Index

CONTENTS PAGE NO.

CHAPTER 1 INTRODUCTION 2

RESEARCH METHODOLOGY 4

CHAPTER 2 LITERATURE REVIEW 6

CHAPTER 3 COMPANY PROFILE 41

CHAPTER 4 DATA ANALYSIS & INTERPRETATION 58

CHAPTER 5 FINDINGS & SUGGESTIONS 87-89

CHAPTER 6 CONCLUSIONS & BIBLIOGRAPHY 90

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 INTRODUCTION

1.1 INTRODUCTION

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines
“Derivative” to include

1) A security derived from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract for differences or any other form of security.
2) A contract which derives its value from the prices, or index of prices, of underlying
securities.
Derivatives markets have been in existence in India in some form or other for
a long time. In the area of commodities, the Bombay Cotton Trade Association started
futures trading in 1875 and, by the early 1900s India had one of the world’s largest
futures industries. In 1952 the government banned cash settlement and options trading
and derivatives trading shifted to informal forwards markets. In recent years, government
policy has changed, allowing for an increased role for market-based pricing and less
suspicion of derivatives trading. The ban on futures trading of many commodities was
lifted starting in the early 2000s, and national electronic commodity exchanges were
created.
In the equity markets, a system of trading called “badla” involving some
elements of forwards trading had been in existence for decades. However, the system led
to a number of undesirable practices and it was prohibited off and on till the Securities
and a clearinghouse guarantees performance of a contract by becoming buyer to every
seller and seller to every buyer.
Customers post margin (security) deposits with brokers to ensure that they can
cover a specified loss on the position. A futures position is marked-to-market by realizing
any trading losses in cash on the day they occur.
Securities Exchange Board of India (SEBI) banned it for good in 2001. A
series of reforms of the stock market between 1993 and 1996 paved the way for the
development of exchange traded equity derivatives markets in India. In 1993, the
government created the NSE in collaboration with state-owned financial institutions.

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 NSE improved the efficiency and transparency of the stock markets by offering a fully
automated screen-based trading system and real-time price dissemination. In 1995, a
prohibition on trading options was lifted. In 1996, the NSE sent a proposal to SEBI for
listing exchange-traded derivatives.

1.2 NEED FOR THE STUDY:

 To know about derivatives market operations in Indian scenario .
 Financial Derivatives are quite new to the Indian Financial Market, but the
Derivative’s market has shown an immense potential which is visible by the growth it
has achieved in the recent past,
 To know the present changing financial environment and an increased exposure
towards financial risks, it is of immense importance to have a good working
knowledge of Derivatives.
 To understand derivative market regulatory frame work.

1.3 OBJECTIVES OF THE STUDY:

 Study of Indian Derivative market.
 To study the trading mechanism of Derivative market with the special reference to
Futures & Options.
 To study the awareness of Derivatives among the investors in Hyderabad city.
 To analyze performance of derivative products
 To know about pay off for selected derivative products

1.4 SCOPE OF THE STUDY:

 The statement of the problem of the study is, The Derivative market in INDIA is still
in a growth stage, it is necessary to study “The level of investor’s awareness about the
Derivative products in INDIA”.
 In Modern countries also People are not interested to invest in derivative products in
this project we emphasis the investment in derivative system
PURPOSE OF STUDY

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The purpose of study Adding some of the wide variety of derivative instruments available to a
traditional portfolio of investments can provide global diversification in financial instruments
and currencies, help hedge against inflation and deflation, and generate returns that are not
correlated with more traditional investments. The two most widely recognized benefits attributed
to derivative instruments are price discovery and risk management.
IMPORTANCE OF THE STUDY
While professional traders, daily derivative traders and money managers can use derivatives
effectively, the odds that a casual investor will be able to generate profits by trading in
derivatives are mitigated by the fundamental characteristics of the instrument this project give
idea about how make profits from derivative market

1.5 RESEARCH METHODOLOGY:

Classification of Data:
To fulfill the objective of the study, Primary & Secondary Data have
been considered.
 Primary Data.

To collect following data I have made use of following source.

Interaction with the business associates of Capital market and derivative market
services India.

 Secondary Data
a) The first step in data collection approach is to look for secondary data. Usually it is the
data developed for some purpose other than for helping to solve the problem at hand.
Secondary data are collected through their trading details from the stock broker. The
secondary data is collected from internet, study material of NCFM (derivatives market
dealers module work book), research report of expert.

Sampling & Sampling Techniques:

 Sampling Size: TCS,TECH MAHINDRA,HCL,INFOSYS, ANDHRA BANK,ICICI

AND HDFC BANK.
 Sampling Frame: The investors investing in Derivatives markets.

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  Sampling unit: The derivative products are traded in NSE.
 Extent: This study was limited only to the HYDERABAD investors.
 Duration: This study was conducted only for a period of Three months.
 Sampling Method: The sampling method used was on the basis of non probability
convenient sampling method.
 Elements: Individual.
 Analytical tool: Graphs like pie charts, & tables have been used to analyze & interpret
the data.
 Software Applications Used: Ms-Word, Ms-Excel.

1.6 LIMITATIONS OF THE STUDY:

 The period to carry out the study is too-short (restricted to 60 days). I could study the
market movements only for 60 days and observations are related only to this period.
 The Study have limited regarding derivatives to futures and options only,and have
not taken into consideration regarding commodities and forward trading.
 Futures and Options are less traded compared to equities in SHIRAM INSIGHT ,
HYDERABAD. Options are still less traded compared to futures, so I did not get
much exposure to it.
 Survey is limited to HYDERABAD city.

5
REVIEW OF LITRATURE

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3.1 INTRODUCTION TO DERIVATIVES
Derivative is a product whose value is derived from the value of one or more
basic variables, called bases (underlying asset, index, or reference rate), in a
contractual manner. The underlying asset can be equity, forex, commodity or any
other asset. For example, wheat farmers may wish to sell their harvest at a future date
to eliminate the risk of a change in prices by that date. Such a transaction is an
example of a derivative. The price of this derivative is driven by the spot price of
wheat which is the “underlying”
Derivatives are securities under the SC(R) A and hence the trading of
derivatives is governed by the regulatory framework under the SC(R) A.
Derivative products initially emerged as hedging devices against fluctuations
in commodity prices, and commodity-linked derivatives remained the sole form of
such products for almost three hundred years. Financial derivatives came into
spotlight in the post-1970 period due to growing instability in the financial markets.
However, since their emergence, these products have become very popular and by
1990s, they accounted for about two-thirds of total transactions in derivative
products. In recent years, the market for financial derivatives has grown tremendously
in terms of variety of instruments available, their complexity and also turnover. In the
class of equity derivatives the world over, futures and options on stock indices have
gained more popularity than on individual stocks, especially among institutional
investors, who are major users of index-linked derivatives. Even small investors find
these useful due to high correlation of the popular indexes with various portfolios and
ease of use.

3.1.1 Factors driving the growth of Derivatives:

Over the last three decades, the derivatives market has seen a phenomenal
growth. A large variety of derivative contracts have been launched at exchanges
across the world. Some of the factors driving the growth of financial derivatives are:
1) Increased volatility in asset prices in financial markets.

2) Increased integration of national financial markets with the international markets.

3) Marked improvement in communication facilities and sharp decline in their costs.

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 4)Development of more sophisticated risk management tools, providing economic
agents a wider choice of risk management strategies, and

5)Innovations in the derivatives markets, which optimally combine the risks and
returns over a large number of financial assets leading to higher returns, reduced risk as
well as transactions costs as compared to individual financial assets.

As on Mar 07, 2017 15:30:18 IST

Product No. of contracts Traded Value
(Rs crores)

Index Futures 6,65,164 20,954.06

Stock Futures 9,11,956 30,961.77
Index Options 56,31,554 1,80,994.61
Stock Options 5,44,506 17,978.12
F&O Total 77,53,180 2,50,888.57
3.1.2
Derivative Products:

Derivative contracts have several variants. The most common variants are
forwards, futures, options and swaps. We take a brief look at various derivatives contracts
that have come to be used.

(1) Forwards: A forward contract is a customized contract between two entities, where
settlement takes place on a specific date in the future at today’s pre-agreed price.
(2) Futures: A futures contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types of forward
contracts in the sense that the former are standardized exchange-traded contracts.
(3) Options: Options are of two types
(i) Calls: give the buyer the right but not the obligation to buy a given quantity of the
underlying asset, at a given price on or before a given future date.

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 (ii) Puts: give the buyer the right, but not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given date.

(4) Swaps: Swaps are private agreements between two parties to exchange cash flows in the
future according to a prearranged formula. They can be regarded as portfolios of forward
contracts. The two commonly used swaps are :
 Interest rate swaps: These entail swapping only the interest related cash flows
between the parties in the same currency.
 Currency swaps: These entail swapping both principal and interest between the
parties, with the cash flows in one direction being in a different currency than those in
the opposite direction.

3.1.3 Participants in the derivatives markets:

The following three broad categories of participants

 Hedgers: Hedgers face risk associated with the price of an asset. They use futures or option
markets to reduce or eliminate this risk.

 Speculators: Speculators wish to bet on future movements in the price of an asset. Futures
and options contracts can give them an extra leverage; that is, they can increase both the
potential gains and potential losses in a speculative venture.

 Arbitrageurs: Arbitrageurs are in business to take advantage of a discrepancy between

prices in two different markets. If, for example, they see the futures price of an asset getting
out of line with the cash price, they will take offsetting positions in the two markets to lock in
a profit.

3.1.4 NSE’s Derivatives Market:

The derivatives trading on the NSE commenced with S&P CNX Nifty Index
futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and
trading in options on individual securities commenced on July 2, 2001. Single stock
futures were launched on November 9, 2001. Today, both in terms of volume and
turnover, NSE is the largest derivatives exchange in India. Currently, the derivatives

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 contracts have a maximum of 3-month expiration cycles. Three contracts are available for
trading, with 1 month, 2 months and 3 months expiry. A new contract is introduced on
the next trading day following the expiry of the near month contract.

3.1.5 Participants and Functions:

NSE admits members on its derivatives segment in accordance with the rules
and regulations of the exchange and the norms specified by SEBI. NSE follows 2–tier
membership structure stipulated by SEBI to enable wider participation. Those interested
in taking membership on F&O segment are required to take membership of CM and F&O
segment or CM, WDM and F&O segment. Trading and clearing members are admitted
separately. Essentially, a clearing member (CM) does clearing for all his trading members
(TMs), undertakes risk management and performs actual settlement. There are three types
of CMs:
 Self Clearing Member: A SCM clears and settles trades executed by him only either on
his own account or on account of his clients.

 Trading Member Clearing Member: TM–CM is a CM who is also a TM. TM–CM

may clear and settle his own proprietary trades and client’s trades as well as clear and
settle for other TMs.

 Professional Clearing Member: PCM is a CM who is not a TM. Typically, banks or

custodians could become a PCM and clear and settle for TMs.

3.1.6 Trading mechanism:

The futures and options trading system of NSE, called NEAT-F&O trading
system, provides a fully automated screen–based trading for Nifty futures & options and
stock futures & options on a nationwide basis and an online monitoring and surveillance
mechanism. It supports an anonymous order driven market which provides complete
transparency of trading operations and operates on strict price–time priority. It is similar
to that of trading of equities in the Cash Market (CM) segment. The NEAT-F&O trading
system is accessed by two types of users. The Trading Members(TM) have access to
functions such as order entry, order matching, and order and trade management. It
provides tremendous flexibility to users in terms of kinds of orders that can be placed on

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 the system. Various conditions like Immediate or Cancel, Limit/Market price, Stop loss,
etc. can be built into an order. The Clearing Members (CM) uses the trader workstation
for the purpose of monitoring the trading member(s) for whom they clear the trades.
Additionally, they can enter and set limits to positions, which a trading member can take.

3.1.7 Turnover:
The trading volume on NSE’s derivatives market has seen a steady increase
since the launch of the first derivatives contract, i.e. index futures in June 2000. Table
gives the value of contracts traded on the NSE. The average daily turnover at NSE now
exceeds Rs.10000 core. A total of 77,017,185 contracts with a total turnover of
Rs.2,547,053 core were traded during 2008-2009.

