INTRODUCTION DERIVATIVES

Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. DERIVATIVE PRODUCTS Derivative contracts have several variants. The most common variants are forwards, futures, options and swaps. Here is a brief look at various derivatives contracts that have come to be used. Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today's pre-agreed price. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. Options: Options are of two types - calls and puts. 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. Warrants: Options generally have lives of up to one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of up to three years.

Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average of a basket of assets. Equity index options are a form of basket options. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are. Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: These entail swapping both principal and interest between

the parties, with the cash flows in one direction being in a different currency than those in the opposite direction. Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus, a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating. OPTIONS An option is a contract that gives the buyer or seller the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties. Calls and Puts The two types of options are calls and puts: A call gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires.

A put gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires. OPTION TERMINOLOGY Index options: These options have the index as the underlying. Some options are

European while others are American. Like index futures contracts, index options contracts are also cash settled. Stock options: Stock options are options on individual stocks. Options currently

trade on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price. Buyer of an option: The buyer of an option is the one who by paying the option

premium buys the right but not the obligation to exercise his option on the seller/writer. Writer of an option: The writer of a call/put option is the one who receives the option

premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. There are two basic types of options, call options and put options. Call option: A call option gives the holder the right but not the obligation to buy an

asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an

asset by a certain date for a certain price. Option price/premium: Option price is the price, which the option buyer pays to the

option seller. It is also referred to as the option premium. Expiration date: The date specified in the options contract is known as the expiration

date, the exercise date, the strike date or the maturity. Strike price: The price specified in the options contract is known as the strike price

or the exercise price. American options: American options are options that can be exercised at any time up

to the expiration date. Most exchange-traded options are American. European options: European options are options that can be exercised only on the

expiration date itself. European options are easier to analyze than American options, and

properties of an American option are frequently deduced from those of its European counterpart. In-the-money option: An in-the-money (ITM) option is an option that would lead to

a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be in-the-money when the current index stands at a level higher than the strike price (i.e. spot price > strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price. At-the-money option: An at-the-money (ATM) option is an option that would lead to

zero cash flow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price). Out-of-the-money option: An out-of-the-money (OTM) option is an option that

would lead to a negative cash flow if it were exercised immediately. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. The Relationship between the options strike price and market price: MARKET SCENARIO Market price>strike price Market price<strike price Market price=strike price Market price~_strike price CALL OPTION In-the-money Outof-the-money At-the-money Near-the-money PUT OPTION Out-of-the-money In-the-money At-the-money Near-the-money

Intrinsic value of an option: The option premium can be broken down into two

components - intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max[0, (St K)] which means the intrinsic value of a

call is the greater of 0 or (St K). Similarly, the intrinsic value of a put is Max[0, K St],i.e. the greater of 0 or (K St). K is the strike price and St is the spot price. Time value of an option: The time value of an option is the difference between its

premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option's time value, all else equal. At expiration, an option should have no time value. HOW THE OPTIONS MARKET WORK Options are contracts on some underlying trading instrument - shares of stock, bonds, a commodity, a mortgage loan, etc. But regardless of what the option is on, there are common features. One of the most basic is the contract feature specifying what the option owner has actually contracted for. CALL A 'call' confers on the (option) contract holder the right to buy an asset at a stated price on or before a specified expiration date. A right to buy not an obligation. The call owner always has the option to let his option expire. (Of course, he then loses the initial money invested in buying the contract.) Call buyers are betting the underlying asset - the stock, bond, commodity, etc - will increase in price before the expiration date. And, not only rise, but rise enough to make a profit.

PUT A 'put', by contrast, gives the option buyer the right to sell an asset at a certain price by a stated date. The right, not the obligation. Puts are similar to 'shorting stock', in this sense. Put buyers are betting the stock price will fall before the option expires.

In this case the market price must fall below the strike price in order to garner a profit from exercising the option. (Ignoring the cost of the put, for simplicity.) Under those circumstances, the option holder is 'in the money'.

Economic Importance of the Options Market There are two main reasons why an investor would use options: to speculate and to hedge. Speculation You can think of speculation as betting on the movement of a security. The advantage of options is that you aren't limited to making a profit only when the market goes up. Because of the versatility of options, you can also make money when the market goes down or even sideways Speculation is the territory in which the big money is made - and lost. The use of options in this manner is the reason options have the reputation of being risky. This is because when you buy an option, you have to be correct in determining not only the direction of the stock's movement, but also the magnitude and the timing of this movement. To succeed, you must correctly predict whether a stock will go up or down, and you have to be right about how much the price will change as well as the time frame it will take for all this to happen. And don't forget commissions! The combinations of these factors means the odds are stacked against you. Hedging The other function of options is hedging. Think of this as an insurance policy. Just as you insure your house or car, options can be used to insure your investments against a downturn. Critics of options say that if you are so unsure of your stock pick that you need a hedge, you shouldn't make the investment. On the other hand, there is no doubt that hedging strategies can be useful, especially for large institutions. Even the individual investor can benefit. Imagine that you wanted to take advantage of technology stocks and their upside, but

