COMMODITY MARKET OF FUTURES AND OPTIONS----- Indiainfoline.doc

CHAPTER-I

CHAPTER-I

INTRODUCTIONINTRODUCTIONThe origin of derivatives can be traced back to the need of farmers to protect themselves against fluctuations in the price of their crop. From the time it was sown to the time it was ready for harvest, farmers would face price uncertainty. Through the use of simple derivative products, it was possible for the farmer to partially or fully transfer price risks by locking-in asset prices. These were simple contracts developed to meet the needs of farmers and were basically a means of reducing risk.

A farmer who sowed his crop in June faced uncertainty over the price he would receive for his harvest in September. In years of scarcity, he would probably obtain attractive prices. However, during times of oversupply, he would have to dispose off his harvest at a very low price. Clearly this meant that the farmer and his family were exposed to a high risk of price uncertainty.

In 1848, the Chicago Board Of Trade, or CBOT, was established to bring farmers and merchants together. A group of traders got together and created the to-arrive contract that permitted farmers to lock into price upfront and deliver the grain later. These to-arrive contracts proved useful as a device for hedging and speculation on price charges. These were eventually standardized, and in 1925 the first futures clearing house came into existence.

Today derivatives contracts exist on variety of commodities such as corn, pepper, cotton, wheat, silver etc. Besides commodities, derivatives contracts also exist on a lot of financial underlying like stocks, interest rate, exchange rate, etc.

OBJECTIVES OF THE STUDY:

1. To understand what kind of decisions will give better returns at the time of INFOSYS results and to estimate risk involved in this process.2. To analyze INFOSYS, after 4th quarter results with live examples, and evaluating performance of NIFTY, in increased inflation period.3. Based on above three objectives to give a suggestion that whether equity investments are better or derivatives investment better in special situation.4. To study the option strategies available in derivatives market

5. To study the impact of option strategies and pricing of derivatives.

6. To mesure the performance of option strategies in derivative market.

7. To know the return of various investments in derivatives market.

SCOPE OF THE STUDYThe project covers the derivatives market and its instruments. For better understanding various strategies with different situations and actions have been given. It includes the data collected in the recent years and also the market in the derivatives in the recent years. This study extends to the trading of derivatives done in the National Stock Exchange.NEED OF THE STUDY :

The study has been done to know the different types of derivatives and also to know the derivative market in India. This study also covers how risk minimizes through derivatives with the help of options in equity segment, as a financial advisor able to understand risk minimization with examples.

Through this study I came to know the trading done in derivatives and their use in special situations.

RESARCH METHODOLOGY

Method of data collection:-

Secondary sources:-

It is the data which has already been collected by someone or an organization for some other purpose or research study .The data for study has been collected from various sources:

Books

Journals

News pares & electronic media

Internet sources Time:

3 monthsStatistical Tools Used:

Simple tools like bar graphs, tabulation, line diagrams have been used.

LIMITATIONS OF THE STUDY:

1. The analysis purely based on secondary data, no primary data was taken into consideration, only live values of the year 2014(March, April)-2014(May) were considered.2. Study was limited to only few special situations in the market, so because of time constraint not able to evaluate all the companies and sectors.

3. Sample size restricted to only two sectors and two stocks

4. Some of the aspects may not be covered in my study.

CHAPTER -IIREVIEW OF LITERATURE

DEFINITION

Derivatives is a product whose value is derived from the one or more basic Variables, called base (underlying asset, index, or value of reference rate), in a Contractual manner. The underlying asset can be equity, forex, commodity or any other asset.

In the Indian context the securities contrasts (regulation) act, 1956 (SCR Act)

Defines derivative as

1) A security derived from an instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security.

2) A contract, which derives its value from the prices, or index of prices, or Underlying securities.

Futures contracts, forward contracts, options and swapsare the most common types of derivatives. Because derivatives are just contracts, just about based on weather data, such as the amount of rain or the number of anything canbe used as an underlying asset. There are even derivatives sunny days in a particular region. Derivatives are generally used to hedgerisk, but can also be used forspeculative purposesTypes of Derivatives Market

Exchange Traded Derivatives Over the Counter Derivatives

National Stock Bombay Stock National Commodity & Exchange Exchange Derivative Exchange

Index Future Index option Stock option Stock future

F-1: Types of Derivatives MarketTypes of Derivatives

F.2 Types of Derivatives

TYPES OF DERIVATIVES:The most commonly used derivatives contracts are forwards, futures and options. Here are various derivatives contacts that have come to be used given briefly: FORWARDS

FUTURES

OPTIONS

WARRANTS

LEAPS

SWAPS

SWAPTIONS

FORWARDS: 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

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.

Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are

Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction

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

Swaptions: 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 receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating.

EVALUTION OF DERIVATIVES:

Derivatives can be found throughout the history of mankind. In the Middle Ages, engaging in contracts at predetermined prices for future delivery of farming products. The new era for the derivative markets was ushered with the introduction of financial derivatives, and it continues to last to this day. Although commodity derivatives are still quite active, particularly oil and precious metals, financial derivatives dominate trading in the current derivative markets. Although the derivatives markets slowed down considerably by the end of the 20th century, that did not mean that there were not a steady offering of existing, as well as new derivative products. Derivatives exchanges also went through a period of change; some consolidated, some merged, some became for-profit institutions. Regardless, they all had something in commonthe need for less regulation.

Aside from structural changes, some derivative exchanges also changed the way they conducted trading. Old systems of face-to-face trading on trading floors have been replaced with electronic trading, and telephone and computer networks. With the advent of Internet, electronic trading evolved into e-trading. And although trading floors still dominate derivative markets in the U.S., it is obvious that to stay competitive, the U.S. will have to eventually embrace electronic trading.The following factors have contributed to the growth of financial derivatives 1) Increased volatility in asset prices in financial markets.

2) Increased integration of national financial markets with the international markets.

3) Marked improvement in communication facilities and sharp decline in their costs.

4) Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies

5) Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risk as well as transactions costs as compared to individual financial assets.

6) Technology facilitates the ability to track the payoffs and risk exposures associated with a portfolio of derivative positions.(i) Future Contract

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a pre-set price. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price.

Basic features of Future Contract

1. Standardization:Futures contracts ensure their liquidity by being highly standardized, usually by specifying:

The underlying. This can be anything from a barrel of sweet crude oil to a short term interest rate.

The type of settlement, either cash settlement or physical settlement.

