Derivatives in volatile market condition project report @doms
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CONTENTS
SNO PARTICULARS
1 ABSTRACT
2 INTRODUCTION ABOUT COMPANY
3 INTRODUCTION ABOUT DERIVATIVES
3.1 ISSUES IN DERIVATIVES
3.2 SYSTEMATIS RISK
3.3 BASIC RISK
3.4 COUNTERPARTY RISK
4 FINANCIAL DERIVATIVES – DEFINITION
4.1 TYPES OF DERIVATIVES
4.2 FORWARD CONTRACTS
4.3 FUTURES CONTRACT
4.4 FUTURES TERMINOLOGY
4.5 PERMITTED LOT SIZES OF CONTRACT
4.6 OPTIONS CONTRACT
4.7 OPTIONS TERMINOLOGY
5 VOLATILE MARKET
6 CHARACTERISTICS OF VOLATILE MARKET
6.1 VOLATILITY IS CYCLICAL
6.2 VOLATILITY IS PERSISTENT
7 IDENTIFICATION OF VOLATILE MARKET
8 TYPES OF SECURITIES
9 SCIENTIFIC METHOD INVOLVED IN IDENTIFYING SECURITY
9.1 AVERAGE RANGE
9.2 STANDARD DEVIATION
9.3 BETA COEFFICIENT
9.4 R- SQUARED
9.5 GEOMETRIC STANDARD DEVIATION
10 IDENTIFICATION OF SECURITIES
11 COMPARISON OF SECURITIES WITH THE MARKET
12 DERIVATIVE STRATEGY
12.1 STRADDLE
12.2 STRANGLE
12.3 BULL SPREAD WITH CALL OPTION
12.4 BEAR SPREAD WITH CALL OPTION
12.5 BULL SPREAD WITH PUT OPTION
12.6 BEAR SPREAD WITH PUT OPTION
12.7 BOX SPREAD
12.8 BUTTERFLY SPREAD WITH CALL OPTION
12.9 BUTTERFLY SPREAD WITH PUT OPTION
13 CALCULATION OF PAYOFF
14 CONCLUSION AND RECOMMENDATIONS
15 REFERENCES
1. Abstract
The project began with the study of what derivative is and what are the types of
derivatives that has been trading in India and I was taught the basics of future and option
trading in India. After getting the basic knowledge about derivatives the project work
started with
Identification of volatile market
Identification of securities
- High volatile securities
- Low volatile securities
Comparison of securities with the market
Strategies for volatile market
Payoff calculation for the strategies
Propose the best strategy for the volatile market condition
2. PROFILE OF STOCK HOLDING COPORATION OF INDIA LTD
INTRODUCTIONFlagged off at the initiative of the Government of India, SHCILenjoys an enviable parentage that
includes leading Indian financial institutions and insurance majors like IDBI, UTI, ICICI, LIC
GIC and its subsidiaries, IFCI and IIBI. Their original focus was to manage the entire array of
post trade activities of Financial Institutions and Foreign Institutional Investors with dedicated
client relationship teams and state-of-the-art reporting systems.
It has been an eventful journey rewarding them with a 50% market share and the biggest
investing bodies of the country for clients.
From their inception to achieving and retaining the mantle of the largest Depository
Participant in the country, it is their dream and vision that has helped them. Where they have
made the difference is at understanding ideas, managing them, at arranging their organizational
strengths and translating these new exposures into service and business activities.
Their technological support not only holds enormous databases together, but makes sense
and searvice out of it too. The State-of-the-art Information Technology tools deployed by SHCIL
is a laureate of lthe computerworld Honors Program. SHCIL has also received National IT award
from the Computer Society of India.
Their adaptability to the changing requirement of the market is one of their main
strengths. The biggest changeover in the SHCIL story has been expansion and diversification.
Year 1996 marked a fundamental shift for the Indian capital markets. The Depository Act
changed the way the capital market, specifically the stock exchanges, investors and related
organization would function. Securities Exchange Board of India with its guiding Hand, set up a
framework for changing over capital market investing and trading from paper to electronic mode.
The depository culture has accelerated since then, probably unmatched by any other country.
