INDIAN BULLS PROJECT

8/12/2019 INDIAN BULLS PROJECT

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Chapter 1

Introduction

1



Introduction

A Derivative is a financial instrument that derives its value from an

underlying asset. Derivative is an financial contract whose price/value is dependent

upon price of one or more basic underlying asset, these contracts are legally

binding agreements made on trading screens of stock exchanges to buy or sell an

asset in the future. The most commonly used derivatives contracts are forwards,

futures and options, which we shall discuss in detail later.

The main ob ective of the study is to analy!e the derivatives market in "ndia and toanaly!e the operations of futures and options. Analysis is to evaluate the profit/loss

position futures and options. Derivates market is an innovation to cash market.

Approximately its daily turnover reaches to the e#ual stage of cash market

"n cash market the profit/loss of the investor depend the market price of the

underlying asset. Derivatives are mostly used for hedging purpose. "n bullish

market the call option writer incurs more losses so the investor is suggested to go

for a call option to hold, where as the put option holder suffers in a bullish market,

so he is suggested to write a put option. "n bearish market the call option holder

will incur more losses so the investor is suggested to go for a call option to write,

where as the put option writer will get more losses, so he is suggested to hold a put

option.

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OBJECTIVES

To study the various trends in derivatives market.

To study the role of derivatives in "ndia financial market

To study in detail the role of futures and options.

To study the role of stock exchange.

To find out profit/loss position of the option writer and option holder.

IMPORTANCE OF THE STUDY

The present study on futures and options is very much appreciable on the

grounds that it gives deep insights about the %&' market. "t would be essential for

the perfect way of trading in %&'. An investor can choose the fight underlying or

portfolio for investment (which is risk free. The study would explain the various

ways to minimi!e the losses and maximi!e the profits. The study would help the

investors how their profit/loss is reckoned. The study would assist in understanding

the %&' segments. The study assists in knowing the different factors that cause for

the fluctuations in the %&' market. The study provides information related to the

byelaws of %&' trading. The studies elucidate the role of %&' in "ndia %inancial

)arkets.

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METHODOLOGY

The data had been collected through primary and secondary source.

Primary data:The data had been collected through interaction with the INDIA BULLS

staff, *ro ect guide and +tock brokers.

Secondary data:

The data had been collected through ournals, -ews papers, and "nternet &

text books.





The opening premium and closing spot price of the seek are taken for

calculating option holder / writer profit / loss position.

Chapter – 2

REVIEW OF

LITERATURE

4



Derivative

The emergence of the market for derivative products, most notably forwards,

futures and options, can be traced back to the willingness of risk5averse economic

agents to guard themselves against uncertainties arising out of fluctuations in asset

prices. 3y their very nature, the financial markets are marked by a very high

degree of volatility. Through the use of derivative products, it is possible to

partially or fully transfer price risks by locking2in asset prices. As instruments of

risk management, these generally do not influence the fluctuations in the

underlying asset prices. 6owever, by locking5in asset prices, derivative products

minimi!e the impact of fluctuations in asset prices on the profitability and cash

flow situation of risk5averse investors.

Derivatives are risk management instruments, which derive their

value from an underlying asset. The underlying asset can be bullion, index, share,

bonds, currency, interest etc. 3anks, securities firms, companies and investors to

hedge risks, to gain access to cheaper money and to make profit, use derivatives.Derivatives are likely to grow even at a faster rate in future.

DE INITION:

7



Derivative is a product whose value is derived from the value of an

underlying asset in a contractual manner. The underlying asset can be e#uity,

forex, commodity or any other asset.

+ecurities 8ontracts 9:egulation; Act, 1< 4 9+89:; A; defines =derivative> to

include 2

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

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

$. A contract which derives its value from the prices, or index of prices, of

underlying securities.

PARTICIPANTS:

The following three broad categories of participants in the derivatives market.

HEDGERS:

6edgers face risk associated with the price of an asset. They use futures oroptions markets to reduce or eliminate this risk.

SPECULATORS:

+peculators wish to bet on future movements in the price of an asset. %utures

and options contracts can give them an extra leverage? that is, they can increase

both the potential gains and potential losses in a speculative venture.

ARBITRAGEURS:

Arbitrageurs are in business to take advantage of a discrepancy between

prices in two different markets. "f, for example, they see the futures price of an

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asset getting out of line with the cash price, they will take offsetting positions in

the two markets to lock in a profit.

UNCTIONS O DERI!ATI!ES "AR#ET:

The following are the various functions that are performed by the derivatives

markets. They are

*rices in an organi!ed derivatives market reflect the perception of market

participants about the future and lead the prices of underlying to the perceived

future level.

Derivatives market helps to transfer risks from those who have them but may

not like them to those who have an appetite for them.

Derivative trading acts as a catalyst for new entrepreneurial activity.

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

T$PES O DERI!ATI!ES:

The following are the various types of derivatives. They are :

OR%ARDS:

A forward contract is a customi!ed contract between two entities, where

settlement takes place on a specific date in the future at today0s pre5agreed price

UTURES<



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.

OPTIONS

'ptions are of two types 5 calls and puts. 8alls give the buyer the right but

not the obligation to buy a given #uantity of the underlying asset, at a given price

on or before a given future date. *uts give the buyer the right, but not the

obligation to sell a given #uantity of the underlying asset at a given price on or

before a given date.

%ARRANTS

'ptions generally have lives of up to one year? the ma ority of options traded

on options exchanges having a maximum maturity of nine months. Bonger5dated

options are called warrants and are generally traded over5the5counter.

LEAPS

The acronym BCA*+ means Bong5Term C#uity Anticipation +ecurities.

These are options having a maturity of up to three years.

BAS#ETS

3asket options are options on portfolios of underlying assets. The

underlying asset is usually a moving average of a basket of assets. C#uity index

options are a form of basket options.

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S%APS

+waps 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

Intere&t rate &'a(&:

These entail swapping only the interest related cash flows between the

*arties in the same currency.

C)rrency &'a(&:

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.

S'a(tion&:

+waptions are options to buy or sell a swap that will become operative at the

expiry of the options. Thus a +waptions is an option on a forward swap.

RATIONALE BEHIND THE DE!ELOP"ENT O DERI!ATI!ES:

6olding portfolio of securities is associated with the risk of the possibility

that the investor may reali!e his returns, which would be much lesser than what heexpected to get. There are various factors, which affect the returns

1. *rice or dividend 9interest;.

$. +ome are internal to the firm like 2

"ndustrial policy

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)anagement capabilities

8onsumer0s preference

Babor strike, etc.

These forces are to a large extent controllable and are termed as non+ystematic risks. An investor can easily manage such non5systematic by having a

well 2 diversified portfolio spread across the companies, industries and groups so

that a loss in one may easily be compensated with a gain in other.

