Conducted at Share Khan- Bangalore Submitted in partial fulfilment of the course requirement of Post Graduate Diploma In Management Submitted by: Pradeep Singha

Guided by: XXXXXXX City Sales Manager Internal Guide Prof. Dr. XXXXXXXXX

July, 2012

Dayananda Sagar Business School
Shavige Malleswara Hills, Kumaraswamy Layout Bangalore – 560078

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Guide Certification

This is to certify that the report titled ―A study on Option Strategies‖ has been prepared under my guidance and supervision. The report is submitted in partial fulfilment of the requirement for the award of Post Graduate Diploma in Management (Approved by AICTE) by Pradeep Singha, DSBSPGDMA1135 and this report / study has not formed a basis for the award of any degree or diploma in any university / institution.

Place: Date:



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Student Declaration
I hereby declare that the report/ study titled ―A Study on Option Strategies‖ prepared under the guidance of Mr. Henadeep, Sales Manager (Share Khan Ltd.) submitted in partial fulfilment of the requirement for the award of Post Graduates Diploma in Management (AICTE) in Dayananda Sagar Business School is my original work and has not been submitted for the award of any other degree/ diploma in any university / institution.

Place: Date: Director

Pradeep Singha DSBSPGDMA1135

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I take great pleasure to express my gratitude to all those who initiated and helped me complete this project successfully. I thank Prof. Dr. XXXXXX (DIRECTOR), XXXxxxxxx, for allowing me to take up my project through this esteemed institute. I am very grateful to Prof.Dr. XXXXXXXXXXXXXXXXX for their constant inspiration and help extended to me during the project. Their timely suggestion and constant encouragement are greatly acknowledged. I would like to express my profound gratitude to MR. XXxxxxxx (Sales Manager) And MR. Share Khan LTD., for permitting me to do my project in the organization and for sparing their precious time for me and constantly guiding me through my project, without which I would not be able to complete my project. Last but not least, I would like to thank all my friends and every other person who has been involved in helping me complete my project.

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SL.NO. CHAPTER-01 PARTICULARS Executive Summary Introduction Importance of The Study Scope of the Study Objectives of Study Research Methodology And Research Design Limitations Of The Study CHAPTER-02 Industry Profile Company Profile CHAPTER-03 About Derivatives About Option CHAPTER-04 Analysis and Interpretation CHAPTER-05 Finding and Recommendation CHAPTER-06 Conclusion Bibliography 15 17 24 31 37 43 64 66 67 PAGE NO. 09 10 11 12 13 14

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SL.NO. 01 02 03 04 05 06 07 08 09 10 PARTICULARS Bullish Buy Call Bullish Sell put PAGE NO. 43 45 47 49 51 53 55 57 59 61

Bullish Call Spread Bullish Put Spread Bearish Buy Put Bearish Sell Call Bearish Call Spread Bearish Put Spread Long Call Butterfly Short Call Butterfly

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SL.NO. 01 02 03 04 05 06 07 08 09 10

PARTICULARS Bullish Buy Call Bullish Sell put

PAGE NO. 43 45 47 49 51 53 55 57 59 61

Bullish Call Spread Bullish Put Spread Bearish Buy Put Bearish Sell Call Bearish Call Spread Bearish Put Spread Long Call Butterfly Short Call Butterfly

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Executive Summary
In the simplest terms, a stock option is an agreement between two parties to buy or sell stock within a specific time frame and at a specified price. Although option trading has been around since 1973, when the Chicago Board Options Exchange was created, it is generally not as widely understood or commonly practiced as the purchase of regular shares of stock.

Underlying Concepts
 Stock options give the owner the right to buy or sell shares of stock at a set price within a set amount of time. The set time frame is a distinguishing characteristic of an option trade vs. a stock purchase. Options are purchased based on your belief that the stock price will rise or fall within the given time frame. If the stock price moves as you expect during this time, you make a profit. Another distinction is that options require less upfront investment than purchasing shares outright, possibly the biggest advantage to this type of trading.  There are two types of basic options, "calls" and "puts." A call increases in value as the stock price rises; a put increases in value as the stock price declines. If you expect a stock to rise in value, you will want to buy a call. If you believe the stock price will fall, you will want to buy a put.  Buying a call will allow you to leverage your potential gain and minimize your initial investment. Buying a put will enable you to profit if a stock declines in value. Your risk is limited to the amount of the option purchase, as opposed to a traditional short sale, where your losses are potentially unlimited. Puts are also used to "hedge" a stock position, which means that if a stock you already own is declining in value but is one you still want to keep, a put option on the stock will increase in value as the stock price declines, which minimizes your overall loss.  In addition to buying options, you can also sell them. When you sell, or "write," a call option, you get paid immediately. You offer to sell shares at a set price for a specific amount of time. If the stock price is at or below the agreed price at the end of the time frame, you keep the option income. If the stock price is higher than the agreed selling price you offered, the buyer will want to take advantage of buying the stock at the below market price, and you will be forced to sell the stock at the agreed price.

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Options are contracts that give the buyers the right (but not the obligation) to buy or sell a specified quantity of certain underlying asset at a specified price on or before a specified date. On the other hand, the seller is under obligation to perform the contract (buy or sell the underlying). The underlying asset can be share, index, interest rate, bond, rupee-dollar exchange rate, sugar, crude oil, soybean, cotton, coffee etc. The options that give their buyer the right to buy are called "Call Options" and those which give their buyer the right to sell are called "Put Options".