3.2 Introduction to Futures

Definition of Futures:
A futures contract is an agreement between two parties to buy or sell an asset
at a certain time in the future at a certain price. But unlike forward contracts, the
futures contracts are standardized and exchange traded. To facilitate liquidity in the
futures contracts, the exchange specifies certain standard features of the contract. It is
a standardized contract with standard underlying instrument, a standard quantity and
quality of the underlying instrument that can be delivered,(or which can be used for
reference purposes in settlement) and a standard timing of such settlement. A futures
contract may be offset prior to maturity by entering into an equal and opposite
transaction. More than 99% of futures transactions are offset this way. The
standardized items in a futures contract are:

 Quantity of the underlying  Quality of the underlying

 Location of settlement  The date and the month of delivery
 The units of price quotation and minimum price change

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 3.2.1 Distinction between Futures & Forward Contracts:
Forward contracts are often confused with futures contracts. The confusion
is primarily because both serve essentially the same economic functions of allocating
risk in the presence of future price uncertainty. However futures are a significant
improvement over the forward contracts as they eliminate counterparty risk and offer
more liquidity. Table lists the distinction between the two

Distinction between Futures & Forwards

Futures Forwards
1] Trade on an organized
1] OTC in nature
exchange
2] Standardized contract terms 2] Customized contract terms
3] Range of Delivery dates 3] Usually one specified delivery date
4] Hence more liquid 4] Hence less liquid
5] Requires margin payments 5] No margin payment
6] Virtually no credit risk 6] Some credit risk

Table 2: Distinction between Futures & Forwards

3.2.2 Futures Terminology:

 Spot price: The price at which an asset trades in the spot market.
 Contract cycle: The period over which a contract trades. The index futures contracts on
the NSE have one-month, two-months and three-month expiry cycles which expire on the
last Thursday of the month. Thus a January expiration contract expires on the last
Thursday of January and a February expiration contract ceases trading on the last
Thursday of February. On the Friday following the last Thursday, a new contract having
a three-month expiry is introduced for trading.
 Expiry date: It is the date specified in the futures contract. This is the last day on which
the contract will be traded, at the end of which it will cease to exist.

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  Contract size: The amount of asset that has to be delivered under one contract. For
instance, the contract size on NSE’s futures market is 200 Nifties.

 Basis: In the context of financial futures, basis can be defined as the futures price minus
the spot price. There will be a different basis for each delivery month for each contract. In
a normal market, basis will be positive. This reflects that futures prices normally exceed
spot prices.

 Cost of carry: The relationship between futures prices and spot prices can be
summarized in terms of what is known as the cost of carry. This measures the storage
cost plus the interest that is paid to finance the asset less the income earned on the asset.

 Initial margin: The amount that must be deposited in the margin account at the time a
futures contract is first entered into is known as initial margin.

 Marking-to-market: In the futures market, at the end of each trading day, the margin
account is adjusted to reflect the investor’s gain or loss depending upon the futures
closing price. This is called marking–to–market.

 Maintenance margin: This is somewhat lower than the initial margin. This is set to
ensure that the balance in the margin account never becomes negative. If the balance in
the margin account falls below the maintenance margin, the investor receives a margin
call and is expected to top up the margin account to the initial margin level before trading
commences on the next day.

3.2.3 Understanding Index Futures:

Index futures are all futures contracts where the underlying is the stock index
(Nifty or Sensex) and helps a trader to take a view on the market as a whole.

Index futures permits speculation and if a trader anticipates a major rally in the
market he can simply buy a futures contract and hope for a price rise on the futures
contract when the rally occurs. We shall learn in subsequent lessons how one can
leverage ones position by taking position in the futures market.

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 In India we have index futures contracts based on S&P CNX Nifty and the BSE
Sensex and near 3 months duration contracts are available at all times. Each contract
expires on the last Thursday of the expiry month and simultaneously a new contract is
introduced for trading after expiry of a contract.

Example: Futures contracts in Nifty in NOV 2013

Contract
Expiry/settlement
month
NOV-13 29-NOV
DEC-13 26-DEC
JAN-14 30-JAN

Table 3A: Futures contracts in Nifty in November 2010 On November 27

Contract
Expiry/settlement
month
NOV-13 26-Nov
DEC-13 30-Dec
JAN-14 28-Jan

Table 3B: Futures contracts in Nifty in Nov 2010

The permitted lot size is 200 or multiples thereof for the Nifty. That is you buy one Nifty
contract the total deal value will be 200*1100 (Nifty value) = Rs 2,20,000.

In the case of BSE Sensex the market lot is 50. That is you buy one Sensex futures the
total value will be 50*4000 (Sensex value) = Rs 2,00,000.

Hedging:
The other benefit of trading in index futures is to hedge your portfolio against
the risk of trading. In order to understand how one can protect his portfolio from
value erosion let us take an example.

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Illustration:

Mr. X enters into a contract with Mr. Y that six months from now he will sell
to Y 10 dresses for Rs 4,000. The cost of manufacturing for X is only Rs 1,000 and he
will make a profit of Rs 3,000 if the sale is completed.

Cost Selling
Profit
(Rs) Price
1,000 4,000 3,000

Table 4A: Hedging profit

However, X fears that Y may not honor his contract six months from now, So
he inserts a new clause in the contract that if Y fails to honor the contract he will have
to pay a penalty of Rs 1,000. And if Y honors the contract X will offer a discount of
Rs 1,000.

‘Y’ defaults ‘Y’ honours

1,000(Initial Investment) 3,000 (Initial profit)
1,000 (penalty from Mr. Y) (-1,000) discount given to Mr.Y
- (No gain/loss) 2,000 (Net gain)

Table 4B: Hedging Net gain/loss

As we see above if Mr. Y defaults Mr. X will get a penalty of Rs 1,000 but he
will recover his initial investment. If Mr. Y honors the contract, Mr. X will still make
a profit of Rs 2,000. Thus, Mr. X has hedged his risk against default and protected his
initial investment. This example explains the concept of hedging.

Speculation:

Speculators are those who do not have any position on which they enter in
futures and options market. They only have a particular view on the market, stock,
commodity etc. In short, speculators put their money at risk in the hope of profiting

15
 from an anticipated price change. They consider various factors such as demand
supply, market positions, open interests, economic fundamentals and other data to
take their positions.

Illustration:

Mr. X is a trader but has no time to track and analyze stocks. However, he
fancies his chances in predicting the market trend. So instead of buying different
stocks he buys Sensex Futures.

On May 1, 2001, he buys 100 Sensex futures at 3,600 on expectations that the
index will rise in future. On June 1, 2005, the Sensex rises to 4,000 and at that time he
sells an equal number of contracts to close out his position.

Selling Price (4000 x 100) 4,00,000

Less: Purchase cost (3600 x 100) 3,60,000

Net Gain 40,000

Table 5: Speculation Net gain

Mr. X has made a profit of Rs.40,000 by taking a call on the future value of
the Sensex. However, if the Sensex had fallen he would have made a loss. Similarly,
if it would have been bearish he could have sold Sensex futures and made a profit
from a falling profit. In index futures players can have a long-term view of the market
up to at least 3 months.

Arbitrage:
An arbitrageur is basically risk averse. He enters into those contracts were
he can earn riskless profits. When markets are imperfect, buying in one market and
simultaneously selling in other market gives riskless profit. Arbitrageurs are always in the
lookout for such imperfections.

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 In the futures market one can take advantages of arbitrage opportunities by
buying from lower priced market and selling at the higher priced market. In index futures
arbitrage is possible between the spot market and the futures market (NSE has provided
special software for buying all 50 Nifty stocks in the spot market.

 Take the case of the NSE Nifty.

 Assume that Nifty is at 1200 and 3 month’s Nifty futures is at 1300.

 The futures price of Nifty futures can be worked out by taking the interest cost of 3
months into account.

 If there is a difference then arbitrage opportunity exists.

Illustration:

Let us take the example of single stock to understand the concept better. If
Wipro is quoted at Rs.1,000 per share and the 3 months futures of Wipro is Rs.1,070 then
one can purchase Wipro at Rs.1,000 in spot by borrowing @ 12% annum for 3 months
and sell Wipro futures for 3 months at Rs 1,070.

Sale 1,070

Less: cost (1,000+30) 1,030

Arbitrage Profit 40

Table 6: Arbitrage profit

These kinds of imperfections continue to exist in the markets but one has to be
alert to the opportunities as they tend to get exhausted very fast.

3.2.4 Pricing of Index Futures:

The index futures are the most popular futures contracts as they can be used in
a variety of ways by various participants in the market.

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 How many times have you felt of making risk-less profits by arbitraging
between the underlying and futures markets? If so, you need to know the cost-of-carry
model to understand the dynamics of pricing that constitute the estimation of fair value of
futures.

The cost of carry model:

The cost-of-carry model where the price of the contract is defined as:

F=S+C

Where, F = Futures price

S = Spot price

C = Holding costs or carry costs

If F < S+C or F > S+C, arbitrage opportunities would exist i.e. whenever the
futures price moves away from the fair value, there would be chances for arbitrage.

If Wipro is quoted at Rs.1,000 per share and the 3 months futures of Wipro is
Rs.1,070 then one can purchase Wipro at Rs.1,000 in spot by borrowing @ 12%
annum for 3 months and sell Wipro futures for 3 months at Rs 1,070.

Here F=1,000+30=1,030 and is less than prevailing futures price and hence
there are chances of arbitrage.

Sale 1,070
Less: cost
1,030
(1,000+30)
Arbitrage
40
Profit

Table 7: Arbitrage Profit

However, one has to remember that the components of holding cost vary with
contracts on different assets.

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 Futures pricing in case of dividend yield:
We have seen how we have to consider the cost of finance to arrive at the
futures index value. However, the cost of finance has to be adjusted for benefits of
dividends and interest income. In the case of equity futures, the holding cost is the
cost of financing minus the dividend returns.

Example:

Suppose a stock portfolio has a value of Rs.100 and has an annual dividend
yield of 3% which is earned throughout the year and finance rate=10% the fair value
of the stock index portfolio after one year will be

F= Rs.100 + Rs.100 * (0.10 – 0.03), Futures price = Rs 107

If the actual futures price of one-year contract is Rs.109. An arbitrageur can

buy the stock at Rs.100, borrowing the fund at the rate of 10% and simultaneously
sell futures at Rs.109. At the end of the year, the arbitrageur would collect Rs.3 for
dividends, deliver the stock portfolio at Rs.109 and repay the loan of Rs.100 and
interest of Rs.10. The net profit would be Rs 109 + Rs 3 - Rs 100 - Rs 10 = Rs 2.
Thus, we can arrive at the fair value in the case of dividend yield.

3.2.5 Trading strategies:

(i) Speculation:

We have seen earlier that trading in index futures helps in taking a view of the
market, hedging, speculation and arbitrage. Now we will see how one can trade in
index futures and use forward contracts in each of these instances.

Taking a view of the market

Have you ever felt that the market would go down on a particular day and
feared that your portfolio value would erode?

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There are two options available:

Option 1: Sell liquid stocks such as Reliance

Option 2: Sell the entire index portfolio

The problem in both the above cases is that it would be very cumbersome and
costly to sell all the stocks in the index. And in the process one could be vulnerable to
company specific risk. So what is the option? The best thing to do is to sell index futures.

Illustration:

Scenario 1:

On Nov 13, 2010, ‘X’ feels that the market will rise so he buys 200 Nifties with an expiry
date of Nov 26 at an index price of 1,442 costing Rs 2,88,400 (200*1,442).

On Nov 21 the Nifty futures have risen to 1520 so he squares off his position at 1520.

‘X’ makes a profit of Rs 15,600 (200*78)

Scenario 2:

On Nov 20, 2005, ‘X’ feels that the market will fall so he sells 200 Nifties with an expiry
date of Nov 26 at an index price of 1,523 costing Rs 3,04,600 (200*1,523).

On Nov 21 the Nifty futures falls to 1,456 so he squares off his position at 1,456.

‘X’ makes a profit of Rs 13,400 (200*67).

In the above cases ‘X’ has profited from speculation i.e. he has wagered in the hope of
profiting from an anticipated price change.

(ii) Hedging:

Stock index futures contracts offer investors, portfolio managers, mutual

funds etc several ways to control risk. The total risk is measured by the variance or
standard deviation of its return distribution. A common measure of a stock market risk is
the stock’s Beta. The Beta of stocks is available on the www.nseindia.com.

20
 While hedging the cash position one needs to determine the number of futures
contracts to be entered to reduce the risk to the minimum.

Have you ever felt that a stock was intrinsically undervalued? That the profits and
the quality of the company made it worth a lot more as compared with what the market
thinks?

Have you ever been a ‘stock picker’ and carefully purchased a stock based on a
sense that it was worth more than the market price?
A person who feels like this takes a long position on the cash market. When doing
this, he faces two kinds of risks:

a) His understanding can be wrong, and the company is really not worth more than the
market price or

b) The entire market moves against him and generates losses even though the underlying
idea was correct.