There are yet other types of influences which are external to the firm, cannot be

controlled and affect large number of securities. They are termed as systematic

risk. They are

1. Cconomic

$. *olitical

(. +ociological changes are sources of systematic risk.

%or instance, inflation, interest rate, etc. their effect is to cause prices of

nearly all individual stocks to move together in the same manner. Ee therefore

#uite often find stock prices falling from time to time in spite of company0searnings rising and vice versa.

:ationale behind the development of derivatives market is to manage this

systematic risk, li#uidity and li#uidity in the sense of being able to buy and sell

relatively large amounts #uickly without substantial price concessions.

"n debt market, a large position of the total risk of securities is systematic.Debt instruments are also finite life securities with limited marketability due to

their small si!e relative to many common stocks. Those factors favor for the

purpose of both portfolio hedging and speculation, the introduction of a derivative

security that is on some broader market rather than an individual security.

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"ndia has vibrant securities market with strong retail participation that has

rolled over the years. "t was until recently basically cash market with a facility to

carry forward positions in actively traded FA0 group scrips from one settlement to

another by paying the re#uired margins and borrowing some money and securities

in a separate carry forward session held for this purpose. 6owever, a need was felt

to introduce financial products like in other financial markets world over which are

characteri!ed with high degree of derivative products in "ndia.

Derivative products allow the user to transfer this price risk by looking in

the asset price there by minimi!ing the impact of fluctuations in the asset price on

his balance sheet and have assured cash flows.

Derivatives are risk management instruments, which derive their value from

an underlying asset. The underlying asset can be bullion, index, shares, bonds,

currency etc

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AN$ E*CHANGE UL ILLING THE DERI!ATI!E SEG"ENT AT

NATIONAL STOC# E*CHANGE:

The derivatives segment on the exchange commenced with +&* 8-G -ifty

"ndex futures on une 1$, $ . The %&' segment of -+C provides trading

facilities for the following derivative segment

1. "ndex 3ased %utures

$. "ndex 3ased 'ptions

(. "ndividual +tock 'ptions

. "ndividual +tock %utures

REGULATOR$ RA"E%OR#:

The trading of derivatives is governed by the provisions contained in the +8

9:; A, the +C3" Act and the regulations framed there under the rules and byelaws

of stock exchanges.

Re+) ation -or Deri ati e Tradin+:

+C3" set up a $ member committed under 8hairmanship of Dr.B.8.Hupta

develop the appropriate regulatory framework for derivative trading in "ndia. The

committee submitted its report in )arch 1<<@. 'n )ay 11, 1<<@ +C3" accepted

the recommendations of the committee and approved the phased introduction of

Derivatives trading in "ndia beginning with +tock "ndex %utures. +C3" also

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approved he =+uggestive bye5laws> recommended by the committee for regulation

and control of trading and settlement of Derivatives contracts.

The provisions in the +8 9:; A govern the trading in the securities. The

amendment of the +8 9:; A to include =DC:"IAT"IC+> within the ambit of

F+ecurities0 in the +8 9: ; A made trading in Derivatives possible within the

framework of the Act.

1. Cligibility criteria as prescribed in the B.8. Hupta committee report may

apply to +C3" for grant of recognition under +ection of the +8 9 : ; A,

1< 4 to start Derivatives Trading. The derivatives exchange/segment should

have a separate governing council and representation of trading / clearing

members shall be limited to maximum of J of the total members of the

governing council. The exchange shall regulate the sales practices of its

members and will obtain approval of +C3" before start of Trading in any

derivative contract.

$. The exchange shall have minimum members.

(. The members of an existing segment of the exchange will not automatically become the members of the derivative segment. The members of the

derivative segment need to fulfill the eligibility conditions as lay down by

the B.8.Hupta 8ommittee.

. The clearing and settlement of derivates trades shall be through a +C3"

approved 8learing 8orporation / 8learing house. 8learing 8orporation /

8learing 6ouse complying with the eligibility conditions as lay down

3y the committee have to apply to +C3" for grant of approval.

. Derivatives broker/dealers and 8learing members are re#uired to seek

registration from +C3".

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4. The )inimum contract value shall not be less than :s.$ Bakh. Cxchanges

should also submit details of the futures contract they purpose to introduce.

7. The trading members are re#uired to have #ualified approved user and sales

person who have passed a certification programmed approved by +C3".

Futures

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DE INITION

A %utures contract is an agreement between two parties to buy or sell an

asset at a certain time in the future at a certain price. To facilitate li#uidity in the

futures contract, the exchange specifies certain standard features of the contract.

The standardi!ed items on a futures contract are

♦ Kuantity of the underlying

♦ Kuality of the underlying

♦ The date and the month of delivery

♦ The units of price #uotations and minimum price change

♦ Bocations of settlement

Ty(e& o- -)t)re&:

'n the basis of the underlying asset they derive, the futures are divided into

two types

Stoc/ -)t)re&:

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.

Inde0 -)t)re&:17



"ndex futures are the futures, which have the underlying asset as an "ndex.

The "ndex futures are also cash settled. The settlement price of the "ndex futures

shall be the closing value of the underlying index on the expiry date of the

contract.

PARTIES IN THE UTURES CONTRACT:

There are two parties in a future contract, the 3uyer and the +eller. The

buyer of the futures contract is one who is LONG on the futures contract and the

seller of the futures contract is one who is SHORT on the futures contract.

The pay off for the buyer and the seller of the futures contract are as follows.

PA$O OR A BU$ER O UTURES:

CASE 1:

1@

LOSS

PROFIT

F

L

P

E1

E2



The buyer bought the future contract at 9%;? if the futures price goes to C1

then the buyer gets the profit of 9%*;.

CASE 2:

The buyer gets loss when the future price goes less than 9%;, if the futures

price goes to C$ then the buyer gets the loss of 9%B;.

PA$O OR A SELLER O UTURES:

% 2 % T :C+ *:"8C

C1, C$ 2 +CTTBC)C-T *:"8C.

CASE 1:

The +eller sold the future contract at 9f;? if the futures price goes to C1 then

the +eller gets the profit of 9%*;.

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F

LOSS

PROFIT

E1

P

E2

L



CASE 2:

The +eller gets loss when the future price goes greater than 9%;, if the futures

price goes to C$ then the +eller gets the loss of 9%B;.

"ARGINS:

)argins are the deposits, which reduce counter party risk, arise in a futures

contract. These margins are collected in order to eliminate the counter party risk.

There are three types of margins

INITIAL "ARGIN:

Ehenever a futures contract is signed, both buyer and seller are re#uired to

post initial margin. 3oth buyer and seller are re#uired to make security deposits

that are intended to guarantee that they will infact be able to fulfill their obligation.

These deposits are "nitial margins and they are often referred as performance

margins. The amount of margin is roughly J to 1 J of total purchase price of

futures contract.

"AR#ING TO "AR#ET "ARGIN :

The process of ad usting the e#uity in an investor0s account in order to

reflect the change in the settlement price of futures contract is known as )T)

)argin.