Option Strategies

Most strategies that options investors use have limited risk but also limited profit potential. For this reason, options strategies are not get-rich-quick schemes. Transactions generally require less capital than equivalent stock transactions, and therefore return smaller amounts - but a potentially greater percentage of the investment - than equivalent stock transactions. Before you buy or sell options you need a strategy, and before you choose an options strategy, you need to understand how you want options to work in your portfolio. A particular strategy is successful only if it performs in a way that helps you meet your investment goals. One of the benefits of options is the flexibility they offer—they can complement portfolios in many different ways. So it's worth taking the time to identify a goal that suits you and your financial plan. Once you've chosen a goal, you'll have narrowed the range of strategies to use. As with any type of investment, only some of the strategies will be appropriate for your objective. Some options strategies, such as writing covered calls, are relatively simple to understand and execute. There are more complicated strategies, however, such as spreads and collars, that require two opening transactions. These strategies are often used to further limit the risk associated with options, but they may also limit potential return. When you limit risk, there is usually a trade-off.

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Importance of The Study:-

  

It is helpful in future to know more about sensex and Nifty of stock exchange and to explore the knowledge in stock market. To work as a successful technical analyzer or investment executive in this sector in Stock market. Options are made for trading and protecting against a bad market. Investors are not much aware about the derivatives market as well as the future and options.

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Scope Of The Study:    
To learn how a balanced understanding of options can help protect you against the risks inherent in a volatile stock market. Through careful research and analysis Investors can gain the skills and confidence necessary to plan a winning strategy. Use the Options Scope tools to give Investors the advantage and need when investing in the options market. Through the strategy of options trading investors minimize risk while maximizing the profit potential of their portfolios.

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Objective Of The Study:    
To explore the knowledge of applying different types of Option Trading Strategies. To study Option Strategies in the Stock Market in deeper sense. To analyze the market fluctuation of nifty in future and Option contract. To make Stock holders purchase a protective put to hedge against losses from a declining stock.

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Research Methodology And Research Design:

  

Type of research design: Data collection method:

Descriptive Research Secondary method

Sources of secondary data: Websites, Magazines, Newspapers, Official website, past records of Stock markets, etc….


         

Descriptive research is used to obtain information concerning the current status of the Phenomena to describe "what exists" with respect to variables or conditions in a situation. The methods involved range from the survey which describes the status quo, the correlation study which investigates the relationship between variables, to developmental studies which seek to Determine changes over time. Descriptive research can be of two types: Quantitative descriptive research emphasizes on what is, and makes use of quantitative Methods to describe, record, analyze and interpret the present conditions. Qualitative descriptive research also emphasizes on what is, but makes use of non-quantitative Research methods in describing the conditions of the present.

 Analysis of the data:

By preparing charts and tables from the data and compare them to find

out which fund is giving high return and making profit

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Limitations Of The Study:  
Stock Market is very wider and complex market and there are lots of strategies and techniques so it is difficult to interpret deeply. It is difficult to find out the return on the basis of one indicator or instrument because there are many instrument are being used which are different from each other.

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Industry Profile
Stock market
A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008 . The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring.). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.) The stocks are listed and traded on stock exchanges which are entities a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The stock market in the India includes the trading of all securities listed on the two major stock exchange NIFTY and SENSEX.

Stock exchange
A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation). There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter.
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This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

The role of stock exchanges
Stock exchanges have multiple roles in the economy, this may include the following:

1. Raising capital for businesses
The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.

2. Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms.

3. Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution Channels, hedge against volatility, increase its market share, or acquire other necessary business Assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

4. Redistribution of wealth
Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.

5. Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).

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Bombay Stock Exchange
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatized and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Borse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'freefloat' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sect oral indices. BSE has entered into an index cooperation agreement with Deutsche Borse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its Shares brand, has created the 'iSharesAR BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. The first Exchange Traded Fund (ETF) on SENSEX, called "Spice" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. Spice allows small investors to take a long-term view of the market. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of
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India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements. BSE also has a wide range of services to empower investors and facilitate smooth transactions: Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India.

National Stock Exchange of India Limited (NSE) NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and The National Stock Exchange of India Limited (NSE), is a Mumbai-based stock exchange. It is the largest stock exchange in India in terms of daily turnover and number of trades, for both equities and derivative trading.. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. The NSE's key index is the S&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted by market capitalisation. other financial intermediaries in India but its ownership and management operate as separate entities. There are at least 2
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foreign investors NYSE Euro next and Goldman Sachs who have taken a stake in the NSE. As of 2006[update], the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India . In October 2007, the equity market capitalization of the companies listed on the NSE was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities. It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%.

NSE building at BKC The National Stock Exchange of India was promoted by leading Financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.

NSE has remained in the forefront of modernization of India's capital and financial markets, and its pioneering efforts include:  Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the success of the NSE, existent market and new market structures have followed the "NSE" model.  Setting up the first clearing corporation "National Securities Clearing Corporation Ltd." in India. NSCCL was a landmark in providing innovation on all spot equity market (and later, derivatives market) trades in India.     Co-promoting and setting up of National Securities Depository Limited, first depository in India. Setting up of S&P CNX Nifty. NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community. Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives
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 

Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) in India. NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBCTV18, it is the one of the most important stock exchange in the world.

S&P CNX Nifty
S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds. S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India's first specialised company focused upon the index as a core product. IISL has a Marketing and licensing agreement with Standard & Poor's (S&P), who are world eaders in index services.     The total traded value for the last six months of all Nifty stocks is approximately 65.68% of the traded value of all stocks on the NSE Nifty stocks represent about 65.34% of the total market capitalization as on Mar 31, 2009. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16% S&P CNX Nifty is professionally maintained and is ideal for derivatives trading.

Sensex & the Nifty
The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE.Most of the stock trading in the country is done though the BSE & the NSE.

Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the ―BSE Mid-cap Index‖.
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The reasons for stock prices going "up" and "down"
Stock prices change every day because of market forces. By this we mean that stock prices change because of ―supply and demand‖. If more people want to buy a stock (demand) than sell it (supply), then the price moves up! Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. (Basics of economics!) Understanding supply and demand is easy. What is difficult to understand is what makes people like a particular stock and dislike another stock. If you understand this, you will know what people are buying and what people are selling. If you know this you will know what prices go up and what prices go down! To figure out the likes and dislikes of people, you have to figure out what news is positive for a company and what news is negative and how any news about a company will be interpreted by the people. The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Dalal Street watches with great attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their future value of a company on their earnings projection. If a company's results are better than expected, the price jumps up. If a company's results disappoint and are worse than expected, then the price will fall. Of course, it's not just earnings that can change the feeling people have about a stock. It would be a rather simple world if this were the case! During the ―dotcom bubble‖, for example, the stock price of dozens of internet companies rose without ever making even the smallest profit. As we all know, these high stock prices did not hold, and most internet companies saw their values shrink to a fraction of their highs. Still, this fact demonstrates that there are factors other than current earnings that influence stocks. So, what are "all the factors" that affect the stocks price? The best answer is that nobody really knows for sure. Some believe that it isn't possible to predict how stock prices will change, while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know is that stocks are volatile and can change in price very very rapidly.

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Sharekhan, India’s leading stock broker is the retail arm of SSKI, an organization with over eighty years of experience in the stock market with more than 280 share shops in 120 cities and big towns, and premier online trading destination www.sharekhan.com. Share khan offers the trade execution facilities for cash as well as derivatives, on BSE and NSE, depository services, commodities trading on the MCX(Multi Commodity Exchange of India Ltd) and NCDEX (National Commodity and Derivative Exchange) and most importantly, investment advice tempered by eighty years of broking experience. Share khan provides the facility to trade in commodities through Sharekhan Commodities Pvt.Ltd-a wholly owned subsidiary of its parent SSKI. Sharekhan is the member of two major commodity exchanges MCX and NCDEX.

Apart from Sharekhan, the SSKI group also comprises of institutional broking and corporate finance. The institutional broking division caters to domestic and foreign institutional investors, while the corporate finance division focuses on niche areas such as infrastructure, telecom and media. SSKI owns 56% in Sharekhan and the balance ownership is HSBC, First Caryl and Intel Pacific. SSKI has been voted as the top domestic brokerage house in the research category, twice by Euro money survey and four times by Asia money survey. Share khan, India’s leading stockbrokers the real arm of SSKI, an organization with over eight decades of stock market experience. With more than 175 share shops in over 80 cities, and a presence on internet through www.sharekhan.com, India’s premier online trading destination, we reach out to customers like no one else. Share khan offers you trade execution facilities on the BSE and the NSE, for cash as well as derivatives, depositary services and most importantly, investment advice tempered by 80 years of research and broking experience. To ensure that your trading experience with share khan is fast, secure and hassle free. We offer a suite of products and services, providing you with a multi- channel access to the stock markets. SSKI group also comprises institutional broking and corporate finance.While the institutional broking division caters to the largest domestic and foreign institutional investors. The corporate finance division focuses on niche areas such as infrastructure. Telecom and media. SSKI holds a sizeable portion of the market in each of these segments. As the forerunner of investment research in the India market, we provide the best research coverage amongst broking houses in India. Our research team is rated as one of the best in the country. Voted four times as the
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top domestic brokerage house by Asia money survey. SSKI is consistently ranked almagest the top domestic brokerage houses in India. Dematerialization in short called as ―Demat is the process by which an investor can get physical certificates converted into electronic form, Rs 20 per scrip per day (the brokerage per scrip will be charged for the trades resulting in delivery on actual or Rs. 20 whichever is more). (For e.g. If a customer buys 100 shares of sail, total delivery value =2200. Brokerage @ 0.5% = rs 11, but the min chargeable amt per scrip per day = rs 20), so additional rs 9 will be charged as min delivery handling Charges)

The share of Web trading constituted 22 per cent of the revenue. As Sharekhan's daily trading volume was over Rs 200 crore, the share of Web trading at about Rs 40 crore a day was substantial and a larger part of the volume was coming from day traders.

    Share khan is the retail broking arm of SSKI, securities pvt ltd. SSKI owns 56% in share khan, balance ownership is HSBC, first caryle, and Intel pacific. Into broking since 80 years. Focused on providing equity solutions to every segment. Largest ground network of 210 branded share shops in 90 cities.

Hierarchy In Sharekhan
There are 14 main hierarchical levels in Sharekhan: 1) Trainees 2) Super trainees 3) Sales executives 4) Assistant sales manager 5) Area sales manager : 6) City sales manager 7) Assistant branch manager 8) Branch manager 9) Regional head 10) Cluster head 11) Business head 12) Country head
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13) Directors 14) CEO

 To project Sharekhan as an authority in the retail stock trading business.           To execute business for the company by selling demat accounts and mutual funds. To study the various products of the company. To know how to open and close the calls. To learn the online terminal used for trading. To know the various policies of the company. To know how to handle various types of customers. To know various reasons for market fluctuations. To learn to manage time. To gain practical knowledge of the market. To have a practical experience of working in a reputed organization.

Sharekhan Offers
       Broking in Equities & Derivatives on NSE & BSE Depository Services Commodities Trading on MCX & NCDEX IPO Services Portfolio Management Services Distribution Services Structured Products with Fixed Returns

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Sharekhan provides 4 in 1 account  Demat a/c  Trading a/c: for cash calculation  Bank a/c: for fund transfer  Dial and Trade: for query relating trading

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Access via Multiple channels

 Products:
          
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Mutual fund schemes Insurance Portfolio Management System Shares – online and offline First step Classic Trade tiger Fortune finder Active training cell Franchisee Share mobile
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1. India Bulls 2. Motilal Oswal 3. Religare 4. Kotak Securities 5. ICICI Direct 6. Anand Rathi 7. India Infoline 8. Reliance Money 9. Angel Broking 10. 5paisa.com

