A Report of

A STUDY ON OPTIONS TRADING – TRENDS AND STRATEGIES AND EFFECT ON CUSTOMERS WITH RESPECT TO GEOJIT BNP PARIBAS FINANCIAL SERVICES LTD.

for

Geojit BNP Paribas Financial Services Ltd.
St. Marks Road, Bangalore

Submitted to the Department of Management Studies in partial fulfillment of the

Post Graduate Diploma In Management
Under the Guidance of Mr. Sudheendran M. By Mrinalini Shankar BATCH 18 FK 1847

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SCMS – COCHIN SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-683106. September 2010 1

DECLARATION

I, the undersigned, hereby declare that this project report entitled “ Options Trading –Trends and Strategies and effect on customers with respect to Geojit BNP Paribas Financial Services Ltd ” has been written and submitted under the guidance of Sudheendran M. and is my original work. Mr.

I understand that detection of any copying is liable to be punished in any way the school deems fit.

DATE: Shankar

Mrinalini

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SCMS – COCHIN SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN - 683106.

CERTIFICATE
This is to certify that the project work entitled ‘Options Trading – Trends and Strategies and effect on customers with respect to Geojit BNP Paribas Financial Services Ltd.’ has been carried out under my guidance by Mrinalini Shankar in partial fulfillment of her Post

Graduate Diploma in Management during the academic year 2009 2011.

DATE:

Mr. Sudheendran M ASST. PROFESSOR SCMS-COCHIN.

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SCMS – COCHIN SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA,
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COCHIN-683106.

This is to certify that the project work entitled ‘Options Trading – Trends and Strategies and effect on customers with respect to Geojit BNP Paribas Financial Services Ltd.’ has been carried out by Mrinalini Shankar in partial fulfillment of her Post Graduate Diploma in Management.

DATE

Dr. V. Raman Nair
DIRECTOR, SCMS-COCHIN

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Sudheendran M. I also wish to extend my appreciation to the management and staff of my college specially Prof. I also express my sincere thanks to my company guide. Paulose (Project Coordinator and Dean. and our Director Dr.. Branch Manager. Karthigeyan M. Biju Kumar (Area Vice President. K. V. Dr.J. Raman Nair. for their kind co-operation and support. Geojit BNP Paribas Financial Services Ltd. Mr. (Regional Manager -Geojit BNP Paribas Financial Services Ltd. Bangalore) for allowing me to do the project in their organization. I take this opportunity to thank the staff and customers of Geojit BNP Paribas Financial Services Ltd.ACKNOWLEDGEMENT First and foremost I would like to thank Mr. Uthaman P. for their assistance and for providing valuable information during the course of the project.Management Studies). 5 . Geojit BNP Paribas Financial Services Ltd) and Mr.. George (Dean.Academic Management). Filomina P. my project guide for instilling confidence in me to carry out this study and extending guidance and encouragement from time to time. I would like to express my gratitude and sincere thanks to Mr. without which it would not have been possible to undertake and complete this project.. Bangalore for helping me in successfully completing the project.

Findings and Conclusions Chapter 6. 10 34 39 41 45 50 72 74 77 78 5 6 7 8 9 Chapter 4. 1 2 3 4 TITLE Executive Summary Chapter 1.Data Interpretation and Analysis Chapter 5.Research Methodology Chapter 3. NO.Introduction and Theoretical Background Chapter 2.Suggestions and Recommendations Bibliography Appendix 6 .TABLE OF CONTENTS SL.Profile · Company Profile · Industry Profile · Product Profile PAGE NO.

2 4.4 1.3 1.5 3.NSE Capital Market Turnover with BSE F&O Turnover ANOVA. 1.9 TABLE Annual Volume of Exchange Traded Derivatives Global Futures and Options Volume By Category Top Derivatives Exchanges BSE Contract Specifications NSE Contract Specifications Management Board of Directors Education Level of Customers Brokerage of Geojit with Regard to Derivatives Correlations .1 4.1 1.Model Summary.5 4.BSE Turnover with Capital Market Turnover Correlations .3 4.4 4. 26 27 28 29 32 42 43 62 64 68 68 69 69 70 70 71 7 .NSE Turnover with Capital Market Turnover Coefficients.1 3.BSE Turnover with Capital Market Turnover ANOVA – BSE Turnover with Capital Market Turnover Coefficients.BSE Capital Market Turnover with BSE F&O Turnover Regression.NSE Turnover with Capital Market Turnover Pg.7 4.6 4.LIST OF TABLES Table No.2 1.8 4. No.2 4.

LIST OF FIGURES

Fig. No. 1.1 1.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 (a) 4.8 (b) 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16

Pg. No. Growth in Options Trading Till 2009 25 Global Volumes in Percentage 28 Years Of Trading Experience 51 Level of Satisfaction 52 Recommendation To Prospective Customers And Acquaintances 53 Portfolio and Investment Decisions of the Investors 54 Risk Perception of Customers 55 Options Trading in American and European Options 57 Options Trading in Index and Stock Options 57 Awareness on Options Trading Strategies Awareness of Customers in Each Strategy Reasons for trading in Options Effectiveness of Geojit BNP Paribas Financial Services Ltd. in Implementation of Options Trading Income Level and Options Trading Turnover of Index Futures and Options in BSE Turnover of Stock Futures and Options in BSE NSE Index Futures and Options NSE Stock Futures and Options Aggregate Turnover In Future and Options Segment 59 59 60 61 63 65 65 66 67 67

Figure

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EXECUTIVE SUMMARY
The project titled “Options Trading – Trends and Strategy and effect on customers with respect to Geojit BNP Paribas Financial Services Ltd” is aimed at understanding the options trading scenario in Geojit BNP Paribas Financial Services Ltd. Options trading is a mechanism which helps the investors to reduce their risk and maximize their return. The project also aims to study the reason for less number of customers trading in options as compared to the equities (cash market). For this study, the primary data were collected by directly approaching the customers and interview of the dealers of various branches in Bangalore. Secondary data were also collected from the NSE and BSE websites. From the study, it was found that the customers who deal in options were trading high volumes. But the number of customers in the same segment is really negligible. A meager 4% of the customers of the Bangalore main branch have been trading in options. The customers who do not trade in options were abstaining themselves from the options trading segment, due to the fact that they were unable to understand the complexities of options trading. Moreover, they are not aware of the strategies which can be made use of while trading in options. The company has wide scope of expansion in the options trading segment. The number of customers trading in this segment can be increased by focusing mainly on the working class. Giving more emphasis on online trading can also pave way to more customers in the options segment. The company ought to be more proactive in the field of options trading promotion. It should take steps to promote options trading among the customers. It should also take steps to educate the customers on the advantages as well as the strategies that can be followed in the trading of options so to tap the unlimited potential in this segment.

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Chapter I Introduction and Theoretical Background

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1. INTRODUCTION India's economy bounced back with robust industrial growth, improved exports and strong GDP growth, after a year of reduced economic growth resulting from the impact of global events. Consequently capital expenditure and infrastructure investments also showed an increase. Growth had been supported by markets reforms, huge inflows of FDI, rising foreign exchange reserves, both an IT and real estate boom, and a flourishing capital market. Improved outlook for investment was visible across the globe and capital markets in most parts of the world showed bullish sentiments and activity. India was viewed by global investor community as one of the attractive investment destinations and significant FII inflows came back into Indian Capital market. According to the Ministry of Statistics, and Programme Implementation, the Indian Economy has registered a growth of 7.4% in the year 2009-10 and a year on year growth of 8.6 % for the last quarter. Improved global sentiment and strong industrial output numbers in India are increasingly attracting foreign investors in the country. Other factors being attributed to the revival in foreign direct investment (FDI) in recent times include increasing consumer confidence. India has been ranked at the third place in global foreign direct investments in 2009 and will continue to remain among the top five attractive destinations for international investors during 2010-11, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, ‘World Investment Prospects Survey 2009-2011' released in July 2009. Market volumes are more than 100,000 crores. The amount of trading in cash has been unchanged since 2007. In July 2007, average daily volumes in stocks on the National Stock Exchange (NSE) were about 12,200 crores - which makes the average July 2010 trading volume of 12,600 crores horribly flat, even when nearly 300 more stocks were listed or traded in the interim.. The growth has largely been
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In options. Another advantage is that a trader can generate income by using credit spreads with options. three years ago.1 OPTIONS In the world of investment.com/columnist/deepak_shenoy/14/of-options-and- 1. Leverage is the ability to use a small amount of capital to control a huge asset. a small payment as premium allows the investor to trade in a much higher value asset which is an underlying asset. in the options market. Option is defined as: “The right. which some say is the biggest in the world. currency. if a stock is rumored to miss its earning projections the investors can make a lot of money quickly by playing negative earning releases in the right market environment. traders and investors can take part in the purest form of capitalism by putting their money at risk by buying into any of the major global corporations across the planet in the pursuit of profit. index. but not the obligation. Yet another way of speculating is trading options which are far superior to trading in stocks.yahoo.much lower than the 40.000 crores in July 2007. India has a very vibrant stock futures market. to buy (for a call option) or sell (for a put option) a specific amount of a given stock.000 crores in July 2010 . 12 . at a specified price (the strike price) during a specified period of time. But stock and index futures have traded a daily average of 33.” Options trading provide the investor with leverage. That translates into a huge profit to a smart option trader without tying up a lot of capital.news. Additionally. (Source: choices) http://in. and there. commodity. trillions of dollars of worth of shares are traded a day. On any given day.in derivatives. The reason is that stocks can often go down by 50% or more on bad news. or debt.

