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1 INTRODUCTION
Indian securities markets have indeed waited for too long for derivatives trading to
emerge. Mutual Funds, FII’s (Foreign Institutional Investors) and other investors who are
deprived of hedging opportunities will now have a derivatives market to bank on. First to
While derivatives markets flourished in the developed world Indian markets remain
deprived of financial derivatives to the beginning of this millennium. While the rest of
the world progressed by leaps and bounds on the derivatives front, Indian market lagged
behind. Having emerged in the markets of the developed nations in the 1970s, derivatives
markets grew from strength to strength. The trading volumes nearly doubled in every
three years making it a trillion-dollar business. They became so ubiquitous that, now, one
Two broad approaches of SEBI is to integrate the securities market at the national level,
and also to diversify the trading products, so that more number of traders including
banks, financial institutions, insurance companies, mutual funds, primary dealers etc.
choose to transact through the Exchanges. In this context the introduction of derivatives
landmark.
1
SEBI first appointed the L.C.Gupta Committee in 1998 to recommend the regulatory
framework for derivatives trading and to recommend suggestive byelaws for Regulation
and Control of Trading and Settlement of Derivatives Contracts. The Board of SEBI in its
meeting held on May 11, 1998 accepted the recommendations of the Dr L.C.Gupta
beginning with Stock Index Futures. The Board also approved the "Suggestive Bye-laws"
recommended by the committee for Regulation and Control of Trading and Settlement of
Derivatives Contracts.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) needed amendment to
derivatives. The Government in the year 1999 carried out the necessary amendment. The
Securities Laws (Amendment) Bill 1999 was introduced to bring about the much-needed
changes. In December 1999 the new framework has been approved. Derivatives have
been accorded the status of `Securities'. The ban imposed on trading in derivatives way
back in 1969 under a notification issued by the Central Government has been revoked.
Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock
Exchanges in the year 2000, while derivative trading started in India at NSE in the same
year and BSE started trading in the year 2001. In this module we are covering the
different types of derivative products and their features, which are traded in the stock
exchanges in India.
2
Derivative is Financial Instrument whose value depends on the value of other investment
or consumption asset underlying in them. Very often the variables underlying derivatives
are the prices of trade assets. A stock option, for example, is a derivative whose value is
dependent on the price of a stock. However, derivatives can be dependent on almost any
variable from the price of hogs to the amount of snow falling at a certain ski resort.
price of the curd depends on the price of milk, which in turn depends upon the demand
and supply of milk. Derivative in short does not have a value by itself but it derives its
value from an underlying. In the above example the underlying is milk and the derivative
is curd.
In the last 20 years Derivatives have increasingly important in the world of finance.
Futures and Options are now traded actively on many exchanges through out the world,
forward contracts, swaps and many different types of options are regularly
treasures in what is termed the over the counter market. Derivatives are also some times
added to a bond or stock issue, there have been many developments in derivative
markets, there is now active trading in credit derivatives, electricity derivatives and
insurance derivatives, many new types of interest rates, foreign exchange and equity
3
Options are one better than futures. In option, as the name indicates, gives one party the
option to take or make deliver. But this option is given to only one party in the
transaction while the other party has an obligation to take or make delivery. The asset
The options are of two types, the call option and the put option. Call options give the
right but not the obligation to buy at a specified price up to a future date. They, thus
allow a purchase to be delayed while guaranteeing a maximum buying price. Put options
give the right but not the obligation to sell at a specified price up to a particular date in
the future. A put option thus provides a means of delaying the sale while guaranteeing a
minimum-selling price.
4
1.2 NEED OF THE STUDY
Derivative market is growing very rapidly as the investors are increasing from day to day
because of the usage of derivative is increasing day by day. Investors investing either in
commodity, currency, metal, index or stock derivatives, the importance of the derivative
is increasing because of low risk profile in capital market. The investor investing in
derivatives can get a more benefit/return by investing a small portion and this derivative
eliminates the risk for loosing a huge investment where only premium is paid based on
Call options gives the right but not the obligation to buy at a specified price up to a future
date. They thus allow a purchase to be delayed while guaranteeing a maximum buying
price. Put options give the right but not the obligation to sell at a specified price up to a
particular date in the future. A put option thus provides a means of delaying a sale while
This study makes us to understand the advantages of options of Tata Steel, DLF,
UNITECH, Infosys Technologies in the month of Feb & Mar 2010 at NSE.
5
1.3 OBJECTIVES OF THE STUDY
of a particular underlying.
options.
reference to equity.