"AINTENANCE "ARGIN:

The investor must keep the futures account e#uity e#ual to or greater than

certain percentage of the amount deposited as "nitial )argin. "f the e#uity goes

less than that percentage of "nitial margin, then the investor receives a call for an

additional deposit of cash known as )aintenance )argin to bring the e#uity up to

the "nitial margin.

ROLE O "ARGINS:$



The role of margins in the futures contract is explained in the following

example.

+ sold a +atyam une futures contract to 3 at :s.( ? the following table

shows the effect of margins on the contract. The contract si!e of +atyam is 1$ .

The initial margin amount is say :s.$ , the maintenance margin is 4 J of

"nitial margin.

DAL *:"8C '% +ATLA) C%%C8T '-

3 LC: 93;

C%%C8T '-

+CBBC: 9+;

:C)A:M+

1

$

(

( .

(119price increased;

$@7

(

)T)

*/B

3al. in )argin

N1(,$

5$@,@N1 ,

N$1,4

)T)

*/B

3al. in )argin

51(,$N1(,$

N$@,@

5$1,4

8ontract isentered andinitial margin isdeposited.

3 got profit and+ got loss, +deposited

maintenancemargin.

3 got loss anddepositedmaintenancemargin.

3 got profit, +got loss.8ontract settled

at ( , totally 3got profit and +got loss.

Pricin+ t3e )t)re&:

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The fair value of the futures contract is derived from a model known as the

8ost of 8arry model. This model gives the fair value of the futures contract.

Co&t o- Carry "ode :

%O+ 91Nr5#; t

Ehere

4 )t)re& Price

S 4 S(ot (rice o- t3e Under yin+

r 4 Co&t o- inancin+

5 4 E0(ected Di idend $ie d

T 4 Ho din+ Period.

)t)re& termino o+y:

S(ot (rice:The price at which an asset trades in the spot market.

)t)re& (rice: The price at which the futures contract trades in the futures market.

Contract cyc e:The period over which a contract trades. The index futures contracts on the

-+C have one5month, two5months and three5month expiry cycles which expire on

the last Thursday of the month. Thus a anuary expiration contract expires on the

last Thursday of anuary and a %ebruary expiration contract ceases trading on the

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last Thursday of %ebruary. 'n the %riday following the last Thursday, a new

contract having a three5month expiry is introduced for trading.

E0(iry date:

"t is the date specified 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 &i6e:

The amount of asset that has to be delivered under one contract. %or

instance, the contract si!e on -+C0s futures market is $ -ifties.

Ba&i&:

"n 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

each contract. "n a normal market, basis will be positive. This reflects that futures

prices normally exceed spot prices.

Co&t o- carry:

The relationship between futures prices and spot prices can be summari!ed

in terms of what is known as the cost of carry. This measures the storage cost plus

the interest that is paid to finance the asset less the income earned on the asset.

O(en Intere&t:

Total outstanding long or short positions in the market at any specific time.

As total long positions for market would be e#ual to short positions, for calculation

of open interest, only one side of the contract is counted.

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Trading$



TRADING INTRODUCTION

The futures & 'ptions trading system of -+C, called -CAT5%&' trading

system, provides a fully automated screen5based trading for -ifty futures &

options and stock futures & 'ptions on a nationwide basis as well as an online

monitoring and surveillance mechanism. "t supports an order driven market and

provides complete transparency of trading operations. "t is similar to that of trading

of e#uities in the cash market segment.

The software for the %&' market has been developed to facilitate efficient andtransparent trading in futures and options instruments. Meeping in view the

familiarity of trading members with the current capital market trading system,

modifications have been performed in the existing capital market trading system so

as to make it suitable for trading futures and options.

'n starting -CAT 9-ational Cxchange for Automatic Trading; Application, the

log on 9*ass Eord; +creen Appears with the %ollowing Details.

1; ser "D

$; Trading )ember "D

(; *assword 2 -CAT 8) 9default *ass word;

; -ew *ass Eord

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Note: 7 1; ser "D is a ni#ue

$; Trading )ember "D is ni#ue & %unction? it is 8ommon for all user of

the Trading )ember

(; -ew password 2 )inimum 4 8haracteristic, )aximum @ characteristics

only ( attempts are accepted by the user to enter the password0 to open

the +creen

; "f password is forgotten the ser re#uired informing the Cxchange in

writing to reset the *assword.

TRADING SYSTEM

-ation wide5online5fully Automated +creen 3ased Trading +ystem 9+3T+;

• *rice priority

• Time *riority

-ote 5 1; -CAT system provides open electronic consolidated limit orders book

9'C8B'3;

$; Bimit order means +tated Kuantity and stated priceBe-ore O(enin+ t3e mar/et

ser allowed to set p 1; )arket Eatch +creen

$; "n#uiry +creens 'nly

O(en (3a&e 8O(en Period9

ser allowed to 1; Cn#uiry

$; 'rder Cntry

(; 'rder )odification

; 'rder 8ancellation

; 'rder )atching

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"ar/et c o&in+ (eriod

ser Allowed only for in#uiries

S)rcon (eriod

9+urveillance & 8ontrol period;

The +ystem process the Date, for making the system, for the -ext Trading day.

Lo+ o- t3e Screen 8Be-ore S)rcon Period9

The screen shows 5 1; *ermanent sign off -ot allowed in#uiry

$; Temporary sign off and (; Cxit 'rder *lacing

Permanent &i+n o--: 5 market not updates.

Tem(orary &i+n o--: 5 market up date 9temporary sign off, after minutes

Automatically Activate;

E0it: 7 the user comes out sign off +creen.

Loca Data a&e

Bocal Database is used for all in#uiries made by the user for 'wn 'rder/Trades

"nformation. "t is used for corporate manger/ 3ranch )anager )akes in#uiries for

orders/ trades of any branch manager /dealer of the trading firm, and then the

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in#uiry is +erviced 3y the host. The local database also includes message of

security information.

Tic/er %indo'

The ticker window displays information of All Trades in the system.

The user has the option of +electing the +ecurity, which should be appearing in

the ticker window.

"ar/et 'atc3 %indo'

Title 3ar Title 3ar +hows -CAT, Date & Time.

)arket watch window felicitate to set only +crip0s, 3ut the ser set up a

)aximum of ( +ecurities in one *age.

"BP 8"ar/et y Price9

)3* 9%4; +creen shows Total 'ut standing 'rders of a particular security, in the

)arket, Aggregate at each price in order of 3est prices.