Option premiums indicate market expectations of just a 2% move in the benchmark index over the month of August 2010.1. 1000 (at Rs. In effect what we see is just 'notional'. 2010) ). The VIX is now about 19. versus the historical average of 35. 13 . Another reason option volumes look enormous is the way options are accounted for. A single Nifty contract is displayed as a volume of about Rs. 20 per Nifty). Eg. o 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.specifically.1 TERMINOLOGY IN OPTIONS TRADING o Index options: These options have the index as the underlying. Trading has dramatically increased in the index options market . The other side of the coin is that.gives an idea of volatility in the market.000 crores. 2. The actual premium for the contract may only be Rs. Nifty options are European options. They have an American style settlement. 4200 crores per day has now become 46. 1. the Nifty options market. a tenfold increase. people make lot of unhealthy assumptions about volatility.a volatility index based on option premiums . with actual transaction amounts being a fraction smaller of the reported volume number. Nifty options. o Stock options: Stock options are options on individual stocks. In India. they have a European style settlement. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. a modest volume of Rs.The "growth in volumes" is mainly due to the trading in Index options. Mini Nifty options etc. Three years ago.5 lakhs (50 Nifty at the 5990 mark (as on September 22. Sellers of (American) stock options have the "risk of exercise". The VIX . European option preference is a structural problem with the exchanges.

A call option is defined as an option contract which gives the buyer the right. the buyer of one AAA April 50 put option has the right to sell 100 share of AAA at Rs. The seller of a call option has the obligation to sell the underlying security if and only the buyer exercises his option to buy. o Strike price: The price specified in the options contract is known as the strike price or the exercise price. For example.o Writer / seller of an option: The writer / seller 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.50 till April expiration date. o 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. o Expiration date: The date specified in the options contract is known as the expiration date. The buyer may sell these shares by filing an exercise notice to the broker prior to the expiration date of the put option. 14 . The buyer may purchase these shares by filing an exercise notice through a broker prior to the expiration date of the call option. to buy shares of an underlying security at a specific price for a specified time. but not the obligation. 50 till April expiration date. the exercise date. the strike date or the maturity. but not the obligation. to sell a certain quantity of an underlying security to the writer of the option. a buyer of one AAA April 50 call options has the right to buy 100 shares of AAA at Rs. at a specified price up to a specified date is called as put option. The writer of a put option has the obligation to buy the underlying security if the holder of the put option exercises his option to sell. o Option price/premium: Option price is the price which the option buyer pays to the option seller. For example. It is also referred to as the option premium. o Put Option: An option contract which gives the holder the right.

o European options: European options are options that can be exercised only on the expiration date itself. o 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.e. spot price = strike price). If the index is much lower than the strike price. 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. the put is ITM if the index is below the strike price. Thales used options to enter into a contract 15 . the put is OTM if the index is above the strike price. In the case of a put. o 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.2 BRIEF HISTORY OF OPTIONS Literatures failed to record the first option contract traded.e. the call is said to be deep OTM. 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. Evidences suggest that the Greek mathematician and philosopher. In the case of a put. If the index is much higher than the strike price. spot price > strike price). However it has been recorded that similar to modern options contract the Romans and the Phoenicians did contracts in shipping as early as 17th century.o American options: American options are options that can be exercised at any time up to the expiration date. 1. An option on the index is at-the-money when the current index equals the strike price (i. spot price < strike price).e. o 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. the call is said to be deep ITM.

This type of securing things at lower prices and selling at higher prices is the basic idea behind options trading.to obtain olive presses at a low price in advance before the harvest season anticipating that the harvest will be good.3 BASIC CONCEPTS IN OPTIONS Entering into an option contract means the investor is taking a position on a stock (or related option) in a derivative market. But all these were done by speculators and in unregulated markets. o Investors who want to protect the value of their diversified equity portfolio 16 . The position entered is either termed as long or short. o Investors who follow the equity market closely. o Investors with strong market views and its future movement and want to take the advantage of the situation. The following type of investors depending on their financial goals and investment objectives should consider options trading : o Investors who wish to participate in the market without trading or holding a large stock portfolio. Similar situation prevailed in Holland where tulip options were traded and in London also options were traded. With the basic types of options available several variations of options positions are made. Hence in the early 18th century options were declared illegal in London. The long position is taken by those investors who are bullish about the market while the short position is entered by those who are bearish about the market. At the time of good harvest the demand for olive presses increased and he lent those for higher prices than he had given to secure these presses. 1.

4 RISKS IN OPTIONS Two types of risks are associated with options the price movement of the underlying and the changes in volatility. Two types of volatility are : 17 . the quality or operations of the various options markets at any particular time and the procedures of the various options markets etc also affects the risk associated with options. Factors contributing to these risks are many and varied. Writer of the covered call has to forgo the opportunity of gaining more money from the increase in the value of the underlying stock. The factors affecting the values of the various underlying assets and those affecting the volatility. If volatility is high then the premium on the option will be high and volatility is low the premium will be relatively low. Some of the prominent factors are the state of economy.1. The naked call writer is highly in risk state and may incur unlimited loss if the underlying price increases above the strike price. Risks associated with an option writer will be the assignment of exercise of the options at any time during the period of the life of option. The options holder has to encounter some of the following risk like the risk of losing the premium paid to purchase the option in a short period or if the investor enters into short position time decay will have tremendous effect and it so happens that the out of the money options with shorter time expiry will suffer more. Risks are generally of same type to all underlying assets.5 VOLATILITY IN OPTIONS MARKET Volatility is an important factor to be considered in options trading. 1. supply and demand factors in the options market and in other related markets. Other factors that may affect the pricing of particular options. Volatility is a measure of the rate of change in the market movement in a given time either in the upward or downward direction. liquidity and efficiency of the markets or other markets also contributes to the risk.

The most common single options strategies are the covered call and the protective put. This is often called a buy-write position. This is a single option strategy as only one type of option comes into picture. the implied volatility is the measure of how much the market expects the asset price to move for an option price. The risk and reward associated with this strategy is low.6 TRADING STRATEGIES IN OPTIONS A. Here the investor is having a short-term neutral view about the market and hence will enter into long position. 18 .o Statistical volatility and o Implied volatility. Single Options In single options strategy only one type and one option contract is involved. In this strategy the main two risks involved are the possibility of the stock price going down to zero or to relinquish the profit if the stock price shoots up drastically. This strategy helps to enter into a hedge position since protection from the decline in stock price is made by writing a covered call. While statistical volatility is the measure of actual price changes over the specified period of time. A good understanding about the volatility is required for options trading. the investor takes a long position on the call option and writes a call on the same underlying which he already owns. Covered Call Strategy In the Covered Call Strategy. 1. This helps him to generate income from the same asset. 1. Volatility is one of the variables in option-pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option's expiration.

1. Outlined below are some of the strategies which involve options combinations. Straddles and Strangles An investor enters into either the straddle or strangles position when he thinks that the underlying asset is highly volatile but is not sure of the direction of movement of the market. The investor who is more concerned about the downside risk of the market and who does not wish to sell his stock enters into this strategy. 19 . A Straddle Position is entered either by buying a call and a put option with the same strike price and same expiration date (straddle buyer) or by selling a call and a put option with the same strike price and expiry date (straddle seller). The risk associated with this strategy is limited or the maximum loss is limited to the strike price (stock purchase price + premium paid) and the return or the maximum profit is unlimited as the investor can gain from two-way or rise/fall of market movement.2. B. A Strangle Position is entered either by buying a call and a put option at two different strike prices but with same expiration date (strangle buyer) or by selling a call and a put option at different strike prices (strangle seller). By entering into this strategy the investor is trying to protect his unrealized profit (if any). the stockholder (investor) buys protective put for the stocks he already owns. Options Combinations In options combinations either both type of options (put or call) or more than one option contract is involved. Protective Put In the Protective Put Strategy.