Accordingly, from servicing financial institutions, they have timed their move into the extensive
individual investro populace. They have enriched their organisatinal strengths and fine-tuned the
front-end interfaces to cater to the distinct needs of the individual investor. A specially trained
pool of over 1500 professionals provides personalised service to their client investors. To enable
easy reach, they have accelerated their distribution network from four offices in 1997 to over 100
offices across the country. Dedicated leaseline network links across these offices, independent
systems setups and off-site backups provide the platform for traditional servicing as also for new
e-commerce applications. The results are definite. Four years back, they signed in their first
individual investor client. Today, SHCIL serves a satisfied clientele of around seven lakh
accounts.
They ensure that their financial product offerings are related closely, not just disjointed services
added on. Alongside expansion, the thinking has been at diversifying further into areas of
financial products and services. Their new products are an echo of market requirements, customer
feedback and needs. Rather than coming out with products which would suit their organisational
needs, the accent is on channeling technology to make convenience products for financial
markets. They formulate new products that give quantum benefits to linvestors, corporatins and
brokers and also fit into the mosaic of their product mix.
Glolbalisation of the market has led to a manifold increase in investment. New markets have
been opened new instruments have been developed and new services have been launched.
Besides, a number of opportunities and challenges have also been thrown open. Stock Holding
Corporation of India Ltd.,(SHCIL), the premier custodian of Indian capital market providing
services of international standards, is gearing up to reposition itself in the changed scenario. With
world – acclaimed automation and a team of committed professionals, SHCILis confident of
scalilng new heights.
INTRODUCTION TO THE COMPANY
Stock Holding Corporation of India Ltd. (SHCIL) was incorporated under the Companies act
1956 at the initiative of the Government of India. It is promoted by the all India financial and
investment institutions and insurance companies viz., IDBI, UTI, ICICI, IFCI, IBI, LIC, GIC, and
its subsidiaries.
SHCIL commenced operations in August 1988 and has been providing custodial and
related services of international standards for nearly a decade to the promoter and other
institution, Foreign Instiutional Investors (Flls), Commercial Banks and Mutual Funds. Being a
premier custodian of the country. SHCIL today holds more than Rs. 80,000 crores worth of
clients assets. The turnover of the corporation exceeds Rs.10,000 crores per annum. SHCIL has
been earning profit and declaring dividend right from the inception. SHCIL already has securities
worth Rs.26000 crores in electronic form.
SHCIL is the first depository participant to be registered with the National Securities Depository
Ltd.(NSDL). SHCIL offers the facility of operating beneficiary account for individuals and
corporates as well as clearing account for brokers.
This manual has been prepared exclusively for their account holder. It gives the
overview of the depository system and explains in details, various operation relating to individual
accounts. The aim is to impart to their account holders, knowledge about the working of
depository system and facilitate a smooth transition from physical to electronic tradings.
BRANCHES:
SHCIL has a network of more than 120 branches spread across the country providing services at
doorstep to their client with Head Office at Mumbai. In Karnataka there are 12 branches spread
over the entire region.
MISSION“To spread quality services through the innovative use of technology”
OBJECTIVES OF THE SHCIL
1. To eliminate paperwork and bring in front of electronic stock market (E-Stock
Market) on India
2. To ensure satisfaction through teamwork and professional management.
3. To extend effective guidance to brokers, to clearing house Corporation,
companies and investor in E-Stock Trading
4. To provide good quality of services on a continuous basis to the satisfaction of
clients
5. To encourage every one in the organization to upgrade and enhance there skills
and knowledge in computerized environment.
6. To attain specified level of performance every year and ensure compliance with
statutory requirements.
PRODUCTS AND SERVICES
SERVICES:
CUSTODIAL SERVICES
Since its commencement in 1988 as the premier Custodian in the country, SHCIL has
been providing Custodial Services of international standards to Financial Institutions, Foreign
Institutional Investors and Domestic Mutual Funds.
With almost 70% of the Institutional business to its credit, SHCIL has graduated to providing
specialised services to large investing institutions.
A dedicated pool of trained professionals working in interconnected offices across the country,
linked to client institutions, Stock Exchanges, Depositories and brokers through state-of-the-art
telecommunication channels, is at the helm of SHCIL's Custodial services
Lodgements and Custodial Services
SHCIL has specialized sections catering to all activities (lodgment, objections handling, follow-
ups, client reporting etc.) associated with the Lodgment of securities with the respective company
and ensuring their quick transfer to the purchaser.