Everyone has to remember that every buy position on a stock is simultaneously a

buy position on Nifty. A long position is not a focused play on the valuation of a stock. It
carries a long Nifty position along with it, as incidental baggage i.e. a part long position
of Nifty.

Let us see how one can hedge positions using index futures:

On March 12 2010, an investor buys 3100 shares of Hindustan Lever Limited (HLL) @ Rs. 290
per share (approximate portfolio value of Rs. 9,00,000). However, the investor fears that the
market will fall and thus needs to hedge. He uses Nifty March Futures to hedge.

HLL trades as Rs. 290

• Nifty index is at 4100
• March Nifty futures is trading at Rs. 4110.

• The beta of HLL is 1.13.

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 To hedge, the investor needs to sell [Rs. 9,00,000 *1.13] = Rs. 10,17,000 worth of Nifty

futures (10,17,000/4100 = 250 Nifty Futures)

On March 19 2010, the market falls.

• HLL trades at Rs. 275

• March Nifty futures is trading at Rs. 3915

Thus, the investor’s loss in HLL is Rs. 46,500 (Rs. 15 × 3100). The investors portfolio value
now drops to Rs. 8,53,500 from Rs. 9,00,000. However, March Nifty futures position gains by
Rs. 48,750(Rs. 195 × 250). Thus increasing the portfolio value to Rs. 9,02,250 (Rs. 8,53,500 +
Rs. 48,750).Therefore, the investor does not face any loss in the portfolio. Without an exposure
to NiftyFutures, he would have faced a loss of Rs. 46,500.

Thus the example above shows that hedging:

• Prevents losses inspite of a fall in the value of the underlying shares
• Helps investor to continue to hold the shares while taking care of intermittent losses
• Can be done by anyone with an exposure to an underlying asset class
Warning: Hedging involves costs and the outcome may not always be favorable if prices move in
the reverse direction.

Let us take another example when one has a portfolio of stocks:

Suppose you have a portfolio of Rs 10 Crore. The beta of the portfolio is 1.19.
The portfolio is to be hedged by using Nifty futures contracts. To find out the number
of contracts in futures market to neutralize risk . If the index is at 1200 * 200 (market
lot) = Rs 2,40,000, The number of contracts to be sold is:

a. 1.19 x10 Crore = 496 contracts

22
 If you sell more than 496 contracts you are over hedged and sell less than 496
contracts you are under hedged. Thus, we have seen how one can hedge their
portfolio against market risk.

3.2.6 Margins
The margining system is based on the J R Verma Committee recommendations.
The actual margining happens on a daily basis while online position monitoring is done
on an intra-day basis.

Daily margining is of two types:

1) Initial margins

2) Mark-to-market profit/loss

The computation of initial margin on the futures market is done using the
concept of Value-at-Risk (VaR). The initial margin amount is large enough to cover a
one-day loss that can be encountered on 99% of the days. VaR methodology seeks to
measure the amount of value that a portfolio may stand to lose within a certain horizon
time period (one day for the clearing corporation) due to potential changes in the
underlying asset market price. Initial margin amount computed using VaR is collected
up-front. The daily settlement process called "mark-to-market" provides for collection
of losses that have already occurred (historic losses) whereas initial margin seeks to
safeguard against potential losses on outstanding positions. The mark-to-market
settlement is done in cash.

Let us take a hypothetical trading activity of a client of a NSE futures division

to demonstrate the margins payments that would occur.

 A client purchases 200 units of FUTIDX NIFTY 29JUN2001 at Rs 1500.

 The initial margin payable as calculated by VAR is 15%.

Total long position = Rs 3,00,000 (200*1,500)

Initial margin (15%) = Rs 45,000

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Assuming that the contract will close on Day + 3 the mark-to-market position will look as
follows:

Position on Day 1:

Table 8A: Payment to be made

New position on Day 2:

Value of new position = 1,400*200= 2,80,000

Margin = 42,000

Tables 8B: Payment to be received

Position on Day 3:

Value of new position = 1510*200 = Rs 3,02,000

Margin = Rs 3,300

Close Price Gain Net Cash Inflow

1,600*200=3,20,000 (3,20,000- 18,000+45,300=63,300
3,02,000)18,000
Payment to be Recd 63,300
Table 8C: Payment to be received

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Margin account:

Initial Margin Rs.45,000

Margin Recd Day 1 (-)3,000

Position on Day 2 Rs. 42,000

Additional Margin (+)3,200

Total Margin in Account Rs. 45,200

Table 8D: Total margin account

Net gain/loss:

Day1 (loss) Rs.(17,000)

Day2(Gain) Rs.18,700
Day1(Gain) Rs.18,000
Total Gain Rs.19,700

Table 8E: Total gain

The client has made a profit of Rs 19,700 at the end of Day 3 and the total cash
inflow at the close of trade is Rs 63,300.

3.2.7 Settlement of Future Contracts:

Futures contracts have two types of settlements, the MTM settlement which
happens on a continuous basis at the end of each day, and the final settlement which
happens on the last trading day of the futures contract.

1. MTM Settlement:

All futures contracts for each member are marked-to-market (MTM) to the
daily settlement price of the relevant futures contract at the end of each day. The
profits/losses are computed as the difference between:

25
 The trade price and the day’s settlement price for contracts executed during the day but
not squared up.

 The previous day’s settlement price and the current day’s settlement price for brought
forward contracts.

 The buy price and the sell price for contracts executed during the day and squared up.

The CMs who have a loss are required to pay the mark-to-market (MTM) loss
amount in cash which is in turn passed on to the CMs who have made a MTM profit.
This is known as daily mark-to-market settlement. CMs are responsible to collect and
settle the daily MTM profits/losses incurred by the TMs and their clients clearing and
settling through them. Similarly, TMs are responsible to collect/pay losses/ profits
from/to their clients by the next day. The pay-in and pay-out of the mark-to-market
settlement are affected on the day following the trade day. In case a futures contract is not
traded on a day, or not traded during the last half hour, a ‘theoretical settlement price’ is
computed.

2. Final Settlement for Futures:

On the expiry day of the futures contracts, after the close of trading hours,
NSCCL marks all positions of a CM to the final settlement price and the resulting
profit/loss is settled in cash. Final settlement loss/profit amount is debited/ credited to the
relevant CM’s clearing bank account on the day following expiry day of the contract.

All trades in the futures market are cash settled on a T+1 basis and all positions
(buy/sell) which are not closed out will be marked-to-market. The closing price of the
index futures will be the daily settlement price and the position will be carried to the next
day at the settlement price.

The most common way of liquidating an open position is to execute an

offsetting futures transaction by which the initial transaction is squared up. The initial
buyer liquidates his long position by selling identical futures contract.

26
 In index futures the other way of settlement is cash settled at the final
settlement. At the end of the contract period the difference between the contract value
and closing index value is paid.

3.3 INTRODUCTION TO OPTIONS:

In this section, we look at the next derivative product to be traded on the NSE,
namely options. Options are fundamentally different from forward and futures
contracts. An option gives the holder of the option the right to do something. The
holder does not have to exercise this right. In contrast, in a forward or futures
contract, the two parties have committed themselves to doing something. Whereas it
costs nothing (except margin requirements) to enter into a futures contract, the
purchase of an option requires an up–front payment.
The stock market seems to be extremely promising investment avenue but
also an extremely uncertain one given its roller coaster movements. Should one
indulge or just stay away and risk losing out on high returns?
The answer is they need not stay away because they can avoid this risk by using
option.
The concept of options has existed for hundreds of years and was practiced by
traders and farmers in some form or other. Before stock options could be traded in
today’s market investor could only buy and sell shares in given stock of a public
company. So if a stock was trading at say $100 investors would need $10000 to buy
100 shares. Now, $10000 is still a lot of money to most people. What would investor
say if suddenly he is told that for a much a smaller amount say $300 he could
“control” 100 shares of that same company? Well, that is what stock options allow
investor to do. It allows investor to benefit from a rise or decline in the price of a
given stock for a much smaller amount of money than it would take to buy the shares
outright. This is the simplest explanation.
Option provides an ‘option’ of having access to the unlimited positive side of
the stock market while bearing just limited risks? One may say,” impossible!!” but it
is, possible.

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 Options are a type of derivatives contracts where a person gets a right to buy
or sell a specified quantity of the underlying asset at an agreed price(strike price)on or
before the specified future date(expiration date).

3.3.1 Options Terminology:

 Index options: These options have the index as the underlying. Some options are
European while others are American. Like index futures contracts, index options
contracts are also cash settled.

 Stock options: Stock options are options on individual stocks. Options currently trade on
over 500 stocks in the United States. A contract gives the holder the right to buy or sell
shares at the specified price.

 Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/writer.

 Writer of an option: The writer of a call/put option is the one who receives the option
premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.

There are two basic types of options, call options and put options.
 Call option: A call option gives the holder the right but not the obligation to buy an asset
by a certain date for a certain price.

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

 Option price/premium: Option price is the price which the option buyer pays to the
option seller. It is also referred to as the option premium.

 Expiration date: The date specified in the options contract is known as the expiration
date, the exercise date, the strike date or the maturity.

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

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 American options: American options are options that can be exercised at any time up to
the expiration date. Most exchange-traded options are American.

 European options: European options are options that can be exercised only on the
expiration date itself. European options are easier to analyze than American options, and
properties of an American option are frequently deduced from those of its European
counterpart.

 In-the-money option: An in-the-money (ITM) option is an option that would lead to a

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

 At-the-money option: An at-the-money (ATM) option is an option that would lead to

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

 Out-of-the-money option: An out-of-the-money (OTM) option is an option that would

lead to negative cash flow it it were exercised immediately. A call option on the index is
out-of-the-money when the current index stands at a level which is less than the strike
price (i.e. spot price < strike price). If the index is much lower than the strike price, the
call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the
strike price.

 Intrinsic value of an option: The option premium can be broken down into two -
*components – intrinsic value and time value. The intrinsic value of a call is the amount
the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it
another way, the intrinsic value of a call is Max [0, (St - K)] which means the intrinsic
value of a call is the greater of 0 or (St - K). Similarly, the intrinsic value of a put is Max
[0, K - St],i.e. the greater of 0 or (K - St). K is the strike price and St is the spot price.

29
  Time value of an option: The time value of an option is the difference between its
premium and its intrinsic value. Both calls and puts have time value. An option that is
OTM or ATM has only time value. Usually, the maximum time value exists when the
option is ATM. The longer the time to expiration, the greater is an option’s time value, all
else equal. At expiration, an option should have no time value.

3.3.2. How to Read an Options Table?

Table 9; How to Read an Options Table?

1) Column 1: Strike Price – This is stated price per share for which an underlying stock may
be purchased (for a Call) or sold (for a put) upon the exercise of the option contract.

2) Column 2: Expiry Date - This shows the termination date of an option contract.

3) Column 3: Call or Put - This column refers to whether the option is a call (C) or put (P).

4) Column 4: Volume - This indicates the total number of options contracts traded for the day.
The total volume of all contracts is listed at the bottom of each table.

5) Column 5: Bid - This indicates the price someone is willing to pay for the options contract.

6) Column 6: Ask - This indicates the price at which someone is willing to sell an options
contract.

7) Column 7: Open Interest - Open interest is the number of options contracts that are open;
these are contracts that have neither expired nor been exercised.
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3.3.3. Distinction between Futures & Options:

Distinction between Futures & Options

Futures Options
1] Exchange traded, with
1] Same as Futures
novation
2] Exchange defines the
2] Same as Futures
product
3] Price is zero, strike price 3] Strike price is fixed, price
moves moves.
4] Price is zero 4] Price is always positive.
5] Linear payoff 5] Nonlinear payoff.
6] Both long and short at risk 6] Only short at risk.

Table 10: Distinction between Futures & Options

3.4 CALL OPTIONS:

Are that gives its holder the power or right but not the obligation to buy the
underlying asset at a fixed price by a fixed expiration date.

How do call option work?

Call options are financial contracts between buyer and the seller. The seller or
“ writer” of the call options is giving the buyer of those call options the right to buy
his stocks at a price fixed and agreed upon in the call options contract. The buyer or
“holder” of these call options can now hold on them, hoping that the stocks will rise
in price over time, before the call options contract expires, and then either the sell the
call options on to another buyer at a higher price or exercise the right vested in the
call option to buy the stock from the seller at the lower agreed price, turning around
for a profit by selling those stocks in the open market.
Clearly the seller or “writer” of call options is expecting his stocks to stay
stagnant or to go down. Since the seller expects his stocks to go down, selling call
options on those stocks actually results in additional income, offsetting the expected

31
 drop in the stocks if he is right. This hedges the risk of owing those stocks without
having to sell the stocks.