Calendar spread is also known as Time Spread. Spread Strategies Spread Strategies are also option combination strategies. ii. i. Strips & Straps A Strip is created by buying one call option and selling two put options with the same exercise price and exercise date. In horizontal spread. the option has identical striking prices but different expiration dates. the option has different strike prices and different expiration dates. The most common spread strategy positions are discussed below. The Strap is created in the opposite way. Bear Spread Bear Spread is a strategy which involves the purchase and sale of calls or puts that will produce maximum profits when there is a fall in the price of the stock or the underlying asset. iii. 20 . Bull Spread Bull Spread is a strategy which involves the sale and purchase of calls and puts that will produce maximum profit when there is a rise in price of the stock or the underlying asset. 3. Calendar spread can be further divided into two specific variations namely Horizontal spread and Diagonal spread. whereas in diagonal spread. Calendar Spread (Time Spread) A spread involving simultaneous purchase or sale of options on the same underlying stock with different expirations is known as a Calendar Spread.2. This strategy involves a combination of two or more options on the same underlying but different strike prices.

(Long and short positions are opened on options with the same underlying stock. Ratio Calendar Spread A strategy involving a different number of options on the long side of a transaction from the number on the short side. Ratio Calendar Combination Spread A strategy involving both a ratio between purchases and sales and a box spread. This strategy is used when the underlying stock will experience little volatility in the near term.iv. This strategy is designed to limit risk as well as potential profits.) 21 . (This strategy creates two separate profit and loss zone ranges. in varying number of contracts and with expiration dates extending over two or more periods. one of which disappears upon the earlier expiration). Ratio Spread Ratio Spread is a strategy in options trading that involves buying a number of options and selling more options of the same underlying stock and same expiration date but at a different strike price. v. This strategy is designed to produce profits in the event of price increases or decreases in the market value of the underlying stock. vi. where the expiration dates for each side are different. Also regardless of which direction the stock moves this strategy produces a profit on either side. Box Spread The combination of a bull spread and a bear spread opened at the same time on the same underlying stock is known as a Box Spread. vii.

viii. where the value of the option sold is greater than the value of the option purchased. writing another call at the third strike. Credit Spread A spread strategy which is an outcome of the difference between the values of two options. Condor Spread A strategy involving four options and four strike prices that has both limited risk and limited profit potential. and buying one call at the fourth (highest) strike. where the value of the option purchase is greater than the value of the option sold. xi. xii. off-set by transactions at higher and lower ranges at the same time. Diagonal Spread Diagonal spread is an option strategy where the purchase of one option and writing of another with different expiration dates and exercise prices is carried out simultaneously. Debit Spread A spread strategy which is an outcome of the difference between the values of two options. 22 . Butterfly Spread A strategy involving open options in one striking price range. This spread is also referred to as a flat-top butterfly. ix. A long call condor spread is established by buying one call at the lowest strike. writing one call at the second strike. This strategy offers both limited risk and limited profit potential. x.

In fact. The Importance of Open Interest Open interest is always one of the data fields on most option quote displays along with bid price. or even current volume. But there are a number of useful statistics besides price movements that reflect what those other market participants are doing. is measured in shares and tells a person how meaningful the price movement in the market is. Vertical Spread (Money Spread) An option strategy where simultaneous purchase of one option and writing of another with same expiration dates. A large percentage change in price accompanied by larger than normal volume is a solid indication of market strength in the direction of the change. Two factors to be considered while trading options are daily trading volume and open interest.7 OPTIONS TRADING VOLUME AND OPEN INTEREST Price movements in the options market result from the decisions of millions of traders. Daily Trading Volume Trading volume gives the important insight into the strength of the current market direction for the option's underlying stock. But while it may be less important than the option's price. having different exercise prices creates a vertical spread is the strategy in Vertical Spread. volume and implied volatility . or market breadth. Keep in mind that trading volume is relative and needs to be compared to the average daily volume of the stock in question. open interest provides useful information that should be 23 .xiii. 1.many traders ignore open interest. ask price. they may indicate that a reversal is likely in the near term. But large percentage increases in price accompanied by small trading volumes are less likely to indicate a market direction. The volume.

So when a person are looking at the total open interest of an option.000 shares of Infosys and wanted to do a call by selling 10 of the March 27. 24 . Things get a little more complicated if the options a person trade is not created by the transaction.5 calls. there is no way of knowing whether the options were bought or sold . a person would sell those same options to 'close' and open interest would then fall by 10.5 calls. option trading can involve the creation of a new option contract when a trade is placed. If a person later wanted to repurchase the options. a person shouldn't assume that the open interest figure provides no important information. in which there is a fixed number of shares to be traded. That purchase will add 10 to the open interest figure.Selling an option can also add to the open interest. Unlike stock trading. Since it is an opening transaction.considered when entering an option position. Open interest will tell a person the total number of option contracts that are currently open .which is probably why many option traders ignore open interest altogether.in other words. contracts that have been traded but not yet liquidated by either an offsetting trade or an exercise or assignment. the transaction needs to be entered as either an opening or a closing transaction. a person are buying the calls to 'open'. a person would be entering a sale to open. but instead the other side is taken by someone doing a closing transaction. a person would enter a transaction to buy to close. it would add 10 to the open interest. However.5 calls to open. If a person owned 1. For example. then the total open interest number will not change. If a person wanted to get out of the position. if a person is buying 10 of the Infosys March 27. Open interest would then decrease by 10.5 calls to close. When a person buys or sells an option. If a person buy 10 of the Infosys March 27. and a person are matched with someone that is selling 10 of the Infosys March 27.

1 Growth in Options Trading Till 2009 Source: http://futures industry. this suggests that trading in that option was exceptionally high that day. there is no secondary market for that option. Figure 1. all other things being equal.org The growth has been stagnant is the last two years.One way to use open interest is to look at it relative to the volume of contracts traded. So. If there is no open interest for an option. it means they have a large number of buyers and sellers. But the later years showed a steady growth. When options have large open interest. the easier it will be to trade that option at a reasonable spread between the bid and ask. Open interest can help a person determine whether there is unusually high or low volume for any particular option. When the volume exceeds the existing open interest on a given day. and an active secondary market will increase the odds of getting option orders filled at good prices.8 GROWTH IN OPTIONS TRADING The growth of options trading in the global scenario has been depicted in the graph shown below. Open interest also gives a person key information regarding the liquidity of an option. 1. the bigger the open interest. 25 .

The slight decrease in the options volumes could be due to the economic downturn that affected the economy during the period.621.501.17% in 2008 and to 5. That clearly indicates that the volumes were affected by the global recession.315.446.9 ANNUAL VOLUMES IN EXCHANGE TRADED DERIVATIVES The annual volumes of futures and options have been shown in the table given below.556 2008 5.564.573.17% 2009 2.862.726.164.21% in 2009.954.383 2007 4.149.767 8.010.548 33.259.529.528 3. Exchange were showing steady increase till 2008.573.26% 6.644.S.642 6.724.73% 2007 2.384. S. S.211.445.17% 10. It could be seen from the table that a change of 20.753 20.86% 4.101. Table 1.1.06% in 2007.312 5.043.142 23. Exchanges 2006 3.01% 6.114.346 19.096. The percentage change was reduced to 8.212 35.929 0.576.803 40.288.435.674 29.21% 11.456.38% 2.852.S.850. The table shows that the annual volumes in the U.050.412 26       18.300.50% 5.79% 9.991.829.179.354 29.10% 4. Exchanges 2006 Futures % change Options % change Total % change Non 2.874 36.66% 2.06% 9.465.620 19.19%   ¡ 2009 .19% 2008 2.71% 4. At the same time the volumes in Non U.533.029 36.032.091.820.250.987.050.470 7.362.387 Futures % change Options % change Total 5.06% 5.147.39% 3.170 U. Exchanges were showing a trend of increase but the pace at which the options volume changed was reduced.328.617 7.816 14.926.45% 4.549.1 Annual Volume of Exchange Traded Derivatives U.41% 7.

