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INTERIM REPORT OF

MANAGEMENT THESIS-1
(AS A PART OF MBA PROGRAMME 2008-10)

Topic : Analytical study of the risk and return of


short trading with reference to Option, Future and
Intraday trading of stock.

Submitted To,
Ms. Rany Varghese
Faculty Guide
INC, Pathanamthitta.
Submitted By,
Tinumon T
En.No: 8nbpm016
INC, Pathanamthitta.

Introduction
Stock- is a share in the ownership of a company. It represents a claim on the
company's assets and earnings.
Stock Market - is a market for the trading of publicly held company stocks and
associated financial instruments (including stock options, convertibles and stock
index futures). Traditionally such markets were open-outcry where trading
occurred on the floor of an exchange. These days increasingly the markets are
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cyber-markets with buying and selling occurring via online real-time matching of
orders placed by buyers and sellers.
An option contract is an agreement between two parties to buy/sell an asset
at a fixed price and fixed date in the future. There are two types of option contracts
- Call options and Put options. A Call option gives the buyer the right to buy the
underlying asset, while a Put option gives the buyer the asset.
A 'Future' is a contract to buy or sell the underlying asset for a specific price
at a pre-determined time. If you buy a futures contract, it means that you promise
to pay the price of the asset at a specified time. If you sell a future, you effectively
make a promise to transfer the asset to the buyer of the future at a specified price at
a particular time.
short term intra-day trader who would like to hold on to their position for a
few minutes to few hours with a view of squaring their position before the end of
that day.

Objectives of the study


➢ To study the details about stock market.
➢ To study the short trading with reference to Option, Future and Intra
day trading of stock.
➢ Effect of derivatives in equity market.
➢ To study the risk and return of Intra and Derivatives in equity market.

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Description of the problem
Investing in an equity market is an immense risk. Many of the empirical
investors have lost their money and some of them have created profit through
speculation and gambling. This study is conducted so as to know how the
speculators are reducing their risk and gain high return through the investment of
future, option and intra day trading.

Literature Review
Financial derivatives and intra day trade have been under
criticism for various instances of financial instability. Taking that into account this
research has been focused on analyzing Risk and Return of derivatives and intra
day in contemporary financial markets.

Emerging stock markets have been identified as being at least partially segmented
from global capital markets. As a consequence, it has been argued that local risk
factors rather than world risk factors are the primary source of equity return
variation in these markets.

In march,2007 Mr. Anand Parwar conducted a study on high return from the
equity market through better knowledge of the market. Mr. Parwar said that
tolerance is an important factor of an investor, who is really risk averse.
Whenever you enter in stock market you look for a safe investment. Safe
investment means the investment which bears low risk.
“The stock markets can be a great place to turn your savings into wealth.”
When an investor enter in the market he thinks about the companies that
have been known for a long time and that have a good track record no matter what
is happening with the economy in any given time.
Just like the companies like COCK, PEPSI, FOOD and CLOTHING are the
companies that consistently make money. These companies tend to be safer
investments.

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From banks we can also make safe investments. We can get a money market
account, which is essentially a savings account with a minimum balance
requirement and a higher interest rate.
Instructions to Make Safe Investments in the Stock Market
STEP 1 :-Determine how much money we'd like to invest in the stock market
based on our risk tolerance. Before choosing the company for investment we will
make the decision how much investment we will make in the stock market. It is
based on market uncertainty; it is a general rule of thumb that younger people have
more money in the stock market than older people. This is because as older people
move toward retirement, they want to eliminate the risk of the market. A good rule
of thumb is that a 20-year-old person will be 70 percent invested in the stock
market.
STEP 2 :-Study a variety of companies to get an idea of the potential dividends.
You want to invest in companies that have steady long-term growth. Investing in
dividend-paying stocks and over a longer term will reduce the risk in our portfolio.
STEP 3 :-Spread out your portfolio among different companies and different fields.
STEP 4 :-Find the "Price to Earnings Ratio" (P/E) of each stock you are looking to
buy. Forget about the actual price of a stock. Price to Earnings Ratio" reflects the
price of the stock divided by the amount of earnings they have for the year
STEP 5 :-If you are nearing retirement age, invest in higher-risk options only the
amount of money you can afford to lose; apply the rest to things like government
stocks and bonds.
STEP 6 :-Consult frequently with your financial advisor at least twice a year.
For high return how can we monitor our stock?
Step 1:- Monitor your stocks' prices on a daily basis, noting whether prices are
heading up, down or fluctuating. Find your stocks in the newspaper or on the
Internet.

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Step 2:-Track performance by reading monthly statements from your broker. Use
the Internet for up-to-the-minute tracking when needed.
Step 3 :-Closely monitor each stock you are interested in. Monitoring can help you
make an immediate decision on whether to buy, sell or hold.
Step 4 :-Add to stocks you like or those that are growing nicely when you have
additional income to invest. Remember to diversify your investments.

Step 5:-Contact your broker by phone or the Internet to buy or sell a stock.
Step 6 :-Specify the action you want to take and at what price you want to take it.
Your broker will do the rest and provide you with a confirmation of your
transaction when your order is executed.
Progress Report
For conducting the comparative study of the risk and return of short trading
with reference to option, future and intra day in Equity market, the researcher has
prepared a questionnaire to conduct a field survey among the investors. The
researcher has also pre-tested the Questionnaire and will soon be conducting the

field survey. The researcher has also visited five equity brokers in Pathanamthitta
District for collecting data.

Methodology
Primary Data: The primary data will be collected by means of an interview
schedule.
Secondary Data: The secondary data will be collected by means of a review
of literature from books, journals and periodicals. The Internet will also be used as
a source to collect the data.

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Research Design
Direct Interview method, Questionnaire.

REFERENCE:
• www.bse.net
• www.nse.net
• www.equitymarket.com
• http://www.ehow.com/how_2027266_stock-prices-excel.html
• http://www.ehow.com/how_4454004_make-safe-investments-
stock-market.html
• www.investopedia.com

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Questionnaire
1. What amount of money have you invested in the equity market?
2. For how long have you been investing in equity market?
3. What type of investment do you prefer in short trading?
Future option intraday

4. Which among these three types of investment is the most profitable to you?
Future option intraday

5. When and why do you buy the share?


6. Expected return from FUTURE INVESTMENT

10% 20% 30% 40% 50% 60% 70% 80% 90% Above 100%

7. Actual return from FUTURE INVESTMENT

10% 20% 30% 40% 50% 60% 70% 80% 90% Above 100%

8. Expected return from OPTION INVESTMENT

10% 20% 30% 40% 50% 60% 70% 80% 90% Above 100%

9. Actual return from OPTION INVESTMENT

10% 20% 30% 40% 50% 60% 70% 80% 90% Above 100%

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10.Expected return form INTRA DAY

10% 20% 30% 40% 50% 60% 70% 80% 90% Above 100%

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11.Actual return from INTRA DAY

10% 20% 30% 40% 50% 60% 70% 80% 90% Above 100%

12.Risk of Intra day trading, when compared to Future and Option?


Medium High Low

13.Risk of Future trading, when compared to Option and Intra day ?


Medium High Low

14.Risk of Option trading, when compared to Future and Intra day ?


Medium High Low

15.Why Future and Option trading provide vigorous risk among the speculators ?

16.Why the speculators are saying intra day trading is low riskier than future and option?