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

underlying asset. Derivative is a financial contract whose price/value is dependent upon price of one or more basic underlying assets, 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 objective of the study is to analyze the derivatives market in India and to analyze the operations of futures and options. Analysis is to evaluate the profit/loss position of futures and options contracts. Derivative market is an innovation to cash market. Approximately its daily turnover reaches around four times the cash market segment.

In cash market the profit/loss of the investor depends upon the market price of the security bought or sold. Derivatives are mostly used for hedging purpose. But the presence of speculators is equally important for the liquidity of the market. In bullish market the call option writer incurs heavy 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. 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 losses, so he is suggested to hold a put option.

Nitin K Banka
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OBJECTIVES
\ue000Study of derivative products using their payoff diagrams.
\ue000To understand how these products are evaluated using mathematical
models.
\ue000Study of Options Strategies to mitigate risk when markets are highly
uncertain and volatile.
\ue000Study of important parameters which play an important role in
Portfolio Design.
\ue000To determine option premium for Reliance Industry using Black
Sholes model and observe the changes in the implied volatility of the
stock as the time to expiration approaches.
Nitin K Banka
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IMPORTANCE OF THE STUDY

In today\u2019s time understanding of derivative products is very much important because they give deep insight about F& O markets. It would be essential for the perfect way of trading in F&O segment. An investor can choose the right underlying or portfolio for investment which is risk free or bearing very little risk. The study would explain the various ways to minimize the losses and maximize the profits. The study would assist in understanding the F&O segments in a sense that how futures and options valuations are carried out. The study would assist in knowing the different factors that cause for the fluctuations in the F&O market.

Nitin K Banka
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Notes
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