90% 0.24% 9.20% 2006 5.406 151.678.766 19.526.380 597.026 44.260.194.05% 29.80% 3.15% 2.032.29% 15.% change Global Total Futures % change Options % change Total % change 13.477 36.996 198.40% 5.217.467.60% 0.308.032.203 2009 6.952.554 984.145 9.525 927.007 7.484.34% 8.714 894.90% 0.294.71% 17.00% 1.009 8.488.633.621.179.777.931.699.284 5.554.700.609.925.org 1.777.678.77% 13.015.381.2 Global Futures and Options Volume By Category (Based on the number of contracts traded and/or cleared at 70 exchanges worldwide) 2008 Equity Index Individual Equity Currency Agricultural Energy Non 6.20% 3.902.67%     ¡ .70% 2.271 17.25% 2.989.099 % Change % of Whole 36.203 13.627 26.10% 31.86% 6.873.099 0.90% 132.896.10% Source: http://futures industry.104 30.60% 5.666 114.182 5.595 10.090 15.60% 100.80% 64.436.org 27   1.954 1.520.443.671 17.80% Precious Metals Precious Metals Other Total 3.394.442 462.111 655.12% Source: http://futures industry.78% 11.361.078.383 157.541.113 12.10 GLOBAL FUTURES AND OPTIONS VOLUME BY CATEGORY Table 1.579.715.632.21% 6.106.729.66% 2008 8.700.132 580.073.6% 0.171 31.481.9% 154.66% 17.70% 12.317.511.

319 3.3 Top Derivatives Exchanges Ranked by the number of futures and options contracts traded and/or cleared in 2009 Rank 1 2 3 4 5 6 7 Exchange Korea Exchange Eurex (includes ISE) CME Group NYSE Euronex (includes CBOT and Nymex) (includes all EU and US markets) 2008-2009 2.293 1.920 2009-2010 3.172.406.891.630.589.704.507.889. It could be clearly understood that North America accounts for the largest volume of options traded in the world closely followed by Asia.org 28       16.102.678 918.0% 3.773 3.20% 4.599.791.135.920.482.377.729.551.777 2.194.9% .467 741.849 2.487 1.11 GLOBAL LISTED DERIVATIVES VOLUME BY REGION Figure 1.865.965.242 1.10% 52.2 Global Volumes in Percentage Source: http://futures industry.178 920.647.113 601.516.030 1.6% 21.122 % Change 8.70% Source: http://futures industry.675. Table 1.30% Chicago Board Options Exchange (includes CFE) BM&FBovespa National Stock Exchange of India 24.org The figure portrays the volume in percentage traded in different region.1.277.

1 in.the-money money Premium Quotation Exercise Style Tick Size Price Quotations SENSEX points European 0. 1 the-money.12 INDIAN SCENARIO OF OPTIONS TRADING The Indian scenario of options trading and the specifications put forward by the Bombay Stock Exchange and the National Stock Exchange are explained in the tables given below: Table 1.1. 12 in-the-money.e.01 NA 29 .4 BSE Contract Specifications Contract Specifications Underlying Asset Contract Multiplier/ Market Lot Contract Month 1.e.1 point (INR 10) Rupees per share American 0.strikes i. At any time minimum 3 strikes Shall have a minimum of 3 Strike Price Interval will be available i.2 and 3 months 50 SENSEX points. Market lot of Infosys is 100 1. 1 near-the near-the money and 1 out-of100 times of SENSEX SENSEX Corresponding Stock in the cash market Stock Specific (Eg.2 and 3 months Index Options Stock Options money and 1 out-of-the.

Derivatives Segment Last Thursday of the Last Thursday of the contract month in case of monthly & last Friday of contract maturity in case of weekly options. immediately business day. then the contract month in case of monthly & last Friday of contract maturity in case of Last Trading/ Expiration Day weekly options.30 am to 3. Business day is a day during which 30 the . All in-the-money options by certain specified Exercise Notice Time ticks would deemed to be exercised on the day of expiry participant unless the It is a specified time (Exercise Session) everyday. If it is a holiday. All in-themoney options would be deemed to be exercised on the day of expiry unless the participant otherwise in communicates the manner communicates otherwise in the manner specified by the specified by the Derivatives Segment. then the preceding Note: immediately preceding business day during which the underlying stock market is open for trading.Trading Hours 9.30 am to 3.30 pm 9. If it is a holiday.30 pm Settlement Style Cash Closing value of the respective stocks in the cash segment of BSE Settlement Value Closing value of SENSEX on the settlement day It would be a specified time (Exercise Session) on the last trading day of the contract.

Mumbai. If there are no trades during the last thirty minutes. -If there are no trades during minutes. traded the then price last the in thirty last the trading session. The final settlement of the expiring option contracts would be taken as the closing value of the The The final settlement of the expiring option contracts underlying index. The following algorithm is used for calculating closing value of the individual stocks in the cash segment of BSE including the stocks following algorithm is used for calculating closing value of the individual stocks in the cash segment of Final Settlement BSE including the stocks constituting Sensex: -Weighted Average price of all the trades in the last thirty minutes of the constituting Sensex: -Weighted Average price of all the trades in the last thirty minutes of the continuous - continuous trading session. then the last traded price in the continuous trading session would be taken as the official closing price. 31 . Source: BSE Derivatives Contract Specifications. would be based on the closing price of the underlying stock. Bombay Stock Exchange. continuous trading session would be taken as the official closing price.underlying stock market is open for trading.

5 NSE Contract Specifications Contract Specifications Underlying Asset Security descriptor Contract Size S&P CNX NIFTY N OPTIDX NIFTY Individual securities N OPTSTK Index Options Stock Options Permitted lot size shall be 100 or multiples thereof 200 and multiples thereof (minimum value of Rs.the near month (one). the next near month (one).0.20 Rs.the months trading cycle. New will be introduced on the contract will be next trading day following introduced on the next the expiry of near month trading day following the contract expiry of near month contract 32 .05 NA The option contracts will The option contracts will have a maximum of three have a maximum of three months trading cycle. the month (two) and the far next month (two) and the month (three).100 depending on the price of the underlying Style of Option Price Steps Price Bands Trading cycle European Re.05 NA American Re. 2 lakhs lakhs) Between Rs. 2 (minimum value Rs. 0. New contract far month (three).5 and Strike Price Interval Rs.2.Table 1.

The trading members are permitted to trade their own or on behalf of their clients including the participants and holds and ID allotted by the exchange. Finally. Premium value (net) settlement Closing value of the index Closing on the last trading day price of underlying on exercise day or expiry day. The clearing and settlement in NSE is undertaken by NSCCL (National Stock Exchange Clearing Corporation Limited) 33 . Last trading day is the settlement day Source: NCFM Derivatives Core Module Work Book. There are clearing members are permitted to carry out risk management activities and confirmation/inquiry of trades through the trading system. The professional clearing members like banks and custodians are not trading members and they clear and settle for their trading members. National Stock Exchange Limited The trading system has four categories of participants.Expiry Day The last Thursday of the The last Thursday of the expiry month or the previous expiry trading Thursday holiday day is if a the month or the last previous trading day if trading the last Thursday is a trading holiday Settlement Basis Cash settlement onT+1 basis Daily settlement on T+1 basis and final option exercise settlement on T+3 basis Daily Price Final price Settlement Premium value (net). there are participants like financial institutions who trade through multiple trading members and settles through the clearing members.

Chapter II Research Methodology 34 .

35 . Hedging is the calculated installation of protection and insurance into a portfolio in order to offset any unfavorable moves. Call ratio spread etc.3 OBJECTIVES OF THE STUDY • • To study the strategies in options trading adopted by Geojit. 2. 2. 2.2 RATIONALE OF THE PROJECT High volatility associated with stock-market bottoms offers options traders tremendous profit potential if the correct trading setups are deployed. To examine the customer response to options trading strategies followed by Geojit BNP Paribas Ltd. • To examine the trend in options trading in Indian stock market. There are various options trading strategies like Call back spread.4 TOOLS OF DATA COLLECTION • A structured questionnaire is prepared for customers and the support staff in futures and options section.2. Hedging in financial terms is defined as entering transactions that will protect against loss through a compensatory price movement.1 TITLE OF THE STUDY The title of the project is “Options Trading – Trends and Strategies and effect on customers with respect to Geojit”. however. which unfortunately do not work very well in an environment of high volatility. many traders are familiar with only option buying strategies.