6
1.4 SCOPE OF THE STUDY
1The study is permitted to study only 10 particular companies they are ICICI Bank,
2This study permitted to observe the market volatility for a period of 45 days only.
4To study the undertaken permits only the use of a secondary data only.
5The study was made only upon a part of a derivative market’s i.e., equity of specific
underlying assets.
.The study was limited to a particular strike price of a company of analyze the
7
1.5 RESEARCH METHODOLOGY
conducted on selected companies at INDIABULLS for a period of 45 days and all the
PRIMARY DATA
Primary sources of data are collected through personal interaction with concern
SECONDARY DATA
1 The data is collected through various, books, magazines, news papers, Journals
and also took the help of internal guide and external guide in collecting the
2 For better understanding Tables and Graphs were used wherever necessary.
3 Drawing conclusions by analyzing the collected data, interpreting the results from
8
EQUITY MARKET –AN INTRODUCTION
Equity: Stocks also know as Equities, are shares in a company. It is the certificate of
ownership of incorporation. In simple terms when you invest in a company’s stock or buy
its share, you own part of a company. Thus as stockholder, you share portion of the profit
the company may make, as well as portion of the loss a company may take. As the
company keeps doing better, your stock will increase in value and yield higher dividends.
Equity market or stock market: is a system through which a company shares are
positive rate of return. If the investment is properly undertaken the return will be
commensurate with the risk the investor assumes. The term investment or investing is a
word of many meanings; there are three concepts of investment Economic investment,
The Investment portfolio: Refers to the various assets of an investor, which are to be
assets but a carefully blended asset combination with as unified framework. The investor
takes decision with regards to his wealth position from the portfolio as a whole.
9
CLASSIFICATION OF INVESTORS
The kind of information required and the policy to be formulated depends on the kind of
1. Individual investor.
2. Institutional investors
Individual Investor find it difficult their portfolio investment policies, as they will busy
with their business, family and social lives and do not have time to conduct research to
decide in which shares their hard earned savings have to be invested. Therefore, they tend
The institutional investors have both time and resource to dig out the necessary
information to formulate their investment portfolio. They can afford to employ skilled
economists, financial analysts and investment managers. They can acquire all the
necessary financial information and in case inadequacy, they can also approach the
investor can have continuous review and scrutiny of its investment portfolio. In case of
adverse market conditions, they will be efficient to dispose off the securities. The
institutional investors own a major part of corporate securities and most of them into
buying and selling the securities as a part of their main policies of optimum utilisation of
10
SOME BASIC TERMS AND MEANINGS
2 Equity: Is the property of the ordinary share, hence these shares are popularly
known as equities.
3 Equity Markets: A market where investors buy and sell securities providing
4 Stock market: A market for the trading of publicly held company stock
5 Face value: Is the value of the shares issued for the first time
6 Market value: Market value is the value of shares, current selling price.
7 Capital Market: It is the market for long-term loans equity capital. Companies
and the government can raise funds for long-term investment via the capital
market.
8 Money Market: It is the market that details in short term liquid assets where
brokers and investment bankers providing the facility for trade of company stocks
acting as a broker for the purchase or sale of listed stock, the investment advisor
does not own the securities him or herself, but acts as an agent for the buyer and
11
11 Bull Markets: A market in which prices are rising. A ‘bull’ is a person who
expects that the market or the price of a particular security will rise.
12 Bear Market: A market in which prices are declining. A ‘bear’ is a person who
expects that the market or the price of a particular security will decline.
to trade company stocks and other securities. A stock may be bought or sold only
DERIVATIVES
The term "Derivative" indicates that it has no independent value, i.e. its value is entirely
"derived" from the value of the underlying asset. The underlying asset can b e
12
The Securities Contracts (Regulation) Act 1956 defines derivative
as under:
"Derivative" includes -
A security derived from a debt instrument, share, and loan whether secured or unsecured,
A contract, which derives its value from the prices, or index of prices of underlying
securities.
1. That derivative is financial products and derives its value from the underlying assets.
TYPES OF DERIVATIVES
settlement takes place on a specific date in the future at today’s pre-agreed price.
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.
3 . O p t i o n s : Options are of two types - calls and puts. Calls give the buyer the right but
not the obligation to buy a given quantity of the underlying asset, at a given price on or
before a given future date. Puts give the buyer the right, but not the obligation to sell a
given quantity of the underlying asset at a given price on or before a given date.
13
4 . W a r r a n t s : Options generally have lives of up to one year, the majority of options
underlying asset is usually a moving average of a basket of assets. Equity index options
7. Swaps: Swaps are private agreements between two parties to exchange cash flows in
forward contracts.
parties, with the cash flows in one direction being in a different currency than those in the
opposite direction.