say you also wanted to limit any losses. By using options, you would be able to restrict your downside while enjoying the full upside in a cost-effective way. Settlement of options contracts Options contracts have three types of settlements, daily premium settlement, exercise settlement, interim exercise settlement in the case of option contracts on securities and final settlement. Daily premium settlement Buyer of an option is obligated to pay the premium towards the options purchased by him. Similarly, the seller of an option is entitled to receive the premium for the option sold by him. The premium payable amount and the premium receivable amount are netted to compute the net premium payable or receivable amount for each client for each option contract. Exercise settlement Although most option buyers and sellers close out their options positions by an offsetting closing transaction, an understanding of exercise can help an option buyer determine whether exercise might be more advantageous than an offsetting sale of the option. There is always a possibility of the option seller being assigned an exercise. Once an exercise of an option has been assigned to an option seller, the option seller is bound to fulfill his obligation (meaning, pay the cash settlement amount in the case of a cash-settled option) even though he may not yet have been notified of the assignment. Interim exercise settlement Interim exercise settlement takes place only for option contracts on securities. An investor can exercise his in-the-money options at any time during trading hours, through his trading member. Interim exercise settlement is effected for such options at the close of the trading hours, on the day of exercise. Valid exercised option contracts are assigned to short positions in the option contract with the same series (i.e. having the same underlying,

same expiry date and same strike price), on a random basis, at the client level. The CM who has exercised the option receives the exercise settlement value per unit of the option from the CM who has been assigned the option contract. Final exercise settlement Final exercise settlement is effected for all open long in-the-money strike price options existing at the close of trading hours, on the expiration day of an option contract. All such long positions are exercised and automatically assigned to short positions in option contracts with the same series, on a random basis. The investor who has long in-the-money options on the expiry date will receive the exercise settlement value per unit of the option from the investor who has been assigned the option contract. Exercise process The period during which an option is exercisable depends on the style of the option. On NSE, index options are European style, i.e. options are only subject to automatic exercise on the expiration day, if they are in-the-money. As compared to this, options on securities are American style. In such cases, the exercise is automatic on the expiration day, and voluntary prior to the expiration day of the option contract, provided they are in-themoney. PARTICIPANTS IN THE OPTIONS MARKET There are four types of participants in the options markets depending on the position they take: 1. Buyers of calls 2. Sellers of calls 3. Buyers of puts 4. Sellers of puts People who buy options are called holders and those who sell options are called writers; furthermore, buyers are said to have long positions,and sellers are said to have short positions. Here is the important distinction between buyers and sellers:

Call holders and put holders(buyers) are not obligated to buy are sell; they have the choice to exercise their rights if they choose.

Call writers and put writers(sellers) however are obligated to buy or sell. This means that a seller may be required to make good on their Promise to buy or sell.

FOUR ENTITIES IN THE TRADING SYSTEM: 1.Trading members: Trading members are members of NSE. They can trade either on

their own account or on behalf of their clients including participants. The exchange assigns a trading member ID to each trading member. Each trading member can have more than one user. The number of users allowed for each trading member is notified by the exchange from time to time. Each user of a trading member must be registered with the exchange and is assigned a unique user ID. The unique trading member ID functions as reference for all orders /trades of different users. This ID is common for all users of a particular trading member. It is the responsibility of the trading member to maintain adequate control over persons having access to the firms user IDs. 2.Clearing members: clearing members are members of NSCCL they carryout risk management activities and conformation/enquiry of trades through the trading system. 3. Professional clearing members: A professional clearing members is a clearing member who is not a trading member. Typically, banks and custodians become professional clearing members and clear and settle for their trading members. 4. Participants: A participant is a client of trading members like financial institutions. These

clients may trade through multiple trading members but settle through a single clearing member.

INDUSTRY PROFILE CAPITAL MARKET: A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere. In brief the primary and secondary market is detailed below: Primary market Secondary market. CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

1. PRIMARY MARKET:

The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. A primary market creates long term instruments through which corporate entities borrow from capital market. When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the Entity making an issue is referred as IPO (Initial Public Offer). When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO (Follow on Public Offer). Features of primary markets: This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder. Methods of issuing securities in the primary market:

 Initial public offering Rights issue (for existing companies) Preferential issue.

An Initial Public Offering (IPO), referred to simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

A Rights Issue is an option that a company opts for to raise capital under a seasoned equity offering of shares to raise money. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A rights issue is in contrast to an initial public offering; where shares are issued to the general public through market exchanges. Companies usually opt for a rights issue either when having problems raising capital through traditional means or to avoid interest charges on loans.

A Preferential issue is an issue of stocks or of convertible securities through listed firms to a select number of persons under Section 81 of the Companies Act, 1956 that is neither a public issue nor a rights issue. This is a speedier path for a firm to increase equity funds. The issuer firm has to comply with the Firms Act and the needs contained in the Chapter related to preferential allotment in Securities and Exchange Board of India guidelines which inter-alia include costs, disclosures in notice and so on.