36 . • For secondary data the company’s reports. For the study simple random sampling will be made use of in order to collect data from the customers. Each individual is chosen randomly and entirely by chance. 2.7 SAMPLING SIZE For the survey 120 customers were taken in order to collect data. 80 out of the customers were existing customers and the 40 were prospective customers. 2. a simple random sample is a subset of individuals chosen from a larger set (a population).5 SAMPLING DESIGN In statistics.2. 2.10 LIMITATIONS OF THE STUDY • • Sample size of the study is very small.9 DATA ANALYSIS The quantitative analysis was done with the help of MS-Excel and SPSS commands like Cross Tab. such that each individual has the same probability of being chosen at any stage during the sampling process. Time is yet another constraint in the study. published journals and monthly reports were relied upon for data support. correlation. 2.8 DATA COLLECTION • The primary data for the project were collected through questionnaires and interview of the officials working in the futures and options department. Reluctance on the part of customers to reveal information and provide data is a constraint which has affected the study.

Chapter III Profiles 37 .

38 .

the share trading brokers. Today. Forward Markets Commission (FMC). The Indian stock market is an organized one.3. The most precious word today is the “convergence” of the opportunity zones in financial markets from concept to culmination. structured and controlled by various governing bodies.1 PROFILE OF THE INDUSTRY The Indian capital markets have witnessed a transformation over the last decade. Foreign Institutional Investors (FII). In 2009. according to the data released by Association of Mutual Funds in India (AMFI). 39 . an increase of nearly 36 per cent from US$ 111. Forwards Market Commission and other apex institutions. The average assets under management of the mutual fund industry stood at US$ 174. India is now placed among the mature markets of the world. Insurance Regulatory and Development Authority.org) Moreover. Foreign Direct Investors and the like.55 billion in February 2009. globally. India's market capitalization (mcap) touched US$ 1.68 billion. to touch US$ 1.06 billion for the month of February 2010. the 23 commodity exchanges posted 50 per cent year-on-year growth in turnover in the April-February period 2009-2010.25 billion as compared to 36 IPOs in 2008 that raised US$ 3. It may be observed that the competitive dynamics of market has changed phenomenally. insurance. financial markets are turbulent. The financial services include the banking sector. on the back of an increase in the participation of agriculture and other commodities. NBFCs (Non Banking Financial Corporation).04 trillion in June 2009 making it the ninth largest in the world.53 trillion. The industry is governed by the Reserve Bank of India. according to the commodity markets regulator. (Source: Http://futures industry. mutual funds. there were 21 IPOs that raised US$ 4. Securities Exchange Board of India.

This will certainly result in a positive re-rating of the country's investment attractiveness. At over 26 times trailing P/E multiple and an estimated 2010 GDP growth rate of 8 per cent. Also the demand for products/services and capital investments will eventually make India an attractive investment destination. Consistent and high economic growth directly affects corporate results. India has the best PEG multiple (price earnings-to-growth) amongst several emerging and developed markets. Spain and elsewhere in Europe had brought in reduced risk appetite and reverse investment flow from the markets. Regulatory changes in the fee structure of distribution business are also a matter of concern. increasing the volatility of the markets. The recent events in Greece. It is a matter of concern that the retail investor population in the country is not growing at a desirable rate as a result of high volatility. India (denoted using Sensex) commands a rather comfortable PEG multiple of 3. India has inherent strengths in terms of domestic demand. The economy is expected to grow over 8% and widely recognized as one of the stable and consistently growing investment destinations in the world.According to data collated by international stock market research firm Bespoke Investment Group. Technology is also helping market players redefine the way they have been operating in the market.27 times. skilled manpower and reliable regulatory policies which have been widely acclaimed. The global environment and linkages are likely to affect markets also. 40 .

In 1994. and one of the 10 most important banks in the world in terms of net banking income. (GFSL). Mr.2 PROFILE OF GEOJIT BNP PARIBAS FINANCIAL SERVICES LTD. Mr. This was also the year when the company was renamed as Geojit Financial Services Ltd. C . Geojit Commodities Limited. George and Mr. Consequently. including a Kerala Government nominee. In 1993. BNP Paribas is the Eurozone’ s leading bank in terms of deposits. launched Online Futures Trading in agri-commodities. The year 1995 also saw Geojit being listed on the leading regional stock exchanges. (KSIDC). the company is also listed at The National Stock Exchange (NSE). the only instance in India of a government entity participating in the equity of a stock broking company. precious metals and energy futures on multiple commodity exchanges in 2003.J.3. Company’s wholly owned subsidiary. George. The Kerala State Industrial Development Corporation Ltd. became a co-promoter of Geojit by acquiring a 24 percent stake in the company. The Board consists of professional directors. On 31st December 2007. Global banking major BNP Paribas took a stake in the year 2007 to become the single largest shareholder. Ranajit Kanjilal founded Geojit as a partnership firm. equity capital and market value. Geojit listed at The Stock Exchange. the company closed its commodities business and surrendered its membership in the various commodity exchanges held by Geojit Commodities Ltd. Company is a charter member of the Financial Planning Standards Board of India and is one of the largest Depository Participant (DP) brokers in the country. With effect from July 2005. it is one of the 6 strongest banks in the 41 . Geojit Financial Services Limited was renamed as Geojit BNP Paribas Financial Services Ltd. C. Furthermore. Mumbai (BSE) in the year 2000.J. it became a Public Limited Company named Geojit Securities Ltd. in 1995.Ranajit Kanjilal retired from the firm and Geojit became the proprietary concern of Mr.

Binoy .a countrywide network of 500 offices. Life & General Insurance and third party Fixed Deposits. With a presence in 85 countries and more than 205.Samuel Mrs. and is listed on. phone service. the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The company rides on its rich experience in the capital market to offer its clients a wide portfolio of savings and investment solutions.world according to Standard & Poor's.000 employees. It holds key positions in its three activities: Retail banking. George Mr.200 of which in Europe. dedicated Customer Care centre and the Internet. 165. J.Distribution Director (Planning and Control) Chief Financial Officer Chief of Human Resources 42 . Satish Menon Mr. BNP Paribas has been operating in India since 1860. K. C. Table 3. Geojit BNP Paribas today is a leading retail financial services company in India with a growing presence in the Middle East. BNP Paribas is a globalscale European leader in financial services. The needs of over 460000 clients are met via multi channel services . Martin Zachmeier Mr. A. The gamut of value-added products and services offered ranges from equities and derivatives to Mutual Funds.1 Management Name Mr. Investment Solutions and Corporate & Investment Banking. Geojit BNP Paribas has membership in. Jaya Jacob Alexander Designation Managing Director Director (Operations) Chief Technology Officer National Head . Venkitesh Mr. Balakrishnan Mr.V.

2 Board of Directors Name Mr. an increase of 64% over the last year.Executive Director Company and Future plans The company will issue 1. Pierre Rousseau Designation Non .Executive & Independent Chairman Managing Director & Chief Promoter Non .1. Total assets under management including equities as on 31.Executive & Independent Director Non . C. 43 .Executive Director Non . The mutual fund assets under management handled by Barjeel Geojit increased by 69% to Rs. Barjeel Geojit Securities. P. Ramanathan Bupathy Mr. George Mr.Executive Director) Non . J.7. Kurian Mr. Rakesh Jhunjhunwala Mr. A.Executive & Independent Director Non .000 shares to employees of the Company and subsidiaries under Employee Stock Option Plan 2010 (ESOP 2010) at such time and in accordance with such terms and conditions as the Board/Compensation Committee may prescribe.836 crore. Punnoose George Mr. Mahesh Vyas Mr. Olivier Le Grand Mr.959 crore.00. and mutual funds and insurance distribution among NRIs in the UAE and Oman. Joint ventures i. This 30% joint venture recorded a net profit of Rs.Alkeshkumar Sharma Mr.Executive & Independent Director Non . The Company performed commendably in both the Indian equity business. Dubai Barjeel Geojit continues to do well.2010 is Rs.12.Table 3.03.Executive Director Non .46 core.