The amount and units of the underlying asset per contract.

The currency in which the futures contract is quoted.

The grade of the deliverable. In case of bonds, this specifies which bonds can be delivered. In case of physical commodities, this specifies not only the quality of the underlying goods but also the manner and location of delivery. The delivery month.

The last trading date.

Other details such as the tick, the minimum permissible price fluctuation.

2. Margin:Although the value of a contract at time of trading should be zero, its price constantly fluctuates. This renders the owner liable to adverse changes in value, and creates a credit risk to the exchange, who always acts as counterparty. To minimize this risk, the exchange demands that contract owners post a form of collateral, commonly known as Margin requirements are waived or reduced in some cases for hedgers who have physical ownership of the covered commodity or spread traders who have offsetting contracts balancing the position.

Initial Margin: is paid by both buyer and seller. It represents the loss on that contract, as determined by historical price changes, which is not likely to be exceeded on a usual day's trading. It may be 5% or 10% of total contract price.

Mark to market Margin: Because a series of adverse price changes may exhaust the initial margin, a further margin, usually called variation or maintenance margin, is required by the exchange. This is calculated by the futures contract, i.e. agreeing on a price at the end of each day, called the "settlement" or mark-to-market price of the contract.

3. SettlementSettlement is the act of consummating the contract, and can be done in one of two ways, as specified per type of futures contract:

Physical delivery -

Cash settlement Expiry Pricing of Future Contract:

In a futures contract, for no arbitrage to be possible, the price paid on delivery (the forward price) must be the same as the cost (including interest) of buying and storing the asset. In other words, the rational forward price represents the expected future value of the underlying discounted at the risk free rate. Thus, for a simple, non-dividend paying asset, the value of the future/forward, , will be found by discounting the present value at time to maturity by the rate of risk-free return .

This relationship may be modified for storage costs, dividends, dividend yields, and convenience yields. Any deviation from this equality allows for arbitrage as follows.

In the case where the forward price is higher:

1. The arbitrageur sells the futures contract and buys the underlying today (on the spot market) with borrowed money.

2. On the delivery date, the arbitrageur hands over the underlying, and receives the agreed forward price.

3. He then repays the lender the borrowed amount plus interest.

4. The difference between the two amounts is the arbitrage profit.

Distinction between Futures and Forwards Contracts

FEATUREFORWARD CONTRACTFUTURE CONTRACT

Operational MechanismTraded directly between two parties (not traded on the exchanges).Traded on the exchanges.

Contract SpecificationsDiffer from trade to trade.Contracts are standardized contracts.

Counter-party riskExists.Exists. However, assumed by the clearing corp., which becomes the counter party to all the trades or unconditionally guarantees their settlement.

Liquidation ProfileLow, as contracts are tailor made contracts catering to the needs of the needs of the parties.High, as contracts are standardized exchange traded contracts.

Price discoveryNot efficient, as markets are scattered.Efficient, as markets are centralized and all buyers and sellers come to a common platform to discover the price.

ExamplesCurrency market in India.Commodities, futures, Index Futures and Individual stock Futures in India.

T1: Distinction between Futures and Forwards ContractsPARTICIPANTS:

The following three categories of participants in the derivatives market:

1) HEDGERS

2) SPECULATORS

3) ARBITRAGEURS

HEDGERS: Hedgers face risk associated with the price of an asset. They use futures or options market to reduce or eliminate this risk.

Hedgers are those who protect themselves from the risk associated with the price of an asset by using derivatives. He keeps a close watch upon the prices discovered in trading and when the comfortable price is reflected according to his wants, he sells futures contracts. SPECULATORS: Speculators are somewhat like a middle man. They are never interested in actual owing the commodity. They will just buy from one end and sell it to the other in anticipation of future price movements. They actually bet on the future movement in the price of an asset. They are the second major group of futures players. These participants include independent floor traders and investors.

ARBITRAGEIRS: Arbitrators are the person who takes the advantage of a discrepancy between prices in two different markets. If he finds future prices of a commodity edging out with the cash price, he will take offsetting positions in both the markets to lock in a profit. Risk less Profit Making is the prime goal of Arbitrageurs. Buying in one market and selling in another, buying two products in the same market are common.ELIGIBILITY OF ANY STOCK TO ENTER IN DERIVATIVES MARKET

Non Promoter holding ( free float capitalization ) not less than Rs. 750 Crores 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 Promoter Holding at least 30%FUTURES

DEFINITION: A future is a contract between two parties whereby the one party (the buyer) agrees to buy an underlying asset from the other party to the contract on a specific future date, and at a price determined at the close of the contract. A future is a derivative that is used to transfer the price risk of the underlying instrument from one party to another.

The underlying asset can be a financial asset such as a bond, a currency such as US dollars, a commodity, etc. A future is normally classified according to the underlying instrument. Where, for instance, two parties agree to buy and sell a specific quantity of rice (of a certain quality) at a certain price on a future date, the contract will be a commodity futures contract. Where two parties agree to buy and sell bonds, this will be known as a financial futures contract, and where two parties agree to buy and sell a certain amount of foreign currency, this is a currency futures contract.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.A futures contract is thus

an agreement between two parties

to buy and sell

a standardized type and quantity

of a specified underlying asset

with a certain quality

at a price determined at the closing of the contract

on a specified date

Through a central exchange. TYPES OF FUTURES: On the basis of the underlying asset they derive, the futures are divided in to two types:

1) Stock futures:

The stock futures are the futures that have the underlying asset as the individual securities. The settlement of the stock futures is of cash settlement and the settlement price of the future is the closing price of the underlying security. 2) Index futures:

Index futures are the futures, which have the underlying asset as an index. The index futures are also cash settled. The settlement price of the index futures shall be the closing value of the underlying index on the expiry date of the contract.PARTIES IN FUTURES CONTRACT: There are two parties in a future contract, the buyer and seller. The buyer of the futures contract is one who LONG on the futures contract and the seller of the futures contract is who is SHORT on the futures contract.

In a futures contract, both parties have an obligation,

one to buy the underlying instrument

The other to sell the underlying instrument. FUTURES TERMINOLOGY

Spot price: It is the price at which an asset is traded in the current market.

Futures price:

It is the price at which the futures contract trades in the futures market.Contract cycle:

It is the period over which the 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 January expiration contract expires on the last Thursday of January and 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.Contract size:

The amount of asset that has to be delivered under one contract. For instance, the contract size on NSEs futures market is 50 nifties.Basis:

In the context of financial futures, basis can be defined as the futures price minus the spot price. There will be a different basis for each delivery month for 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 income earned on the asset.