"t +hows 5 :B 'rder 9:egular Bot 'rder;

+B 'rder 9+top Boss 'rder;

+T 'rder 9+pecial Term 'rders;

3uy 3ack 'rder with FP0 +ymbol

* O indicate *re 'pen *osition

+ O "ndicate +ecurity +uspend

Re(ort Se ection %indo'

"t facilitates to print each copy of report at any time. These :eports are

19 O(en order re(ort :7 %or details of out standing orders

29 Order o+ re(ort:7 %or details of orders placed, modified & cancelled

;9 Trade Done7today re(ort :7 %or details of orders traded

<9 "ar/et Stati&tic& re(ort: 7 %or details of all securities traded

"nformation in a Day

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Internet Bro/in+

1; -+C introduced internet trading system from %ebruary $

$; 8lient place the order through brokers on order routing system

%AP 8%ire e&& A(( ication Protoco 9

1; -+C."T Baunches the from -ovember $

$; 1 st +tep5getting the permission from exchange for EA*

(; $ nd step5Approved by the +C3"9+C3" Approved only for +C3" registered

)embers;

*.2= Addre&& c3ec/

G.$ Address check, is performed in the -CAT system, when the user log on intothe -CAT, system & during report down load re#uest.

TP 8 i e Tran&-er (rotoco 9

1; -+C *rovide for each member a separate directory 9%ile; to know their trading

DATA, clear DATA, bill trade :eport.$; -+C *rovide in Addition a =8ommon> directory also, to know circulars,

-8%) & 3hava 8opy information.

(; %T* is connected to each member through I+AT, leased line and internet.

; I+AT 9%:') 1 *) to < ( A);, "nternet 9$ 6ours;.

Sna( S3ot Data Ba&e

+nap shot data base provides +nap shot of the limit order book at many time points

in a day.

Inde0 Data Ba&e

"ndex Data 3ase provides information about stock market indexes.

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Trade Data Ba&e

Trade Data 3ase provides a data base of every single traded order, take place inexchange.

BASKET TRADING SYSTEM

1; Taking advantage for easy arbitration between future market and & cash market

difference, -+C introduce basket trading system by off setting positions through

off line5order5entry facility.

$; 'rders are created for a selected portfolio to the ratio of their market

8apitali!ation from 1 lake to ( corers.

(; O-- ine7order7entry -aci ity: 7 generate order file in as specified format out side

the system & up load the order file in to the system by invoking this facility in

3asket trading system.

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TRADING NETWORK

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Ho din+ o- S3are& 8!otin+ Ri+3t9 di&c o&in+ o i+ation

($

NSE MAIN FRAME

HUB ANTENNA SATELLITE

BROKER’S PREMISES



1; Any person or Director or officer or the company

$; )ore than J share or voting :ight

(; Eith in th day inform to company is necessary

; 8ompany inform with in th day to stock exchange is compulsory

ir&t Started

)t)re tradin+ 8hicago 3oard of Trading 1@ @

inancia )t)re Tradin+ 8)C 98hicago )ercantile Cxchange 1<1<;

Stoc/ Inde0 )t)re& kansas 8ity 3oard of trade

O(tion ir&t Trade 6olland 5 Tulip 3alabmania

BRO#ER 8Tradin+ "em er98Bro/er mean& a mem er in reco+ni6ed &toc/ e0c3an+e 9

E i+i i ity: $1 tears, graduation, $ years experience in stock market relative Affairs

and

• ( Bakhs paid up capital

• 1 lakhs net worth

• 1$ lakhs interest free security deposit

• $ lakhs collatery security deposit

• 1 lakh annual business subscription

BRO#ER > CLIENT RELATION SHIP((



1; %ill the client :egistration Application form 9for all details of clients;.

$; Agreement on non5 udicial form 9+pecified by SEBI that form;

(; PAN, *ass *ort, Driving Bicense or voter "dentity card 9 SEBI :egistration

-umber in case of II?&; 5 *an 8ards is must to future and option trading.

; And than Allot5 ni#ue client code

; Take copy of instruction in writing before placing order, cancellation &

modification.

4; "f order values exceed 1 lakh maintain the client record for 7 years.

7; 'n conformation any order, issue contract note within $ hours.

@; 8ollect margin of , & multiple with 1 , .

NOTE 5 *A- is compulsory if the transaction cost exceed :s.1 lakh.

<; "ssuing the =know your client =form is must.

or Contin)in+ "em er&3i(7Tradin+ "em er) -i t3e -o o'in+ doc)ment&.

1; Audited two important %inancial +tatements 9profit & Boss account, balance

+heet;

$; -et worth certificate 98ertificate by 8A;

(; Details of Directors, share holders 9certificate by 8A;

; :enewal insurance covering proof.

SUB BRO#ER

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1; Cligibility 5 $1 years, 1 N$ #ualification and paid up capital = a/3&.

$; -ot convicted involving fraud and dishonesty.

(; -ot debarred by +C3" previously.

; 1J of shares as dominant promoters his/her and his/her spouse.

; %irst application to stock exchange5+tock exchange send his application to

+C3"5+C3" satisfied issued 8ertificate :egistration.

4; A registered sub5broker, holding registration, granted by +C3" on the

:ecommendations of a trading member, can transact through the member

9broker; who had recommend his application for registration.

7; )aximum 3rokerage 8ommission 1. J

@; *urchase note and sales note issued by the sub broker with $ hours.

In e&tor (rotection )nd

1; "nvestor protection fund setup under 3ombay public trust Act 1< .

$; "*% maintained by -+C Cxact mane of this fund is -+C "nvestors *rotection

%und Trust.(; Any )ember defaulted the "*% paid maximum 1 lakhs only to each investor.

; 8lient against default member, customer have right to apply within ( months

from the date of *ublishing notice by a widely circulated minimum one daily

-ews paper.

Demat o- t3e S3are&

(



1; Agreement with depository by security holder 9at the time opening the demat

account;

$; +urrender the security certificates to =issuer> 98ompany;for cancellation

(; "ssuer 9company; informs the =depository> about the transfer of the shares.

; *articipant 98ompany; informs the =depository> about the transfer of the

shares.

; =Depository> records the =transferee> name as =beneficial owner> in =book

entry form> in his records.

4; Cach custodian/clearing member is re#uiring maintaining a 8lear pool account

with depositaries.

7; The investor has no restriction and has full right to open many 9number of;

depository accounts

@; +hares or securities are transferred from one account to another account only

on the instruction of the beneficial owner.

ISIN 8Internationa Sec)ritie& Identi-ication N)m er9

• Any company going to foe demateriali!ed with shares that company get

this "+"- for demat shares.• "+"- is assigned by +C3".

• "+"- is allotted by -+DB.

"ain O @ecti e& o- Demat Tradin+

1; %reely transferability

$; Demateriali!ed in depository mode

(; )aintenance of ownership records in book entry form

(4



Chapter 3

INDUSTRY PROFILE

HISTORY OF STOCK EXCHANGE

(7

http://www.nseindia.com/homepage.htm



The only stock exchanges operating in the 1< th century were those of

3ombay set up in 1@7 and Ahmedabad set up in 1@< . These were organi!ed as

voluntary non profit5making association of brokers to regulate and protect their

interests. 3efore the control on securities trading became central sub ect under the

constitution in 1< , it was a state sub ect and the 3ombay securities contracts

9control; Act of 1<$ used to regulate trading in securities. nder this act, the

3ombay stock exchange was recogni!ed in 1<$7 and Ahmedabad in 1<(7.