Mumbai This 50% Joint Venture with BNP Paribas for institutional business improved its revenue significantly. the Company is yet to reach the break even level. The Company incurred a loss of Rs. out of which the company’s share is Rs.13 crore. BNP Paribas Securities India. Presently the Company has a research team which covers 95 stocks with market capitalisation of 72 billion dollars. 44 . On account of the inherently high cost nature of institutional business.7.42 crore.ii. The Company incurred a loss of Rs. There has been an increase in the number of domestic and foreign institutional clients also. comprising 56% of the total NSE market capitalisation.39. out of which the company’s share is Rs. Saudi Arabia This 28% Joint Venture is now well positioned as a complete financial advisory and investment solutions provider in Saudi Arabia following approval of additional licenses for Underwriting. Advisory and Custody Service in the Securities Business by the Capital Market Authority during the year. Saudi Capital Market is yet to show an improvement like other world markets and therefore revenues for the joint venture is yet to pick up.84crore during the year.3.19 crore during the year. The current year revenue was Rs. It is expected that the joint venture will generate higher revenues and market share in future.14.31 crore higher by 146% over the previous year.11. iii. The new licenses will allow Aloula Geojit to facilitate/advise its clients including NRIs to be able to deal in international markets including Indian market. Asset Management. Aloula Geojit Brokerage Company.

clients can trade online in equities. Strategic B2B agreements with Axis Bank and Federal Bank. The company started. The Company has already tied up with Axis Bank and Federal Bank on similar lines. and many other industry firsts. Certified financial advisors help clients to arrive at the right financial solution to meet their individual needs. currency futures. and select from multiple bank payment gateways for online transfer of funds. derivatives. is helping the company to rapidly expanding its business in this segment. This was followed by integrating the first Bank Payment Gateway in the country or Internet Trading. Presently. 3. enables the respective bank’s clients to open integrated 3-in-1 accounts to seamlessly trade via a sophisticated Online Trading platform.3 PRODUCT PROFILE: The company is the pioneer in providing online services to customers.Business Tie-ups Partnership with South Indian Bank and City Union Bank has been executed in January2010 to provide online trading facility for bank's retail clients. and harnessing BNP Paribas Personal Investors’ expertise as the leading online broker in Europe. The wide range of products and services on offer includes – o Equities o Derivatives o Currency Futures o Custody Accounts o Mutual Funds 45 . The Company has also partnered with Federal Bank for offering Portfolio Investment Scheme for NRIs during the year. Riding on this experience. mutual funds and IPOs.

The improvement in market conditions enabled the Company to realise the benefits from the geographical expansion and technological up gradation undertaken earlier. During the year. The company has also launched exclusive branches for women. a) Brokerage services Brokerage activity saw an increase in number of active clients and volumes compared to the previous year. Currency futures trading which was launched in October2008 picked up volumes and revenues during the year. Sundaram BNP Paribas Mutual Fund. 46 . The Company added 12 outlets during the year and has a total of 508 outlets. Review of operations The various activities of the Company showed significant improvement in revenue and profits during the year. and HDFC Mutual Fund. The Company expects to enhance its internet trading business with this new multifeatured platform. Franklin Templeton India Mutual Fund. the Company launched a newly developed online investment and trading platform called 'Flip'. Reliance Mutual Fund. Fidelity Mutual Fund. Tata Mutual Fund.o Life Insurance & General Insurance o IPOs o Portfolio Management Services o Property Services o Margin Funding o Loans against Shares Geojit BNP Paribas gives the option to choose from the 700 plus Mutual Fund schemes offered by over 35 Asset Management companies such as SBI Mutual Fund.

which may not be unique accounts as clients are permitted to open depository accounts with more than one depository participant. 33. The Company is strengthening its advisory capabilities aiming to improve and standardise the advisory skills of the employees. The number of broking clients increased 16% during the year. The management expects that this effort will yield results in the years to come.69% of the increase in the active depository accounts in NSDL and CDSL during the year. However. Brokerage revenue from internet trading grew by 111%. The Company earned brokerage revenue of Rs.62 Crore from distribution business during the year which was lower by 19%. if there are any changes in the fee structure of ULIP policies resulting from the ongoing debate. The total traded volume showed an increase of 80%in the cash segment and 50% in the F & O segment.8878 crore. 47 .10.9. The insurance agency of Met life continues to do satisfactorily.231. there will be an impact resulting from such changes. an increase of 91% from the previous year. b) Depository services Number of depository accounts increased to 3.000 accounts were added which represents1.98 crore from capital market activities.21 lakh at the end of the year and the income from this activity increased by 35% to Rs.06 crore. The Company has earned a total income ofRs.Brokerage from equity and derivatives continued to be the main source of income of the Company and contributed 76% of the consolidated revenue during this financial year.57 lakh active accounts were added in both the depositories during the year. c) Distribution of financial products Revenue from distribution of mutual funds was adversely affected due to changes in the commission payment structure during the middle of the year. A total of 19. The value of assets under custody increased by 98% to Rs.

97 % increase in Sensex. an increase of 135%.4. The Company has aggressive plans to grow the Portfolio Management Services among high net worth resident individuals as well as non residents. However. the company was able to generate revenues from other customers and also received export orders during the year.4.92 % vis-à-vis 53. an increase of 69% over the previous year and a net profit ofRs. 48 . and CNX Nifty increase of 51. e) Financing The financing activities in the form of margin funding showed increased revenues corresponding to market activities. The future prospects for this division look bright as the team is continuing to get export orders. till the date of this Report.67 crore. f) IT Service and products Geojit Technologies.d) Portfolio Management Services The portfolio management services of the Company performed very well by providing returns much better than the benchmark returns during the year under review. there is a fall in the revenues of NBFC subsidiary on account of lower loan against shares and loan against commodities. There was an improvement in the assets under management and the fees improved by 38% compared to previous year. Total income from financing was Rs. On a trailing12 month basis. the subsidiary engaged in IT development and services achieved CMMI Level 3 certification during the year.01 crore.24 crore. the portfolio increased by 124. The Company generated consolidated revenue of Rs.11.97 percent. which is recognition of the Company's sustained commitment to deliver quality products and services to its clients. Apart from servicing group companies.

The Company has launched online investments in mutual funds through National Stock Exchange of India's Mutual Funds Service System (MFSS). The Company has partnered with Royal Sundaram Alliance Insurance Company to distribute all their personal lines General Insurance products and to issue policies online from our offices. SEBI has allowed the Stock Exchanges to trade in mutual funds.Value added services During the year certain regulatory changes happened which enabled us to provide value added services to clients. IRDA has allowed life insurers to sell insurance online. 49 .

Chapter IV Data Analysis and Interpretation 50 .

1 Years of Trading Experience The years of trading experience of the customers with Geojit has been depicted in the chart given below: Figure 4. It can be analyzed that the company has 51 .1 Years of Trading Experience 25% 7% 4% 11% Less than 6 months 6 months to 1 year 1 year to 3 years 3 years to 5 years 5 years or more 53% Interpretation: It can be interpreted that maximum number of customers has been trading for more than 3 years and within 5 years.Primary Data Analysis In order to analyze the customer’s response to options trading and to examine the level of understanding of the customers regarding options trading a questionnaire was prepared and distributed among 120 customers. The data so obtained has been analyzed below: 4.

Most of the customers are satisfied with the company.2 Level of Satisfaction The following chart shows the level of satisfaction of customers with Geojit. The second chart shows the recommendation made by the customers to other acquaintances which also shows the level of satisfaction of customers. The number of customers in the branch is around 200 of which most of the customers are trading in equities rather than derivatives and options. the majority being highly and somewhat satisfied followed by neutrally satisfied. Figure 4. 4.2 Level of Satisfaction Level of Satisfaction 0% 21% 25% Highly Satisfied Somew hat satisfied 11% Neutral Somew hat dissatisfied Highly Dissatified 43% 52 .more retention of customers than new customers opening trading accounts.

the level of customer satisfaction with the company and its services can be inferred. The graph clearly suggests that the majority of the customers are happy with the services provided by the company.3 Recommendation To Prospective Customers And Acquaintances 59.22222222 18.3 also provides an insight as to whether the customers advocate the company to their friends and acquaintances. The figure 4. where ascot a single customer is dissatisfied with the services of the same.2. 53 . 43% of the respondents are somewhat satisfied with the services of the company.the level of satisfaction and the scope for further account openings in the firm.25925926 60 50 40 30 20 10 0 No Never Recommended Have RecomendedOnce Have Recommended or Twice Several Times 22. This clearly shows two things.Figure 4.51851852 Interpretation: From figure 4.

4.4 Portfolio and Investment Decisions of the Investors Stock Traded By customers 30 25 20 15 Series1 10 5 0 equity Mutual Funds IPO Futures PMS Options Insurance Interpretation: From figure 4. But from the responses elicited from the customers it can be analyzed that the investors are still to understand the importance of options trading.3 Investment Decisions of the Investors The investment decisions of the customers are based on the risk perception and return portfolio. The introduction of options was to reduce the risk associated with the stock trading.4. As far as the Geojit BNP Paribas 54 . it can be analyzed that the majority of the customers are trading in equity stock. The reason for low trading in options could be due to lack of awareness among the investors regarding the benefits of stock options. Figure 4.