2. SECONDARY MARKET Secondary Market is the market where, unlike the primary market, an investor can buy a security directly from another investor in lieu of the issuer. It is also referred as "after market". The securities initially are issued in the primary market, and then they enter into the secondary market.

In other words, Secondary market is a place where any type of used goods is available. In the secondary market shares are maneuvered from one investor to other, that is, one investor buys an asset from another investor instead of an issuing corporation. So, the secondary market should be liquid. The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. The secondary market is a market where scrips are traded. It is a market place which provides liquidity to the scrips issued in the primary market. Thus, the growth of secondary market depends on the primary market. More the number of companies entering the primary market, the greater are the volume of trade at the secondary market. Trading activities in the secondary market are done through the recognized stock exchanges which are 23 in number including Over the Counter Exchange of India (OTCE), National Stock Exchange of India and Interconnected Stock Exchange of India. Secondary market operations involve buying and selling of securities on the stock exchange through its members. The companies hitting the primary market are mandatory to list their shares on one or more stock exchanges in India. Listing of scrips provides liquidity and offers an opportunity to the investors to buy or sell the scrips. IMPORTANCE OF SECONDARY MARKET: Secondary Market has an important role to play behind the developments of an efficient capital market. Secondary market connects investors' favoritism for liquidity with the capital users' wish of using their capital for a longer period. For example, in a traditional partnership, a partner cannot access the other partner's investment but only his or her investment in that partnership, even on an emergency basis. Then if he or she may breaks the ownership of equity into parts and sell his or her respective proportion to another investor. This kind of trading is facilitated only by the secondary market. DEFINITION OF A STOCK EXCHANGE: A stock exchange is an entity which provides trading facilities for stock brokers and traders, to trade stocks and other securities. (OR) Share market/stock markets are an open

market for fiscal operations such as trading of a firm's share and derivatives at a fixed cost. These securities are further listed on a stock exchange. SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 SEBI Act, 1992 provides for establishment of securities and exchange board of India (SEBI) with statutory powers for protecting the interests of investors in securities promoting the development of the securities market and regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for Regulating the business in stock exchanges and any other securities markets. Registering and regulating the working of stock brokers , sub-brokers , etc., Promoting and regulating self-regulatory organizations. Prohibiting fraudulent and unfair trade practices. Performing such functions and exercising according to securities contracts Act, 1956, as may be delegated to it by the central government. The SEBI Board in its meeting on June 24, 2002 considered some important issues relating to the derivative markets including: Physical settlement of stock options and stock futures contracts. Review of the eligibility criteria of stocks on which derivative products are permitted. Use of sub-brokers in the derivative markets. Norms for use of derivatives by mutual funds. SEBI was setup in April 12, 1988. To start with, SEBI was set up as a non-statutory body. It took 4 years for the government to bring about a separate legislation in the name of securities and exchange board of India Act, 1992, conferring statutory powers over practically all aspects of capital market operations.

Objectives of SEBI o To protect the interest of investors so that there is a steady flow of savings into the capital market. o To regulate the securities market and ensure fair practices by the issuers of securities, so that they can raise resources at minimum cost. o To provide efficient services by brokers, merchant bankers and the other intermediaries, so that they become competitive and professional. Functions of SEBI Sec 11 of the SEBI act specifies the functions as follows:o \ Regulation of the stock exchange and self-regulatory organizations. o Registration and regulation of stock brokers, sub-brokers, registrar to all issue, merchant bankers, underwriters, portfolio managers and such other intermediaries who are associated with securities market. o Regulation and registration of the working of collective investment schemes including Mutual funds. o Prohibition of fraudulent and unfair trade practices relating to security market. o Prohibit insider trading in securities. Regulation substantial acquisitions of shares and take over of company BOMBAY STOCK EXCHANGE The Bombay Stock Exchange is the oldest exchange in Asia. It traces its history to the 1850s, when 4 Gujarati and 1 Paris stockbroker would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE SENSEX in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading SENSEX futures contracts. Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition. This automated, screen-based trading platform called BSE On-line trading (BOLT) currently has a capacity of 8 million orders per day. The BSE has also introduced the world's first centralized exchange-based internet trading

system, BSEWEBx.co.in to enable investors anywhere in the world to trade on the BSE platform. BSE INDICES: The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index It comprised 100 stocks listed at five major stock exchanges in India Mumbai, Calcutta, Delhi, Ahmadabad and Madras. The BSE National Index was renamed BSE100 Index from October 14, 1996 and since then, it is being calculated taking into consideration only the prices of stocks listed at BSE. BSE launched the dollar-linked version of BSE-100 index on May 22, 2006. BSE launched two new index series on 27 May 1994: The 'BSE-200' and the 'DOLLEX-200'. BSE500 Index and 5 sectoral indices were launched in 1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the country's first free-float based index - the BSE TEC Index. All BSE Indices are reviewed periodically by the BSE Index Committee. This Committee which comprises eminent independent finance professionals frames the broad policy guidelines for the development and maintenance of all BSE indices. The BSE Index Cell carries out the day-to-day maintenance of all indices and conducts research on development of new indices. SENSEX is significantly correlated with the stock indices of other emerging markets. NATIONAL STOCK EXCHANGE: Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the incorporation of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India. Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.