On receipt of the transferred securities, securities are held in state-of-the-art, high-security vaults
on behalf of the clients. A pioneer in introducing the bar-coding system to track certificates,
SHCIL ensures the availability of each and every share certificate at a moments notice
Corporate Actions The Corporate Actions cell ensures timely collection of monetary and non-monetary benefits on
behalf of the client. It covers all activities relating to Corporate Actions like calculation of
entitlements, receipt of monetary Corporate Actions and transfer of the same to clients.
Customized reporting to clients on the status of Corporate Actions is done periodically.
The Primary Markets cell takes care of applications on behalf of clients for primary market
issues, calculates the entitlements, follows up for allotment or refunds and sends customised
reports to clients.
Data Bank Services
To serve clients, the Corporation requires a large amount of information from the Stock
Exchanges, Depositories, SEBI, Companies and other entities of the capital market. The
Databank department collects, compiles and maintains information that is required by the
Corporation for carrying out market obligations. Databank maintains information of
approximately 12,500 instruments, 8500 companies, 2500 Registrars, two Depositories and six
Stock Exchanges namely BSE, NSE, OTCEI, DSE, CSE and MSE.
Databank also maintains the following data :
a. Information regarding various scrips ( listed and unlisted) in which our clients have
holdings.
b. Information pertaining to book closures / record dates for corporate events, ex-dates
and no delivery schedules for various Stock Exchanges.
c. Details of monetary and non-monetary benefits.
d. In the electronic segment, information such as ISIN data, the Registrars handling demat for a
company, the scrips under compulsory demat trades as declared by SEBI, scrips included in
compulsory rolling segment etc. are also maintained.
e. NAV information of all Mutual Fund schemes
Reporting - Custodial Services
The Client Interface Cell is a single point contact for all Client Issues.
Detailed, reconciled statements and customized reports are made available to clients periodically
or as and when desired by the clients.
Street Name Securities
This is a special service offered to clients who wish to turn around their portfolio in a speedy
manner. The securities purchased by the clients are not sent for registration, but are stored in the
safe deposit vaults of the Corporation. Adequate measures are taken to ensure no benefit losses
due to corporate events or any document expirations.
DEPOSITORY PARTICIPANT SERVICES
Introduction:
Their Depository Participant services addresses individual investment needs. With a parentage of
leading financial institutions and insurance majors and a proven track record in the Custodian
business, they have reiterated their past success by establishing themselves as the first ever and
largest Depository Participant in India
From a tentative foray in 1998 into the individual investor arena to servicing around seven lakh
accounts, the have endeavored to constantly add and innovate to make business a pleasure for
their client.
Over 100 of our networked branches ensure they are available where their client look out.
Across the country, fourteen Depository Participant Machines (DPMs) connected to NSDL and
seven connected to CDSL ensure fast and direct processing of clients instructions.
Their customer-centric account schemes have been designed keeping in mind the investment
psyche of their clients. A DP account with SHCIL takes care of client’s Depository needs like
dematerialisation, rematerialisation and pledging of shares.
.
At SHCIL, they place a very high premium on client reporting. Periodic statements sent to client
keep them informed of their account status. Dedicated Customer Care lines manned by trained
staff answer client’s queries on demat / trades / holdings. The latest in client response at SHCIL is
Interactive Voice Response (IVR) system for round the clock information on their account.
Registration on theirr website, SHCIL Interactive, enables them to check their account-related
information, stock market reports and statistics, Corporate benefits declared by companies,
realtime quotes of scrips on BSE and NSE and so much more online.
Demat
Dematerialisation is the process of conversion of shares from physical form to the electronic
mode. Their dedicated demat team enable the client to convert their physical holdings into
electronic mode in a quick and hassle-free manner.
As per SEBI, scrips can be divided as :
Scrips eligible for demat.
These scrips can be traded either in physical or electronic form
Scrips falling under compulsory demat.
Scrips can be traded only in electronic form.
Scrips falling under transfer cum demat.
In this category, the shares purchased by the client in the physical form can be sent to the
Registrar / Company for transfer and dematerialisation at the same time.