Financial Services Ltd Bangalore main branch is concerned only 8 out of the 200 odd customers are actively trading in options. the complexities associated with options trading bars the investors from entering the options trading field.5 Risk Perception of Customers Risk in Portfolio High Risk / High Return Moderate to high risk/ moderate to highreturn Moderate risk / moderate return Series1 Low Risk / Low return to moderate return Low Risk/ Low Return 0 2 4 6 8 10 12 14 55 . 4.4 Risk Management and Risk Preference of Customers: Figure 4. It should also be noted that although options was introduced to reduce the risk.

The awareness of the options trading strategies put forward by the NSE is virtually nil and this could be one reason why customers tend to purchase equity and prefer not to trade in options. o There are risk venturing customers. Hence there is ample scope for options trading as the trading in options is aimed at risk reduction and maximizing returns. At the same time only 5 customers would go an extra step to earn a high return taking a high risk portfolio. the scope for options trading is vast as the customers can obtain high returns at moderate risks.5 Trading in Options The customers trading in options were asked about the type of options they trade in. 12 customers believe that they would go in for moderate risk with moderate return portfolio. 4. This would further advocate that the investors have the option of playing safe. who would prefer high risk high return portfolio also. The charts given below give an insight as to the trading in American Options 56 . The chart can be analyzed and the following observations can be obtained: o The customers are interested in taking calculated risk and in obtaining an assured rate of income.Interpretation: The above figure represents the risk perception of the employees regarding options trading. Of the respondents who answered the question of risk perception. o Since customers prefer moderate risk moderate return portfolio.

Figure 4.and European Options as well as trading in the index option as well as stock options segment.6 Options Trading in American and European Options 80% 70% 60% 50% 40% 30% 20% 10% 0% 75% 25% Series1 S1 American Options European Options 57 .

The index options in India have a European settlement method and hence the graph depicts more number of customers in the American options segment.7 Options Trading in Index and Stock Options Trading in Options 20% Index Opt ions St ock Opt ions 80% Interpretation: The number of customers. 4. The reason behind this is that in India most of the options are American options. trading in stock options are more as compared to the index options.6 Awareness on Strategies The awareness of the customers regarding the options trading strategies is depicted in the figure given below: 58 . The customers trading in American options are more.Figure 4.

in % Short call butterfly Long call butterfly Bear put spread strategy Bull call spread strategy Bull put spread strategy Bear call spread strategy Strategies Long straddle 59 Collar 30 25 20 15 10 5 0 30 20 10 5 11 4 12 8 .8(b) Awareness of Customers in Each Strategy Customers no.8(a) Awareness on Options Trading Strategies 13% Aw are about the strategies Not Aw are 87% Figure 4.Figure 4.

This requires that the company should work on improving the knowledge of its customers regarding options trading and thereby increase the volume of options trading. 4.7 Reasons for Trading in Options: Figure 4. Out of that 13%. Only 13 % of the customers are aware of the options trading strategies. The majority of customers were not aware of the strategies put forth by the NSE in its options trading module.9 Reasons for trading in Options Reasons for Options Trading 9% Reduction in Risk Returns Leverage Availability 1% 0% Volatility Aw areness 36% 20% 34% 60 .Interpretation: The awareness among the customers regarding the options trading strategies have been depicted in the above graph. the percentage of the same is depicted above. Of the customers who are aware of the strategies. 30% of the customers are aware of the Bull put spread strategy and 20% are aware of Bear put spread strategy.

The advantage of hedging is also yet another reason for the customers picking options as an investment opportunity.8 Effectiveness of the Company The following graph represents the effectiveness of the company in implementation of options trading strategies.10 Effectiveness of Geojit BNP Paribas Financial Services Ltd. Hence that is also yet another factor which affects options trading. Figure 4. 4. The return is the reason why most of the customers have turned to options trading. Of 25 Custom ers 20 15 10 5 0 Yes to an Extent S1 Somew hat successful Don’t think it has been effective Responses 61 . The customers in Geojit who trade in options are mostly the retired class and hence they expect risk free consistent income. in Implementation of Options Trading Effectiveness of Geojit in implementing Strategies 50 45 40 35 30 No. The risk in options trading is limited to the premium amount of the option.Interpretation Figure above represents the factors affecting customers’ choice of options trading as against trading on equity.

Of Customers (in %) 20 60 17 3 The majority of the Geojit Bangalore branch customers are graduates trading in options.Interpretation: It can be understood from the graph that almost 40 to 45 % of the customers believe that the company has been effective in implementation of the options trading strategies.Arts. 62 . The customers have admitted that the dealers who assist the investors in trading in options have always gone an extra mile in giving advice to the customers regarding the various profitable opportunities in options trading. 4. Science and Commerce Stream Graduate . Table 4.Professional Stream Post Graduate No.9 Education Level and Options Trading The following table shows the educational qualification of the customers of the options trading segment.1 Education Level of Customers Educational Qualification Under Graduate Graduate.

10 Income level and Options Trading Figure 4. The following table represents the brokerage charged by Geojit With regards to the derivatives trading: 63 . 300000 to Rs.11 Brokerage of Geojit in the Options Trading Segment: The brokerage varies as per the volume traded by the customers.4.<500000 300000 500000 Incom e Interpretation: From the figure above it can be inferred that almost 70% of the customers that trade in options are coming under the income group of Rs.300000.11 Income Level and Options Trading 70 60 50 Num ber of 40 Custom ers 30 20 10 0 2 25 61 12 Series1 >100000 100000. 4.500000.

75 per lot of the options traded. the brokerage will be pulled down to as low as Rs. 64 . The brokerage charged by Geojit can influence customers to trade more volumes in the options market. But in case of high volumes. the performance of F&O Segment of BSE and NSE based on monthly turnover data downloaded from the database of Reserve bank of India have been examined. This is so because as the volume of trading is increased the brokerage is reduced.Table 4. This can help in encouraging the customers to increase the volume traded. The following figures give a graphical presentation of monthly turnover of F&O in both NSE and BSE.30.2 Brokerage of Geojit with Regard to Derivatives Normally the company charges a brokerage of Rs. The figures from BSE and NSE have been taken and worked out with ANOVA to measure the impact of F&O Turnover on the Capital Market Turnover in both the exchanges. Secondary Data Analysis Performance of F& O Segment In the following analysis.

almost nil trading after April.12 Turnover of Index Futures and Options in BSE Source : BSE Website The chart indicates large turnover in respect of index futures compared to stock futures. Figure 4.13 Turnover of Stock Futures and Options in BSE Source : BSE Website 65 .Figure 4. Besides the stock futures show sharp decline.

The stock options show meager turnover while the stock futures show a higher turnover. Figure 4. 66 . The turnover in the case of options is lower than that for futures. But the turnover picked up from September and went above the turnover of BSE.14 NSE Index Futures and Options Source : BSE Website The futures and options turnover in NSE during the initial period is found to be very low compared to that in BSE.

16 Aggregate Turnover In Future and Options Segment Source : BSE Website 67 .Figure 4. The option turnover show almost steady pattern. The stock futures reached the peak level in May and then started declining.15 NSE Stock Futures and Options Source : NSE Website The stock futures show a higher turnover than options. Figure 4.

BSE Capital Market Turnover with BSE F&O Turnover F&O Capital Market .943 64 . 64 Regression.The aggregate turnover of F&O segment taking the trading in both NSE and BSE together shows that the futures trading turnover and aggregate F&O turnover show the same trend indicating that futures constituted the major and deciding component in F&O segment operations.000 F&O Total Turnover Pearson Correlation Sig. 64 . (2-tailed) N Table 4. Having studied the level of significance of F&O segment in the capital market turnover.BSE Turnover & Capital Market Turnover Model 1 R . VAR00001 68 .016 Std. (2-tailed) N 1.009 .Model Summary.000 Adjusted R Square -.943 64 1.3 Correlations . Error of the Estimate 783626. Table 4.000 .009 R Square .009 Capital Turnover Market Pearson Correlation Sig.9853 A Predictors: (Constant).4 . in both BSE and NSE by calculating Karl Pearson's Coefficient of Correlation and Linear Regression the following have been observed.

BSE Turnover & Capital Market Turnover Unstandardized Coefficients Model 1 B (Constant) 1251478.741 F .656 F&O 6.938 Residual Total Df 1 Mean Square 3121239320.071 .009 Standardized t Coefficients Beta 11.594 . 69 . Error 107944.020 . F&O Turnover b Dependent Variable: Capital Market Turnover Table 4.347 Std.880 63 a Predictors: (Constant).000 .005 Sig.950 62 38075538870806. .6 Coefficients . a Dependent Variable: Capital Market Turnovers The above analysis clearly indicates that the F&O turnover in BSE is quite insignificant and does not have any impact on the capital market turnover.5 ANOVA.BSE Turnover & Capital Market Turnover Model 1 Sum of Squares Regression 3121239320.938 614071252120.017 89.943 Sig.Table 4.943 38072417631485.