In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by Computer Society in India and CHIP Web Award by CHIP magazine. NSE NIFTY: The NSE on April 22, 1996 launches a new equity index. The NSE-50 new index, which replaces the existing NSE-100 index, is expected, to serve as an appropriate index for the new segment of futures and options. Nifty means national index for fifty stocks. The NSE-50 comprises 50 companies that represent 20 broad industry groups with An aggregate market capitalization of around Rs.1, 70,000 crs. All companies included in the index have a market capitalization in excess of Rs 500 crs each and should have traded for 85% of trading days at an impact cost of less than 1.5%.The base period for the index is the close of prices on Nov3, 1995, which makes one year of completion of operation of NSEs capital market segment. The base value of the index has been set at 1000. NSE-MIDCAP INDEX: The medium capitalized segment of the stock market is being increasingly perceived as an attractive investment segment with high growth potential. the primary objective of the nse cnx midcap index is to capture the movement and be a benchmark of the midcap segment of the market. The main features of the NSE CNX Midcap Index are: NSE CNX Midcap Index represents about 77% of the total market capitalization of the Mid-Cap Universe and about 75% of the total traded value of the Mid-Cap Universe

(Mid-Cap Universe is defined as stocks having average six months market capitalization between Rs.75 crores and Rs.750 crores). Industry weightings in the index dynamically reflect industry weightings in the market. Provide investors a broad based benchmark for comparing portfolio returns vis--vis market returns in the midcap segment.

COMPANY PROFILE
About Trustline Trust line securities limited is a stock brokarised company. It is one of the fastest growing financial services organization, established in the year 1989. The code of this organization ISO 9001:2008 Trustline has effective membership in several sectors like [equity& F and O , NSE,NSEF, BSE,BSEF, DSE] equity shares and preference shares, commodities (MCX, NCDEX, NMCEIL), currency(NSE,MCX-SX currency), depository(CDSL, NSDL) The grate personalities Dr.Muksesh Kansal and Mrs.Sarika Kansal are the promoters of the Trustline and Dr. Mukesh Kansal is the chairman and managing director of the trust line And another personality Mrs.Sarika Kansal is the director of the Trustline . Trustline head office is located in Noida, New Delhi. In 21 years they have 80 own branches , 430 business associates , 510 total locations , 1000 human assets , 1200 trading terminals , 70000 clients, and 80000 dmat accounts through out in our India. Products of trust line:Trustline securities limited has introduced several Products to the customers with an advanced technology . The products are following bellow They are Equity and derivative Commodities trading Currency trading Depository services Research and analysis Mutual funds , insurance Institutional channels Investment advisory services Real estate services

Supporters to the trust line:Already we have a extraordinary support of fiis , diis , banks

FIIS: Gold mansachs , credit-suisse , India absolute , karma capital..etc DIIS: Uti , reliance mutual fund, pnb taurns mutual fund , canara robeco asset management company, national insurance company , lanbank investment management services. Banks:PNB , OBC, central bank , Canara bank , Dena bank , Bank of India etc. Objective of the trustline: We Endeavour to be amongst the top ranking highly networked fully integrated broking and financial services house in the country. Mission of the trustline To guide all our investors to enlarge there investment by systematic development of funds.

Vision of the trusline To position our selfs amongst the top integrated and professionally managed investment and financial firms in India Values of the trustline Professional management high corporate governance standards System and process drives business practices Accountability and responsibility integrity and commitment services with great Technology Trustline securities limited no compromise in technology investment compares to other firms we have a grate and marvelous technology like Latest firewalls to secure network WIFI enabled office and other location ISDN backup Top end routers and switches 24 hrs power backup FTP to download data and branches VSAT network

 Radio frequency for standard by arrangement Sophisticated research software Client support through remote central excellent back office software

OBJECTIVES OF THE STUDY

To study the comparative analysis of SAIL and TATA STEEL Company . To study the movement of specified months contract of the SAIL and TATA STEEL Company. To find out profit /loss of call/put option holder or writer. To study the profitability and risk of above mentioned firms with the help of Option Strategy Evaluation Tool (OSET).

NEED FOR THE STUDY

This study of option derivatives is at most important for hedging the risks with the help of Option Strategy Evaluation Tool (OSET) particularly in periods of great uncertainty cannot be over emphasized.

SCOPE OF THE STUDY

The present study is conducted to analyze the performance of SAIL and TATA STEEL Companies option and declared study has been conducted to analyze the profit and loss pattern with the help of option trading in derivative market by using the tool Option Strategy Evaluation Tool (OSET). The analysis is done on the historical data provided by the consultancy, no executives decision and opinion were considered.

DATA COLLECTION METHODS

The secondary data is collected from secondary sources like published data, books and websites of NSE & Other stock exchanges.