Process for Dematerialization / Rematerialization
Once demat account of client is opened with SHCIL and have received their client identity
number, they can start dematerialising their shares. They can submit the shares over the counter at
any of their branches.
When the company gives credit, those shares will reflect under "free" column in the Client ID.
Now client can sell these shares. In case the company is not satisfied with the details furnished, it
will reject the shares
If the company has rejected Client’s shares, SHCIL will forward the shares to Client on receiving
them from the company.
CLEARING- MEMBERS SERVICES
Introduction
SHCIL's long-standing association with Clearing Members has enabled it to develop services
based on an understanding of their working and their requirement for timely and accurate
information
SHCIL accept deposits of base capital and Additional base capital requirements stipulated by
NSE for clearing members trading on its capital market segment. Besides, their new products
with a broker empanelment clause ensure a mutually beneficial tie-up. Clearing members stand to
earn a steady income from their product transactions and this adds to their client-base, while they
capitalize on their rapport with the market
SHCIL currently offer Depository services to more than 680 clearing members of various
exchanges connected with NSDL and CDSL.
Custodial Services for CM
Custodial services for Base Capital / Additional Capital requirements
They accept deposits of Base Minimum Capital (Base Capital) and Additional Base Capital as
stipulated by NSE for clearing members to be able to trade on its capital market segment.
The securities being deposited shall be subject to legal and beneficial ownership of:
TM clearing member / spouse in case of individuals.
Any of the partners / their spouses in case of partnership
Any of the directors in case of corporate TM clearing member.
NRI SERVICESOver the years, SHCIL has grown to become a major player in the capital market. With a
network of more than 120 offices operating across the country and franchisees operating
abroad, SHCIL provides Depository Participant and related services close to 0.7 million
satisfied investors out of which over 6000 are NRI Clientele.
SHCIL has a full-fledged NRI cell operating specifically to cater needs pertaining to
Depository account opening and maintenance. NRI cell co-ordinates with prospective NRI
customers, collects and assists in obtaining the relevant documents and ensures the Depository
Account is opened hassle free.
NRI Cell collects physical certificates to be sent for demat and ensures that the certificates are
in order and can be sent for dematerialization under the existing guidelines issued by the
depositories. Instructions for trade are accepted by fax on request by NRI Cell to ensure timely
settlement of trades. In this case later on the client needs to regularize by sending the original
trade delivery instruction. NRI Cell addresses any tariff and billing related query.
In short NRI Cell is a single point contact for any matter relating to NRI Depository
operations.
PRODUCTS:
ADD Shares
This is a product by which SHCIL arranges loans against demat shares for its clients at the
competitive interest rates. They can use the shares in their free account as a collateral and take
a loan from any of their empanelled banks. SHCIL complete documentation and processing and
give the cheques within 48 hours of application to their clients.
Features
Loan against demat shares held in the DP account with SHCIL
SHCIL processes the entire paperwork required with the bank.
The service is available at any of over 100 branches of SHCIL.
CASH –ON-PAYOUT
Usually client need to follow-up with their broker for the funds after they have sold their
securities. When they sell through Cash-on-Payout, they give client a cheque on the next day of
payout.
Cash-on Payout is a variant of Sell-n-Cash and it comes in handy when you don't need immediate
payment but at the same time are looking for an timely payment without delays.
Cash on Payout has a very competitive service charge which may actually be lesser than what
client is currently paying your broker.
FUND INVEST
Fund Invest is a basket of financial products, ranging from fixed income securities like Fixed
deposits, Infrastructure bonds and Capital Gain Bonds to variable income securities like Initial
Public Offers (IPOs) of Equities and Mutual Funds. This is a financial product that caters to the
various investment needs of their clients. SHCIL is an AMFI Registered Mutual Fund Advisor
(ARMFA).
Features
At present, they are distributing more than 25 schemes of different Mutual Funds
Capital Gains Bonds come under 54 EC Capital Gains Bonds, where investors get
exemption from Capital Gain tax. These are 'on -tap ' issues. At present, SHCIL is
distributing Capital Gain Bonds of Rural Electrification Corporation, National Housing
Bank, Small Industries Development Bank of India and National Highway Authority of
India. Infrastructure Bonds are issued by ICICI Bank and IDBI, with Section 88 as the