8 . S w a p t i o n s : 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.
14
OPTIONS
that give buyers the right but not the obligation, to buy or sell a
The two most basic types of option contracts are call option and pt option. Currently such
options are traded on many exchanges around the world. Furthermore, many of these
contracts are created privately (“that is off exchange” or “over the counter”), typically
stocks. It gives the buyer the right to buy (“call away”) a specific number of shares of a
specific company from the option writer at a specific purchase price at any time up tp and
2 . P U T O P T I O N : A second type of option for stocks is the put option. It gives the
buyer the right to sell (“put away”) a specific number of shares of a specific company to
the option writer at a specific selling price at any time up to and including a specific date.
Exchange traded options are currently actively traded on stocks indices, foreign
15
1 . S t o c k O p t i o n s – The exchanges trading stock options in the United States are
CBOE, the Philadelphia Stock Exchange, the American Stock Exchange, and the Pacific
currency option is the Philadelphia Stock Exchange. It offers both European and
American contracts on a variety of different currencies. The size of one contract depends
on the currency.
world. The most popular contracts in the United States are those on the S&P 500 index
(SPX), the S&P 100 index (OEX), the Nasdaq100 index (NDX) and the Dow Jones
asset is a futures contract. The futures contract normally matures shortly after the
expiration of the option. Futures options are now available for most of the assets on
which futures contracts are traded and normally trade on the same exchange as the futures
contracts.
16
LITERATURE:1
Kit Pong Wong (2005), Liquidity risk and the hedging role of
options
Source: http://www3.interscience.wiley.com/search/allsearch
ABSTRACT
This study examines the impact of liquidity risk on the behavior of the competitive firm
under price uncertainty in a dynamic two-period setting. The firm has access to unbiased
one-period futures and option contracts in each period for hedging purposes. A liquidity
constraint is imposed on the firm such that the firm is forced to terminate its risk
management program in the second period whenever the net loss due to its first-period
hedge position exceeds a predetermined threshold level. The imposition of the liquidity
constraint on the firm is shown to create perverse incentives to output. Furthermore, the
liquidity constrained firm is shown to purchase optimally the unbiased option contracts in
the first period if its utility function is quadratic or prudent. This study thus offers a
rationale for the hedging role of options when liquidity risk prevails.
17
LITERATURE:2
Source: http://www3.interscience.wiley.com/search/allsearch
ABSTRACT
18
LITERATURE :3
EXPECTATIONS”
Source: http://www3.interscience.wiley.com/search/allsearch
ABSTRACT
James Boness shared with other early option theorists the hope that options could be used
unfortunately pre-dated theoretical tools that might have helped that hope become a
reality. Moreover, the modern option theory of Black and Scholes, Merton, Rubinstein,
and others appeared to have "doomed to failure" any attempt to pursue the original
"expectations intuition," since expectations terms are not explicit terms in their option
along with some observations by Figlewski, have furthered the possibility that obtaining
implied expectations from observed option prices can become a reality. This review
discussion of the literature is in honor of James Boness. The review is confined to the
19
LITERATURE:4
Donald Lien (2001), Delivery risk and the hedging role of options
Source: http://www3.interscience.wiley.com/search/allsearch
ABSTRACT
Multiple delivery specifications exist on nearly all commodity futures contracts. Sellers
typically are allowed to deliver any of several grades of the underlying commodity and at
any of several locations. On the delivery day, the futures price as such needs not
converge to the spot price of the par-delivery grade at the par-delivery location, thereby
imposing an additional delivery risk on hedgers. This article derives the optimal hedging
strategy for a risk-averse hedger in the presence of delivery risk. In particular, it is shown
that the hedger optimally uses options on futures for hedging purposes. This article
provides a rationale for the hedging role of options when futures markets allow for
20
LITERATURE:5
ABSTRACT
Stock price index futures and options are contracts that allow effective buying and selling
an extremely well diversified portfolio stocks. They are also opportunities, chances to
make investment decision based on the opinion of the overall stock market. Stock index
futures and option are powerful and versatile instruments, whether you intend to risk your
own capital for investment reward or wish to insulate your investment capital from risk.
This paper describes about the versatility of S & P 500 stock index futures and options.
The Chicago Mercantile Exchange have enjoyed tremendous growth in trading volume.