Open Interest:

Total outstanding long or short position in the market at any specific time. As total long positions in the market would be equal to short position, for calculation of open interest, only one side of the contract is counter. OPTIONS

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 or 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. PROPERTIES OF OPTIONS:Options have several unique properties that set them apart from other securities. The following are the properties of options:

Limited Loss

High Leverage Potential

Limited Life

PARTIES IN AN OPTION CONTRACT:1. Buyer of the 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.2. Writer/Seller of the Option:The writer of a call/put options is the one who receives the option premium and is there by obligated to sell/buy the asset if the buyer exercises the option 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 options are divided into two types:

INDEX OPTIONS: The Index options have the underlying asset as the index.

STOCK OPTIONS: A stock option gives the buyer of the option the right to buy/sell stock at a specified price. Stock options are options on the individual stocks, there are currently more than 50 stocks are trading in this segment. II). On the basis of the market movement:

On the basis of the market movement the options are divided into two types.

CALL OPTION: A call options 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.

III). On the basis of exercise of option:On the basis of the exercising 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 options are American. EUROPEAN OPTION: European options are options that can be exercised only on the expiration date itself. European options are easier to analyze than American option.DISTINCTION BETWEEN FUTURES AND OPTIONS

FUTURESOPTIONS

1. Exchange traded, with Negation

2. Exchange defines the product

3. Price is zero, strike

price moves

4. Price is Zero

5. Linear payoff 6. Both long and short at risk 1. Same as futures

2. Same as futures

3. Strike price is fixed, price moves

4. Price is always positive

5. Nonlinear payoff

6. Only short at risk

Options Classifications: Options are often classified as

In the money - These result in a positive cash flow towards the investor

At the money - These result in a zero-cash flow to the investor

Out of money - These result in a negative cash flow for the investorOPTIONS PRICINGPrices of options are commonly depending upon six factors. Option's prices are far more complex. These are the two basic options that form the whole gamut of transactions in the options trading. These in combination with other derivatives create a whole world of instruments to choose form depending on the kind of requirement and the kind of market expectations. Exotic Options are often mistaken to be another kind of option. They are nothing but non-standard derivatives and are not a third type of option.Options undertakings: Stocks

Foreign Currencies

Stock Indices

Commodities

Others

SPOT PRICES: In case of a call option the payoff for the buyer is max(S -Xt, 0) therefore, more the Spot Price more is the payoff and it is favorable for the buyer. It is the other ways round for the seller, more the Spot Price higher are the chances of his going into a loss.

In case of a put Option, the payoff for the buyer is max (Xt - S, 0) therefore, more the Spot Price more are the chances of going into a loss. It is the reverse for Put Writing.

STRIKE PRICE: In case of a call option the payoff for the buyer is shown above. As per this relationship a higher strike price would reduce the profits for the holder of the call option.

TIME TO EXPIRATION: More the time to Expiration more favorable is the option. This can only exist in case of American option as in case of European Options the Options Contract matures only on the Date of Maturity.

VOLATILITY: More the volatility, higher is the probability of the option generating higher returns to the buyer. The downside in both the cases of Call and put is fixed but the gains can be unlimited. If the price falls heavily in case of a call buyer then the maximum that he loses is the premium paid and nothing more than that. More so he/ she can buy the same shares form the spot market at a lower price.

RISK FREE RATE OF INTEREST: In reality the r and the stock market is inversely related. But theoretically speaking, when all other variables are fixed and interest rate increases this leads to a double effect: Increase in expected growth rate of stock prices discounting factor increases making the price fall.

In case of the put option both these factors increase and lead to a decline in the put value. A higher expected growth leads to a higher price taking the buyer to the position of loss in the payoff chart. The discounting factor increases and the future value become lesser.

DIVIDENDS: When dividends are announced then the stock prices on ex-dividend are reduced. This is favorable for the put option and unfavorable for the call option.CALL OPTION:C = S.N(dl)-Xe-rt .N(d2)

PUT OPTION:P =C0 + Xe-rt -S

WhereC0 - VALUE OF CALL OPTIONS - SPOT PRICE OF STOCKX - STRIKE PRICE / EXCERSISE PRICEr - ANNUAL RISK FREE RETURNt - CONTRACT CYCLE / TIME TO EXPIRATION

CHAPTER-III

COMPANY PROFILE & INDUSTRY PROFILE

ABOUT US:

The IIFL Group is a leading financial services company in India, promoted by first generation entrepreneurs. We have a diversified business model that includes credit and finance, wealth management, financial product distribution, asset management, capital market advisory and investment banking.

We have a largely retail focussed model, servicing over 2 million customers, including several lakh first-time customers for mutual funds, insurance and consumer credit. This has been achieved due to our extensive distribution reach of close to 4,000 business locations and also innovative methods like seminar sales and use of mobile vans for marketing in smaller areas.

Our evolution from an entrepreneurial start-up to a market leadership position is a story of steady growth by adapting to the changing environment, without losing the focus on our core domain of financial services. Our NBFC and lending business accounts for 68% of our consolidated income in FY13 and has a diversified product portfolio rather than remaining a mono-line NBFC. We are a leader in distribution of life insurance and mutual funds among non-bank entities. Although the share of equity broking in total income was only 13% in FY13, IIFL continues to remain a leading player in both, retail and institutional space.

Vision

To become the most respected company in the financial services space in India

Values Values are IIFL are summarized in one acronym: GIFTS

Growth with focused team of dynamic professionals

Integrity in all aspects of business no compromise in any situation

Fairness in all our dealings employees, customers, vendors and shareholders all included

Transparency in what we do and in how and why we do it

Service orientation is our core value, imbibed by all sales as well as support teams

Promoters (Hint: - CEO, Directors)

Board Of Directors

Mr. Nirmal JainChairman

Mr. R. VenkataramanManaging Director

Mr. Nilesh VikamseyIndependent Director

Mr. Kranti SinhaIndependent Director

Mr. A. K. PurwarIndependent Director

Sunil KaulIndependent Director

Core Management Team

Bharat ParajiaMD, IIFL (Asia) Pte Ltd.

Pratima RamCEO, Credit & Finance

Karan BhagatMD, IIFL Wealth Management Ltd.