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A derivative instrument is a contract between two parties that specifies conditions (especially the dates, resulting values of the underlying variables, and notional amounts) under which payments, or payoffs, are to be made between the parties. Under US law and the laws of most other developed countries, derivatives have special legal exemptions that make them a particularly attractive legal form through which to extend credit. However, the strong creditor protections afforded to derivatives counterparties, in combination with their complexity and lack of transparency, can cause capital markets to underpriced credit risk. This can contribute to credit booms, and increase systemic risks. Indeed, the use of derivatives to mask credit risk from third parties while protecting derivative counterparties contributed to the financial crisis of 2008 in the United States. Financial reforms within the US since the financial crisis have served only to reinforce special protections for derivatives, including greater access to government guarantees, while minimizing disclosure to broader financial markets. One of the oldest derivatives is rice futures, which have been traded on the Dojima Rice Exchange since the eighteenth century. Derivatives are broadly categorized by the relationship between the underlying asset and the derivative (such as forward, option, swap); the type of underlying asset (such as equity

derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives, or credit derivatives); the market in which they trade (such as exchange-traded or over-the-counter); and their pay-off profile. Derivatives can be used for speculating purposes ("bets") or to hedge ("insurance"). For example, a speculator may sell deep in-the-money naked calls on a stock, expecting the stock price to plummet, but exposing himself to potentially unlimited losses. Very commonly, companies buy currency forwards in order to limit losses due to fluctuations in the exchange rate of two currencies. Third parties can use publicly available derivatives prices as educated predictions of uncertain future outcomes, for example, the likelihood that a corporation will default on its debts.

Derivatives are used by investors for the following:

Provide leverage (or gearing), such that a small movement in the underlying value can cause a large difference in the value of the derivative.
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speculate and make a profit if the value of the underlying asset moves the way they expect (e.g., moves in a given direction, stays in or out of a specified range, reaches a certain level);

Hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out.

Obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives).

Create option ability where the value of the derivative is linked to a specific condition or event (e.g. the underlying reaching a specific price level).

Derivatives allow risk related to the price of the underlying asset to be transferred from one party to another. For example, a wheat farmer and a miller could sign a futures contract to exchange a specified amount of cash for a specified amount of wheat in the future. Both parties have reduced a future risk: for the wheat farmer, the uncertainty of the price, and for the miller, the availability of wheat. However, there is still the risk that no wheat will be available because of events unspecified by the contract, such as the weather, or that one party will renege on the contract. Although a third party, called a clearing house, insures a futures contract, not all derivatives are insured against counter-party risk. From another perspective, the farmer and the miller both reduce a risk and acquire a risk when they sign the futures contract: the farmer reduces the risk that the price of wheat will fall below the price specified in the contract and acquires the risk that the price of wheat will rise above the price specified in the contract (thereby losing additional income that he could have earned). The miller, on the other hand, acquires the risk that the price of wheat will fall below the price specified in the contract (thereby paying more in the future than he otherwise would have) and reduces the risk that the price of wheat will rise above the price specified in the contract. In this sense, one party is the insurer (risk taker) for one type of risk, and the counter-party is the insurer (risk taker) for another type of risk. Hedging also occurs when an individual or institution buys an asset (such as a commodity, a bond that has coupon payments, a stock that pays dividends, and so on) and sells it using a futures contract. The individual or institution has access to the asset for a specified amount of time, and can then sell it in the future at a specified price according to the futures contract. Of course, this allows the individual or institution the benefit of holding the asset, while reducing the risk that the future selling price will deviate unexpectedly from the market's current assessment of the future value of the asset.
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Speculation and arbitrage
Derivatives can be used to acquire risk, rather than to hedge against risk. Thus, some individuals and institutions will enter into a derivative contract to speculate on the value of the underlying asset, betting that the party seeking insurance will be wrong about the future value of the underlying asset. Speculators look to buy an asset in the future at a low price according to a derivative contract when the future market price is high, or to sell an asset in the future at a high price according to a derivative contract when the future market price is low. Individuals and institutions may also look for arbitrage opportunities, as when the current buying price of an asset falls below the price specified in a futures contract to sell the asset.

Speculative trading in derivatives gained a great deal of notoriety in 1995 when Nick Leeson, a trader at Barings Bank, made poor and unauthorized investments in futures contracts. Through a combination of poor judgment, lack of oversight by the bank's management and regulators, and unfortunate events like the Kobe earthquake, Leeson incurred a US$1.3 billion loss that bankrupted the centuries-old institution.

OTC and exchange-traded In broad terms, there are two groups of derivative contracts, which are distinguished by the way they are traded in the market:

Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, exotic options - and other exotic derivatives - are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. Reporting of OTC amounts are difficult because trades can occur in private, without activity being visible on any exchange. According to the Bank for International Settlements, the total outstanding notional amount is US$708 trillion (as of June 2011). Of this total notional amount, 67% are interest rate contracts, 8% are credit default swaps (CDS), 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and

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12% are other. Because OTC derivatives are not traded on an exchange, there is no central counter-party. Therefore, they are subject to counter-party risk, like an ordinary contract, since each counter-party relies on the other to perform.

Exchange-traded derivative contracts (ETD) are those derivatives instruments that are traded via specialized derivatives exchanges or other exchanges. A derivatives exchange is a market where individual’s trade standardized contracts that have been defined by the exchange. A derivatives exchange acts as an intermediary to all related transactions, and takes initial margin from both sides of the trade to act as a guarantee. The world's largest derivatives exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex(which lists a wide range of European products such as interest rate & index products), and CME Group (made up of the 2007 merger of the Chicago Mercantile Exchange and the Chicago Board of Trade and the 2008 acquisition of the New York Mercantile Exchange). According to BIS, the combined turnover in the world's derivatives exchanges totaled USD 344 trillion during Q4 2005. Some types of derivative instruments also may trade on traditional exchanges. For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance Rights, Cash xPRTs and various other instruments that essentially consist of a complex set of options bundled into a simple package are routinely listed on equity exchanges. Like other derivatives, these publicly traded derivatives provide investors access to risk/reward and volatility characteristics that, while related to an underlying commodity, nonetheless are distinctive.