21
INDUSTRY PROFILE
This stock exchange, Mumbai, popularly known as “BSE” was established in 1875 as
“the native share and stock brokers association”; as a voluntary non-profit making
association. It has an evolved over the years into its present status as the premiere stock
exchange in the country. It may be noted that the stock exchange is the older on in Asia,
even older than the Tokyo stock exchange, which was founded in 1878.
The exchange, while providing as an efficient and transparent market for trading in
securities, upholds the interest of the investors and ensures redressed of their grievances,
weather against the companies or this own member brokers, it also strives to educate and
enlighten the investors by making available necessary informative inputs and conducting
representatives and an executive director is the apex body, which decides the policies and
The executive director as the chief executive officer is responsible for the day today
administration of the exchange. The average daily turnover of the exchange during the
year 2000-01 (April-March) was Rs. 3984.19 crores and average number of daily trades
The average daily turn over of the exchange during the year 2002-03 has declined and
22
The ban on all deferral products like BLESS ANDALBM in the Indian capital markets by
SEBI with effect from July 2, 2001 abolition of account period settlements, introduction
of compulsory rolling settlements in all scripts traded on the exchanges with compulsory
rolling settlements in all scripts traded on the exchange with effect from December 31,
2001 etc. Have adversely impacted the liquidity and consequently there is a considerable
decline in the daily turnover at the exchange. The average daily turnover of the
exchanges present scenario is 110363 (Lakhs) and number of average daily trades 1057
(Lakhs).
BSE INDICES:
In order to enable the market participants, analysts etc.. to track the various tips and
downs in the Indian stock market, the exchanges has introduced in 1986 an equity-stock
index called BSE- SENSEX that subsequently became the barometer of the moments of
the share prices in the Indian stock market. It is a “market capitalization weighted” index
companies. The sensex is widely reported in both domestic and international markets
Sensex is calculated using a market capitalization method. As per this methodology, the
level of the index reflects the total market value of all 30 – components stocks from
different industry related to determined by multiplying the price of its stock by the
(such as price and number of shares) a composite index. An indexed number is used to
represent the results of this calculation in order to make the value easier to work with a
track over a time. It is much easier to graph a chart based on indexed values than one
23
based on actual values world over majority of the well known indices are constructed
In practice the daily calculation of SENSEX is done by dividing the aggregate market
value of the 30 as companies in the index by a number called the index divisor. The
divisor is the only link to the original base period value of the SENSEX. The divisor
deeps the index comparable over a period or time and if the reference point for the entire
index maintenance adjustments. SENSEX is widely used to describe the kook in the
Base year average is changed as per the formula new base year average= old year average
The NSE was incorporated in Nov 1992 with an equity capital of Rs.25 crores. The
international security constancy (ISC) of Hong Kong has helped in setting up NSL- ISC
has prepared the detailed business plan and installation of hard ware and soft ware
systems. The promotions for NSE were financial institutions, insurance companies, banks
and SEBI capital market Ltd, infrastructure leasing and financial services ltd and stock
It has been set up to strengthen the move towards professionalisation of the capital
market as well as provides nation wide securities trading facilities to investors. NSE is
not an exchange in the striding sense where brokers owned and manage the exchange. A
two-tier administration ser up involving a company board and a governing aboard of the
exchange is envisaged.
24
NSE is a notional market for shares PSU bonds, debentures and government securities
NSE NIFTY:
The NSE on April 22, 1996 launched a new equity indeed. The NSE-50 the new index,
which replaces the existing NSE-100 index, is expected to serve as an appropriate index
The NSE-50 comprises 50 companies that represent 20 board industry groups with an
the index have a market capitalization in excess of Rs. 500 crores each and should have
traded for 85% of trading days at an impact cost of less than 1.5% corporation ltd. 85% of
the base period for the index is the close of prices on Nov 3 rd 1995. which makes one year
of completion of operation of NSE’s capital market segment. The base value of the index
The NSE midcap index or the junior nifty comprises fifty stocks those represents 21
abroad industry groups and will provide proper representation of the midcap segment of
the Indian capital market. All stocks in the index should have market capitalization of
greater than Rs.200 crores and should have traded 85% of the trading day at an impact
25
The base period for the index is Nov 4th,1996, which signifies 2 years of completion of
operations of the capital market segment of the operations. The base value of the index
MIDCAP NSE:
Average daily turnover of the present scenario 258212 (Lakhs) and number of averages
At present there are 24 stock exchanges recognized under the securities contract
26
Ludhiana Stock Exchange. 1983
27
COMPANY PROFILE
Indiabulls Group is one of the top business house in the country with business interests in
Sectors.Indiabulls Group companies are listed in Indian and overseas financial markets.