REVIEW OF LITERATURE
The authors Black, Fisher, and Scholes ,Myron, themselves admitted some biases of the model in their research paper, The Valuation of Option Contracts and a Test of Market Efficiency, expressed as Using the past data to estimate the variance caused the model to overprice options on high variance stocks and under price options on low variance stocks. While the model tends to overestimate the value of an option on a high variance security, market tends to underestimate the value, and similarly while the model tends to underestimate the value of an option on a low variance security, market tends to overestimate the value.

During 1979, Macbeth, James D., and Merville, Larry J. in their research paper, An Empirical Examination of the Black - Scholes Call Option pricing Model revealed that B-S model predicted prices are on average less (greater) than market prices for in the money options (out of the Money) and also had biases over the life of the options also.

Investors are given the choice to buy or sell the security at a specific price by a specific time, but they are not required to do so. (Essential Concepts, Third Edition by The Options Institute).

Options trading has the reputation of being a speculative and very risky form of securities trading. (Options for the Stock Investor, by James Bittman. )

Option trading is a risky but often very profitable business.Option Trading is simply the trade in option contracts over an exchange. (Options As a Strategic Investment, by Lawrence McMillan)

LIMITATIONS
For my study the data was taken only short period ( two months ). Options are very complex and require a great deal of observation and maintenance. In my study profitable and risk may vary i.e.; today's In-the-money and tomorrow Out-the-money. As the market is highly volatile the interpretations drawn may vary with time

TOOLS USED
Options Strategy Evaluation Tool (OSET)
An Excel-based options analysis tool for examining and comparing the profitability and risks of options strategies. The basic version of the Options Strategy Evaluation Tool does not require the Finance Add-in for Excel. With the add-in installed a number of powerful "premium" features, including risk/probability analysis, historic volatility, on-line option chains and quotations, graphical strategy dissection, automatic position hedging, and percent-to-target analysis, are automatically enabled.

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - SAIL - CE from 01-02-2012 to 29-02-2012

Symbol SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL

Date 01-Feb-12 02-Feb-12 03-Feb-12 06-Feb-12 07-Feb-12 08-Feb-12 09-Feb-12 10-Feb-12 13-Feb-12 14-Feb-12 15-Feb-12 16-Feb-12 17-Feb-12 21-Feb-12 22-Feb-12 23-Feb-12 24-Feb-12 27-Feb-12 28-Feb-12 29-Feb-12

Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

spot price 94.44 102.31 105.47 97.36 99.72 96.13 95.11 98.24 102.35 105.47 97.36 99.72 96.13 95.11 98.24 108.32 93.64 101.2 99.79 102.75

Strike Price 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95

premium paid 3.8 3.5 3.75 3.12 4.2 3.89 3.96 4.11 4.04 3.65 3.73 3.72 3.82 3.97 3.2 3.41 3.62 3.66 3.8 3.26

profit/loss -8720 7620 13440 -1520 1040 -5520 -7700 -1740 6620 13640 -2740 2000 -5380 -7720 80 19820 -9960 5080 1980 8980

25000 20000 15000 10000 5000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -5000 -10000 -15000 Strike Price profit/loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*2000 (lot size). In the call option the spot price is greater than the strike price ( 95 ) is In- the -money. In the call option the spot price is less than the strike price ( 95 ) is Out- the -money.

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - SAIL - CE from 01-03-2012 to 29-03-2012

Symbol SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL

Date 01-Mar-12 02-Mar-12 03-Mar-12 05-Mar-12 06-Mar-12 07-Mar-12 09-Mar-12 12-Mar-12 13-Mar-12 14-Mar-12 15-Mar-12 16-Mar-12 19-Mar-12 20-Mar-12 21-Mar-12 22-Mar-12 23-Mar-12 26-Mar-12 27-Mar-12 28-Mar-12 29-Mar-12

Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

spot price 101.98 98.79 101.2 99.79 102.75 101.98 98.79 94.44 92.67 105.47 97.36 99.72 96.13 95.11 98.24 92.67 105.47 99.79 102.75 101.98 98.79

Strike Price 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95

premium paid 3.68 3.75 4.1 4.5 3.38 3.46 3.65 3.52 3.23 3.87 3.21 3.79 3.74 3.69 3.65 3.21 3.56 4.12 3.76 3.56 3.42

profit/loss 6600 80 4200 580 8740 7040 280 -8160 -11120 13200 -1700 1860 -5220 -7160 -820 -11080 13820 1340 7980 6840 740

20000 15000 10000 5000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 -5000 -10000 -15000 Strike Price profit/loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*2000 (lot size).

Call option holders whose strike price is greater than the current market price. They lost their premium which are paid initially to the option writer.

If it is profit for holder then obviously it will be loss for the writer.

Interpretation of the data for February and March month 2012

PAY OFF PROFILE OF BUYERS OF CALL OPTION CONTRACT Strike price Rs.95

Expiry period 29th march 2012 Premium 3.71

Pay-off profile of buyers of call option of SAIL is shown in the below figure.