Common derivative contract types:
Some of the common variants of derivative contracts are as follows: Forwards: A tailored contract between two parties, where payment takes place at a specific time in the future at today's pre-determined price. Futures: are contracts to buy or sell an asset on or before a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold; the forward contract is a non-standardized contract written by the parties themselves.

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Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset. The price at which the sale takes place is known as the strike price, and is specified at the time the parties enter into the option. The option contract also specifies a maturity date. In the case of a European option, the owner has the right to require the sale to take place on (but not before) the maturity date; in the case of an American option, the owner can require the sale to take place at any time up to the maturity date. If the owner of the contract exercises this right, the counter-party has the obligation to carry out the transaction. Options are of two types: call option and put option. The buyer of a Call option has a right to buy a certain quantity of the underlying asset, at a specified price on or before a given date in the future, he however has no obligation whatsoever to carry out this right. Similarly, the buyer of a Put option has the right to sell a certain quantity of an underlying asset, at a specified price on or before a given date in the future, he however has no obligation whatsoever to carry out this right. Warrants: Apart from the commonly used short-dated options which have a maximum maturity

period of 1 year, there exists certain long-dated options as well, known as Warrant (finance). These are generally traded over-the-counter. Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies exchange rates, bonds/interest rates, commodities exchange, stocks or other assets. Another term which is commonly associated to Swap is Swaption which is basically an option on the forward Swap. Similar to a Call and Put option, a Swaption is of two kinds: a receiver Swaption and a payer Swaption. While on one hand, in case of a receiver Swaption there is an option wherein you can receive fixed and pay floating, a payer Swaption on the other hand is an option to pay fixed and receive floating.

Swaps can basically be categorized into two types:

Interest Rate Swap: These basically necessitate swapping only interest associated cash flows in the same currency, between two parties.

Currency swap: In this kind of swapping, the cash flow between the two parties includes both principal and interest. Also, the money which is being swapped is in different currency for both parties.

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Economic function of the derivative market
Some of the salient economic functions of the derivative market include: 1. Prices in a structured derivative market not only replicate the discernment of the market participants about the future but also lead the prices of underlying to the professed future level. On the expiration of the derivative contract, the prices of derivatives congregate with the prices of the underlying. Therefore, derivatives are essential tools to determine both current and future prices. 2. The derivatives market relocates risk from the people who prefer risk aversion to the people who have an appetite for risk. 3. The intrinsic nature of derivatives market associates them to the underlying Spot market. Due to derivatives there is a considerable increase in trade volumes of the underlying Spot market. The dominant factor behind such an escalation is increased participation by additional players who would not have otherwise participated due to absence of any procedure to transfer risk. 4. As supervision, reconnaissance of the activities of various participants becomes tremendously difficult in assorted markets; the establishment of an organized form of market becomes all the more imperative. Therefore, in the presence of an organized derivatives market, speculation can be controlled, resulting in a more meticulous environment. 5. A significant accompanying benefit which is a consequence of derivatives trading is that it acts as a facilitator for new Entrepreneurs. The derivatives market has a history of alluring many optimistic, imaginative and well educated people with an entrepreneurial outlook, the benefits of which are colossal. .

Market and arbitrage-free prices
Two common measures of value are:
 

Market price, i.e., the price at which traders are willing to buy or sell the contract; Arbitrage-free price, meaning that no risk-free profits can be made by trading in these contracts; see rational pricing.

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Determining the market price
For exchange-traded derivatives, market price is usually transparent, making it difficult to automatically broadcast prices. In particular with OTC contracts, there is no central exchange to collate and disseminate prices

In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price (the strike).]The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction. The price of an option derives from the difference between the reference price and the value of the underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option. Other types of options exist, and options can in principle be created for any type of valuable asset.

An option which conveys the right to buy something at a specific price is called a call; an option which conveys the right to sell something at a specific price is called a put. The reference price at which the underlying asset may be traded is called the strike price or exercise price. The process of activating an option and thereby trading the underlying at the agreed-upon price is referred to as exercising it. Most options have an expiration date. If the option is not exercised by the expiration date, it becomes void and worthless.

In return for assuming the obligation, called writing the option, the originator of the option collects a payment, the premium, from the buyer. The writer of an option must make good on delivering (or receiving) the underlying asset or its cash equivalent, if the option is exercised.

An option can usually be sold by its original buyer to another party. Many options are created in standardized form and traded on an anonymous options exchange among the general public, while other over-the-counter options are customized ad hoc to the desires of the buyer, usually by an investment bank .
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The Options can be classified into following types:
Exchange-traded options

Exchange-traded options (also called "listed options") are a class of exchange-traded derivatives. Exchange traded options have standardized contracts, and are settled through a house with fulfillment guaranteed by the credit of the exchange. Since the contracts are standardized, accurate pricing models are often available. Exchange-traded options include:
    

stock options, bond options and other interest rate options stock market index options or, simply, index options and options on futures contracts callable bull/bear contract


Over-the-counter options (OTC options, also called "dealer options") are traded between two private parties, and are not listed on an exchange. The terms of an OTC option are unrestricted and may be individually tailored to meet any business need. In general, at least one of the counterparties to an OTC option is a well-capitalized institution. Option types commonly traded over the counter include: 1. interest rate options 2. currency cross rate options, and 3. Options on swaps or swaptions.

Other option types
Another important class of options, particularly in the U.S., are employee stock options, which are awarded by a company to their employees as a form of incentive compensation. Other types of options exist in many financial contracts, for example real estate options are often used to assemble large parcels of land,

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and prepayment options are usually included in mortgage loans. However, many of the valuation and risk management principles apply across all financial options.

Option styles
Main article: Option style Naming conventions are used to help identify properties common to many different types of options. These include:
   

European option – an option that may only be exercised on expiration. American option – an option that may be exercised on any trading day on or before expiry. Bermudan option – an option that may be exercised only on specified dates on or before expiration. Barrier option – any option with the general characteristic that the underlying security's price must pass a certain level or "barrier" before it can be exercised. Exotic option – any of a broad category of options that may include complex financial structures. Vanilla option – any option that is not exotic.

