
date.
• he third column e$plains call premiums amounting at these strike
pricesN 04E, 05E, 07E, 09E, 0DE and 0CE.
Call options:
Date Market price 230 240 250 260 270 20
28-Dec-07 249.85 17.05 32.45 13.1 9 18.55 15
31-Dec-07 249.3 16.45 32.45 12.45 9 18.55 15
1-Jan-08 258.35 22.15 32.45 16.3 11.6 18.55 15
2-Jan-08 265.75 31.45 32.45 24.9 16 14.5 15
3-Jan-08 260.7 31.45 32.45 21.5 13 5.1 3
4-Jan-08 260.05 31.45 32.45 21.5 12.2 5.15 3
7-Jan-08 263.4 31.45 32.45 21.5 12.2 9.25 3
8-Jan-08 260.2 31.45 32.45 21.5 9.95 7.45 3
9-Jan-08 260.1 31.45 32.45 21.5 10.95 6.45 3
10-Jan-08 259.4 31.45 32.45 21.5 17.5 8 8
11-Jan-08 258.45 31.45 32.45 21.5 10.75 5.05 8
14-Jan-08 257.7 31.45 32.45 21.5 9 5.05 8
15-Jan-08 258.25 31.45 32.45 21.5 14 8.25 8
16-Jan-08 250.75 31.45 32.45 21.5 5.7 4 8
17-Jan-08 252.3 31.45 32.45 21.5 7.5 5.5 2
18-Jan-08 248 31.45 32.45 9.5 7.5 5.5 2
21-Jan-08 227.3 6 32.45 9.5 7.5 1.5 2
22-Jan-08 209.95 6 32.45 9.5 8 1.5 4
23-Jan-08 223.15 6 32.45 9.5 8 4.5 4
24-Jan-08 220.65 6 32.45 9.5 2.1 2.9 4
25-Jan-08 232.6 6 32.45 9.5 2.1 2.9 4
28-Jan-08 243.7 15.95 32.45 9.5 2.1 2.9 4
29-Jan-08 244.45 15.95 32.45 9.5 2.1 2.9 4
30-Jan-08 244.45 15.95 32.45 5 2.1 2.9 4
31-Jan-08 251.45 29.15 32.45 4.7 5 0.8 0.5
Strike prices
Table: 8
OBSERVATIONS AND FINDINGS
CALL OPTION
BUYERS PAY OFF
? (s brought ) lot of 13. ;(NI that is ))EE, those who buy for
0CE paid )D.E7 premium per share.
? .ettlement price is 07).57
.pot price 07).57
.trike price 04E.EE
0).57
Premium &=' )D.E7
5.5E $ ))EEG 5C5E
;uyer Profit G Rs. 5C5E
;ecause it is positi"e it is in the money contract hence buyer will get
more profit, incase spot price increase buyer profit also increase.
SELLERS PAY OFF
? It is in the money for the buyer so it is in out of the money for
the seller, hence he is in loss.
? he loss is eFual to the profit of buyer i.e. 5C5E.