During the war boom, a number of stock exchanges were organi!ed in

3ombay, Ahmedabad and other centers, but they were not recogni!ed. +oon after it

became a central sub ect, central legislation was proposed and a committee headed

by A.D. Horwala went into the bill for securities regulation. 'n the basis of the

committee0s recommendations and public discussion, the securities contracts

9regulation; Act became law in 1< 4.

DEFINITION OF STOCK EXCHANGE

(@



=+tock exchange means any body or individuals whether incorporated or

not, constituted for the purpose of assisting, regulating or controlling the business

of buying, selling or dealing in securities>.

"t is an association of member brokers for the purpose of self5regulation and

protecting the interests of its members.

"t can operate only if it is recogni!ed by the Hovernment under the securities

contracts 9regulation; Act, 1< 4. The recognition is granted under section ( of the

Act by the central government, )inistry of %inance.

B$LA%S

3esides the above act, the securities contracts 9regulation; rules were also

made in 1<7 to regulative certain matters of trading on the stock exchanges. There

are also bylaws of the exchanges, which are concerned with the following sub ects.

'pening / closing of the stock exchanges, timing of trading, regulation of blank transfers, regulation of 3adla or carryover business, control of the settlement

and other activities of the stock exchange, fixating of margin, fixation of market

prices or making up prices, regulation of taravani business 9 obbing;, etc.,

regulation of brokers trading, brokerage chargers, trading rules on the exchange,

arbitrage and settlement of disputes, settlement and clearing of the trading etc.

REGULATION O STOC# E*CHANGES

The securities contracts 9regulation; act is the basis for operations of the

stock exchanges in "ndia. -o exchange can operate legally without the government

(<



permission or recognition. +tock exchanges are given monopoly in certain areas

under section 1< of the above Act to ensure that the control and regulation are

facilitated. :ecognition can be granted to a stock exchange provided certain

conditions are satisfied and the necessary information is supplied to the

government. :ecognition can also be withdrawn, if necessary. Ehere there are no

stock exchanges, the government licenses some of the brokers to perform the

functions of a stock exchange in its absence.

SECURITIES AND E*CHANGE BOARD O INDIA 8SEBI9.

+C3" was set up as an autonomous regulatory authority by the government of "ndia

in 1<@@ =to protect the interests of investors in securities and to promote the

development of, and to regulate the securities market and for matter connected

therewith or incidental thereto>. "t is empowered by two acts namely the +C3" Act,

1<<$ and the securities contract 9regulation; Act, 1< 4 to perform the function of

protecting investor0s rights and regulating the capital markets.

BOMBAY STOCK EXCHANGE



This stock exchange, )umbai, popularly known as =3+C> was

established in 1@7 as =The -ative share and stock brokers association>, as a

voluntary non5profit making association. "t has an evolved over the years into its

present status as the premiere stock exchange in the country. "t may be noted that

the stock exchanges the oldest one in Asia, even older than the Tokyo stock

exchange, which was founded in 1@7@.

The exchange, while providing an efficient and transparent market for

trading in securities, upholds the interests of the investors and ensures redressed of

their grievances, whether against the companies or its own member brokers. "t also

strives to educate and enlighten the investors by making available necessary

informative inputs and conducting investor education programs.

A governing board comprising of < elected directors, $ +C3" nominees, 7

public representatives and an executive director is the apex body, which decides is

the apex body, which decides the policies and regulates the affairs of the exchange.

The Cxchange director as the chief executive offices is responsible for the

daily today administration of the exchange.

BSE INDICES:

1



"n order to enable the market participants, analysts etc., to track the

various ups and downs in the "ndian stock market, the Cxchange has introduced in

1<@4 an e#uity stock index called 3+C5+C-+CG that subse#uently became the

barometer of the moments of the share prices in the "ndian stock market. "t is a

=)arket capitali!ation weighted> index of ( component stocks representing a

sample of large, well5established and leading companies. The base year of sensex

1<7@57<. The +ensex is widely reported in both domestic and international markets

through print as well as electronic media.

+ensex is calculated using a market capitali!ation weighted method. As per

this methodology the level of the index reflects the total market value of all ( 5

component stocks from different industries related to particular base period. The

total market value of a company is determined by multiplying the price of its stock

by the nu7mber of shared outstanding. +tatisticians call index of a set of combined

variables 9such as price and number of shares; a composite "ndex. An indexed

number is used to represent the results of this calcution in order to make the value

easier to go work with and track over a time. "t is much easier to graph a chart

based on "ndexed values than on based on actual valued world over ma ority of thewell5known "ndices are constructed using =)arket capitali!ation weighted

method>.

"n practice, the daily calculation of +C-+CG is done by dividing the

aggregate market value of the ( companies in the index by a number called the

"ndex Divisor. The divisor is the only link to the original base period value of the

+C-+CG. The Devisor keeps the "ndex comparable over a period value of time

and if the references point for the entire "ndex maintenance ad ustments. +C-+CG

$



is widely used to describe the mood in the "ndian stock markets. 3ase year average

is changed as per the formula new base year average O old base year averageP9new

market value / old market value;.

NATIONAL STOC# E*CHANGE

The -+C was incorporated in -ov, 1<<$ with an e#uity capital of :s.$ crs.

The international securities consultancy 9"+8; of 6ong Mong has helped in setting

up -+C. "+8 has prepared the detailed business plans and initiali!ation of

hardware and software systems. The promotions for -+C were financial

institutions, insurances, companies, banks and +C3" capital market ltd,"nfrastructure leasing and financial services ltd and stock holding corporations ltd.

"t has been set up to strengthen the move towards professionalisation of the

capital market as well as provide nation wide securities trading facilities to

investors.

-+C is not an exchange in the traditional sense where brokers own and

manage the exchange. A two tier administrative set up involving a company board

and a governing aboard of the exchange is envisaged.

-+C is a national market for shares *+ bonds, debentures and government

securities since infrastructure and trading facilities are provided.

(



NSE7NI T$ :

The -+C on Apr$$, 1<<4 launched a new e#uity "ndex. The -+C5 . The

new "ndex which replaces the existing -+C51 "ndex is expected to serve as an

appropriate "ndex for the new segment of future and option.

=-"%TL> mean -ational "ndex for fifty stocks. The -+C5 comprises fifty

companies that represent $ board industry groups with an aggregate market

capitali!ation of around :s 1, 7 , crs. All companies included in the "ndex have

a market capitali!ation in excess of :s. crs each and should have trade for @ J

of trading days at an impact cost of less than 1. J.