 

Valuation models
Main article: Valuation of options The value of an option can be estimated using a variety of quantitative techniques based on the concept of risk neutral pricing and using stochastic calculus. The most basic model is the Black–Scholes model. More sophisticated models are used to model the volatility smile. These models are implemented using a variety of numerical techniques. In general, standard option valuation models depend on the following factors:
 

The current market price of the underlying security, the strike price of the option, particularly in relation to the current market price of the underlying (in the money vs. out of the money),

  

the cost of holding a position in the underlying security, including interest and dividends, the time to expiration together with any restrictions on when exercise may occur, and An estimate of the future volatility of the underlying security's price over the life of the option.

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More advanced models can require additional factors, such as an estimate of how volatility changes over time and for various underlying price levels, or the dynamics of stochastic interest rates. The following are some of the principal valuation techniques used in practice to evaluate option contracts.

Main article: Black–Scholes Following early work by Louis Bachelier and later work by Edward O. Thorp, Fischer Black and Myron Scholes made a major breakthrough by deriving a differential equation that must be satisfied by the price of any derivative dependent on a non-dividend-paying stock. By employing the technique of constructing a risk neutral portfolio that replicates the returns of holding an option, Black and Scholes produced a closed-form solution for a European option's theoretical price.

At the same time, the model generates hedge parameters necessary for effective risk management of option holdings. While the ideas behind the Black–Scholes model were ground-breaking and eventually led to Scholes and Merton receiving the Swedish Central Bank's associated Prize for Achievement in Economics (a.k.a., the Nobel Prize in Economics), the application of the model in actual options trading is clumsy because of the assumptions of continuous (or no) dividend payment, constant volatility, and a constant interest rate. Nevertheless, the Black–Scholes model is still one of the most important methods and foundations for the existing financial market in which the result is within the reasonable range.

Stochastic volatility models
Main article: Heston model Since the market crash of 1987, it has been observed that market implied volatility for options of lower strike prices are typically higher than for higher strike prices, suggesting that volatility is stochastic, varying both for time and for the price level of the underlying security. Stochastic volatility models have been developed including one developed by S.L. Heston. One principal advantage of the Heston model is that it can be solved in closed-form, while other stochastic volatility models require complex numerical methods.

Model implementation

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Further information: Valuation of options Once a valuation model has been chosen, there are a number of different techniques used to take the mathematical models to implement the models. Analytic techniques In some cases, one can take the mathematical model and using analytical methods develop closed form solutions such as Black–Scholes and the Black model. The resulting solutions are readily computable, as are their "Greeks". Binomial tree pricing model Main article: Binomial options pricing model
Closely following the derivation of Black and Scholes, John Cox, Stephen Ross and Mark Rubinstein developed the original version of the binomial options pricing model. It models the dynamics of the option's theoretical value for discrete time intervals over the option's life. The model starts with a binomial tree of discrete future possible underlying stock prices. By constructing a riskless portfolio of an option and stock (as in the Black–Scholes model) a simple formula can be used to find the option price at each node in the tree. This value can approximate the theoretical value produced by Black Scholes, to the desired degree of precision. However, the binomial model is considered more accurate than Black–Scholes because it is more flexible; e.g., discrete future dividend payments can be modeled correctly at the proper forward time steps, and American options can be modeled as well as European ones. Binomial models are widely used by professional option traders. The Trinomial is a similar model, allowing for an up, down or stable path; although considered more accurate, particularly when fewer time-steps are modeled, it is less commonly used as its implementation is more complex.

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Option Strategies:Bullish Strategy:Bullish Buy Call Strategy:Buying or ―Going Long‖ on a Call is a strategy that must be devised when the investor is bullish on the market direction moving up in the short term. A Long Call Option is the simplest way to benefit if the investor believes that the market will make an upward move. It is the most common choice among first-time investors. ―Being Long‖ on a Call Option means the investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if the underlying Stock/Index makes a correction. Investor View: Bullish on the Stock / Index. Risk: Limited to the premium paid. Reward: Unlimited. Breakeven: Strike Price + premium paid. Example:-

Symbol: Buy Call Price Underlying Price Lot Size Loss on Expiry
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BANKBARODA 620 @ 50.50 653.80 250 4175.00



Outflow Reward Risk

12625.00 Unlimited 12625.00
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Symbol: Buy Call Price Underlying Price Lot Size Profit on Expiry

AMBUJACEM 160 @ 23.30 185.00 2000 3400.00



Outflow Reward Risk

46600.00 Unlimited 46600.00

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Bullish Sell put Strategy:Selling or ―Going Short‖ on a Put is a strategy that must be devised when the investor is Bullish on the market direction and expects the stock price to rise or stay sideways at the minimum. When investor sells a Put, he/she earns a Premium (from the buyer of the Put).If the underlying price increases beyond the Strike price, the short Put position will make a profit for the seller by the amount of the premium. But, if the price decreases below the Strike price, by more than the amount of the premium, the Put seller will lose money. Investor View: Very Bullish on the Stock / Index. Risk: Unlimited. Reward: Limited to the premium received. Breakeven: Strike Price – premium received.