Put '4ti'n)
Strike prices
Date Market price 230 240 250 260 270 20
28-Dec-07 249.85 6.95 10.55 15.15 20.75 27.25 34.5
31-Dec-07 249.3 6.2 9.75 14.35 20 26.6 34.1
1-Jan-08 258.35 4.3 7.05 10.75 15.5 21.25 27.9
2-Jan-08 265.75 3 5.1 8.1 12.1 17.1 23.1
3-Jan-08 260.7 3.45 5.9 9.3 13.75 19.3 25.8
4-Jan-08 260.05 3.15 5.5 8.9 13.4 19 25.65
7-Jan-08 263.4 2.1 3.95 6.85 10.9 16.15 22.55
8-Jan-08 260.2 2.2 4.25 7.4 11.75 17.45 24.25
9-Jan-08 260.1 1.85 3.8 6.85 11.2 16.9 23.8
10-Jan-08 259.4 1.65 3.5 6.55 10.95 16.75 23.8
11-Jan-08 258.45 1.5 3.3 6.3 10.8 16.8 24.05
14-Jan-08 257.7 1.1 2.7 5.6 10.15 16.35 23.95
15-Jan-08 258.25 0.8 2.2 4.95 9.35 15.55 23.2
16-Jan-08 250.75 1.6 3.85 7.8 13.6 20.95 29.55
17-Jan-08 252.3 1.15 3.05 6.65 12.15 19.4 27.95
18-Jan-08 248 1.5 3.95 8.3 14.7 22.75 31.8
21-Jan-08 227.3 9.75 16.2 24.1 33 42.5 52.25
22-Jan-08 209.95 22.15 30.8 40.1 49.8 59.65 69.6
23-Jan-08 223.15 13 20 28.25 37.25 46.8 56.55
24-Jan-08 220.65 13.8 21.3 30 39.4 49.1 59
25-Jan-08 232.6 7 12.6 19.85 28.3 37.6 47.25
28-Jan-08 243.7 1.6 4.6 10 17.55 26.6 36.25
29-Jan-08 244.45 0.75 3.05 8.3 16.2 25.6 35.45
30-Jan-08 244.45 0.15 1.65 6.95 15.65 25.5 35.5
31-Jan-08 251.45 0 0 0 0 0 0
Table: 9
OBSERVATIONS AND FINDINGS
PUT OPTION
BUYERS PAY OFF
? hose who ha"e purchase put option at a strike price of 07E, the
premium payable is )7.)7
? *n the e$piry date the spot market price enclosed at 07).57. (s
it is out of the money for the buyer and in the money for the
seller, hence the buyer is in loss.
? .o the buyer will lose only premium i.e. )7.)7 per share.
.o the total loss will be )9997 i.e. )7.)7H))EE
SELLERS PAY OFF
? (s .eller is entitled only for premium if he is in profit.
? .o his profit is only premium i.e. )7.)7 H ))EE G )9997
Graph: 6
OBSERVATIONS AND FINDINGS
? he future price of 13. ;(NI is mo"ing along with the market
price.
? If the buy price of the future is less than the settlement price,
than the buyer of a future gets profit.
? If the selling price of the future is less than the settlement price,
than the seller incur losses.


SUMMARY
? +eri"ati"es market is an inno"ation to cash market.
(ppro$imately its daily turno"er reaches to the eFual stage of
cash market. he a"erage daily turno"er of the N.3 deri"ati"e
segments
? In cash market the profit!loss of the in"estor depends on the
market price of the underlying asset. he in"estor may incur
huge profits or he may incur huge losses. ;ut in deri"ati"es
segment the in"estor enjoys huge profits with limited downside.
? In cash market the in"estor has to pay the total money, but in
deri"ati"es the in"estor has to pay premiums or margins, which
are some percentage of total contracts.
? +eri"ati"es are mostly used for hedging purpose.
? In deri"ati"e segment the profit!loss of the option writer purely
depends on the fluctuations of the underlying asset.
SUGESSTIONS
? he deri"ati"es market is newly started in India and it is not
known by e"ery in"estor, so .3;I has to take steps to create
awareness among the in"estors about the deri"ati"e
segment.
? In order to increase the deri"ati"es market in India, .3;I
should re"ise some of their regulations like contract si#e,
participation of %II in the deri"ati"es market.
? -ontract si#e should be minimi#ed because small in"estors
cannot afford this much of huge premiums.
? .3;I has to take further steps in the risk management
mechanism.
? .3;I has to take measures to use effecti"ely the deri"ati"es
segment as a tool of hedging.

CONCLUSION
? In bullish market the call option writer incurs more losses so the
in"estor 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 in"estor 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.
? In the abo"e analysis the market price of 13. bank is ha"ing low
"olatility, so the call option writer enjoys more profits to holders

GLOSSARY
Deri(ati(e) = +eri"ati"es are instruments that deri"e their "alue and
payoff from another asset, called underlying asset.
Ca55 O4ti'n > the option to buy an asset is known as a call option
Put '4ti'n > the option to an asset is called a put option.
E<er0i)e Pri0e) > he price at which option can be e$ercised is called
an e$ercise price or a strike price.