The base period for the index is the close of price on -ov ( 1<< , which

makes one year of completion of operation of -+C0s capital market segment. The

base value of the index has been set at 1 .



NSE7"IDCAP INDE*:

The -+C madcap index or the unior nifty comprises stocks that represent

$1st board industry groups and will provide proper representation of the midcap

segment of the "ndian capital market. All stocks in the "ndex should have market

capitali!ation of grate than :s.$ crs and should have traded @ J of the trading

days at an impact cost of less than $. J.

The base period for the index is -ov 1<<4, which signifies $ years for

completion of operations of the capital market segment of the operations. The base

value of the "ndex has been set at 1 .

Average daily turn over of the present scenario $ @$1$ 9Baces; and number

of average daily trades $14 9Baces;.

At present there are $ stock exchanges recogni!ed under the securitiescontract 9regulation Act, 1< 4.



Chapter - 4

COMPANY PROFILE

4



Profile Of The Organiza ion

Introd)ction to India ) &

"ndiabulls is "ndia0s leading %inancial and :eal Cstate 8ompany with a wide

presence throughout "ndia. They ensure convenience and reliability in all their

products and services. "ndiabulls has over 4 branches all over "ndia. The

customers of "ndiabulls are more than , , which covers from a wide range of

financial services and products from securities, derivatives trading, depositary

services, research & advisory services, consumer secured & unsecured credit, loan

against shares and mortgage & housing finance. The company employs around

:elationship managers who help the clients to satisfy their customi!ed

financial goals. "ndiabulls entered the :eal Cstate business in the year $ with its

group of companies. Barge scale pro ects worth several hundred million dollars areevaluated by them.

India ) & inancia Ser ice& Ltd is listed on the -ational +tock Cxchange

9-+C;, 3ombay +tock Cxchange 93+C; and Buxembourg +tock Cxchange. The

mar/et ca(ita i6ation of "ndiabulls is around USD 2= mi ion 9$<thDecember,

$ 4;. 8onsolidated net 'ort3 of the group is around USD mi ion. "ndiabulls

and its group companies have attracted +D million of e#uity capital in

%oreign Direct "nvestment 9%D"; since )arch $ . +ome of the large shareholders

of "ndiabulls are the largest financial institutions of the world such as %idelity

%unds, Holdman +achs, )errill Bynch, )organ +tanley and %arallon 8apital.

7



Hrowth of "ndiabulls$ear 2 7 1:

'ne of "ndia0s first trading platforms was set up by "ndiabulls %inancial +ervices

Btd. with the development of an in5house team.

$ear 2 17 ;:

The service offered by "ndiabulls was increased to include C#uity, %&',

Eholesale Debt, )utual fund, "*' %inancing/Distribution and C#uity :esearch.

$ear 2 ;7 <:

"n this particular year "ndiabulls ventured into Distribution and 8ommoditiesTrading business.

$ear 2 <7 =:

• This was one of the most important years in the history of "ndiabulls. "n this

year

• "ndiabulls came out with its initial public offer 9"*'; in +eptember $ .

•"ndiabulls started its 8onsumer %inance business.

• "ndiabulls entered the "ndian :eal Cstate market and became the first

company to bring %D" in "ndian :eal Cstate.

• "ndiabulls won bids for landmark properties in )umbai.

$ear 2 =7 :

"n this year the company ac#uired over 11 acres of land in +onepat for residentialhome site development. The world renowned investment banks like )errill Bynch

and Holdman +achs increased their shareholding in "ndiabulls. "t also became a

market leader in securities brokerage industry, with around (1J share in 'nline

Trading. The world0s largest hedge fund, %arallon 8apital and its affiliates

@



committed :s. $ million for "ndiabulls subsidiaries Ii!. "ndiabulls 8redit

+ervices Btd. and "ndiabulls 6ousing %inance Btd. "n the same year, the +teel

Tycoon )r. B - )ittal promoted B-) "ndia "nternet venture Btd. ac#uired @.$J

stake in "ndiabulls 8redit +ervices Btd.

$ear 2 7 :

"n this year, "ndiabulls %inancial +ervices Btd. was included in the prestigious

)organ +tanley 8apital "nternational "ndex 9)+8";. "ndiabulls %inancial +ervices

Btd. was benefited with the %arallon 8apital agreeing to invest :s. 4, million in

it. The company also received an =in principle approval> from Hovernment of

"ndia for development of multi product +CQ in the state of )aharashtra. "ndiabulls

%inancial +ervices Btd ac#uired 1 J of the e#uity share capital of -oble :ealtors

*vt. Btd. -oble :ealtors is a 8ompany engaged in the business of construction and

development of real estate pro ects. "ndiabulls :eal Cstate 3usiness was demerged

to become a separate entity called "ndiabulls :eal Cstate Btd. The 3oard of

"ndiabulls %inancial +ervices Btd., :esolved to Amalgamate "ndiabulls 8redit

+ervices Btd and demerge "ndiabulls +ecurities Bimited."ndiabulls %inancial +ervices Btd

<



T3e Board o- Director&

• +ameer Hehlaut 8hairman and 8C'

• Hagan 3anga Cxecutive Director

• :a iv :attan 8C'

• +hamsher +ingh Director

• Aishwarya Matoch Director

• Maran +ingh Director

• *rem *rakash )irdha Director

• +aurabh M )ittal Director

• Amit ain 8ompany +ecretary



Senior !ice Pre&ident

Re+iona "ana+er

Branc3 "ana+erSenior Sa e& "ana+er

S)((ort Sy&tem Sa e& )nction

R" SR"

AR"

Loca Com( ianceO--icer

Bac/ O--iceE0ec)ti e

Dea er

Or+ani6ation Str)ct)re7 Board o- Director&:

1



In!ia"#ll$ e%#ri ie$Tra!ing Pro!#% $

Ca&3 Acco)nt Intraday Acco)nt "ar+in Tradin+

Tradin+ Prod)ct& o- India ) & Sec)ritie&

"ndiabulls +ecurities provide three products for trading. They are

8ash Account

"ntraday Account

)argin Trading 9)antra;

$



Ca&3 Acco)nt "t provides the client to buy times of cash balance in his trading

account.

Intraday Prod)ct: "t provides the client to buy @ times of his cash balance in the

trading account.

"antra Acco)nt: Also called as margin trading, is a special account to buy on

leverage for a longer duration

India ) & inancia Ser ice& Ltd

"ndiabulls %inancial +ervices Btd. was incorporated in the year $ .The Auditors

of "ndiabulls %inancial +ervices Btd. are Deloitte, 6askins & +ells. The main

activity of this company is in relation to securities and stock brokerage. "t was also

responsible for setting up one of "ndia0s first trading platforms.

The subsidiaries of "ndiabulls %inancial +ervices Btd. include

• "ndiabulls 8apital +ervices Btd.

• "ndiabulls 8ommodities *vt. Btd.

• "ndiabulls 8redit +ervices Btd.