To be the largest and most profitable financial services organization in Indian retail
market and become one stop shop for all non banking financial products and services for
Rapidly increase the number of client relationships by providing a broad array of product
Indiabulls Group has four separately listed companies with subsidiaries which
contributed in enhancing scope and profile of the business.
28
INDIABULLS FINANCIAL SERVICES LIMITED
Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s Orbis
Infotech Private Limited at New Delhi under the Companies Act, 1956. The name of
company was changed to M/s. Indiabulls Financial Services Private Limited on March
16, 2001. In the year 2004, Indiabulls came up with it own public issue & became a
public limited company on February 27, 2004. The name of company was changed to
The company was promoted by three engineers from IIT Delhi, and has attracted more
than Rs.700 million as investments from venture capital, private equity and institutional
investors and has developed significant relationships with large commercial banks such
as Citibank, HDFC Bank, Union Bank, ICICI Bank, ABN Amro Bank, Standard
29
Mr. Rajiv Rattan
Mr. Sameer Gelhaut Mr. Saurabh K Mittal
Co-Founder &
Chairman Director
Vice Chairman
(Indiabulls Group) (Indiabulls Group)
(Indiabulls Group)
The company headquarters are co-located in Mumbai and Delhi, allowing it to access the
two most important regions for Indian financial markets, The marketing and sales efforts
are headquartered out of Mumbai, with a regional headquarter in Delhi. Back office, risk
management, internal finances etc. are headquartered out of Delhi/NCR allowing the
Market capitalization:
30
Rs 1,092.26 Cr (27th July , 2009)
Net worth:
Highest Ratings from CRISIL CRISIL is India's leading Ratings, Research, Risk and
Commercial Vehicle
Commercial Credit
Life Insurance
Advisory Services
IPO Financing
STRATEGIC UPDATES
31
Indiabulls Financial Services limited (IBFSL) completed the de-
wealth.
DE-MERGER:
Securities Limited.
Services Limited has been notified as a ‘Financial Institution’ for the purpose of
SARFAESI Act, 2002. This notification is being effectively used by the Company to
entered into an MOU with Sogecap, the insurance arm of Societe Generale (SocGen) for
its upcoming life insurance joint venture. Sogecap will invest Rs.150 crore to subscribe to
COMMODITIES EXCHANGE:
32
Indiabulls Financial Services Limited has entered into a MOU with MMTC
Exchange with 26% ownership with MMTC. Ministry of Commerce, Govt. of India has
given its in-principle approval and the formal approval of the Forward Markets
Commission is awaited.
company to manage mutual funds and has applied to SEBI for its approval and the same
is awaited.
Indiabulls stepped into the real estate market as Indiabulls Real Estate Limited
(IREL) in 2005. A joint venture between Indiabulls and a US based investment major
Farallon Capital Management LLC resulted in bringing FDI (Foreign Direct Investment)
for the first time in the Indian Real Estate Market. Another joint venture amongst
Indiabulls and DLF, Kenneth Builders and Developers (KBD), has brought up projects
OUR PROJECTS:
million dollars.
33
Jupiter Mills
Elphinstone Mills
Sonepat Township
Castlewood
Raigarh SEZ
Gurgaon Housing
Goa Luxury Resort
Nashik SEZ
Chennai Housing
Thane SEZ
Chennai Township
Mumbai Township
The products and services offered include securities, credit services, demat account for
share trading, mutual fund news, commodity and review along with technical analysis of
the market.
Limited (ICL). It deals in research work and formation of reports on agri-commodites and
metals. ICL has one of the largest retail branch networks in the country.
34
Offers purchase and sale of securities (stock,bonds,debentures etc.)
Equity Analysis
Depository Services
Sales Force in Indiabulls securities Limited is divided into two groups. i.e. Online &
Offline
Prasenjeet
EVP's Name Vijay Babbar Amiteshwar Chaudhay
Mukherjee
(Online)
Region Managing NCR and UP, Managing Mahrashtra and Managing West
35
and Tamil Nadu Jharkhand
Clients
Client Helpline Number 0124 – 4572444
39407777
Branch
Branch Helpline Number 0124-3989444
Queries E-mail at
36
Funds related funds@indiabulls.com
Reallocation related reallocate@indiabulls.com
Documents related documents@indiabulls.com
MILESTONES ACHIEVED
Amongst the first to develop in-house real-time CTCL (computer to computer link) with
NSE.
37
CORPORATE INFORMATION
38
Registered Office
Website: www.indiabulls.com
Corporate Offices
MUMBAI – 400005
“Indiabulls House”
GURGOAN – 122001.