Eur'4ean '4ti'n > Where an option is allowed to be e$ercised only
on the maturity date, it is called a 3uropean option
A!eri0an '4ti'n > When the option can be e$ercised any time before
its maturity, it is called an (merican *ption.
In3t2e3!'ne& '4ti'n > ( put or a call option is said to in=the=option
when it is ad"antageous for the in"estor to e$ercise it. In the case of
in=the=money call option, the e$ercise price is less than the current
"alue of the underlying asset, while in the case of the in=the=money
put optionsN the e$ercise price is higher than the current "alue of
stage underlying asset.
Out3'13t2e !'ne& '4ti'n > ( put or call option is out=of=the=money
if it is not ad"antageous for the in"estor to e$ercise it. In the case of
the out=of=the=money call option, the e$ercise price is less than the
current "alue of the underlying asset, While in the case of the out > of=
the=money put option, the e$er5cise price is lower than the current
"alue of the underlying asset.
At3t2e3'4ti'n > When the holder of a put or a call option does not
lose of gain whether of not he e$ercises his option, the option is said
to be at=the=money. In the case of the out=of=the=money option the
e$ercise price is eFual to the current "alue of the underlying asset.
Stra%%5e > he in"estor can also create a portfolio of a call and a put
with the same e$ercise price. his is called a straddle.
S4rea% > If call and put with different e$ercise price are combined, it
is called a spread.
Stri4 > ( strips is a combination of two puts and one call with the
same e$ercise price and the e$piration date.
Stra4 > ( strap, on the other hand, entails combing two calls and one
put.
S#APS > .waps are similar to futures and forwards contracts in
pro"iding hedge against financial risk. ( swap is an agreement
between two parties, called counterparties, to trade cash flows o"er a
period of time.
Curren0& S8a4) > -urrency swaps in"ol"es an e$change of
payments in one currency for cash payments in another currency.
Butter15& S4rea% > ( long butterfly spread in"ol"es buying a call with
a low e$ercise5 price, buying a call with a high e$ercise price and
selling tow calls with an e$ercise price in between the two. ( short
butterfly spread in"ol"es the opposite positionN that is selling call with
low e$ercise price, selling a call with a high e$ercise price and buying
two calls with an e$ercise price in between the two.
C'55ar) > ( collars in"ol"es a strategy of limiting a portfolio?s "alue
between to bounds.
Bu55i)2 )4rea% > (n in"estor may be e$pecting the price of an
underlying share to rise. ;ut he may not like to take higher risk.
Beari)2 S4rea% > (n in"estor, who is e$pecting a share of inde$ to
fall, may sell the higher=Hpriced option and buy the lower=price option.
In%e< '4ti'n) > Inde$ options are call or put options on the stock
markets indices. In India, there are options on the ;ombay .tock
3$change, .ense$ and the national .tock 3$change, Nifty.
Pre!iu! > he price of an option contract, determined on the
e$change which the buyer of the option pays to the options writer for
the fights to the option contract.
Future) > %utures is a financial contract which deri"es its "alue for the
underlying asset.
Finan0ia5 Future) > %utures are traded in a wide "ariety of
commoditiesL wheat, sugar, gold, sil"er, copper, oranges, coco, oil
soybean etc.
F'r8ar% > In a forward contract, two parties agree to buy or sell
some underlying asset on some future date at a stated price and
Fuantity.
In%e< 1uture) > Inde$ futures is one of the most successful financial
inno"ation of the financial market. In )BC0, the stock inde$ future was
introduced.
Margin > +epending upon the nature of the buyer and seller the
margin reFuirement to deposit with the stock e$change is fi$ed.
Mar6et t' Mar6et > ( process of "aluing an open position on a
futures market against the ruling price of the contract at that time, in
order to determine the si#e of the margin call.
Ba%5a > ;adla is a part of the cash market. It pro"ided the facility of
borrowing and lending of shares and funds.
,e%ging > <edging is the term used for reducing risk by using
deri"ati"es.
Ni1t& > Nifty has been selected as the base for the stock inde$ futures.
Nifty contains a well=di"ersified portfolio of 7E stocks.
BIBLIOG!"#$
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