H. NemkumarPresident, Institutional Equities

Aniruddha DangePresident, Institutional Equities

Vasudev JagannathPresident, Institutional Equities

Nipun GoelPresident, Investment Banking

Mukesh Kumar SinghPresident, Insurance

Prasanth PrabhakaranPresident, Retail Broking

R. MohanChief Compliance Officer

Narendra JainChief Operating Officer

Pallab MukherjiPresident, Human Resource

Sankarson BanerjeeChief Information Officer

Business strategy

Steady growth by adapting to the changing environment, without losing the focus on our core domain of financial services

De-risked business through multiple products and diversified revenue stream

Knowledge is the key to power superior financial decisions

Keep costs low and continuously strive for innovation

Customer strategy Remain largely a retail focused organisation, driving stickiness through knowledge and quality service

Cater to untapped areas in semi-urban and rural areas, which is relatively safe from cut-throat competition

Target the micro, small and medium enterprises mushrooming across the country through a cluster approach for lending business

Use wide multi-modal network serving as one-stop shop to customers

People strategy Attract the best talent and driven people

Ensure conducive merit environment

Liberal ownership-sharing

Our logo

The Shree Yantra is regarded in India as the most powerful and mystically beautiful of all yantras (Sanskrit word for a symbol used to focus the mind). It predates the Vedas and is supposed to be the favourite Yantra of Lakshmi, the Goddess of Wealth and Prosperity. This powerful symbol, said to promote harmony and tranquility as well, has endured for many centuries. IIFL is engaged in the business of creating wealth and the adoption of the Shree Yantra as its logo was but natural.

PRODUCT & SERVICES

We are a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology.

Equities

IIFL is a member of BSE and NSE registered with NSDL and CDSL as a depository participant and provides broking services in the cash, derivatives and currency segments, online and offline. IIFL is a dominant player in the retail as well as institutional segments of the market. It recently became the first Indian broker to get a membership of the Colombo Stock Exchange and is also the first Indian broker to have received an in-principle approval for membership of the Singapore Stock Exchange. IIFLs Trader Terminal, its proprietary trading platform, is widely acknowledged as one of the best available for retail investors. Investors opt for IIFL given its unique combination of superior Service, cutting-edge proprietary Technology, Advice powered by world-acclaimed research and its unparalleled Reach owing to its over 2500 business locations across over 500 cities in India.

IIFL received the BQ1 broker grading (highest grading) from CRISIL. The assigned grading reflects an effective external interface, robust systems framework and strong risk management. The grading also reflects IIFLs healthy regulatory compliance track record and adequate credit risk profile.

IIFLs analyst team won Zee Business Indias best market analysts awards 2009 for being the best in the Oil and Gas and Commodities sectors and a finalist in the Banking and IT sectors.

IIFL has rapidly emerged as one of the premier institutional equities houses in India with a team of over 25 research analysts, a full-fledged sales and trading team coupled with an experienced investment banking team.

The Institutional equities business conducted a very successful Enterprising India global investors conference in Mumbai in March 2010, which was attended by funds with aggregate AUM over US$5 trillion and CEOs and other executives representing corporates with a combined market capitalization of over US$500 billion. The Discover Sri Lanka global investors conference, held in Colombo in July 2010, was attended by more than 50 leading global and major local investors and 25 Sri Lankan corporates, along with senior Government officials.

Contact Us for Retail brokingEmail: [email protected]: +91-44- 40071000

Contact Us for Institutional EquitiesEmail: [email protected]: +91-22-46464600Website: http://www.iiflcap.com

Commodities

IIFL offers commodities trading to its customers vide its membership of the MCX and the NCDEX. Our domain knowledge and data based on in depth research of complex paradigms of commodity kinetics, offers our customers a unique insight into behavioral patterns of these markets. Our customers are ideally positioned to make informed investment decisions with a high probability of success.

Contact Us for CommoditiesEmail: [email protected] Tel: +91-22-40077105

India Infoline Commodities Ltd143, MGR Road, Perungudi,Chennai, Tamil Nadu - 600 096

Credit and finance

IIFL offers a wide array of secured loan products. Currently, secured loans (mortgage loans, margin funding, loans against shares) comprise 94% of the loan book. The Company has discontinued its unsecured products. It has robust credit processes and collections mechanism resulting in overall NPAs of less than 1%. The Company has deployed proprietary loan-processing software to enable stringent credit checks while ensuring fast application processing. Recently the company has also launched Loans against Gold.

Contact Us for LoansEmail: [email protected] Tel: +91-22- 28710625

Insurance

IIFL entered the insurance distribution business in 2000 as ICICI Prudential Life Insurance Co. Ltds corporate agent. Later, it became an Insurance broker in October 2008 in line with its strategy to have an open architecture model. The Company now distributes products of major insurance companies through its subsidiary India Infoline Insurance Brokers Ltd. Customers can choose from a wide bouquet of products from several insurance companies including Max New York Life Insurance, MetLife, Reliance Life Insurance, Bajaj Allianz Life, Birla Sunlife, Life Insurance Corporation, Kotak Life Insurance and others.

Wealth Management Service

IIFL offers private wealth advisory services to high-net-worth individuals (HNI) and corporate clients under the IIFL Private Wealth brand. IIFL Private Wealth is managed by a qualified team of MBAs from IIMs and premier institutes with relevant industry experience. The team advises clients across asset classes like sovereign and quasi-sovereign debt, corporate and collateralised debt, direct equity, ETFs and mutual funds, third party PMS, derivative strategies, real estate and private equity. It has developed innovative products structured on the fixed income side.

It also has tied up with Interactive Brokers LLC to strengthen its execution platform and provide investors with a global investment platform.

Contact Us for Wealth Management ServicesEmail: [email protected]: +91-22-3958 5704 / +91 9004094893

Investment Banking

IIFLs investment banking division was launched in 2006. The business leverages upon its strength of research and placement capabilities of the institutional and retail sales teams. Our experienced investment banking team possesses the skill-set to manage all kinds of investment banking transactions. Our close interaction with investors as well as corporates helps us understand and offer tailor-made solutions to fulfill requirements.

The Company possesses strong placement capabilities across institutional, HNI and retail investors. This makes it possible for the team to place large issues with marquee investors.