Call Options Example:

An investor buys 1 call option on Infosys at strike price of Rs.3, 500 at the
premium of Rs. 100, if the market price of Infosys on the day of expiry is more than
Rs.3, 500, the option will be exercised. The investor will earn profits once the share
price crosses Rs.3600 (strike price + premium Rs.3500 + 100). Suppose stock price is
Rs.3800, making a profit of Rs.200 {(spot price – strike price) - premium}. In another
scenario, if at the time of expiry stock prices falls below Rs.3500 say suppose it
touches Rs.3000, the buyer of the call option will choose not to exercise his option. In
this case the investor loses the premium (Rs.100), paid which shall be the profit
earned by the seller of call option.

Covered Calls:
A call option position that is covered by an opposite position in the underlying
instrument (for example shares, commodities etc), is called a covered call. Writing a
covered calls involves writing call options when the shares that might have to be
delivered (if the option holder exercises his right to buy), are already owned. E.g. A
writer writes a call on Reliance and at same time holds shares of Reliance so that if
the call is exercised by the buyer, he can deliver the stock.

3.5 PUT OPTION:

A put option gives the holder (buyer/one who is long put), the right to sell
specified quantity of the underlying asset at strike price on or before a expiry date.
The seller of the put option (one who is short put) however, has the obligation to buy
the underlying asset at strike price if the buyer decides to exercise his option to sell.

Put Option Example:

An investor buys 1 put option on Reliance at the strike price of Rs.300/- at a premium
of Rs.25/-. If the market price of Reliance, on the day of expiry is less than Rs.300,

32
 the option can be exercised as it is in the money. The investor’s Break even point is
Rs.275/-(strike price- premium paid) i.e. investor will earn profits if the market falls
below 275. Suppose stock price is Rs.260/-, the buyer of the put option will
immediately buys Reliance share in the market @Rs.260/- & exercises his option
selling the Reliance share at Rs.300 to the option writer thus making a net profit of
Rs.15 {(strike price-spot price)-premium paid}. In another scenario, if at the time of
expiry, market price of Reliance is Rs.320/-, the buyer of the put option will choose
not to exercise his Option to sell as he can sell in the market at a higher rate. In this
case, the investor loses the premium paid (i.e. Rs.25/-) which shall be the profit
earned by the seller of the Put Option.

‘In the Money’, ‘At the Money’& ‘Out of the Money’ Call Options:
An Option is said to be ‘At the money’, when the Options strike price is equal
to the underlying asset price. This is true for the both the calls and puts. A call is said
to be In-the-Money when the strike price of the Option is less than the underlying
asset price.

For Example:
A Sensex Call Option with strike price of 3900 is the ‘In the money’, when
the spot Sensex is at 4100 as the call option has value. The call holder has the right to
buy a Sensex at 3900, no matter how much the spot market has risen. And with the
current price at 4100, a profit can be made by selling sensex at this higher price. On
the other hand, a call option is Out-of-the-money when the strike price is greater than
the underlying asset price. Using the earlier ex: if the sensex falls to 3,700, the call
option no longer has positive exercise value. The call option holder will not exercise
the option to buy sensex at 3,900 when the current price is at 3700.

33
 Table 11: ‘In the Money’, ‘At the Money’& ‘Out of the Money’ Call Options

‘In the Money’, ‘At the Money’& ‘Out of the Money’ Put Options:
A put option is In-the-money when the strike price of the option is greater
than the spot price of the underlying asset.

For Example:
A Sensex put at strike of 4400, is In-the-money then the sensex is at 4100.
When this is the case, the put option has value because the put holder can sell the
sensex at 4400, an amount greater than the current Sensex of 4100. Likewise, a put
option is Out-of-the-money when the strike price is less than the spot price of the
underlying asset. For ex: the buyer of sensex put option won’t exercise the option
when the spot is at 4800. The put no longer has positive exercise value. Options are
said to be deep In-the-money (or deep Out-of-the-money) if the exercise price is at
significant variance with the underlying asset price.

3.6 SUMMARY:

CALL OPTION BUYER CALL OPTION WRITER (Seller)

Pays premium Receives premium
Right to exercise and buy the Obligation to sell shares if exercised
shares
Profits from rising prices Profits from falling prices or remaining
neutral
Limited losses, Potentially Potentially unlimited losses, limited

34
 unlimited gain gain
PUT OPTION BUYER PUT OPTION WRITER (Seller)
Pays premium Receives premium
Right to exercise and sell shares Obligation to buy shares if exercised
Profits from falling prices Profits from rising prices or remaining
neutral
Limited losses, Potentially Potentially unlimited losses, limited
unlimited gain gain

Table 12: ‘In the Money’, ‘At the Money’& ‘Out of the Money’ Put Options

(a) Who decides on the premium paid on options & how is it calculated?
Options premium is not fixed by the exchange. The fair value/ theoretical
price of an option can be known with the help of pricing models & then depending on
the market conditions the price is determined by competitive bids & offers in the
trading environment. An options premium/ price is the sum of intrinsic value & time
value .if the price of the underlying stock is held constant, the intrinsic value portion
of an option premium will remain constant as well. Therefore, any change in the price
of the option will be entirely due to change in the response to a change in the
volatility of the underlying, the time to expiry, interest rate fluctuations, dividends
payments & to the immediate effect of supply & demand for both the underlying &
its option.
(b) Why should one invest in options?
Besides offering flexibility to the buyer in form of right or sell, the major
advantages of options is their versatility. They can be conservative or as speculative
as one’s investment strategy dictates. Some of the benefits.

35
3.6.1 Option Benefits:
1) High leverage: option contracts allow the investor to control the full value of the underlying
shares for a fraction of the actual cost. For instance, though Infosys trades at Rs 5600 an
investor can get full exposure to it by investing only the premium of Rs.150. We can see
below how one can leverage ones position by just paying the premium.

Option
Stock
Premium
Bought on Oct 15 Rs 380 Rs 4,000
Sold on Dec 15 Rs 670 Rs 4,500
Profit Rs 290 Rs 500
ROI(Not annualized) 76.30% 12.50%

Table 13: ROI (Not Annualized)

2) Risk management: the buyer can only lose what was paid for the option contract (i.e.
premium), which is a fraction of what the actual cost of the asset would be. World over the
derivatives market are bigger than the equity markets and options are the most favored
instruments because of the unique combination of unlimited return – limited risk offered by
them.

3) Large profit potential & limited risk for the option buyer.

4) Time to decide: By taking a call option the purchase price for the shares is locked in. This
gives the call option holder until the Expiry Day to decide whether or not to exercise the
option and buy the shares. Likewise the taker of a put option has time to decide whether or
not to sell the shares.

5) Insurance: one can protect his equity portfolio from a decline in the market by the way of
buying a protective put wherein one can buy puts against an existing stock positions. This
option positions can supply the insurance needed to overcome the uncertainty of the market
place. Hence, by paying a relatively small premium (compared to the market value of the
stock), an investor knows that no matter how far the stock drops, it can be sold at the strike

36
 price of the put anytime until the put expires. Ex: an investor holding 1 share of Infosys at a
market price of Rs.3800/- thinks that the stock is overvalued and therefore decides to buy a
put option at a strike price of Rs.3800/-, he can sell it at Rs. 3,800/- by exercising his put
option. Thus by paying a premium of Rs. 200/-, he insured his position in the underlying
stock.

6) Income generation: Shareholders can earn extra income over and above dividends by
writing call options against their shares. By writing an option they receive the option
premium upfront. While they get to keep the option premium, there is a possibility that they
could be exercised against and have to deliver their shares to the taker at the exercise price.

7) More strategic alternatives: the final advantages of options are that they offer more
investment alternatives. Options are very flexible tool. There are many ways to use options to
recreate other options.

Clearing & Settlement:

National Securities Clearing Corporation Limited (NSCCL) undertakes
clearing and settlement of all trades executed on the futures and options (F&O) segment
of the NSE. It also acts as legal counterparty to all trades on the F&O segment and
guarantees their financial settlement.

Clearing Entities:
Clearing and settlement activities in the F&O segment are undertaken by
NSCCL with the help of the following entities:

Clearing Members:

In the F&O segment, some members, called self-clearing members, clear

and settle their trades executed by them only either on their own account or on account of
their clients. Some others called trading member–cum–clearing member, clear and settle
their own trades as well as trades of other trading members (TMs). Besides, there is a
special category of members, called professional clearing members (PCM) who clear and
settle trades executed by TMs. The members clearing their own trades and trades of

37
 others, and the PCMs are required to bring in additional security deposits in respect of
every TM whose trades they undertake to clear and settle.

Clearing Banks:

Funds settlement takes place through clearing banks. For the purpose of
settlement all clearing members are required to open a separate bank account with
NSCCL designated clearing bank for F&O segment. The Clearing and Settlement process
comprises of the following three main activities:
1) Clearing

2) Settlement

3) Risk Management

3.6 RISK MANAGEMENT:

NSCCL has developed a comprehensive risk containment mechanism for the

F&O segment. The salient features of risk containment mechanism on the F&O
segment are:

 The financial soundness of the members is the key to risk management. Therefore, the
requirements for membership in terms of capital adequacy (net worth, security deposits)
are quite stringent.

 NSCCL charges an upfront initial margin for all the open positions of a CM. It specifies
the initial margin requirements for each futures/options contract on a daily basis. It also
follows value-at-risk (VaR) based margining through SPAN. The CM in turn collects the
initial margin from the TMs and their respective clients.

 The open positions of the members are marked to market based on contract settlement
price for each contract. The difference is settled in cash on a T+1 basis.

38
  NSCCL’s on-line position monitoring system monitors a CM’s open positions on a real-
time basis. Limits are set for each CM based on his capital deposits. The on-line position
monitoring system generates alerts whenever a CM reaches a position limit set up by
NSCCL. NSCCL monitors the CMs for MTM value violation, while TMs are monitored
for contract-wise position limit violation.

 CMs are provided a trading terminal for the purpose of monitoring the open positions of
all the TMs clearing and settling through him. A CM may set exposure limits for a TM
clearing and settling through him. NSCCL assists the CM to monitor the intra-day
exposure limits set up by a CM and whenever a TM exceed the limits, it stops that
particular TM from further trading.

 A member is alerted of his position to enable him to adjust his exposure or bring in
additional capital. Position violations result in withdrawal of trading facility for all TMs
of a CM in case of a violation by the CM.

 A separate settlement guarantee fund for this segment has been created out of the capital
of members. The fund had a balance of Rs. 648 crore at the end of March 2002. The most
critical component of risk containment mechanism for F&O segment is the margining
system and on-line position monitoring. The actual position monitoring and margining is
carried out on–line through Parallel Risk Management System (PRISM). PRISM uses
SPAN(r) (Standard Portfolio Analysis of Risk) system for the purpose of computation of
on-line margins, based on the parameters defined by SEBI.

3.7 NSE–SPAN:
The objective of NSE–SPAN is to identify overall risk in a portfolio of all
futures and options contracts for each member. The system treats futures and options
contracts uniformly, while at the same time recognizing the unique exposures associated
with options portfolios, like extremely deep out–of–the–money short positions and inter–
month risk. Its over–riding objective is to determine the largest loss that a portfolio might
reasonably be expected to suffer from one day to the next day based on 99% VaR

39
methodology. SPAN considers uniqueness of option portfolios. The following factors
affect the value of an option:

 Underlying market price  Strike price

 Volatility(variability) of underlying instrument  Time to expiration
 Interest rate

As these factors change, the value of options maintained within a portfolio

also changes. Thus, SPAN constructs scenarios of probable changes in underlying prices
and volatilities in order to identify the largest loss a portfolio might suffer from one day
to the next. It then sets the margin requirement to cover this one–day loss. The complex
calculations (e.g. the pricing of options) in SPAN are executed by NSCCL. The results of
these calculations are called risk arrays. Risk arrays, and other necessary data inputs for
margin calculation are provided to members daily in a file called the SPAN risk
parameter file. Members can apply the data contained in the risk parameter files, to their
specific portfolios of futures and options contracts, to determine their SPAN margin
requirements. Hence, members need not execute complex option pricing calculations,
which are performed by NSCCL. SPAN has the ability to estimate risk for combined
futures and options portfolios, and also re–value the same under various scenarios of
changing market conditions.