Symbol: Sell Put Price Underlying Price Lot Size Profit on Expiry
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BANKBARODA 640 @ 9.20 653.80 250 2300.00



Inflow Reward Risk

2300.00 2300.00 Unlimited
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Example 2-

Symbol: Sell Put Price Underlying Price Lot Size Profit on Expiry

AMBUJACEM 160 @ 0.40 185.00 2000 800.00



Inflow Reward Risk

800.00 800.00 Unlimited

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Bullish Call Spread Strategy:The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (Long Call) strategy. The investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if the underlying Stock/Index makes a correction. Investor view: Moderately, bullish on the Stock/ Index Risk: Limited. Bull Call Spread is a strategy that must be devised when the investor is moderately bullish on the market direction going up in the short-term. A Bull Call Spread is formed by buying an ―In-the-Money Call Option‖ (lower strike) and selling an ―Out-ofthe-Money Call Option‖ (higher strike). Both the call options must have the same underlying security and expiration month. Reward: Limited to the net premium paid. Breakeven: Strike price of Buy Call + net premium paid Example:-

Symbol: Buy Call Price (ITM) Underlying Price Lot Size
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TATASTEEL 400.00 @ 16.20 404.30 500

Breakeven Sell Call Price (OTM) Outflow Reward

408.80 420.00 @ 7.40 4400 5600.00
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Loss on Expiry





Symbol: Buy Call Price (ITM) Underlying Price Lot Size Loss on Expiry

AXISBANK 1060.00 @ 33.40 1063.60 250 1450.00

Breakeven Sell Call Price (OTM) Outflow Reward Risk

1069.40 1080.00 @ 24.00 2350 2650.00 2350.00

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Bullish Put Spread Strategy:Bull Put Spread is a strategy that must be devised when the investor is moderately bullish on the market direction going up in the short-term. A Bull Put Spread is formed by buying an ―Out-of-the-Money Put Option‖ (lower strike) and selling an ―Inthe-Money Put Option‖ (higher strike). Both Put options must have the same underlying security and expiration month. The concept is to protect the downside of a Put sold by buying a lower strike Put, which acts as insurance for the Put sold. This strategy is equivalent to the Bull Call but is done to earn a net credit (premium) and collect an income. Investor view: Moderately. bullish on the Stock/ Index Risk: Limited. Reward: Limited to the premium. received. Breakeven: Strike price of Short Put - premium received. Example:-

Symbol: Buy Put Price (OTM) Underlying Price Lot Size
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JSWSTEEL 700.00 @ 16.00 709.15 500

Breakeven Sell Put Price (ITM) Inflow Reward

710.00 720.00 @ 26.00 5000.00 5000.00
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Loss on Expiry





Symbol: Buy Put Price (OTM) Underlying Price Lot Size Loss on Expiry

AXISBANK 1060.00 @ 24.95 1063.60 250 1712.50

Breakeven Sell Put Price (ITM) Inflow Reward Risk

1070.45 1080.00 @ 34.50 2387.50 2387.50 2612.50

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Bearish Strategy:Bearish Buy Put Strategy:Buying or ―Going Long‖ on a Put is a strategy that must be devised when the investor is Bearish on the market direction going down in the short-term. A Put Option gives the buyer of the Put a right to sell the Stock (to the Put Seller) at a pre-specified price and thereby limit his risk. ―Being Long‖ on a Put Option means the investor will benefit if the underlying Stock/Index falls down. However, the risk is limited on the upside if the underlying Stock/Index rallies. Investor View: Bearish on the Stock / Index Risk: Limited to the premium paid. Reward: Unlimited Breakeven: Strike Price – premium paid. Example:-

Symbol: Buy Put Price Underlying Price Lot Size Loss on Expiry

BAJAJ-AUTO 1450 @ 4.50 1636.45 125 562.50



Outflow Reward Risk

562.50 Unlimited 562.5

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Symbol: Buy Put Price Underlying Price Lot Size Loss on Expiry

BANKINDIA 280 @ 4.90 287.45 1000 4900.00



Outflow Reward Risk

4900.00 Unlimited 4900

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Bearish Sell Call Strategy:Selling or ―Going Short‖ on a Call is a strategy that must be devised when the investor is not so bullish on the . On selling a Call, the investor earns a Premium (from the buyer of the Call). This position offers limited profit potential and the possibility of large losses on big advances in underlying. prices. Although easy to execute it is a risky strategy since the seller of the Call is exposed to unlimited risk. Investor View: Very Bearish on the Stock / Index Risk: Unlimited. Reward: Limited to the premium received. Breakeven: Strike Price + premium received. Example:-

Symbol: Sell Call Price Underlying Price Lot Size Loss on Expiry

BAJAJ-AUTO 1450 @ 112.80 1636.45 125 9206.25



Inflow Reward Risk

14100.00 14100.00 Unlimited

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Symbol: Sell Call Price Underlying Price Lot Size Profit on Expiry

BANKINDIA 280 @ 15.70 287.45 1000 8250.00



Inflow Reward Risk

15700.00 15700.00 Unlimited

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Bearish Call Spread Strategy:Bear Call Spread is a strategy that must be devised when the investor is moderately bearish on the market direction and is expecting the underlying to fall in the short-term A Bear Call Spread is formed by buying an ―Out-of-the-Money Call Option‖ (higher strike) and selling an ―In-the-Money Call Option‖ (lower strike). Both Call options must have the same underlying security and expiration month. The investor receives a net credit because the Call bought is of a higher strike price than the Call sold. The concept is to protect the downside of a Call sold by buying a Call of a higher strike price to insure the Call sold. Investor view: Moderately bearish on the Stock/Index Risk: Limited Reward: Limited to the net premium received. Breakeven:Strike price of Short Call + premium received. Example:-

Symbol: Sell Call Price (ITM) Underlying Price Lot Size
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MARUTI 1100.00 @ 50.40 1137.65 250

Breakeven Buy Call Price (OTM) Inflow Reward

1126.90 1150.00 @ 23.50 6725.00 6725.00
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Loss on Expiry





Symbol: Sell Call Price (ITM) Underlying Price Lot Size Loss on Expiry

BANKBARODA 640.00 @ 31.00 653.80 250 50.00

Breakeven Buy Call Price (OTM) Inflow Reward Risk

653.60 660.00 @ 17.40 3400.00 3400.00 1600.00

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Bearish Put Spread Strategy:Bear Put Spread is a strategy that must be devised when the investor is moderately bearish on the market direction and is expecting the underlying to fall in the short-term. A Bear Put Spread is formed by buying an In-the-Money Put Option (higher strike) and selling Out-of-theMoney Put Option (lower strike). Both Put options must have the same underlying security and expiration month. The investor has to pay a net premium because the Put bought is of a higher strike price than the Put sold. The net effect of the strategy is to bring down the cost and raise the breakeven on buying a Put (Long Put). Investor view: Moderately. bearish on the Stock/ Index. Risk: Limited to the premium paid. Reward: Limited Breakeven: Strike price of Long Put - net premium paid.