• "ndiabulls %inance 8o. *vt. Btd

• "ndiabulls 6ousing %inance Btd.

• "ndiabulls "nsurance Advisors *vt. Btd.

• "ndiabulls :esources Btd.

• "ndiabulls +ecurities Btd.

T3e Ban/er& o- India ) & inancia Ser ice& Ltd. are a& -o o'&:

A3-5Amro 3ank

(



Andhra 3ank

3ank of )aharashtra

3ank of :a asthan Btd.

8anara 3ank 8enturion 3ank of *un ab Btd.

8itibank

8orporation 3ank

Dena 3ank

6D%8 3ank Btd

6+38 Btd.

"8"8" 3ank Btd.

"D3" Btd

"ndustrial 3ank Btd.

"-H Iysya 3ank Btd

Marnataka 3ank

BM3 Btd

*un ab -ational 3ank

+tandard 8hartered 3ank

+tate 3ank 'f "ndia

+yndicate 3ank

nion 3ank 'f "ndia

T" 3ank Btd.

Les 3ank Btd.



Chapter – 5

ANALYSIS



LOT SIZE OF SELETTED COMPANIES FOR

ANALYSIS

8'DC B'T +"QC+ 8')*A-L -A)CBHEL 7 3harath 6eavy

Clectrical Btd.ONGC $$ 'il& -atural Has

8orporation

REL Ca(ita :eliance 8apital BtdTATA Stee (@$ TATA 8ompany Btd.

The following tables explain about the trades that took place in futures

between 1</ $/1 to $ / $/1 . The table has various columns, which explain

various factors involved in Derivating trading.

• Date 2 the day on which trading took place

4



• 8losing *remium 2 *remium for that day

• 'pen interest 2 -o. 'ptions that did not get exercised

• Traded #uantity 2 -o of %&' traded on bourses on that day.

• -.'.8 2 -o of 8ontracts traded on that day

• 8losing *rice 2 The price of the %utures at the end of the trading day.

UTURES O BHEL

DateddRmmRyy

'pen:s.

6igh:s.

Bow:s.

8lose:s.

'pen"nt9F ;

-.'.8

1<5 $51 $$ . $$4 . $$ . $$17.( 1414 (<$

$ 5 $51 $$ 1. $$ 1. $ <$.( $117.< 14 < 4<1

$15 $51 $1 . $17 . $ 1.$ $ @4.@ 144 7 47

$$5 $51 $ .1 $ 4$. $ $7. $ (.$ 1 @ (<<@

$ 5 $51 $ @. $1 . $ (7. $ <$.1 1 (1 @71

7



Date N.O.C

0

2000

4000

6000

8000

10000

19-02-09 20-02-09 21-02-09 22-02-09 25-02-09

Date N.O.C

INDINGS

The price rise from $$ . on first day to 1< th %ebruary, where it stood at

$$4 . as high. As the players in the market with an intention to short or

correct the market, the player0s showed a bearish attitude for the next day

where the price fell to $ <$.( and immediately rise to $117.< . Bater being

the last trading day of the week again the players became bears as to keep a

negative for the next week, which surge the price to $ (.$ for the last day

of the trading week.

."n the trading week most of the players closed up their contracts to make

profit. As the price was low, the open interest was low and the no. of

contracts traded declined to (<<@.@



There always exist an impact of price movements on open interest and

contracts traded. The futures market is also influenced by cash market,

-"%TL index future, and news related to the underlying assed or sector

9industry;, %""0+ involvement, national and international affairs etc.

UTURES O OIL > NATURAL GAS CORPORATION

DateddRmmRyy

'pen:s.

6igh:s.

Bow:s.

8lose:s.

'pen"nt9F ;

-.'.8

1<5 $51 1 ( .$ 1 <.4 1 $.< 1 @. 4 $11

$ 5 $51 <@<. 1 7.< <7 .1 <@<. 414$ @17<

$15 $51 1 . 1 1 .1 <7 . <<4.$ (1 4

$$5 $51 <7$.( <<4. <7$.( << .1 7 7 4<7<



$ 5 $51 << .@ 1 $$.7 << .@ 1 14. 141 <($@

Type e#uation here.

Closing price movement of the ON C

9!0

980

990

1000

1010

1020

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date Close "s.

Date Open Int(‘000)

02000

400060008000

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date OpenInt(‘000)

No of contractc traded per day

02000400060008000

10000

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date N.O.C

INDINGS

After the market is #uite relieved by the fall in the discount on the -"%T in

the futures segment, which was used by players to short the market. The

4



market showed a positive upward movement in %&' segment and cash

market during the first day of the week.

The future of '-H8 had shown a bears way till $th

day of the week whose

impact shown on the open interest and contracts traded.

The market for '-H8 on the day of the trading week showed a decline in

the closing price when compare with the weeks high price. The open interest

closed at 141 with lowest <($@ contracts on the last trading day of the

week.

UTURES O REL CAPITAL

41



DateddRmmRy

y

'pen:s.

6igh:s.

Bow:s.

8lose:s.

'pen"nt9F

;

-.'.8

1<5 $51 $1 <. $1< .@ $ (@. $14 .$ $4( 1 (1

$ 5 $51 $1(<. $14<.< 1<@4.@ $ 4.( $7< 1 7$@

$15 $51 $ (4.@ $ 7@. 1< . $ . $7 4 1 1(

$$5 $51 1< . 1<44. 1@@$.$ 1< 4.( $7 1 441

$ 5 $51 1<$ .( 1< . 1@4$.$ 1< . $4@ <1<7

c o!"n# pr"ce $o%e$ent of &e cap

2165.25

2006.'2005.51906.'5 1940

1 0018001900200021002200

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date C o!e&!.

No of contracts tra#e# per #a$

0

5000

10000

15000

20000

19-02-09 20-02-09 21-02-09 22-02-09 25-02-09

Date N.O.C

Date Open Int(‘000)

2550260026502 002 5028002850

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date OpenInt(‘000)

4$



INDINGS

The trading week showed a high and low strike prices or exercising prices

for the

:CB 8apital futures.

The open interests shown bears market because of the huge correction done

by the %"" 9%oreign "nstitutional investors; in flows.

The number of contracts traded high at 1 7$@ and low at <1<7

4(



UTURES O TATA STEEL

closi ng price movements of tata steel

815.15

!!2.%

808.65 80! 810.%5

!50

!60

!!0

!80!90

800

810

820

19-02-09 20-02-09 21-02-09 22-02-09 25-02-09

Date Close "s.

NO O) CON*&+C*, *&+D D & D+/

0

5000

10000

15000

20000

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date N.O.C

Date Open &nt'(000)

6500

!000

!500

8000

8500

9000

19-02-09

20-02-09

21-02-09

22-02-09

25-02-09

Date Open &nt'(000)

4

DateddRmmRyy

'pen:s.

6igh:s.

Bow:s.

8lose:s.