Profit

95

98.71 BEP SAIL

3.71

Loss

If the spot price is more than the strike price (Rs. 95.00) then the investor minimizes his losses. When the spot price reaches to 98.71 (95+3.71) he makes no profit no loss. When the price further increases, he makes profit accordingly. Hence, the profits of buyer of call option are unlimited and losses are limited to the premium paid.

PAY-OFF PROFILE OF WRITER OF CALL OPTION: CONTRACT Strike price Rs.95

Expiry period 29th march 2012 Premium 3.71

Pay-off profile of buyers of call option of SAIL is shown in the below figure.

Profit

3.71 0

95

98.71 BEP SAIL

Loss

If the share price turns out to be Rs.98.71 or more, the write of call option gets a loss that increases with the relative increase in the market price. At a share price of Rs.98.71, the profit exactly offsets the premium received. Hence, Rs.98.71 is the breakeven point at which writer of call option makes no profit no loss. Even the market price goes beyond the level of Rs.98.71 the profit of the writer of call option is limited to the premium that he received. Hence, the losses of the writer of call option are unlimited and profits are limited to the premium he paid.

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - SAIL - PE from 01-02-2012 to 29-02-2012

Symbol SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL

Date 01-Feb-12 02-Feb-12 03-Feb-12 06-Feb-12 07-Feb-12 08-Feb-12 09-Feb-12 10-Feb-12 13-Feb-12 14-Feb-12 15-Feb-12 16-Feb-12 17-Feb-12 21-Feb-12 22-Feb-12 23-Feb-12 24-Feb-12 27-Feb-12 28-Feb-12 29-Feb-12

Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

spot price 94.36 97.43 102.09 92.36 97.42 101.19 108.36 105.47 103.33 99.34 111.31 88.83 94.44 104.32 104.97 102.22 102.53 93.33 94.56 105.92

Strike Price 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95

premium paid 4.142 3.78 4.23 3.276 3.78 4.23 4.142 4.23 4.73 4.891 3.61 3.12 4.32 4.74 3.12 4.14 4.142 4.142 4.142 4.142

profit /loss -9564 -2700 5720 -11832 -2720 3920 18436 12480 7200 -1102 25400 -18580 -9760 9160 13700 6160 6776 -11624 -9164 13556

30000 25000 20000 15000 10000 5000 0 -5000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -10000 -15000 -20000 -25000 Strike Price profit /loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*2000 (lot size).

Put option writers whose strike price is less than the current market price. They lost their premium which are paid initially to the option holder.

If it is profit for writer then obviously it will be loss for the holder

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - SAIL - PE from 01-03-2012 to 29-03-2012 Symbol SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL SAIL Date 02-Mar-12 03-Mar-12 05-Mar-12 06-Mar-12 07-Mar-12 09-Mar-12 12-Mar-12 13-Mar-12 14-Mar-12 15-Mar-12 16-Mar-12 19-Mar-12 20-Mar-12 21-Mar-12 22-Mar-12 23-Mar-12 26-Mar-12 27-Mar-12 28-Mar-12 29-Mar-12 Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 spot price 94.36 97.43 108.21 98.96 98.56 92.4 107.32 98.31 94.44 98.56 107.72 109.32 98.95 99.78 101.32 94.36 97.43 102.09 99.67 103.98 Strike Price 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 95 premium paid 4.42 4.85 4.82 4.87 4.11 4.93 4.72 3.89 3.76 4.21 4.146 4.341 4.82 4.831 3.97 3.85 3.903 4.237 4.894 3.985 profit /loss -10120 -4840 16780 -1820 -1100 -15060 15200 -1160 -8640 -1300 17148 19958 -1740 -102 4700 -8980 -2946 5706 -448 9990

25000 20000 15000 10000 5000 0 -5000 -10000 -15000 -20000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Strike Price profit /loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*2000 (lot size). In the put option the spot price is greater than the strike price ( 95 ) is Out- the -money. In the put option the spot price is less than the strike price ( 95 ) is In- the -money.

Interpretation of the data for February and March month 2012

PAY-OFF PROFILE OF BUYER OF PUT OPTION: Strike price Expiry period Premium Rs.95 29th March 2012 Rs.4.37

Profit

90.63

SAIL

4.37

95

Loss

Pay-off profile of buyers of put option is shown in the above figure. When the market price is higher than the strike price of Rs.95, the put option holder incurs a consistent loss to the extent of premium paid on the contract, which is Rs.4.05.