40
COMPANY PROFILE

INDUSTRY PROFILE

41
2.1 INTRODUCTION OF DERIVATIVE MARKET IN INDIA :

The report of the L. C. Gupta Committee, set up by SEBI, recommended a

phased introduction of derivative products, and bi-level regulation (i.e., self-regulation by
exchanges with SEBI providing a supervisory and advisory role). Another report, by the
J. R. Varma Committee in 1998, worked out various operational details such as the
margining systems. In 1999, the Securities Contracts (Regulation) Act of 1956, or SC(R)
A, was amended so that derivatives could be declared “securities.” This allowed the
regulatory Mr. Xework for trading securities to be extended to derivatives. The Act
considers derivatives to be legal and valid, but only if they are traded on exchanges.

Finally, a 30-year ban on forward trading was also lifted in 1999. The
economic liberalization of the early nineties facilitated the introduction of derivatives
based on interest rates and foreign exchange. A system of market-determined exchange
rates was adopted by India in March 1993. In August 1994, the rupee was made fully
convertible on current account. These reforms allowed increased integration between
domestic and international markets, and created a need to manage currency risk.
Given the fast change and growth in the scenario of the economic and financial
sector have brought a much broader impact on derivatives instrument. As the name
signifies, the value of this product is derived on the prices of currencies, interest rates (i.e.
bonds), share and share indices, commodities, etc. not going into very back; financial

42
derivatives just came into existence in the year 1980’s. Here the principle instruments
clubbed under the general term derivatives, includes
Futures and forwards
Options
Swaps
Warrants
Exotic and are the modern tools of financial risk management.
All pricing of derivatives is done by arbitrage and by arbitrage alone. Here,
there is a relationship between the price of the spot and the price in the futures. If this
relationship is violated then an arbitrage opportunity is available and when people exploit
this opportunity, the price reverts back to its economic value there for arbitrage is the
basic requirement for pricing. The role of liquidity i.e., the low transaction cost is in
making arbitrage cheap and convenient. Derivatives market in Brazil are some of the
largest markets in the world even first derivative dealing was started in USA we can even
know that as the prices of the forward contracts are based on future therefore it can even
be termed as derivatives instruments.

Global Derivatives:

1874 Commodity Futures

1972 Foreign Currency Futures
1973 Equity Options
1974 T-Bond futures
1981 Currency Swaps
1982 Interest Rate Swaps; T notes futures; Euro dollar futures; Equity
Index Futures; Options on T-Bond futures; Exchange-listed
currency options
1983 Options on equity index; Options on T notes futures; Options on
Equity index futures
1985 Euro dollar options; swaptions
1987 OTC Compound options; OTC average options
1989 Futures on interest on swaps

43
 1990 Equity index swap
1991 Differential swaps
1994 Credit default options

Chronology of Events Leading to Derivatives Trading in INDIA:

1956 Enactment of Securities Contracts (Regulation) Act which prohibited

all options in securities
1969 Issue of Notification which prohibited forward trading in securities

1993 Promulgation of the Securities Laws (Amendment) Ordinance which

withdrew prohibition.
1994 Setting up of L.C Gupta committee to develop regulatory framework
for derivatives trading in India
1998 Constitution of J.R Verma group to develop measures for risk
containment for derivatives.
1999 Enactment of Securities Laws (Amendments) Act which defined
derivatives as securities.
2000 Withdrawal of 1969 notification.
May- SEBI granted approval to NSE & BSE to commence trading of
derivatives.
Jun- Trading in Index futures commenced
Jun- Trading in Index Options commenced ban on all deferral products
imposed.
Jul- Trading in Stock Options commenced rolling settlement introduced for
active securities.
Nov- Trading in Stock Futures commenced.

2.2 HISTORY OF STOCK EXCHANGE:

44
DEFINITION OF STOCK EXCHANGE

“Stock exchange means any body or individuals whether incorporated or not,

constituted for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities”.

It is an association of member brokers for the purpose of self-regulation and

protecting the interests of its members.

It can operate only if it is recognized by the Government under the securities

contracts (regulation) Act, 1956. The recognition is granted under section 3 of the Act
by the central government, Ministry of Finance.

The only stock exchanges operating in the 19th century were those of Bombay
set up in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non
profit-making association of brokers to regulate and protect their interests. Before the
control on securities trading became central subject under the constitution in 1950, it
was a state subject and the Bombay securities contracts (control) Act of 1925 used to
regulate trading in securities. Under this act, the Bombay stock exchange was
recognized in 1927 and Ahmadabad in 1937.

During the war boom, a number of stock exchanges were organized in Bombay,
Ahmadabad and other centers, but they were not recognized. Soon after it became a
central subject, central legislation was proposed and a committee headed by A.D.
Gorwala went into the bill for securities regulation. On the basis of the committee’s
recommendations and public discussion, the securities contracts (regulation) Act
became law in 1956.

BYLAWS

45
 Besides the above act, the securities contracts (regulation) rules were also
made in 1975 to regulative certain matters of trading on the stock exchanges. There
are also bylaws of the exchanges, which are concerned with the following subjects.
Opening / closing of the stock exchanges, timing of trading, regulation of
blank transfers, regulation of Badla or carryover business, control of the settlement
and other activities of the stock exchange, fixating of margin, fixation of market
prices or making up prices, regulation of taravani business (jobbing), etc., regulation
of brokers trading, brokerage chargers, trading rules on the exchange, arbitrage and
settlement of disputes, settlement and clearing of the trading etc.

(a) REGULATION OF STOCK EXCHANGES

The securities contracts (regulation) act is the basis for operations of the stock
exchanges in India. No exchange can operate legally without the government
permission or recognition. Stock exchanges are given monopoly in certain areas
under section 19 of the above Act to ensure that the control and regulation are
facilitated. Recognition can be granted to a stock exchange provided certain
conditions are satisfied and the necessary information is supplied to the government.
Recognition can also be withdrawn, if necessary. Where there are no stock
exchanges, the government licenses some of the brokers to perform the functions of a
stock exchange in its absence.

(b) SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):

SEBI was set up as an autonomous regulatory authority by the government of

India in 1988 “to protect the interests of investors in securities and to promote the
development of and to regulate the securities market and for matter connected
therewith or incidental thereto”. It is empowered by two acts namely the SEBI Act,
1992 and the securities contract (regulation) Act, 1956 to perform the function of
protecting investor’s rights and regulating the capital markets.

2.3 BOMBAY STOCK EXCHANGE

46
 This stock exchange, Mumbai, popularly known as “BSE” was established in
1875 as “The Native share and stock brokers association”, as a voluntary non-profit
making association. It has an evolved over the years into its present status as the
premiere stock exchange in the country. It may be noted that the stock exchanges the
oldest one in Asia, even older than the Tokyo stock exchange, which was founded in
1878.
The exchange, while providing an efficient and transparent market for trading
in securities, upholds the interests of the investors and ensures redressed of their
grievances, whether against the companies or its own member brokers. It also strives
to educate and enlighten the investors by making available necessary informative
inputs and conducting investor education programs.
A governing board comprising of 9 elected directors, 2 SEBI nominees, 7
public representatives and an executive director is the apex body, which decides is the
apex body, which decides the policies and regulates the affairs of the exchange.
The Exchange director as the chief executive offices is responsible for the
daily today administration of the exchange.

BSE INDICES :
In order to enable the market participants, analysts etc., to track the various
ups and downs in the Indian stock market, the Exchange has introduced in 1986 an
equity stock index called BSE-SENSEX that subsequently became the barometer of
the moments of the share prices in the Indian stock market. It is a “Market
capitalization weighted” index of 30 component stocks representing a sample of
large, well-established and leading companies. The base year of sensex 1978-79. The
Sensex is widely reported in both domestic and international markets through print as
well as electronic media.

47
 Sensex is calculated using a market capitalization weighted method. As per
this methodology the level of the index reflects the total market value of all 30-
component stocks from different industries related to particular base period. The total
market value of a company is determined by multiplying the price of its stock by the
nu7mber of shared outstanding. Statisticians call index of a set of combined variables
(such as price and number of shares) a composite Index. An indexed number is used
to represent the results of this calcution in order to make the value easier to go work
with and track over a time. It is much easier to graph a chart based on Indexed values
than on based on actual valued world over majority of the well-known Indices are
constructed using “Market capitalization weighted method”.
In practice, the daily calculation of SENSEX is done by dividing the aggregate
market value of the 30 companies in the index by a number called the Index Divisor.
The divisor is the only link to the original base period value of the SENSEX. The
Devisor keeps the Index comparable over a period value of time and if the references
point for the entire Index maintenance adjustments. SENSEX is widely used to
describe the mood in the Indian stock markets. Base year average is changed as per
the formula new base year average = old base year average*(new market value / old
market value).

2.4 NATIONAL STOCK EXCHANGE

The NSE was incorporated in Nov, 1992 with an equity capital of Rs.25 crs. The
international securities consultancy (ISC) of Hong Kong has helped in setting up
NSE. ISC has prepared the detailed business plans and initialization of hardware and
software systems. The promotions for NSE were financial institutions, insurances,
companies, banks and SEBI capital market ltd, Infrastructure leasing and financial
services ltd and stock holding corporations ltd.

48
 It has been set up to strengthen the move towards professionalization of the capital
market as well as provide nationwide securities trading facilities to investors.
NSE is not an exchange in the traditional sense where brokers own and
manage the exchange. A two tier administrative set up involving a company board
and a governing aboard of the exchange is envisaged.
NSE is a national market for shares PSU bonds, debentures and government
securities since infrastructure and trading facilities are provided.

NSE-NIFTY:
The NSE on Apr22, 1996 launched a new equity Index. The NSE-50. The new
Index which replaces the existing NSE-100 Index is expected to serve as an
appropriate Index for the new segment of future and option.
“NIFTY” means National Index for fifty stocks. The NSE-50 comprises fifty
companies that represent 20 board industry groups with an aggregate market
capitalization of around Rs 1, 70,000 crs. All companies included in the Index have a
market capitalization in excess of Rs. 500 crs each and should have trade for 85% of
trading days at an impact cost of less than 1.5%.
The base period for the index is the close of price on Nov 3 1995, which
makes one year of completion of operation of NSE’s capital market segment. The
base value of the index has been set at 1000
Stock Broking business of the group was started in 1995, promoted by
professional entrepreneurs and incubated by the Shriram Group through its entity,
ShriramInsightShareBrokersLtd.
Stock Broking business commenced operations with a corporate membership in NSE
in the cash segment in 1996. Membership in the derivatives segment in the NSE was
acquiredin2003.
The Business has expanded into the commodities market with a trading-cum-clearing
membership in the Multi Commodity Exchange (MCX) and the National
Commodities and Derivatives Exchange (NCDEX) through a 100% subsidiary. Stock
Broking business is firmly focused in the rapidly growing High Net worth Individual
(HNI) and Retail space. Member: National Stock NSE SEBI Reg. No. : NSE-CM
[INB 230947033] | BSE-CM [INB 010947035] || NSE-F&O [INF 230947033] ,DP

49
 [IN-DP-CDSL-293-2005] ,MCX [Membership No: 10115] |The business has an
active client base of over 1,50,000.The business operates through 1000 branches with
equal no. of trading terminals. The business model of Stock Broking largely focused
on owned branches in the initial years and has now graduated into the franchisee
mode of expansion that will cater to PAN India target market. Rapid expansion has
been made possible in this two-pronged strategy of owned and franchised outlets and
is expected to have an end-state distribution, networking over 3000 branches. As the
business starts targeting the next level of mass affluent customers, expanding into
wealth management and advisory space, same would also become a key thrust area
that can potentially enhance profitability and shareholder value in the medium term.

2.5 ABOUT SHRIRAM INSIGHT

Shriram Insight Logo:

Shriram Insight slogan:

The Group has also made investments in Manufacturing, Value Added Services,
Project Development, Engineering Services, Pharmaceuticals, Machined & Auto
Components, Press Dies & Sheet Metal Stamping, Packaging, Information Technology,
Property Development etc.

Genesis of the Shriram phenomenon:

The 30,000 Cr Shriram Group had its humble beginnings in the Chit Fund
business over three decades ago. R. Thyagarajan, AVS Raja and T Jayaraman were the

50
 “three musketeers” who ventured into these businesses. Not many in the financial
services industry thought at that time, this small Chit Funds business in Chennai would
indeed be the foundation for the financial conglomerate that Shriram is today.

The Shriram Way!

Shriram Group’s businesses strive to serve the largest number of common
people. Consider these: Commercial Vehicle Financing, Consumer & Enterprise
Finance, Retail Stock Broking, Life Insurance, Chit Funds and Distribution of
Investment & Insurance Products. Our foray into Non-Life (General) Insurance is
again a strong expression of this commitment.