In FY10, the team advised and managed more than 10 transactions including four IPOs and four Qualified Institutions Placements

Contact Us for Investment BankingEmail: [email protected]: +91-22-4646 4600

JOURNEY

2014The biggest AIF and all time high income and profitsWe launched AIF raising Rs6.28bn, the largest AIF fund in India, till date. Over the years, our business model has been de-risked and is no longer dependent on cyclical capital markets. Reported all time high income of Rs26.65bn and PAT of Rs2.79bn.

2013Announcing the Real Estate Fund

A debt and equity linked investment instrument, this fund's focus is on affordable residential segments in the top seven cities in India. The maiden fund raised Rs5bn, as testimony to customer's trust.

2012The Launch of IIFL Mutual FundWe incorporated the IIFL Asset Management company, and in doing so, ensured our coverage of the entire gamut of financial services.

2010

Beyond BordersIIFL became the first Indian broker to register on the Colombo Stock Exchange. In the same year, IIFL received in-principle approval for membership of the Singapore Stock Exchange.

2009

Enterprising IndiaOur first global investor conference, Enterprising India, held in 2009-10, received an overwhelming response. It was attended by 450 fund managers, 67 corporates and thought leaders like Jim Walker, David Bloom and Brahma Chellany among others.

2008

Launched IIFL Private Wealth ManagementIIFL Wealths business model, in contrast to the traditional industry's practice of driving revenues through distribution and commission, focuses on advisory fees as core income, ensuring alignment of interests with those of our clients. Meanwhile, we transitioned from a corporate agent to insurance broking.

2007

From retail to wholesale Institutional Equities begins with a bangA high profile institutional team from the then leading foreign brokerage house joined us in what was a first deal of its kind in the Indian broking industry, making IIFL the port of first call for FIIs and Mutual Funds.

2006

Commenced our lending businessThis was another major move for our group from fee-based to fund-based business. From a modest beginning with all processes and controls, the NBFC was later to become the most dominant business line.

2005 Our Maiden IPO the tipping pointListing on the NSE and BSE gave impetus and momentum to expansion, scaling up and funding. It was again full steam ahead. The IPO was at Rs15.2(adjusted for split) and shareholders have received Rs15.7 by way of dividend. The price was Rs60.65 as at FY13 end.

2004

Our commodities licenseWe were again at the forefront to offer commodities broking to retail investors. A coincidence may be, but this was when our magical linkage between transactional and advisory expertise began.

Awards Best Customer Service in Financial Services, 2014 - Retailer Customer Service Awards

Best Commodities Investment, 2013 Euro Money

Top Performer, Equity (FI Category), 2013 BSE

Best Broking House with Global Presence, 2012 & 2013 D&B

No. 1 in Fixed Income Portfolio Management in India, 2013 Euro Money

- Awarded "The Best Wealth Management House" in india.

- Forbes rates www.indiainfoline.com as the "Best of the Web" and recommends "...must read for investors"

- Awarded "Most Improved brokerage" in india by AsiaMoney as a part of its survey of brokerages in countries across Asia for 2008

- Awarded "Best Broker-India" by FiananceAsia as a part of its survey of financial services firms across Asia for 2008.

Corporate Structure

FINANCIAL REVIEW

IIFL Consolidated H1FY14 Net Profit at `130 Cr, up 10% yoy;

Income at `1,360 Cr, up 10% yoy

Half Year Results (consolidated) for April - Sept 2014 (H1FY14)

Income for the half year at `1,360 Cr up 10% yoy

Earnings before Interest, Depreciation and Tax was at `778 Cr, up 29% yoy

Profit after Tax at `130 Cr, up 9.8% yoy

Quarter Results (consolidated) for July - Sept 2014 (Q2FY14)

Income for the quarter at `683 Cr up 5% yoy, marginally up qoq

Earnings before Interest, Depreciation and Tax was at `402 Cr, up 29% yoy and up 7% qoq

Profit after Tax at `66 Cr, marginally up yoy and up 5% qoq

We have a track record of uninterrupted profits and dividends since listing.Revenues

EBIDTA

PAT

Networth

ROE

Segmental revenue split

Segmental cap employed

LocationMumbai

Corporate officeIIFL Centre, Lower Parel

Registered officeIIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, Thane Industrial Area, Wagle Estate,Thane,Maharashtra 400604

Year of incorporation1995

IndustryFinancial Services

Key businessesCredit & Finance, Wealth Management, Financial Product Distribution, Capital Market Related

Employees14,000+

Business locationsAround 4,000 locations in 900 cities and towns

Global reachSri Lanka, Singapore, Dubai, New York, Mauritius, UK, Hong Kong, Switzerland

ListingsNSE, BSE

Listing date17 May, 2005

RegistrarsLink Intime India Pvt. Ltd.

Short term debt ratingCRISIL A1+ & ICRA (A1+)

Long term debt ratingICRA(AA) & Brickwork BWR AA (Outlook: Stable).

Domainswww.indiainfoline.com, www.iiflfinance.com, www.ttweb.indiainfoline.com, www.flame.org.in

ISIN codeINE530B01024

Bloomberg codeIIFL IN EQUITY

Reuters codeIIFL.BO

Latest Financial Information (Hint :- How the company is perfuming in the recent years) - IT IS NOT COMPULSORY

BROKERAGE SERVICES

Online Brokerage: We offer subscribers real time trading on the NSE and BSE Apart from this we also offer commodities

Trading on the MCX and NCDEX. Customer can directly place orders to buy and sell securities through our automated order processing system.

Offline Brokerage: We began offering offline brokerage service as a back upto our online brokerage offering through our branches. This was mainly to address the internet access problem faced by some of our retail customers.

Competition

Broking: we face competition from small retail distributors (traditional) and pan India brokers like Kotak Securities Ltd S.S Kantilal Ishwarlal securities Ltd, India bulls Securities Ltd, ICICI Web Trade limited, Geojit, financial Services Ltd etc.

Distribution: we face competition from small retail distributors (typically single outlet unorganized units), brokers who have a distribution set, old and established distribution companies like blue chip Corporate Investment Center Limited, Bajaj Capital Ltd, Karvy Securities Ltd, and banks including their PMS and Wealth Management desks.

Our strength: our strengths are our contents and research online technology and customers services.

COMPETITORS OF TARNAKA BRANCH Share khan

SBI

Religare

Indian bulls

Karvy.