PAY-OFF PROFILE FOR WRITER OF PUT OPTION: Strike price Expiry period Premium Rs.95 29th March 2012 Rs.4.37

Profit
4.37 95

90.63

SAIL

Loss

Pay-off profile for put option is shown in the figure. If the spot price is more than the strike price i.e., Rs.95, then the investor makes profits otherwise makes losses. His profits are limited to the premium received however, his losses are potentially unlimited

DATA ANALYSIS AND INTERPRETATION Data for OPTSTK - TATA STEEL - CE from 01-02-2012 to 29-02-2012 Symbol Date Expiry spot price Strike Price 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 premium paid 19.12 19.34 20.07 20.87 19.97 21.06 20.4 19.73 19.2 19.12 19.34 20.08 19.83 21.42 18.94 19.85 20.84 20.04 19.83 19.63 profit /loss -7955 -1255 1150 10885 5980 -4145 -15670 -1560 -5655 3940 5830 7285 10745 6470 12035 14075 685 -7330 4265 6290

TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL

01-Feb-12 02-Feb-12 03-Feb-12 06-Feb-12 07-Feb-12 08-Feb-12 09-Feb-12 10-Feb-12 13-Feb-12 14-Feb-12 15-Feb-12 16-Feb-12 17-Feb-12 21-Feb-12 22-Feb-12 23-Feb-12 24-Feb-12 27-Feb-12 28-Feb-12 29-Feb-12

29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

403.21 416.83 422.37 442.64 431.93 412.77 389.06 416.61 407.89 427 431 434.65 441.32 434.36 443.01 448 422.21 405.38 428.36 432.21

20000 15000 10000 5000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -5000 -10000 -15000 -20000 spot price profit /loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*1000 (lot size). In the call option the spot price is greater than the strike price ( 400 ) is In- the -money. In the call option the spot price is less than the strike price ( 400 ) is Out- the -money.

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - TATA STEEL - CE from 01-03-2012 to 29-03-2012

Symbol TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL

Date 01-Mar-12 02-Mar-12 03-Mar-12 05-Mar-12 06-Mar-12 07-Mar-12 09-Mar-12 12-Mar-12 13-Mar-12 14-Mar-12 15-Mar-12 16-Mar-12 19-Mar-12 20-Mar-12 21-Mar-12 22-Mar-12 23-Mar-12 26-Mar-12 27-Mar-12 28-Mar-12 29-Mar-12

Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

spot price 426.32 422.73 422.65 411.87 434.58 397.61 427.71 412.77 421.95 403.33 407.89 442.59 439.31 443.89 407.89 427 421.22 403.77 408.94 411.89 422.76

Strike Price 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400

premium paid 19.12 19.32 18.94 19.06 19.42 19.88 20.04 21.11 19.73 19.58 19.32 19.12 19.77 20.52 20.82 19.62 19.21 19.82 18.96 18.69 19.47

profit /loss 3600 1705 1855 -3595 7580 -11135 3835 -4170 1110 -8125 -5715 11735 9770 11685 -6465 3690 1005 -8025 -5010 -3400 1645

15000 10000 5000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 -5000 -10000 -15000 spot price profit /loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*1000 (lot size).

Call option holders whose strike price is greater than the current market price. They lost their premium which are paid initially to the option writer.

If it is profit for holder then obviously it will be loss for the writer.

Interpretation of the data for February and March month 2012

PAY OFF PROFILE OF BUYERS OF CALL OPTION CONTRACT Strike price Rs.400

Expiry period 29th march 2012 Premium 19.93

Pay-off profile of buyers of call option of TATA STEEL is shown in the below figure.

Profit

400

419.93

BEP TATA STEEL

19.93

Loss

If the spot price is more than the strike price (Rs. 400.00) then the investor minimizes his losses. When the spot price reaches to 419.93 (400+19.93) he makes no profit no loss. When the price further increases, he makes profit accordingly. Hence, the profits of buyer of call option are unlimited and losses are limited to the premium paid.

PAY-OFF PROFILE OF WRITER OF CALL OPTION: CONTRACT Strike price Rs.400

Expiry period 29th march 2012 Premium 19.93

Pay-off profile of buyers of call option of TATA STEEL is shown in the below figure.

Profit

19.93 0 400

419.93 BEP TATA STEEL

Loss

If the share price turns out to be Rs.419.93 or more, the write of call option gets a loss that increases with the relative increase in the market price. At a share price of Rs.419.93, the profit exactly offsets the premium received. Hence, Rs.419.93 is the breakeven point at which writer of call option makes no profit no loss. Even the market price goes beyond the level of Rs.419.93 the profit of the writer of call option is limited to the premium that he received. Hence, the losses of the writer of call option are unlimited and profits are limited to the premium he paid.

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - TATA STEEL - PE from 01-02-2012 to 29-02-2012

Symbol TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL

Date 01-Feb-12 02-Feb-12 03-Feb-12 06-Feb-12 07-Feb-12 08-Feb-12 09-Feb-12 10-Feb-12 13-Feb-12 14-Feb-12 15-Feb-12 16-Feb-12 17-Feb-12 21-Feb-12 22-Feb-12 23-Feb-12 24-Feb-12 27-Feb-12 28-Feb-12 29-Feb-12

Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

spot price 426.32 411.89 422.65 411.87 432.13 409.36 434.98 412.77 398.43 397.42 429.38 412.77 410.32 422.8 411.89 422.76 429 407.89 427 429.96

Strike Price 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400

premium paid 18.12 18.54 19.5 17.94 18.36 18.93 18.2 17.83 20.04 19.43 19.72 19.62 18.72 18.72 18.32 18.05 18.93 18.29 19.02 18.93

profit / loss 4100 -3325 1575 -3035 6885 -4785 8390 -2530 -10805 -11005 4830 -3425 -4200 2040 -3215 2355 5035 -5200 3990 5515

10000

5000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 -5000 Strike Price profit / loss

-10000

-15000

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*1000 (lot size).