2.6 MILESTONES
Year Milestone
1974 Commencement of Business - Shriram Chits
1979 Commencement of Business - Shriram Transport Finance Co (STFC)
1982 Commencement of Business - Shriram Investments Ltd
1984 IPO of STFC
1986 Commencement of Business - Shriram City Union Finance Co (SCUF)
1988 IPO of SCUF
1989 Commencement of Business - Shriram Overseas Finance Ltd
1995 Commencement of Business- Shriram Properties Pvt Ltd
1999 Commencement of Business - Shriram Insight Share Brokers Ltd
1999 Citicorp CV financing tie up with STFC
2000 Commencement of Business - Shriram EPC Ltd
2000 Commencement of Business - TAKE Solutions Ltd
2004 Commencement of Business - Shriram Capital Ltd
2005 Entry of Chryscapital as Partner with STFC & EPC
2005 Entry of Sanlam as Life Insurance business partner and commencement of
business- Shriram Life Insurance Co
2006 Merger of Shriram Investments Ltd & Shriram Overseas Finance Ltd with STFC
2006 Commencement of Business - Shriram Fortune Solutions Ltd
2006 Commencement of Business - Shriram Value Services

51
 2006 Entry of TPG as STFC's partner
2007 Shriram EPC's JV with Leitner Technologies for Manufacture of wind turbines
2007 EPC's foray into Air Pollution Control with Hamon through JV
2007 Orient Green Power was founded by Shriram EPC
2007 IPO of TAKE Solutions Ltd
2008 Commencement of Business - Shriram General Insurance Ltd
2008 IPO of Shriram EPC Ltd
2009 NCD Placement of Rs 10 Bn by STFC
2010 IPO of Orient Green power

2.7 ABOUT FOUNDER:

Mr.R Thyagarajan, Founder

Chairman of the Shriram Group of Companies - Promoted the Shriram
Group Companies in 1974. Today the group has over 15, 000 employees and
operating through 700 locations and manage funds of over 15,000 Crores in the
business of financial services including life insurance and general insurance.
• Masters in Mathematical Statistics from Indian Statistical Institute
• Associate of Chartered Insurance Institute (A.C.I.1),London.
• Visiting faculty of Asian Institute of Insurance, Philippines on Consequential
LossInsurance.
By inculcating the philosophy of “putting people first”, he has transformed
the Shriram Group into India’s Premier Networked Financial Services Supermarket
Chain. The Network Shriram comprises over 650 Branches and Service Centers,
served by more than 6000 employees and 60,000 agents committed to ensuring
world-class customer service. The Group’s aggregate turnover exceeds Rs. 5000
crores.

Board Of Directors
Mr. Arun Duggal

Mr. Arun Duggal is an experienced international banker and has advised

companies on financial strategy, M&A and capital raising.

52
 He is the Chairman of Board of Directors of Shriram, Shriram Properties
Limited, Shriram City Union Finance Limited and Shriram EPC Limited. He is the
Vice Chairman of International Asset Reconstruction Company. Mr. Duggal is
Advisor to IMA (formerly Economist Intelligence Unit, India. From 2001 to 2003 he
was Chief Financial Officer of HCL Technologies, India. A Mechanical Engineer
from the prestigious Indian Institute of Technology, Delhi, Mr. Duggal holds an
MBA from the Indian Institute of Management, Ahmedabad. He teaches Banking &
Finance at the Indian Institute of Management, Ahmedabad as a visiting Professor.

Mr. D V Ravi
Board Director D V Ravi is the Managing Director of Shriram Capital Ltd,
the holding company of Shriram Group’s financial services and Insurance businesses.
His areas of expertise in this role include Corporate Strategy, Synergy Creation, Risk
Management, Leadership Development and Corporate Finance. He is also on the
Board of various companies in the Shriram Group. He joined the Commercial Vehicle
Finance business of the Shriram Group in 1992 as Head of Investment Servicing.
Over time, his portfolio grew to include key areas of Corporate Strategy and services,
Corporate Finance, Information Technology and Process activities of the Group Ravi
is a commerce graduate from the University of Bangalore and holds a post graduate
degree in management from the Institute of Rural Management, Anand (IRMA).

Mr. R Sridhar
Board Director Mr. R.Sridhar, Managing Director & CEO of Shriram
Capital Limited, which is the holding company of financial services companies of the
Shriram group.

Mr. Sridhar has been associated with the Shriram Group since 1985. He was
appointed as the Managing Director of Shriram Transport Finance Company Limited
(STFC) for the first time in the year 2000 and was re-appointed in the year 2005 and
2010. He has over twenty five years of experience in the financial services sector,
especially in commercial vehicle financing.

53
 Mr. Sridhar is the recipient of Earnst & Young’s “Entrepreneur of the year –
Manager” Award 2011 “Business Achiever” Award from Institute of Chartered
Accountants of India (ICAI) for the year 2010-2011.Mr. Sridhar holds a bachelor’s
degree in Science and is a fellow member of the Institute of Chartered Accountants of
India

Mr. AK Singh
AK Singh has a rich professional career of over 25 years out of which last
17 years have been in the Financial Services space. He has been associated with
Shriram Group since 1994 starting his career as the President of Shriram City Union
Finance Limited He has recently taken up the position of MD of Shriram Asset
Management Company Ltd.Mr. Akhilesh Kumar Singh is a B.Tech (IIT Kahargpur)
and PGDM from IIM Bangalore.

2.8 INDUSTRIAL INVESTMENTS & SERVICES

The Group has also made investments in Manufacturing, Value Added
Services, Project Development, Engineering Services, Pharmaceuticals, Machined &
Auto Components, Press Dies & Sheet Metal Stamping, Packaging, Information
Technology, Property Development etc.

Shriram Group Services

54
 Financial Services

Financial Services :

(1) Financial Services

Helping Create Wealth. Empowering people through prosperity. Resulting

in inclusive growth.The relentless pursuit of this mission, since our inception in 1974
has given the Shriram Group our raison d'être and our distinct identity. The Group’s
reputation for effectiveness, transparency and integrity has helped it to become one of
India’s largest Financial Services Network.The Group’s Financial Services
Businesses manage assets exceeding Rs.40,000 crores, has 6.5 million clients, served
by 1,00,000 Agents and 36,000 employees, through 2700 Branches across India.Our
core financial services businesses are housed under the holding company Shriram
Capital Ltd:

 Commercial Vehicle Finance

 Life Insurance
 General Insurance
 Consumer & Enterprise Finance

55
  Financial Product Distribution
 Retail Stock Broking
 Chit Funds

(2) Non-Financial Services:

Shriram Group has always encouraged entrepreneurship by
demonstrating continuous appetite for investing in start-up manufacturing business.

Services offered from Shiram Insight:

capital
market

Mutual
Ipo
Funds

Commodites
Derivatives

Organization Chart

Founder

56 Services
Director of Financial
 Manager of Financial Services

A Accountant Accounting clerk Administrative Assistant

57
DATA ANALYSIS & INTERPRETATION

58
SBIN:

Date Open High Low Close

Price Price Price Price
2Apr17 1925.50 2551.95 2540.55 2549.05
3Apr17 2548 2549.5 2544.1 2548.65
4Apr17 2560 2562 2546.05 2549.35
5Apr17 2546.4 2549.9 2540.1 2547.75
9Apr17 2542 2542.95 2531.75 2532.8
10Apr17 2532.7 2537.8 2530.35 2533.65
11Apr17 2533.6 2536.95 2529 2532.65
12Apr17 2537.55 2539.7 2534.65 2538.2
13Apr17 2545 2546 2529 2530.2
16Apr17 2529.5 2533 2525.65 2531.45
17Apr17 2532 2536.5 2530.15 2534.85
18Apr17 2533.1 2536.55 2531.05 2534.8
19Apr17 2539.5 2541.4 2528.35 2530.2
20Apr17 2528.9 2529.25 2516.7 2518.6
23Apr17 2522.05 2522.4 2512.45 2513.8
24Apr17 2510.5 2516.65 2509.45 2511.9
25Apr17 2512 2519 2511.1 2516.9
26Apr17 2511 2513.7 2502.6 2507.95
27Apr17 2513 2516.2 2508.25 2514.55
30Apr17 2516.3 2519.5 2070.50 2070.10
30Apr17 2518.9 2522.75 2513.8 2070.50
1May17 2070.10 2524.4 2514.05 2523.15
6May17 2525.45 2525.45 2519.35 2521.25
7May17 2522.95 2523.45 2515 2517.4
8May17 2518.9 2519.7 2514.55 2515.1
9May17 2518 2521.9 2516.9 2520.6

59
10May17 2519.5 2521.65 2517.2 2518.3
13May17 2519.9 2519.9 2516 2516.9
17May17 2518.35 2522.3 2513.05 2515
16May17 2515.9 2516 2510.15 2512.5
17May17 2514.05 2514.95 2508.25 2510.1
20May17 2512.9 2517.6 2508.3 2511.15
21May17 2511 2516.6 2509.95 2510.85
22May17 2513.25 2515 2503.4 2512.95
23May17 2514.25 2515.9 2509.75 2511.85
24May17 2512.5 2512.5 2512.5 2512.5
24May17 2512.45 2512.55 2507.1 2508.25
27May17 2510.7 2512.45 2496.7 2502.3
28May17 2505.6 2528.6 2505.6 2526.85
29May17 2527.8 2534.8 2525.1 2530.15
30May17 2531 2533.6 2525.2 2598.75
4June17 2565.50 2536.9 2526.2 2529.3
5June17 2529.3 2530.9 2527.1 2528.45
6June17 2526.9 2538 2510.15 2512.15
7June17 2512.2 2513 2500.6 2504.6
8June17 2510 2518.9 2510 2517
11June17 2520.05 2525.8 2519.1 2523.5
12June17 2523.55 2524 2507 2508.2
13June17 2513.15 2519.15 2506.5 2517.65
14June17 2517.7 2517.95 2511.25 2514.95
17June17 2515.3 2516.45 2510.55 2512.35
18June17 2515 2516.9 2512.9 2516.25
19June17 2513.95 2518.9 2512 2515.35
20June17 2516.25 2521 2516.25 2518.75
21June17 2520.2 2520.8 2512.7 2513.55
22June17 2515 2518.15 2511.75 2513.6

60
 25June17 2512 2514.1 2510.95 2512.15
26June17 2512 2513 2508.65 2652.55
FUTURE MARKET

BUYER SELLER
2-Apr-17(Buying) 1925.00 1925.00
30-Apr-17(Cl., period) 2070.10 2070.10
Profit = 145.10 Loss = 79.17

Profit 125 x 145.10= 18137.5, Loss 125 x 145.10=-18137.5,

Here the buyer got the profit because increase of future price where as seller got loss.
If future price decrease at the time of settlement date seller will get profit, buyer will get
loss.

BUYER SELLER
01-May-17 (Buying) 2070.10 2070.10
30-May-17 (Cl., period) 2598.75 2598.75
Profit = 66081.25 Loss = 66081.25

Profit 125 x 528.65= 66081.25, Loss 125 x 528.65= 66081.25

Here the buyer got the profit because increase of future price where as
seller got loss. If future price decrease at the time of settlement date seller will get
profit, buyer will get loss.
BUYER SELLER
2-jun-17(Buying) 2565.05 2565.05
26-jun-17(Cl., period) 2652.55 2652.55
Profit = 87.50 Loss = 87.50

Profit 125 x 87.50 = 10937.50, Loss =125 x 87.50= 10937.50

Buyer future price will increase so, he got Profit. Seller future price also
increase so, loss also increase, In case seller future will decrease, and he can get
profit.