Regression 105162156015.000 123079867.NSE Capital Market Turnover with BSE F&O Turnover F&O F& O Total Pearson Correlation 1.Table 4.000 64 1.422 .8 ANOVA . (2-tailed) N Capital Turnover Sig.01 level (2-tailed).330 63 a Predictors: (Constant). 64 .000 Capital market .000 64 . 7 Correlations . Table 4. 64 Market Pearson Correlation .964 112793107829.000 ** Correlation is significant at the 0.966 .NSE Capital Market Turnover with BSE F&O Turnover Model 1 Sum of Squares Df Mean Square F Sig.535 854.795 62 105162156015.966 Turnover Sig. F&O Turnover b Dependent Variable: Capital market Turnover 70 . (2-tailed) N .535 1 Residual Total 7630951813.

a Dependent Variable: Market Turnover The analysis indicates significant correlation between NSE F&O segment turnover and capital market turnover.000 Standardized t Coefficients Beta Sig.007 .966 23. It also indicates a high correlation between the capital market turnover and F&O segment in NSE.295 .230 .9 Coefficients .Table 4. 71 .NSE Capital Market Turnover with BSE F&O Turnover Unstandardized Coefficients Model B Std.000 29.530 . Error 1 (Constant) 46385.076 F&O .209 1971.

Chapter V Findings and Conclusions 72 .

5. But the number of customers dealing in options is really low. o The customers. o Customer’s awareness about the options trading is low.36 Crore.500000. are basically of the income group of Rs.2 CONCLUSIONS It can be seen from the study that the options trading segment is much untouched segment by most investors as it requires market knowledge and hence there is great scope for the company to increase their options trading volume. who trade in options. This can be understood from the simple fact that only 4 % of the customers in the Bangalore branch are trading in options.500000. at the same time the branch has got high revenues from the F& O section as well. 73 .5. Only 12% of the customers have income level above Rs.1 FINDINGS The following findings have been incurred from the study: o The volume in options trading is really high.75 per lot. reduction in risk and limiting the risk to the premium amount and the unlimited opportunity of getting profits. The customers are not aware of the advantages of options like hedging. o The company is charging a brokerage of Rs.300000 to Rs. This has encouraged the existing customers to trade more volumes. The awareness of the Geojit customers in this respect is as low as 13%. o The strategies of options trading help in getting a better position on the trading front. 30 when the volumes exceed Rs. It may be lowered as low as to Rs. The lack of awareness in the strategies is the reasons for the low number of customers in options segment.

Chapter VI Suggestions and Recommendations 74 .

o The company should give training programmes to its customers about options and the strategies for successful options trading . o The volume is increasing in the options segment but the number of customers trading is not as high as that of equities or other securities. As Geojit is a well established company. By evaluating the existing customers. o Including details of options trading strategies in the Geodata. This opens up an opportunity for the company to tap the customers in options segment. o The company can also go in for online forum creation for customers where dealers and other employees form part of the same.1 SUGGESTIONS AND RECOMMENDATIONS The following recommendations can be helpful in getting more customers to respond to the strategies: o Awareness among customers regarding the options trading strategies can be done by: o Sending Newsletters to customers regarding the options trading o Include more of the Options Trading news in Geodata. This can enable better exchange of ideas. the customer base is wide. o The company should focus on the existing customer base. Creating awareness among the existing customers and motivating them to trade in options can also be an effective method to get more customers to options trading. the monthly journal of Geojit so that customers can be made aware. their reasons for not trading in the options segment can be done.6. The existing customers mainly trade in equity (cash market) and the mutual fund schemes. 75 .

Geojit does not at present individually advertise for each of its product class. This is so because options trading requires constant market watch and hence is difficult to do offline. The working class can be benefited out of online trading and hence can attract more customers to options trading. o The education level of the customers in options trading segment is confined to graduate level. The company was successful in its efforts to bring new customers by providing free DEMAT and trading account opening and zero Annual Maintenance Charges for the first year. waiver of o Annual Maintenance charges for those customers who trade in options above a stated volume. The company can also give credit facility for the customers in payment of brokerage and other payments due to the company. o The company should also take up advertising activities for its futures and options segment. This is an added advantage for the company as the company can easily educate the customers on options trading. its strategies and advantages.o The company needs to bring about new marketing strategies in order to promote options trading. 76 . The company should bring out schemes for options trading like reduced brokerage. by way of which the customers may get into options trading. Hence they need to come up with advertisements which advocate the advantages of options trading o The company may also promote online trading.

2010 o https://gcc. September.geojit.bseindia.moneycontrol. Web sites reference o http://news. 2008. 2010. September 2010 77 .McGraw Hill. o www. July 3. September 2010 o www. Richard Irwin & Co.com .nseindia. Tata. Options essential concept and trading strategies. August. July.BIBLIOGRAPHY Books • Allaire. Marc J. 2010 o http://www. 1995. 2nd edition.com July 11. • Khan. M Y.com.net/geodata_index.asp .com. and P K Jain.investopedia. Financial Management..

Appendix 78 .

I also assure that the details provided will be kept confidential and used for academic purpose only. Gender : Male Female 3. Dear Sir / Madam. a PGDM student of SCMS Cochin. Occupation and annual income (Please mention) : 6. Age 18 – 24 25 – 34 : 35 – 44 45 – 54 55 – 64 65 or older 4.? 79 . Kindly cooperate with the same and please provide relevant data for the successful completion of survey. I am conducting a survey on customer satisfaction and options trading strategies of Geojit BNP Paribas Financial Services Ltd. 1.Questionnaire Analysis of Customer Satisfaction and Options Trading Strategies. Highest Educational Qualification: (Please mention) 5. I am Mrinalini Shankar. How long have you been trading with Geojit BNP Paribas Financial Services Ltd. Name of the customer : 2.

? Highly satisfied Neutral Highly dissatisfied 8. 80 Weekly Monthly Quarterly .Which are the various products that you trade in? Please check which ever applies. Equity IPO PMS Others Mutual Funds Futures Options Specify ………………. How often do you use our services? Don't Use Daily Online trading Offline Trading Flip software 10. of branches in locality Somewhat satisfied Somewhat dissatisfied i) Any other (Please specify)……………… 9. Rank the following as per your expectation from a financial service provider? (0 to 10) a) Regular feedback c) No hidden cost/charges e) Low Brokerage/commission g) Goodwill b) Transparent dealing d) Customized offers f) High quality services h) No. How would you rate your overall level of satisfaction with Geojit BNP Paribas Financial Services Ltd.Less than 6 months 1 year to less than 3 years 5 years or more 6 months to less than 1 year 3 years to less than 5 years Not yet trading with Geojit 7.

what are the reasons for trading in options? Kindly rank those from 1 to 6 based on priority. incase you deal in options trading? Yes No 14. to a great extent Somewhat successful Don’t think it has been effective 16. What are the strategies you think Geojit BNP Paribas Financial Services Ltd.Are you aware of the options trading strategies put forward National Stock Exchange. If you are undertaking options trading.Which of the following portfolios would you like to invest in. [ Please tick] a) Low risk / Low return portfolio b) Low to Mod risk / Low to Mod return portfolio c) Moderate risk / Moderate return portfolio d) Mod to high risk / Mod to high return portfolio e) High risk / High return portfolio 13. 1 being the highest priority and 6 the lowest. is adopting in options trading? ( Please tick whichever applies ) Short call butterfly Long call butterfly Bear call spread strategy Long call condor Short call condor Long straddle Collar Bear put spread strategy Bull call spread strategy Bull put spread strategy 15. If you are trading in options. which type of options do you trade in? 81 . Do you think Geojit has been effective in implementing these strategies? Yes. Risk Factor Returns Leverage Availability Volatility Awareness 12.11.

………………………………………………………… Thank You 82 .Choose one Choose one : : Index Option American options Stock Option European options 17. Why? …………………………..………………………… If No. please mention reason …………………………………………………………. never recommended Have recommended once or twice Have recommended several times If Yes.. Have you ever felt difficulty in choosing the right underlying stock for options trading? Never Once or twice Yes always 18... Have you ever recommended us to others? No. Which asset classes do you make use of in trading? Equity (including Mutual Funds) Real Estate Insurance NSC/KVP Gold Fixed deposits Government Bond PPF 19.

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