CHAPTER-IV

DATA ANALYSIS

& INTERPRETATION

HISTORICAL DATA OF NIFTY

SymbolDateOpenHighLowClose

NIFTY1-Apr-145920592058705890.85

NIFTY4-Apr-1459135984.6558835973.4

NIFTY5-Apr-145972.55972.559035964.8

NIFTY6-Apr-145960600059125941.4

NIFTY7-Apr-145913.25960.459135931.85

NIFTY8-Apr-1459475955.358625879.35

NIFTY11-Apr-145858587258285834.55

NIFTY13-Apr-14579059805783.055968.05

NIFTY15-Apr-14594259505856.15865.35

NIFTY18-Apr-145822595157605766.1

NIFTY19-Apr-14575058115740.555792

NIFTY20-Apr-145825.555908.0558025902.5

NIFTY21-Apr-1459255964.855914.35938.7

NIFTY25-Apr-145944.559595916.55925.55

NIFTY26-Apr-145905594558305921.15

NIFTY27-Apr-145944.55951.25858.85875.05

NIFTY28-Apr-145883.45889.955815.555824.1

NIFTY29-Apr-145815.85841.75733.355764

NIFTY2-May-1457995800.3557175739.85

NIFTY3-May-145714.75573955745582.7

NIFTY4-May-145556.956045523.055551.25

NIFTY5-May-145520.455575.755455.555469.75

NIFTY6-May-14549055835477.255567.45

NIFTY9-May-1455905668.85512.55570.3

NIFTY10-May-145566.5556145528.55555.8

NIFTY11-May-1455555589.755355578.1

NIFTY12-May-145549.85588.8554855494.3

NIFTY13-May-1455005634.955479.75572.1

NIFTY16-May-145540555954925502.25

NIFTY17-May-14549555345436.355459.05

NIFTY18-May-145470.154745410.55434.8

NIFTY19-May-1454495458.455415.455433.1

NIFTY20-May-1454455529.45436.655491.3

NIFTY23-May-145453.85453.85368.055385.85

NIFTY24-May-145382541953585383.95

NIFTY25-May-1453595378.853205343.65

NIFTY26-May-145368.85408.95349.955390.65

NIFTY27-May-145415548254155466.35

NIFTY30-May-145497549754415466.85

NIFTY31-May-145485.255563.455480.155554.9

NIFTY APRIL & MAY 2014INTERPRETATION: The above graphs and tabulations indicating performance of index for the April to May 2014, where one can observes growth in first week, later on we can see negative fluctuations till end of the April contract. When analyzing factors for this increased inflation is one of the major factors.

To have inflation figures for end of May 2014. When compare to 2014 the growth of inflation is 21.18%. When analyzed increased inflation in India, the direct impact we can see in banking index as negative.

Based on inflation data and increased interest rates for the last quarter by RBI, if an investor wants to sell banking stocks, for the given period, investors will have more returns when they have shorts in the market in banking stocks.

When analyzing April Nifty performance:

The index started at 5890 on 1st April 2014 and on 5th April recorded high of 5964 and not able to support at that levels and has shown continuous fall in the same month itself and closed least value 5554.9, here nifty moved into bearish more than 10%. The major reason for the fall is inflation and increased interest rates.

Historical Data of Infosystech

SymbolDateOpenHighLowClose

INFOSYSTCH1-Apr-143257.23262.73219.93242.9

INFOSYSTCH4-Apr-143259.853315.953259.853305.7

INFOSYSTCH5-Apr-143277.23306.232513296.85

INFOSYSTCH6-Apr-143291.33314.63270.153293.5

INFOSYSTCH7-Apr-14327032803257.253260.85

INFOSYSTCH8-Apr-143268.85327132283242.85

INFOSYSTCH11-Apr-14322032713201.23254.45

INFOSYSTCH13-Apr-143216.1533333216.153322.6

INFOSYSTCH15-Apr-14331033102991.43002.45

INFOSYSTCH18-Apr-142949.652979.6529032912

INFOSYSTCH19-Apr-14290029372887.12897.9

INFOSYSTCH20-Apr-14291029352897.92914.45

INFOSYSTCH21-Apr-142394294923942919.2

INFOSYSTCH25-Apr-142920296529162943.5

INFOSYSTCH26-Apr-142944.652956.952921.32944.75

INFOSYSTCH27-Apr-142952.252962.82943.052951.65

INFOSYSTCH28-Apr-1429452956.7529252930.7

INFOSYSTCH29-Apr-142915.15292628752891.55

INFOSYSTCH2-May-14292529322905.22918.2

INFOSYSTCH3-May-142912.652944.82882.452893.75

INFOSYSTCH4-May-1428792890.92835.052854.5

INFOSYSTCH5-May-1428502864.528182827.75

INFOSYSTCH6-May-142835.32889.72835.32873

INFOSYSTCH9-May-14289029002852.152890.25

INFOSYSTCH10-May-14288829142859.12872.9

INFOSYSTCH11-May-142878.82905.828752889.75

INFOSYSTCH12-May-142878.952894.728582865.45

INFOSYSTCH13-May-1428622901.92858.12871.5

INFOSYSTCH16-May-1428602863.952832.552836.55

INFOSYSTCH17-May-14290029002820.052837.6

INFOSYSTCH18-May-1428292869.927902827.4

INFOSYSTCH19-May-142830.352842.052816.652828.5

INFOSYSTCH20-May-142823.0528482815.052836.6

INFOSYSTCH23-May-142822.82835.9528092819.25

INFOSYSTCH24-May-142823.652841.852817.72823.6

INFOSYSTCH25-May-14280928102744.352774.9

INFOSYSTCH26-May-142789.52797.952752.52773.3

GRAPH: Infosystech

Infosystech FutureCASE 1: explaining about when expected fall in Infosystech results stocks for the particular period what kind of strategies will give best returns with minimum risk.

The above graph indicating performance of INFOSYSTECH for the April 2014, when comparing with the index with Infosystech, it has recorded life time high in the first week of November as 3303.5 and one can observe fall till end of the contract. When expected this kind of situations in the market, an investor can enter into put option by doing less risk for more returns.

The below tabulation showing working of INFOSYSTECH put option when INFOSYSTECH performed in negative trend.

INFOSYS 3300 PUT OPTION

SymbolDateExpiryStrike PriceOpenHighLowClose

INFOSYSTCH1-Apr-1428-Apr-143300131.5131.5131.5131.5

INFOSYSTCH4-Apr-1428-Apr-14330097105.77986

INFOSYSTCH5-Apr-1428-Apr-14330010111585.486.85



INFOSYSTCH8-Apr-1428-Apr-143300108.95118.9104108.75


INFOSYSTCH13-Apr-1428-Apr-14330010110159.0564










Strategy: Long Put strategy

Strategy : Buy Put Option

Current Infosystech3302

Put OptionStrike Price (Rs.)3400

Mr. XYZ PaysPremium (Rs.)69.0

Break Even Point (Rs.) [(Strike Price - Premium)]3231

The payoff schedule

On expiry Infosys closes atNet Payoff from Put option (Rs.)