ORGANISATIONAL STRUCTURE
39
Table No.4.1
GRAPH NO. 1
40
90000000
80000000
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
0
0
0
-0 10
2/ 1 0
5/ 10
10
0
-0 10
16 /201
15 /201
19 201
23 201
20
20
24 20
20
18 20
2
3/
3/
2-
2-
2-
3-
3-
3-
/2
/3
-0
-0
-0
-0
INTERPRETATION
10
10
The above table reveals the volume of trades in equity, options of UNITECH during the
period of FebEquity
and March
Trade2010.
Qty Line 2 Call Trade Qty Line 4 Put Trade Q
It is observed that in the mid of the Feb to till the end of March-2010 the movement of
the UNITECH trading shows the positive influence of equity upon options with a
proportional growth.
During the contract period except first week the UNITECH shows ups and downs in
trading. This influences both sides of derivative coin i.e. positive side of call, which was
strong and gradual increase and gradual decrease trading in put option is observed.
Upside movement in trade quantity of UNITECH shows positive growth in call and
downside movement in trade quantity of UNITECH shows positive influence on put
option only. There fore it can be said that there is negative correlation between equity
and option trading.
Table No.4.2
41
PRICES OF UNITECH
42
GRAPHNO.2
90
80
70
60
50
40
30
20
10
0
-0 10
/3 0
-0 10
-0 10
-0 10
-0 10
-0 10
2/ 10
4/ 10
/3 0
-0 10
-0 10
8/ 010
12 201
1
10 01
20
15 /20
16 /20
17 -20
19 -20
23 -20
25 -20
20
18 -20
22 -20
25 -20
2
2
/
2-
3/
3/
3/
/2
3
10
-
INTERPRETATION
The above graph gives the flctuations of call & put premium with
Equity Price Line 2 Call Price Line 4 Put Pric
the equity prices of UNITECH during the period of Feb and march 2010.
The above graph concludes that the UNITECH equity price increases the call premium
was also gets increase and put will decrease, if the UNITECH equity prices decreases the
call premium was gets decrease and put will increase but at the end of the month i.e.
43
expiry time of options if the equity price even increases the premium of call was going to
At the time of beginning of Feb again the equity price increases the call premium will
gets increases and put will gets decreases. In the mid of the month again the equity prices
of UNITECH was gets decrease the call premium was also decrease and put premium
Table No.4.3
44
17-03-2010 5122.422 35.91 123.004 644 365.956 23950
18-03-2010 4070.479 28.53 118.420 620 352.204 23050
19-03-2010 3444.527 24.14 101.612 532 343.800 22500
22-03-2010 3846.658 26.96 18.220 95.39 338.452 22150
23-03-2010 3779.833 26.49 69.524 364 330.812 21650
25-03-2010 4284.271 30.03 26.740 140 314.768 20600
45
GRAPHNO.3
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
10
10
10
0
0
10
10
10
10
10
10
10
10
01
01
01
20
20
20
20
20
20
20
20
20
20
20
/2
/2
/2
2
3/
3/
3/
3-
2-
2-
2-
2-
2-
3-
3-
3-
/2
/3
/3
4/
8/
2/
-0
-0
-0
-0
-0
-0
-0
-0
-0
10
10
12
17
16
18
15
19
23
25
22
25
INTERPRETATION
The above table illustrates that the volumes of Trades in equity, options of Tata Steel
Equity Trade Qty Line 2 Call Trade Qty Line 4 Put Trade Qt
during the period of Feb and March 2010.
At the end of the Feb the movement of a equity has a greater influence on the trading
quantity of call and put. At the end of the march the equity volume of a underlying was
46
decreased to 75.46% to 68.27% and with this the trading quantity in put was increased
During the contract period there was a greater volatility in the market was observed, for
every two or three days the asset was increasing and decreasing
Over all it was concluded that when the trade quantity was influencing more on call, if
trade quantity of equity increases the call was also increasing, but less effect on put was
Table No.4.4
47
12-03-2010 606.4 113.64 33.5 223.33 5.9 18.46
15-03-2010 610.5 114.41 35.1 234 5 15.64
16-03-2010 629.95 118.05 49.8 332 1.2 3.75
17-03-2010 631.1 118.27 52.3 348.66 0.9 2.81
18-03-2010 640.5 120.03 58 386.66 0.7 2.19
19-03-2010 642.65 10.943 64.5 430 0.41 1.25
22-03-2010 627.8 117.65 48.8 325.33 0.5 1.56
23-03-2010 637 119.37 57.7 384.66 0.15 0.46
25-03-2010 638.8 119.71 65 433.33 0.05 0.15
GRAPH NO. 4
700
600
500
400
300
200
100
0
5/ 1 0
/3 0
-0 10
-0 10
-0 10
-0 1 0
-0 10
2/ 10
-0 10
10 01
20
16 /20
15 /20
19 20
18 20
24 20
20
23 20
20
2
3/
3/
2-
2-
2-
3-
3-
3-
INTERPRETATION
/2
10
The above table reveals the trade prices of equity ,call option and put option of
48
It is observed that there is frequent growth in equity price movement. In mid of Feb there
was a positive influence of equity on options. From the mid period to end of the contract ,
as the equity increases the call option also increased but the put option is gradually
decreased.