Put option writers whose strike price is less than the current market price. They lost their premium which are paid initially to the option holder.

If it is profit for writer then obviously it will be loss for the holder

DATA ANALYSIS AND INTERPRETATION

Data for OPTSTK - TATA STEEL - PE from 01-03-2012 to 29-03-2012

Symbol TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL TATASTEEL

Date 01-Mar-12 02-Mar-12 03-Mar-12 05-Mar-12 06-Mar-12 07-Mar-12 09-Mar-12 12-Mar-12 13-Mar-12 14-Mar-12 15-Mar-12 16-Mar-12 19-Mar-12 20-Mar-12 21-Mar-12 22-Mar-12 23-Mar-12 26-Mar-12 27-Mar-12 28-Mar-12 29-Mar-12

Expiry 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12 29-Mar-12

spot price 387.92 398.86 434.36 418.72 431.97 422.21 405.38 403.21 443.01 447.34 422.21 405.38 411.52 421.62 412.77 429.78 403.33 426.71 412.77 434.31 439.45

Strike Price 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400 400

premium paid 18.33 18.73 18.99 17.93 19.48 20.05 21.11 18.61 18.03 18.73 18.37 17.88 19.05 19.56 18.93 18.93 18.32 18.07 18.95 18.95 18.32

profit / loss -15205 -9935 7685 395 6245 1080 -7865 -7700 12490 14305 1920 -6250 -3765 1030 -3080 5425 -7495 4320 -3090 7680 10565

20000 15000 10000 5000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 -5000 -10000 -15000 -20000 Strike Price profit / loss

ANALYSIS OF DATA: Profit / loss of the investor can be calculated by analyzing the spot price, strike price, premium value and lot size of the share. Profitability or the risk can be shown in the below graph with the help of OPTION STRATEGY EVALUATION TOOL (OSET). Profit / loss of the holder = ((spot price-strike price)-premium paid)*1000 (lot size). In the put option the spot price is greater than the strike price ( 400 ) is Out- the -money. In the put option the spot price is less than the strike price ( 400 ) is In- the -money.

Interpretation of the data for February and March month 2012

PAY-OFF PROFILE OF BUYER OF PUT OPTION: Strike price Expiry period Premium Rs.400 29th March 2012 Rs.18.76

Profit

381.24

TATA STEEL

18.76

400

Loss

Pay-off profile of buyers of put option is shown in the above figure. When the market price is higher than the strike price of Rs.400, the put option holder incurs a consistent loss to the extent of premium paid on the contract, which is Rs.18.76.

PAY-OFF PROFILE FOR WRITER OF PUT OPTION: Strike price Expiry period Premium Rs.400 29th March 2012 Rs.18.76

Profit
18.76 400

381.24

TATA STEEL

Loss

Pay-off profile for put option is shown in the figure. If the spot price is more than the strike price i.e., Rs.400, then the investor makes profits otherwise makes losses. His profits are limited to the premium received however, his losses are potentially unlimited

FINDINGS

In the derivative call option contract on the February month from the date 14th Feb 2012 to 24th Feb 2012 the TATA STEEL scrip got the continuo's profits.

The TATA STEEL scrip in the month of February on the particular dates 13th and 14th had face the high risk in the put option contract.

The TATA STEEL scrip in the month of March on the particular dates 1st and 2nd had face the high risk in the put option contract.

In the derivative put option contract on the February month from the date 8th Feb 2012 to 13th Feb 2012 the SAIL scrip got the continuo's fluctuations in profit margin and also immediately on 15th Feb 2012 reached the maximum profit margin.

Derivatives are mostly used for hedging purpose.

In cash market, the profit/loss of the investor may be unlimited, but in the derivatives market, the investor enjoys unlimited profits and minimizes the losses up to his premium only.

In the above analysis, we can observe that the SAIL and TATA STEEL scrip is having normal volatility market situations, so the option holders & option writers will enjoy more profits.

SUGGESTIONS

In bullish market, the investor is suggested to opt for call options in order to maximize the profits.

In bearish market, the investor is suggested to opt for put options in order to minimize his losses.

In order to create the derivatives in India, the SEBI should revise some of their regulations like contract size, participation of FII in the derivatives market. Contract size should be minimized, because small investor cannot afford huge premiums.

The derivatives market is newly started in India, and it is not known by everyone. So SEBI should take necessary actions to create awareness among investors.

CONCLUSION

With the study we can interrupted that the investors are using derivatives for hedging purpose. Hence we can conclude the option trading system is a best tool for reducing the risk. Both SAIL and TATA Steel Scrip have performed well and continued in up trend . But in my comparative study that SAIL can perform better than the TATA STEEL.

BIBILOGRAPHY

WEBSITES: www.trustline.in www.nseindia.com www.moneycontrol.com www.google.com