3100231.55

3200131.55

330031.55

3331.00

3400-69

3500-69

3600-69

3700-69

EXPLAINING LONG PUT STRATEGY WITH LIVE EXAMPLE:

Long put: meaning of long put equal to buying a put, a put gives right to sell, but not have any obligation. We can use long put in two ways.

1. Exclusively for investment.

2. For hedging.

1. Exclusively for investment: when a product working as investment, it can give profit as well as loss also. But here loss is limited and profit is unlimited.

Ex: on 14th April client code 142555 entered into Infosys 3300 put option at Rs.69.0 when Infosys trading CMP of 3302. Lot size of Infosys is 125units. Total investment is 8625 (125*69.0)

Profit and loss on long call:

On last day of the contract (29-Apr-2014), client closed the put premium at Rs.368, where he got Profit of Rs 300. The above example is proving that an option can work as pure investment product. An investment can give profit as well as loss; in the above situation the product has given Profit.

Data analysis & interpretation: with current data we can see more than one combination to find return and risk.

1st combination: explaining how PUTs trading with high premium in starting week of the month, and if entered with those premiums what would be the result at the end of contract.

In the above tabulations I have taken April INFOSYSTECH future and 3100 PUT option

On 1st day of INFOSYSTECH future contract closed at 3238 and INFOSYSTECH 3100 Put option closed at 37, in second day INFOSYSTECH increased by Rs.65, but here put option also increased by Rs.12, generally if stock increases put price decreases, in this type of situations put created demand means, more chances to fall the INFOSYSTECH stock.

When investor observes this type of combination in the market, instead of entering with high premiums, he has to wait for two to three days, because in contract starting days options trades with higher premium.

Assume that on second day of contract sold INFOSYSTECH future at 3303 and waits till end of the contract investor gains Rs.377 (3303-2928).

Assume that entered in put option on same day with Rs.244.80 and closed position on last day of contract at 250, here profit is Rs.5 equal to 2% on investment.

This combination explaining even stocks falls also, some times will not give more returns, when analyzing reason for this entering with high premiums is one of the major reasons.

In the above example buying a put means, it gives a selling right and assumption of selling is strike price minus premium.

In the above example entered INFOSYSTECH 3100 strike price put option entered in Rs.150, it means assumption of selling is 2974. This assumption, when INFOSYSTECH trading at 3303on second day of April contract.

In the above examples PUT is high premium means assumption of selling is lower levels so, here put has given least profit and future has given more profit.

2nd Combination:

Here, when options trading with high premiums, investors has to wait for some time. Assume that on 5th day of contract future sold at 3261, by keeping 100000 margin and put needs 7500 investment same day (60*125).

Working of returns:

INFOSYSTECH Future:

Future closed at 2928. On last day, profit on lot is Rs.333 (3261-2928)

Total return on investment = 333*125 = 41625.00

INFOSYSTECH Put option:

SBIN put closed at 250 on last day profit on lot is Rs.133 (170-37)

Total return on investment = 133*125 = 16625

The above combinations showing two different performances, and educating investors about impact of high premiums in the starting week of the contract.

INFOSYS 3300 CALL OPTION



















Table: INFOSYS 3300 CALL OPTION

LONG CALL STRATEGY:-

Strategy :Long call Option

Current Infosystech3302

Call OptionStrike Price (Rs.)3300

Mr. XYZ PaysPremium (Rs.)78.55

Break Even Point (Rs.) [(Strike Price+ Premium)]3378.55

The payoff Schedule

On expiry Nifty closes atNet Payoff from Call Option (Rs.)

3100-78.55

3200-78.55

3300-78.55

3378.550

340021.45

3500121.45

3600221.45

EXPLAINING LONG CALL STRATEGY WITH LIVE EXAMPLE:

Long call:

Meaning of long call equal to buying a call, a call gives right to buy, but not have any obligation. We can use long call in two ways.1. Exclusively for investment.

2. For hedging.

1. Exclusively for investment: when a product working as investment, it can give profit as well as loss also. But here loss is limited and profit is unlimited.

Ex: on 14th April client code 142555 entered into Infosys 3300 call option at Rs.78.55 when Infosys trading CMP of 3302. Lot size of Infosys is 125units. Total investment is 9818.75 (125*78.55)

Profit and loss on long call:

On last day of the contract (29-Apr-2014), client closed the call at Rs.0, where he got loss of Rs 78.55. The above example is proving that an option can work as pure investment product. An investment can give profit as well as loss; in the above situation the product has given loss. An investment can give loss also, but here only the premium is the loss.

Analysis: previous eight years history has proved that maximum times Infosys shown positive performance on share price before results and negative performance after results.

If an investor wants to invest for short term, when he has bullish view on a stock he can have three options,

1. Buying equity shares

2. Buying a future

3. Buying a call option

But option one and two linked with high investments and risk is also high, but the main objective, with minimum risk, investor should gain more returns than 1st and 2nd options.

Buying a call in special situation, loss is only the premium paid by the investor.

Ex: Based above tabulation, if investor entered into 3300 Infosys April call option with premium of Rs.85 on starting day of month contract, the profit and loss would be as mentioned below on after results of contract.

After results day of contract Infosys 3300 call option settlement price is 9.6 and the approximate loss are 75.4 which are equal to 84.647% for the given period.

Loss% = total loss on investment *100investment

= 74.5 *100

85

= 87.647% approximately

Conclusion: the above example proving in special situations options will give the best returns than any other product. In the above 3 options, no product can gives more than 100% returns, i.e., concluding options are best investment.

SHORT CALL STRATEGY

Strategy : Sell Call Option

Current Infosystech 3300

Call OptionStrike Price (Rs.)

Mr. XYZ receivesPremium (Rs.)78.54

Break Even Point (Rs.)

(Strike Price +Premium)3378.54

The payoff schedule

On expiry Nifty closes atNet Payoff from the Call Options(Rs.)