The call option price increased from 15 to 65 at the end of the contract where as the put
option price was decreased from 31.95 to 0.05 . The equity is also increased from 533.6
49
25-03-2010 6866.435 76.11 817.600 12775 17.600 733.33
GRAPH NO. 5
25000000
20000000
15000000
10000000
5000000
0 0
0
0
3/ 10
0
9/ 10
10
10
15 201
22 201
24 201
26 201
17 201
19 201
23 201
20
20
20
20
/
2-
3-
2-
2-
2-
3-
3-
3/
3/
3/
/3
5/
-0
-0
-0
-0
-0
-0
-0
-0
11
18
INTERPRETATION
The equity trading involved in more ups and downs during the trading period. Broadly
speaking there was no influence of equity on call or put options. It is observed that from
50
the mid of the Feb to end of the March there was gradual growth in call and put options
In the mid of the contract period the equity trading become lesser and then there were
continuous ups and downs in trading of equity where as there is continuous growth in
option trading quantities but at the end of the period all the three quantities are get
decreased.
Table No.4.6
PRICES OF DLF
51
16-03-2010 313.9 100.67 4.70 29.46 9.6 34.04
17-03-2010 313.2 100.44 4.05 25.39 11.45 40.60
18-03-2010 317 101.66 5.20 32.60 7.8 27.65
19-03-2010 311.7 99.96 2.45 15.36 9.5 33.68
22-03-2010 300.45 96.35 0.60 3.76 20 70.92
23-03-2010 294.8 94.54 0.10 0.62 25.5 90.42
25-03-2010 298.7 95.79 0.05 0.31 20.9 74.11
GRAPH NO. 6
350
300
250
200
150
100
50
0
0
10
10
3/ 1 0
10
9/ 1 0
0
10
10
0
15 201
17 2 0 1
19 2 0 1
23 2 0 1
20
20
20
0
0
0
-2
-2
-2
-2
/
3/
3/
3-
3-
3-
3-
3/
/3
2
INTERPRETATION
5/
-0
-0
-0
-0
-0
-0
-0
-0
11
18
22
24
26
In the month of Feb the equity prices of DLF moves down wards, as the equity prices was
Equity Price Line 2 Call Price Line 4 Put Pr
decreasing the put premium was increasing but at the same time the call premium was
52
decreasing, but if the equity decreases with a less percentage even the call decreases to
In the mid period of contract the equity increases to 101.73% and also has an influence
on option price that is call option increases slightly and put option decreases .
The put option was initially increased for two days but later it was continuously
decreased. Even At the end of contract days it was increased to 90.42%, ends at 74.11%.
The overall we can conclude that the equity has the positive influence on the option price
Table No.4.7
53
11-03-2010 537.303 46.45 244.200 8140 281.400 23450
12-03-2010 397.115 34.33 244.400 8146.66 275.000 22946.66
15-03-2010 1322.857 114.37 243.000 8100 237.600 19800
16-03-2010 735.168 63.56 243.000 8100 242.000 20166.66
17-03-2010 794.000 68.65 242.600 8086.66 243.000 20250
18-03-2010 1115.381 96.43 240.200 800.666 242.800 20233.33
19-03-2010 1572.818 135.99 222.000 7400 243.600 20300
22-03-2010 513.566 44.40 222.000 7400 243.800 23316.66
23-03-2010 599.070 51.79 221.800 7393.33 237.000 230583.33
25-03-2010 1900.941 164.36 211.580 7052.66 234.800 19566.66
GRAPH NO. 7
2000
.