Symbol: Sell Put Price (OTM) Underlying Price Lot Size Loss on Expiry
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ITC 250.00 @ 2.10 258.40 1000 1700.00

Breakeven Buy Put Price (ITM) Outflow Reward Risk

256.70 260.00 @ 5.40 3300 6700.00 3300.00
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Symbol: Sell Put Price (OTM) Underlying Price Lot Size Loss on Expiry

BANKBARODA 640.00 @ 9.20 653.80 250 600.00

Breakeven Buy Put Price (ITM) Outflow Reward Risk

651.40 660.00 @ 17.80 2150 2850.00 2150.00

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Neutral Strategy:Long Call Butterfly Strategy:Long Call Butterfly is a strategy that must be devised when the investor is neutral on the market direction and expects volatility to be less in the market. A Long Call Butterfly strategy is formed by selling two At-the-Money Call Options, buying one Out-of-theMoney Call Option and one In-the-Money Call Option. A Long Call Butterfly is similar to a Short Straddle except that here the investor’s losses are limited. The investor will benefit if the underlying Stock/ Index remains at the middle strike at expiration Investor view: Neutral on direction and bearish on Stock/ Index volatility. Risk: Limited to the premium paid. Reward: limited Lower Breakeven: Strike price of Lower Strike Long Call + net premium paid. Higher Breakeven: Strike Price of Higher Strike Long Call – net premium paid. Example:

Symbol: Buy Call (ITM) Sell Call (ATM) - 2 Lots Underlying Price
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BHEL 220.00 @ 12.50 230.00 @ 6.40 229.20

Breakeven Buy Call (OTM)

222.55 and 237.45 240.00 @ 2.85


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Lot Size Profit on Expiry Example2-

1000 6650.00

Reward Risk

7450.00 2550.00

Symbol: Buy Call (ITM) Sell Call (ATM) - 2 Lots Underlying Price Lot Size Profit on Expiry

DENABANK 85.00 @ 7.55 90.00 @ 3.75 91.30 4000 8000.00

Breakeven Buy Call (OTM)

86.70 and 93.30 95.00 @ 1.65

Outflow Reward Risk

6800 13200.00 6800.00

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Short Call Butterfly Strategy:Short Call Butterfly is a strategy that must be devised when the investor is neutral on the market derection and expects volatility to be significant in the market. A Short Call Butterfly strategy is formed by buying two ―At-the-Money Call‖ Options, selling one ―Out-ofthe-Money Call‖ Option and one ―In-the-Money‖ Call Option. Compared to Straddle and strangle, this strategy offers very small returns. The risk involved is slightly less as compared to them. The investor will benefit if the underlying Stock/ Index finishes on either side of the upper and lower strike prices at expiration. Investor view: Neutral on direction and bullish on Stock/ Index volatility. Risk: Limited to difference between adjacent Strikes – net premium received. Reward: Limited to the premium received. Lower breakeven: Strike price of higher Strike Short Call + net premium received. Higher breakeven: Strike price of Lower Strike Short Call - net premium received


Symbol: Sell Call (ITM)
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BHEL 220.00 @ 12.50

Breakeven Sell Call (OTM)

222.55 and 237.45 240.00 @ 2.85
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Buy Call (ATM) - 2 Lots Underlying Price Lot Size Loss on Expiry

230.00 @ 6.40 229.20 1000 6650.00 Inflow Reward Risk 2550.00 2550.00 7450.00


Symbol: Sell Call (ITM) Buy Call (ATM) - 2 Lots Underlying Price Lot Size Loss on Expiry

DENABANK 85.00 @ 7.55 90.00 @ 3.75 91.30 4000 8000.00

Breakeven Sell Call (OTM)

86.70 and 93.30 95.00 @ 1.65

Inflow Reward Risk

6800.00 6800.00 13200.00

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 Investors are not much aware about the derivatives market as well as the future and

options.  Value of an option depends upon the strike price, expiration date, value of underlying

asset etc.    Value of an option comprises intrinsic value of option and time value of option. Option values have lower and upper boundries. It was also observed that many broking houses offering internet trading allow clients

to use their conventional system as well just ensure that they do not loose them and this instead of offering-broking services they becomes service providers.  I recommend the exchange authorities to take steps to educate investors about their

rights and duties. I suggest to the exchange authorities to increase the investors confidences.  I also recommend the exchange authorities to appoint a well educated persons, so that

he can provide the basic information to the client regarding the future and options.  prices.  The speculative pressures are responsible for the wide changes in the price, not I recommend the exchange authorities to be vigilant to curb wide fluctuations of

attracting the genuine investors to the greater extent towards the market.  Genuine investors are not at all interested in the speculative gain as their investment is

based on the future profits, therefore the authorities of the exchange should be more vigilant to curb the speculation.

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Derivatives are extremely important and have a big impact on other financial market and the economy. The project is designed to upgrade investor’s knowledge with the basics of how to make investment decisions in futures and options with reference to bear market. It is important for the investors that they must analyze the fundamental (Economic & Financial), technical and other factors for dealing in futures and options. For many investors options are useful as tools of risk management. Different Option Strategies and the options help to earn a risk-less profit. The option strategies are used according to the nature of market condition. If market is bullish - Long Call, Covered Call is useful. In case of bearish market Long Call and Long Put option strategies is useful. In neutral option - Condor and Long Straddle is useful tools for the investment.

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        

www.sharekhan.com www.nseindia.com www.rbi.org.in www.yourmoneysite.com www.optiontradingpedia.com www.moneycontrol.com www.investopedia.com www.nifty50options.blogspot.com http://www.hsbcinvestdirect.co.in/

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