61
ICICI BANK

Date Open- High- LowPrice ClosePrice

Price Price
2Apr15 1060.00 1051.95 1040.55 1049.05
3Apr15 1048 1049.5 1044.1 1048.65
4Apr15 1060 1062 1046.05 1049.35
5Apr15 1046.4 1049.9 1040.1 1047.75
9Apr15 1042 1042.95 1031.75 1032.8
10Apr15 1032.7 1037.8 1030.35 1033.65
11Apr15 1033.6 1036.95 1029 1032.65
12Apr15 1037.55 1039.7 1034.65 1038.2
13Apr15 1045 1046 1029 1030.2
16Apr15 1029.5 1033 1025.65 1031.45
17Apr15 1032 1036.5 1030.15 1034.85
18Apr15 1033.1 1036.55 1031.05 1034.8
19Apr15 1039.5 1041.4 1028.35 1030.2
20Apr15 1028.9 1029.25 1016.7 1018.6
23Apr15 1022.05 1022.4 1012.45 1013.8
24Apr15 1010.5 1016.65 1009.45 1011.9
25Apr15 1012 1019 1011.1 1016.9
26Apr15 1011 1013.7 1002.6 1007.95
27Apr15 1013 1016.2 1008.25 1014.55
30Apr15 1016.3 1019.5 1013.35 1018.7
30Apr15 1018.9 1270.00 1013.8 1270.00
1May15 1252.00 1024.4 1014.05 1023.15
6May15 1025.45 1025.45 1019.35 1021.25
7May15 1022.95 1023.45 1015 1017.4
8May15 1018.9 1019.7 1014.55 1015.1

62
9May15 1018 1021.9 1016.9 1020.6
10May15 1019.5 1021.65 1017.2 1018.3
13May15 1019.9 1019.9 1016 1016.9
15May15 1018.35 1022.3 1013.05 1015
16May15 1015.9 1016 1010.15 1012.5
17May15 1014.05 1014.95 1008.25 1010.1
20May15 1012.9 1017.6 1008.3 1011.15
21May15 1011 1016.6 1009.95 1010.85
22May15 1013.25 1015 1003.4 1012.95
23May15 1014.25 1015.9 1009.75 1011.85
24May15 1012.5 1012.5 1012.5 1012.5
24May15 1012.45 1012.55 1007.1 1008.25
27May15 1010.7 1012.45 996.7 1002.3
28May15 1005.6 1028.6 1005.6 1026.85
29May15 1027.8 1034.8 1025.1 1030.15
30May15 1031 1270.55 1025.2 1270.55
4June15 1257.45 1036.9 1026.2 1029.3
5June15 1029.3 1030.9 1027.1 1028.45
6June15 1026.9 1038 1010.15 1012.15
7June15 1012.2 1013 1000.6 1004.6
8June15 1010 1018.9 1010 1017
11June15 1020.05 1025.8 1019.1 1023.5
12June15 1023.55 1024 1007 1008.2
13June15 1013.15 1019.15 1006.5 1017.65
14June15 1017.7 1017.95 1011.25 1014.95
15June15 1015.3 1016.45 1010.55 1012.35
18June15 1015 1016.9 1012.9 1016.25
19June15 1013.95 1018.9 1012 1015.35
20June15 1016.25 1021 1016.25 1018.75
21June15 1020.2 1020.8 1012.7 1013.55

63
22June15 1015 1018.15 1011.75 1013.6
25June15 1012 1014.1 1010.95 1012.15
26June15 1012 1463.75 1008.65 1463.75

FUTURE MARKET

BUYER SELLER
2-Apr-17 (Buying) 1060.00 1060.00
31- Apr -17 (Cl., period) 1270.00 1270.00
Profit= 210 Loss = 210

Profit 500 x 210 = 105000, Loss =500 x 210 = 105000

Here the buyer got the profit because increase of future price where as
seller got loss. If future price decrease at the time of settlement date seller will get
profit, buyer will get loss.

BUYER SELLER
1-May-17(Buying) 1252.00 1252.00
30- May -17(Cl., period) 1270.55 1270.55
Profit = 18.55 Loss =18.55

Profit 500 x 18.55 = 9275, Loss =500 x 18.55 = 9275

Here the buyer got the profit because increase of future price where as
seller got loss. If future price decrease at the time of settlement date seller will get
profit, buyer will get loss.

BUYER SELLER
4/June/2017 (Buying) 1257.45 1257.45
26/June/2017 (Cl., period) 1463.75 1463.75
PROFIT = 206.30 LOSS =206.30

Loss =500 x 206.30 = 103150, Profit 500 x 206.30 = 103150.

64
 Here the buyer got the profit because decrease of future price where as seller
got loss. If future price increase at the time of settlement date buyer will get profit,
seller will get loss.

ANDHRA BANK

Date Open- High Low Close

Price Price Price Price
2Apr15 57.00 86.7 57.00 85.6
3Apr15 85.9 87.5 84.3 87.1
4Apr15 90 90.5 83.65 84.45
5Apr15 84.7 85 83.25 84.3
9Apr15 83.8 84.2 81.85 82.25
10Apr15 82.75 83.5 81 82.3
11Apr15 82.3 83.4 81.8 82.3
12Apr15 83 83.35 82.5 82.7
13Apr15 83.3 83.5 80.3 80.65
16Apr15 80.55 80.9 79.6 79.9
17Apr15 80.3 80.7 78.1 79.45
18Apr15 79.55 81.85 78.7 81.35
19Apr15 81.55 82.1 78.5 78.95
20Apr15 78.5 79.4 77.6 78.95
23Apr15 78.55 79.5 78.1 78.9
24Apr15 78.65 79.35 78.15 78.5
25Apr15 78.95 79 78.1 78.5
26Apr15 78.25 78.45 76.25 76.85
27Apr15 78 79.5 75.75 79
30Apr15 79.8 80.95 78.75 80.5

65
30Apr15 80.9 81 67.60 67.60
1May15 78.35 80.8 78.2 80.55
6May15 81.1 81.35 78.95 79.4
7May15 79.5 80.35 78.65 79
8May15 79.4 81.45 79.2 79.7
9May15 80.3 82.25 79.15 81.9
10May15 82.25 82.65 81.2 81.7
13May15 81.85 84.45 81.6 83.45
15May15 83.5 87.65 83.25 85.35
16May15 85.4 85.9 82.65 83.75
17May15 83.8 85.4 82.8 83.1
20May15 83.3 84.1 79.65 80.4
21May15 80.35 81.7 79.65 79.95
22May15 80.35 80.9 76.2 78.5
23May15 79.15 79.4 76.6 76.8
24May15 77 77 74.55 74.9
24May15 75.05 79.5 73.6 76
27May15 76.75 77.7 75 76.65
28May15 77 77.25 75.7 76
29May15 76.05 76.9 75.55 76.4
30May15 77.25 79.85 70.15 77.25
4June15 79.8 79.8 77.9 78.4
5June15 78.2 78.8 73.55 74.05
6June15 73.7 74 71.85 72.65
7June15 73.95 75.75 73.6 75.25
8June15 75.85 78.35 75 77.8
11June15 77.8 77.8 73.2 73.85
12June15 74.15 76.8 74.15 76.15
13June15 76.15 79.95 75.3 79.65
14June15 80.5 80.5 78.3 78.7

66
15June15 78.7 79.45 77.25 77.8
18June15 77.8 79.8 77.55 78.95
19June15 79 80.25 78.75 79.05
20June15 79.4 79.45 77.45 77.6
21June15 77.55 78.85 76.5 76.9
22June15 77 77.5 76.35 76.9
25June15 76.85 77.2 76.1 76.45
26June15 76 78.5 71.50 76.00

FUTURE MARKET

BUYER SELLER
3-Apr-17 (Buying) 57.00 57.00
30-Apr-17 (Cl., period) 67.60 67.60
Profit =8.55 Loss =8.55

Profit 4000 x 8.55 = 34200, Loss =4000 x 8.55 = 34200

Here the buyer got the profit because increase of future price where as
seller got loss. If future price decrease at the time of settlement date seller will get
profit, buyer will get loss.

BUYER SELLER
1-May-17(Buying) 80.30 80.30
30-May-17(Cl., period) 77.25 77.25
Loss = 3.30 Profit = 3.30

Loss =4000 x 3.30 = 13200 Profit=4000 x 3.30 = 13200,

Here the buyer got the Loss because increase of future price where as seller
got Profit. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

67
 BUYER SELLER
4 -June-17 (Buying) 79.80 79.80
26-June-2017 (Cl., period) 76.00 76.00
LOSS = 3.20 PROFIT =3.20

Loss =4000 x 3.20 = 12,000, Profit= 4000 x 3.20 = 12,000.

Here the buyer got the loss because decrease of future price where as
seller got profit. If future price increase at the time of settlement date buyer will get
profit, seller will get loss.

68
HDFC BANK

Date OpenPrice HighPrice LowPrice ClosePrice

2Apr17 694.05 770 694.05 739.95
3Apr17 741 773 741 768.05
4Apr17 790 802.3 755.5 767.7
5Apr17 767.7 802.15 766.4 794.8
9Apr17 797.5 797.5 751.8 768.35
10Apr17 765.1 765.15 707.15 712.4
11Apr17 720.8 738.5 710.35 722.75
12Apr17 732.9 743.45 716.35 732.85
13Apr17 751 768 722 728.05
16Apr17 727 727 693.6 705.7
17Apr17 711.9 747.65 707.1 739.45
18Apr17 740.9 743.65 715 722.05
19Apr17 736 754.6 717.4 727.7
20Apr17 724 743.85 708 738.45
23Apr17 732.2 748.9 727.5 745.7
24Apr17 737.55 786.75 737.25 758.85
25Apr17 762 780.95 742.2 754.55
26Apr17 739.3 739.3 673 683.7
27Apr17 690.65 699 657.45 662.7
30Apr17 674.9 760.40 671.15 760.40
1May17 765.50 765.60 705.5 737.05
6May17 754.15 754.15 703.3 730.6
7May17 732.65 741.75 712.55 728.7
8May17 730.25 735.3 697.1 699.7
9May17 709.9 716.55 686.5 703.05
10May17 704.7 708.65 682.95 690.35

69
13May17 699.9 712 691.2 705.25
17May17 713 713.5 679.6 690.45
16May17 694.8 710 681.1 706.8
17May17 706.7 715.95 697.2 706.7
20May17 695 705.75 656.2 668.65
21May17 666.65 676.8 643.3 658.15
22May17 661.1 685 658 677.2
23May17 683 697.65 667 676.05
24May17 657.7 657.7 657.7 657.7
24May17 671 675 634.1 645.15
27May17 651.9 655 596.65 611.75
28May17 614 636.4 588.6 628.25
29May17 625 637 591.1 601.15
30May17 599.3 724.20 560.1 724.10
4June17 736..05 736.05 573.45 602.2
5June17 597 601.8 578.1 580.35
6June17 579.95 579.95 551.2 563.6
7June17 561.65 572.85 547 554.25
8June17 567.45 600 560.6 585.35
11June17 595 630.55 591.6 626.1
12June17 623 623 584.45 591.35
13June17 595.5 628.7 587.85 619.4
14June17 624.4 624.4 592 609.7
17June17 615 636.45 605.75 634.3
18June17 634 671 627 664.3
19June17 658 664.2 632.25 640.55
20June17 645 673.4 642.3 670.05
21June17 666.2 673.4 645.25 655.95
22June17 656.4 692.95 652.1 688.05
25June17 680 688 650 652.65

70
26June17 652.1 818.35 633.45 818.35

FUTURE MARKET

BUYER SELLER
2-Apr-17 (Buying) 694.05 694.05
30-Apr-17 (Cl., period) 760.40 760.40
Profit = 66.35 Loss = 66.35

Profit= 500 x 66.35 = 33175, Loss =500x 66.35 = 33175

Here the buyer got the profit because increase of future price where as seller
got loss. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
1-may-17(Buying) 765 765
30-may-17(Cl., period) 724.10 724.10
LOSS = 40.90 PROFIT = 40.90

Profit 500 x 40.90 = 20450, Loss =500x 40.90 = 20450

Here the buyer got the loss because decrease of future price where as seller
got proft. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
4 -June-17 (Buying) 736.05 736.05
29-June-2017 (Cl., period) 818.35 818.35
PROFIT = 82.30 LOSS = 82.30

71
 Loss =500x 82.30 = 41750, Profit 500 x 82.30 = 41750.

Here the buyer got the profit because increase of future price where as seller
got loss. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.
TCS

Date Open- High- LowPrice ClosePrice

Price Price
2Apr17 416.65 418.2 406.1 414.75
3Apr17 393.5 402 393 399.65
4Apr17 402 402 390 391.55
5Apr17 392 395.2 382 383.95
9Apr17 381.9 389.15 376.1 377.3
10Apr17 379 391.8 378.15 390.7
11Apr17 389 390.7 386 389.3
12Apr17 389.85 392.25 383 384.7
13Apr17 386.95 389.5 383.5 385.1
16Apr17 387 387 381.05 384.4
17Apr17 388 388.4 379.65 381.8
18Apr17 382.2 385.75 381.05 384.55
19Apr17 386.5 389.5 383 385.35
20Apr17 385.95 391 383.6 388.25
23Apr17 388 390.35 383.1 389
24Apr17 387.55 393 386.55 390.05
25Apr17 391.4 391.4 380.1 381.8
26Apr17 378.85 380 370 372.3
27Apr17 373.15 374.45 366.4 368
30Apr17 382 409.90 379.55 404.30
1May17 409.90 384.25 378 383