1800
1600
1400
1200
1000
800
600
400
200
0
10
10
10
10
10
10
10
10
10
01
01
20
20
20
20
20
20
20
20
20
/2
/2
3/
3/
3/
2-
2-
2-
3-
3-
/3
/3
02
2/
8/
4/
-0
-0
-0
-0
-0
INTERPRETATION
10
12
-
-
17
23
25
22
19
16
18
In the end of the Feb the equity of INFOSYS TECHNOLOGIES has greater influence on
option trading quantity i.e.; as trading quantity of equity increases in option trade quantity
of both call and put increases. So there was positive correlation between option trading
and equity. Over all the call and put has a no greater dependence upon equity was
observed.
Table No.4.8
55
11-03-2010 2689 111.93 96.65 166.63 11 8.48
12-03-2010 2675 111.34 89.75 154.74 13.45 10.37
15-03-2010 2709 112.76 104 179.31 8.5 6.55
16-03-2010 2740 114.05 140 241.37 3 2.31
17-03-2010 2744 114.22 133 229.31 2.6 2.006
18-03-2010 2791.95 116.46 185 318.96 1.5 1.15
19-03-2010 2767.35 115.19 184.8 318.10 1.4 1.08
22-03-2010 2752.15 114.56 184.5 318.10 0.6 0.46
23-03-2010 27771.5 115.36 178 306.89 0.25 0.19
25-03-2010 2811 117.01 184.9 318.79 0.1 0.077
GRAPH NO. 8
30000
25000
20000
15000
10000
5000
0
18-02-2010
19-02-2010
22-02-2010
23-02-2010
24-02-2010
25-02-2010
26-02-2010
15-03-2010
16-03-2010
17-03-2010
17-02-2010
2/3/2010
9/3/2010
10/3/2010
11/3/2010
12/3/2010
3/3/2010
4/3/2010
5/3/2010
8/3/2010
56
INTERPRETATION
In the above graph we can observe that there is a slight growth in the option price
movement. it is also
Observed that as the equity increases there is increase in the call premium and decrease
in the put premium during the Feb-March 2010. therefore we can say that there is positive
5.1 FINDINGS
option only.
3. There fore it can be said that there is negative correlation between equity and option
trading of UNITECH.
6. The equity volume of Tata steel shows a decreasing value i.e, from 75.46% to 68.27%
& with this the trading quantity in put was increased and call was decreased.
7. In Tata steel at the end of the contract the call option price increased from 15 to 65 &
put option price decreased from 31.95 to .05, the equity also increased from 533.6 to
57
8. The DLF during the mid of the Feb to end of the March had seen a gradual growth
5.2 CONCLUSION
In bullish market the call option writer incurs more losses so the investor is suggested to
go for a call option to hold, where as the put option holder suffers in a bullish market, so
In bearish market the call option holder will incur more losses so the investor is
suggested to go for a call option to write, where as the put option writer will get more
Contract size should be minimized because small investors cannot afford this much of
huge premiums.
58
5.3 SUGGESTIONS
BULLISH MARKET
If an investors has some hunch of bullishness in the stocks he could go for buying ATM
calls. If his hunch proves right his profit will be difference between the spot price and the
(strike price premium).As we know the buyer of a call has unlimited upside and limited
59
A speculator with a bullish view can also express his view by selling puts. If a speculator
thinks that the prices of certain stocks are going to rise then he could sell/write puts on
those stocks. If however his hunch proves wrong and the prices of those stocks fall, then
he will suffer losses to the extent of the difference between the strike price and the (spot
price +premium).As we know the writer of a put has a limited upside (the premium
BEARISH MARKET
An investor who feels fall in the prices of few stocks could buy ATM puts with the lesser
premium. If his hunch proves correct then his ATM put will become an ITM put finally
60
The other way an investor could protect himself from the bearish situation is buy writing
calls. If his hunch proves correct and the prices of the stocks falls then the buyer of the
call will let the options expire .However if his hunch proves incorrect and the prices of
those stocks rises then the buyer of the call option will exercise on him and the speculator
would suffer a loss to the difference between the spot price and the strike price reduced to
companies only.
61
BIBLIOGRAPHY
BOOKS:
2. Mishkin.F.S, and Eakin S.G., Financial Markets and Institutions, 5th edition,
3. Gordon and Natarajan, Financial Markets and Services, 3rd edition, Himalaya
2006.
62
5. G. Ramesh Babu, Financial Services in India, Concept Publishing Company,
JOURNALS:
of Finance, Vol.25(May,1970)
63
5. Shreya Das, A Complete Overview of the Volatile
NEWSPAPERS:
1. Economic Times
2. Business line
3. Times of India
4. Business Standard
WEB SITES:
1. http://www.indiabulls.com
2. http:// www.countercurents.org
3. http://www.equitymaster.com
4. http://www.bseindia.com/equityinfo
5. http://www.financial-dictionary
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