'pen"nt9F ;

-.'.8

1<5 $51 @( .1 @(<. @1$. @1 .1 @714 1 < @$ 5 $51 @ <.< @1<.4 74 .1 77$.( @174 1(4$15 $51 7@$. @1 . 7@ . @ @.4 @17$ 1(<<7$$5 $51 7<(.1 @1<. 7<(.1 @ 7. 7 $@ 141<7$ 5 $51 @ 4.( @1(.< [email protected] @1 .( 7 1 1 4 4



INDINGS

The price gradually rises from 7@$. on the day to $1 st, where it stood at

@ @.4 as high. As the players in the market with an intention to short or

correct the market, the players showed a bullish attitude for the next day the

price rise to @1 .( .

The market was recovered faster from the bear market to bulls market for the

next week. The total price is rise to @(<. in the week.

The open interest of the tata steel was stood decline where the total week of

interest is ups and down where from @714 to 7 1

4



Chapter - 6

SUMMARY

AND

CONCLUSIONS44



CONCLUSIONS AND

RECOMMENDATIONS

The above analysis of %utures of B.H.E.L, O.N.G.C, REL

CAPITAL, TATA STEEL had shown a %lat market in the week.

The ma or factors that influence the %&' market are the cash market, %ull

involvement, -ews related to the underlying asset, -ational and

"nternational markets, :esearchers view etc.

"n bearish market it is suggested to an investor option for put option in order

to minimi!e losses.

"n a bullish market it is suggested to investors to option for call option in

order to maximi!e profit.

"n cash market the profit/loss is limited but where in %& ' an investor can

en oy unlimited profits/loss.

47



"t is recommended that +C3" should take measures in improving awareness

about the %&' market as it is launched very recently.

"t is suggested to an investor to keep in mind the time or expiry duration of

%&' contract before trading. The lengthy the time, the risk is low and profit

making. The fewer time may be high risk and chances of loss making.

At present scenario the Derivatives market is increased to a great position.

"ts daily turnover teaches to the e#ual stage of cash market.

The derivatives are mainly used for hedging purpose.

"n cash market the investor has to pay the total money, but in derivatives the

investor has to pay premiums or margins, which are some percentage of total

money.

"n derivative segment the profit/loss of the option holder/option writer is

purely depended on the fluctuations of the underlying asset.

4@



APPENDICES4<



GLOSSARY

Deri ati e& 5 Derivatives are instruments that derive their value and payoff from

another asset, called underlying asset.

Ca O(tion 2 the option t4o buy an asset is known as a call option

P)t o(tion 2 the option to an asset is called a put option.

E0erci&e Price& 2 The price at which option can be exercised is called an

exercise price or a strike price.

E)ro(ean o(tion 2 Ehere an option is allowed to be exercised only on the

maturity date, it is called a Curopean option

American o(tion 2 Ehen the option can be exercise(d any time before its

maturity, it is called an American 'ption.

In7t3e7money o(tion 2 A put or a call option is said to in5the5option when it is

advantageous for the investor to exercise it. "n the case of in5the5money call option,

7



the exercise price is less than the current value of the underlying asset, while in the

case of the in5the5money put options? the exercise price is higher than the current

value of stage underlying asset.

O)t7o-7t3e money o(tion 2 A put or call option is out5of5the5money if it is not

advantageous for the investor to exercise it. "n the case of the out5of5the5money

call option, the exercise price is less than the current value of the underlying asset,

Ehile in the case of the out 2 of5the5money put option, the exer cise price is lower

than the current value of the underlying asset.

At7t3e7o(tion 2 Ehen the holder of a put or a call option does not lose of gain

whether of not he exercises his option, the option is said to be at5the5money. "n the

case of the out5of5the5money option the exercise price is e#ual to the current value

of the underlying asset.

Stradd e 2 The investor can also create a portfolio of a call and a put with the

same exercise price. This is called a straddle.

S(read 2 "f call and put with different exercise price are combined, it is called a

spread.

Stri( 2 A strips is a combination of two puts and one call wit h the same exercise

price and the expiration date.

Stra( 2 A strap, on the other hand, entails combing two calls and one put.

71



S%APS 2 +waps are similar to futures and forwards contracts in providing hedge

against financial risk. A swap is an agreement between two parties, called

counterparties, to trade cash flows over a period of time.

C)rrency S'a(& 2 8urrency swaps involves an exchange of cans payments in

one currency for cash payments in another currency.

B)tter- y S(read 2 A long butterfly spread involves buying a call with a low

exercise price, buying a call with a high exercise price and selling tow calls with

an exercise price in between the two. A short butterfly spread involves the opposite

position? that is selling call with low exercise price, selling a call with a high

exercise price and buying two calls with an exercise price in between the two.

Co ar& 2 A collars involves a strategy of limiting a portfolio0s value between to

bounds.

B) i&3 &(read

2 An investor may be expecting the price of an underlying shareto rise. 3ut he may not like to take higher risk.

Beari&3 S(read 2 An investor, who is expecting a share of index to fall, may

sell the higher5Ppriced option and buy the lower5price option.

Inde0 o(tion& 2 "ndex options are call or put options on the stock markets

indices. "n "ndia, there are options on the 3ombay +tock Cxchange. +ensex and the

national +tock Cxchange -ifty.

7$



Premi)m 2 The price of an option co<ntract, determined on the exchange which

the buyer of the option pays to the options writer for the fights to the option

contract.

)t)re& 2 %utures is a financial contract which derives its value for the

underlying asset.

inancia )t)re& 2 %utures are traded in a wide variety of commodities

wheat, sugar, gold, silver, copper, oranges, coco, oil soybean etc.

or'ard 2 "n a forward contract, two parties agree to buy or sell some

underlying asset on some future date at a stated price and #uantity.

Inde0 -)t)re& 2 "ndex futures is one of the most successful financial innovation

of the financial market. "n 1<@$, the stock index future was introduced.

"ar+in

2 Depending upon the nature of the buyer and seller the marginre#uirement to deposit with the stock exchange is fixed.

"ar/et to "ar/et 2 A process of valuing 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.

Bad a 2 3adla is apart of the cash market. "t provided the facility of borrowing

and lending of shares and funds.

Hed+in+ 2 6edging is the term used for reducing risk by using derivatives.

7(



Ni-ty 2 -ifty has been selected as the base for the stock index futures. -ifty

contains a well5diversified portfolio of stocks.

BIBLOGRAPHY7



. BIBLOGRAPHY

Boo/& :7

Derivatives Dealers )odule Eork 3ook 5 -8%)%inancial %ebket and +ervices 5 H':DA- & -AT:A A-%inancial )anagement 5 *:A+A--A 86A-D:A%inancial risk management5Derivatives5options and futures5

Ne'& Pa(er& :7T6C %"-A-8"AB CG*:C++

3 +"-C++E':BD

C8'-')"8 T")C+

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