300078.54

310078.54

320078.54

330078.54

3378.540

3400-21.46

3500-131.46

3600-221.46

Selling an option is high risk, here option writer/seller have the obligation to bear unwanted exposure. Another bearish strategy is to sell a call Option. As a call Seller, you will receive Premium. For example, if you sell INFOHSYSTECH April 3300 call Option for Rs 78.54; on 15th April 2014 you will earn an Income of Rs 78.54 on the day of the transaction. You will however face a risk that you might have to pay the difference between 3300 and the closing price of INFOHSYSTECH scrip on the last Thursday of APRIL. For example, if INFOHSYSTECH were to close on that day at Rs 2928.8, you will be asked to pay Rs 372.2. After setting of the Premium received of Rs 78.54, the net loss will be Rs 294. If on the other hand, INFOHSYSTECH closes above Rs 3300 (as per your bearish view), the entire income of Rs 150 would belong to you.

As a call Seller, you are required to put up Margins. These margins are calculated by the exchange using a software program called Span. The margins are likely to be between 20 to 35% of the Contract Value. As a call Seller, you have a limited profit, unlimited loss profile which is a high risk strategy. If time passes and INFOHSYSTECH remains wherever it is (say Rs 2750), you will be very happy. Passage of time helps the Sellers as value of the Option declines over time.

Explaining above strategy with live example. Client 142444 sold INFOHSYSTECH call on 15th April at Rs 78.4, when stock trading at 3300. Working profit and loss for his strategy

Table showing price records for INFOHSYSTECH 3300 April 2014 CALL OPTION





According to above details client got the loss of Rs 294 due to fall down in the market and he is being as a call seller.

SHORT PUT STRATEGYThe payoff schedule

On expiry Infosystech Closes atNet Payoff from the Put Option (Rs.)

2900-330.8

3000-230.8

3100-140.8

3200-30.8

3230.80

330069.2

340069.2

350069.2

Selling an option is high risk, here option writer/seller have the obligation to bear unwanted exposure. Another bullish strategy is to sell a Put Option. As a Put Seller, you will receive Premium. For example, if you sell INFOSYSTECH April 3300 Put Option for Rs 69; you will earn an Income of Rs 69 on the day of the transaction. You will however face a risk that you might have to pay the difference between 3300 and the closing price of INFOSYSTECH scrip on the last Thursday of January. For example, if INFOSYTECH were to close on that day at Rs 3100, you will be asked to pay Rs 131. After setting of the Premium received of Rs 69, the net loss will be Rs 131. If on the other hand, INFOSYSTECH closes above Rs 3300 (as per your bullish view), the entire income of Rs 131 would belong to you.

As a Put Seller, you are required to put up Margins. These margins are calculated by the exchange using a software program called Span. The margins are likely to be between 20 to 25% of the Contract Value. As a Put Seller, you have a limited profit, unlimited loss profile which is a high risk strategy. CHAPTER-V

FINDINGS, CONCLUSIONS

& SUGGESTIONS

FINDINGS:1) Derivative market is growing very fast in the Indian Economy. The turnover of Derivative Market is increasing year by year in the Indias largest stock exchange NSE. In the case of index future there is a phenomenal increase in the number of contracts. But whereas the turnover is declined considerably. In the case of stock future there was a slow increase observed in the number of contracts whereas a decline was also observed in its turnover. In the case of index option there was a huge increase observed both in the number of contracts and turnover.

2) After analyzing data it is clear that the main factors that are driving the growth of Derivative Market are Market improvement in communication facilities as well as long term saving & investment is also possible through entering into Derivative Contract. So these factors encourage the Derivative Market in India.

3) Impact of inflation interest rates and financial results fluctuate stock market operations, few sectors shown positive and few performs in negative.

4) Increased inflation is negative impact on banking and decreased inflation positive impact on banking, proved in April, May banking index.

5) Options trades with high premiums in starting week of contract, and given example, if entered with high premium what would be the disadvantage.6) In high volatility markets options will give more returns with less risk.

7) In the month of April 2014, Infosys call option given 84.67% loss8) On 13th January, Infosys announced financial results, and before announcing the result day i.e. 15th April every investor and every financial advisor in the company have bearish view on the stock based on historical performance on results day.9) In the month of December Banking shown negative and IT shown positive performance. Sometimes these two sectors showing positive correlation and sometimes negative correlation. 10) IT sector has international exposure, few of Indian IT stocks trades in international markets also, so the impact will be there in IT sector.

11) Derivatives give best return when compared to equity market, but have high risk also.

SUGGESTIONS:Speculation should be discouraged. There must be more derivative instruments aimed at individual investors. SEBI should conduct seminars regarding the use of derivatives to educate individual investors.

1. Derivative market is highly ill- famed among the investor. Thus it is required to provide in depth knowledge of the market to investors.

2. Strategies should be evaluated daily for better returns and less risk.

3. Theoretical price of an option should be found out using option pricing models and those options whose price is less than theoretical price should be used for formulation of strategy.

4. By using a hedging strategy an investor can recover some of his losses and can also make profit.

5. When the movement and volatility of market or scrip is not known at that time investor should use only optionsCONCLUSION:

Although derivative market is growing in a faster rate still it is not so popular in Indian financial market. Due to lack of awareness or risk averseness, Indian investors dont show interest to use derivatives to hedge in equity market. Notwithstanding the endorsement of derivatives by financial economists and business persons, there is a widespread belief among regulators, bureaucrats and politicians that derivatives are employed mainly for speculation purposes, and they accentuate the volatility of the underlying cash markets.

Many in the profession, however, disagree vehemently with the view that derivatives accentuate volatility in the cash markets. On the contrary volatility in the underlying cash market declines with the introduction of derivatives. Since hedging opportunities prove valuable only if the underlying cash markets are volatile, derivatives are introduced only when the underlying asset prices become more volatile.

BIBLIOGRAPHY

Text Books:

Prasanna chandra : Financial Risk Management & Derivatives

M.Y.Khan

:Indian Financial System 9th Edition

R. Mahajan

:Futures & Options

Rene.M.Stulz

:Risk Management & Derivatives

Websites:

www.indianderivatives.comwww.nseindia.comwww.bseindia.comwww.networthdirect .com

News papers:

Economic Times

Business Line

Times of India

The payoff Chart Long Put

Limited loss

Unlimited Profit

Unlimited Profit

The payoff chart (Long Call)

Limited Loss

Unlimited Profit

The Payoff Chart (Short Call)

Unlimited Loss

Limited Profit

19