72
 6May17 384.05 384.6 378.7 380.75
7May17 380.75 382.4 376.4 379.6
8May17 385.25 402.7 385.1 400.35
9May17 403.35 409.4 398.9 406.95
10May17 403.95 410.2 403.9 409
13May17 409.4 415.7 403.8 412.35
17May17 411.7 411.7 404 405.95
16May17 405.95 406.05 401.6 403.65
17May17 402.05 405.15 399.05 400.4
20May17 401.85 402.75 390.55 392.05
21May17 392.05 398.7 392.05 394.4
22May17 394.25 400.9 393.45 399.2
23May17 402 405.9 400.9 404.25
24May17 404 404.85 394.15 396.25
24May17 397.3 400 390.7 397.65
27May17 397 398 390.8 392.4
28May17 391 395.05 389.65 390.95
29May17 388.2 390.4 379.2 382.75
30May17 386 417.30 383.1 417.30
4June17 419.85 419.85 381.5 384.4
5June17 382.15 384 372.15 373.1
6June17 373.8 382.1 372.5 380.8
7June17 382.3 385.95 378.4 383.7
8June17 385 394.9 385 391.95
11June17 393.95 396.6 387 389.2
12June17 390.2 392.65 385 388.95
13June17 388.95 391.5 383.6 390.2
14June17 390.95 391.3 384.6 386.9
17June17 387.85 388.85 384.2 386.1
18June17 386 386.4 382.8 383.65

73
19June17 384.1 385.2 379.4 381.35
20June17 383.5 394.9 383.5 393.7
21June17 396.45 396.55 389.2 394.75
22June17 394 396.6 386.6 389.9
25June17 389 396.4 387.85 395
26June17 393.9 428.50 392 428.50

FUTURE MARKET

BUYER SELLER
2-Apr-17 (Buying) 416.65 416.65
30-Apr-17 (Cl., period) 404.30 404.30
Loss = 12.35 Profit = 12.35

Loss =1000x 12.35 = 12350, Profit =1000x 12.35 = 12350

Here the buyer got the loss because de-crease of future price where as seller
got profit. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
1-may-17(Buying) 409.9 409.90
30-may-17(Cl., period) 417.3 417.30
LOSS = 7.40 PROFIT = 7.40

Profit =1000 x 7.40 = 7400, Loss =1000x 7.40= 7400

Here the buyer got the loss because decrease of future price where as seller
got profit. If future price increase at the time of settlement date buyer will get profit,
seller will get loss.

BUYER SELLER
4 -June-17 (Buying) 419.85 419.85
26-June-2017 (Cl., period) 428.50 428.50

74
 PROFIT = 8.65 LOSS = 8.65

profit =1000x 8.65 = 8650, Loss= 1000 x 8.65 = 8650.

Here the buyer got the profit because increase of future price where as seller
got loss. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

75
Tech Mahindra

Date Open- HighPrice LowPrice ClosePrice

Price
2Apr17 573.35 582 570.2 573.4
3Apr17 572.45 576.1 562.6 570.4
4Apr17 575.7 575.7 553.2 557.35
5Apr17 558.7 566.5 537.05 563
9Apr17 564.5 575 561.1 569.9
10Apr17 575 578.85 558 564.75
11Apr17 566.15 569.65 560.6 566.3
12Apr17 570 572.8 560.4 563
13Apr17 561.8 568 556.2 561.2
16Apr17 562.6 570 558 562.75
17Apr17 562 564.85 555.25 561
18Apr17 559 564.35 545.2 548.05
19Apr17 549.4 555 539.75 545.3
20Apr17 550 551.5 543.25 545.8
23Apr17 545.8 560 534.1 541.6
24Apr17 544.9 550.3 541 548.1
25Apr17 548 549.2 535.5 539.45
26Apr17 542.5 547 539 540.1
27Apr17 540.1 545 539.6 542.65
30Apr17 543.3 544.25 536.1 538.8
30Apr17 536.7 554 536.5 536.50
1May17 550 556.55 545.15 549
6May17 549 550.25 537.1 539.15
7May17 541 557.5 532.45 556.05
8May17 558.3 563 548.5 556.75
9May17 568 568.5 540.1 542.9
10May17 545.5 546.95 532.95 534.95

76
13May17 537 537.35 526.15 533.45
17May17 524 534.85 519.05 532.4
16May17 532.4 532.95 523.55 524.95
17May17 529.9 529.9 524.2 525.55
20May17 520 525.55 518 520.05
21May17 518 518.55 508 515.95
22May17 516.05 527.75 516.05 523.5
23May17 523.5 530.4 515 516.7
24May17 521.5 535.8 520 534.4
24May17 534.95 540 531 534.9
27May17 536 544.75 535.1 539
28May17 535.1 543.75 532.45 537.55
29May17 538 544 527.05 529.6
30May17 529.9 536.85 528.5 528.50
4June17 534.9 541.2 530 533.45
5June17 533 543.1 533 542.15
6June17 543 545.6 537.15 540
7June17 539.6 544.5 536 542.6
8June17 539.95 544.6 534 536.35
11June17 536 546.5 535.15 544.65
12June17 544.95 546 528.6 530.7
13June17 531 537.5 525.1 527.35
14June17 530.4 540.5 523.8 538.75
17June17 540 543.9 535.1 536.95
18June17 527 545 527 543.65
19June17 548 548 516.6 519.95
20June17 522.55 531 520.1 523.35
21June17 525.5 532.15 520.6 530
22June17 525.7 528 521.5 523.25
25June17 519.4 524.4 514.05 521.85

77
26June17 524 526.8 518.9 519.55
FUTURE MARKET

BUYER SELLER
3-Apr-17 (Buying) 573.35 573.35
30-Apr-17 (Cl., period) 536.5 536.50
Loss = 36.85 Profit = 36.85

, Loss =1000x 36.85= 36,850 ,Profit =1000x 36.85 = 36,850

Here the buyer got the LOSS because decrease of future price where as seller
got profit. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
1-may-17(Buying) 550.00 550.00
30-may-17(Cl., period) 528.50 528.50 =
LOSS =21.50 PROFIT = 21.50

Loss =1000x 21.50= 21,500 Profit =1000 x 21.50 = 21,500,

Here the buyer got the loss because decrease of future price where as seller got
loss. If future price decrease at the time of settlement date seller will get profit, buyer
will get loss.

BUYER SELLER
4 -June-17 (Buying) 534.90 534.90
26-June-2017 (Cl., period) 519.55 519.55
PROFIT = 17.35 LOSS = 17.35

Loss =1000x 17.35= 17350, Profit= 1000 x 17.35 = 17350.

Here the buyer got the loss because decrease of future price where as seller
got profit. If future price increase at the time of settlement date buyer will get profit,
seller will get loss.

78
HCL TECHNOLOGIES

Date Open- High- Low- Close-

Price Price Price Price
2Apr17 940 960.5 940 940
3Apr17 962 989.7 953.85 962
4Apr17 890 914.8 834.85 890
5Apr17 845.7 870.8 838.05 845.7
9Apr17 863 868 848.7 863
10Apr17 845 848.75 811.1 845
11Apr17 828.8 837.4 812.5 828.8
12Apr17 835.5 850.8 833.5 835.5
13Apr17 859 860.95 829.65 859
16Apr17 852 853 826.35 852
17Apr17 829 838.95 825 829
18Apr17 835 838.9 828 835
19Apr17 836.05 845.75 835 836.05
20Apr17 830 861 818.7 830
23Apr17 859 868.5 848.45 859
24Apr17 866.8 868.95 852.1 866.8
25Apr17 867 869.9 848 867
26Apr17 859.35 868.65 857.1 859.35
27Apr17 863 874 854.6 863
30Apr17 867 880 854 867
30Apr17 877.7 885.2 822.50 873.25
1May17 876 877 867.55 876
6May17 875 880.9 870.1 875
7May17 876.25 881.9 874.25 876.25
8May17 879 884.4 875 879
9May17 881.6 883.8 874.05 881.6
10May17 877.5 889.5 874.6 877.5

79
13May17 878.9 885 870.1 878.9
17May17 876.25 879.85 847.2 876.25
16May17 854.9 860 842 854.9
17May17 825 856.8 823.2 825
20May17 828.1 842.4 825 828.1
21May17 844.5 859.9 835.75 844.5
22May17 853.95 853.95 835.25 853.95
23May17 850 876.85 846.05 850
24May17 872 874.4 855.5 872
24May17 862 867.95 858.6 862
27May17 862.1 872.5 856.6 862.1
28May17 861.2 869 856.85 861.2
29May17 864 875 863.2 864
30May17 872.15 881.75 862.65 872.15
4June17 870.95 885.7 869.05 870.95
5June17 882 882 856 882
6June17 856 856 849.25 856
7June17 849.25 850 831.15 849.25
8June17 840.2 852.85 834 840.2
11June17 841.65 867.9 841.65 841.65
12June17 857 857 839.7 857
13June17 844 850 837 844
14June17 849.9 849.9 836.25 849.9
17June17 843 852.65 826 843
18June17 849.7 849.7 840.9 849.7
19June17 849.3 859.8 842.7 849.3
20June17 851.45 864.3 847.25 851.45
21June17 860 865 844.9 860
22June17 845 857.95 843.15 845
25June17 855 855.45 845.85 855

80
26June17 850 865.45 849.5 850.00

FUTURE MARKET

BUYER SELLER
2-Apr-17 (Buying) 940 940
30-Apr-17 (Cl., period) 873.25 873.25
Loss = 66.75 Profit = 66.75

Profit =600x 66.75 = 36,850, Loss =600x 66.75= 36,850

Here the buyer got the loss because decrease of future price where as seller
got profit. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
1-may-17(Buying) 876.00 876.00
30-may-17(Cl., period) 872.17 872.17

= LOSS 3.85 PROFIT = 2.85

Loss =600 x 3.85 = 2310, Profit =600x 3.85= 2310

Here the buyer got the loss because decrease of future price where as seller
got profit. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
4 -June-17 (Buying) 870.95 870.95
26-June-2017 (Cl., period) 850.00 850.00
LOSS = 20.95 PROFIT = 20.95

Loss =600x 17.35= 9210, Profit= 600 x 20.95 = 9210.

81
 Here the buyer got the loss because decrease of future price where as seller
got profit. If future price increase at the time of settlement date buyer will get profit,
seller will get loss.
INFOSYS

Date Open- High- Low- Close-

Price Price Price Price
2Apr17 1,139.95 1,142.85 1,101.00 1106.2
3Apr17 1,102.00 1,133.40 1,097.50 1117
4Apr17 1,134.40 1,168.95 1,125.95 1177
5Apr17 1,169.90 1,197.75 1,160.00 1173.05
9Apr17 1,173.00 1,189.35 1,162.00 1181.1
10Apr17 1,187.05 1,192.55 1,148.10 1177
11Apr17 1,176.00 1,168.75 1,128.45 1139
12Apr17 1,136.40 1,149.60 1,126.05 1132.7
13Apr17 1,136.00 1,172.90 1,136.00 1170.9
16Apr17 1,199.00 1,219.80 1,109.00 1122.9
17Apr17 1,107.45 1,111.00 1,085.20 1098.1
18Apr17 1,091.45 1,117.55 1,087.20 1096
19Apr17 1,099.90 1,104.35 1,089.10 1096.9
20Apr17 1,099.00 1,101.40 1,090.00 1093
23Apr17 1,102.00 1,116.00 1,100.50 1114.7
24Apr17 1,113.00 1,130.00 1,110.60 1126.3
25Apr17 1,125.00 1,146.85 1,125.00 1137.5
26Apr17 1,141.80 1,173.00 1,125.10 1149
27Apr17 1,174.00 1,178.50 1,143.17 1170
30Apr17 1,144.50 1,178.00 1,139.00 1175.1
1May17 1,173.10 1,175.90 1,136.05 1142.25
6May17 1,145.00 1,145.00 1,130.00 1132
7May17 1,130.00 1,135.80 1,114.10 1133.75
8May17 1,133.40 1,170.45 1,133.40 1140.17

82
 9May17 1,170.10 1,177.60 1,132.30 1137.05
10May17 1,142.95 1,145.00 1,119.40 1120.4
13May17 1,123.00 1,143.90 1,122.90 1140.2
17May17 1,120.00 1,140.00 1,117.20 1138.17
16May17 1,127.50 1,127.50 1,100.10 1106
17May17 1,118.00 1,118.00 1,103.00 1109.3
20May17 1,099.95 1,106.00 1,090.00 1097
21May17 1,083.65 1,094.00 1,067.20 1088
22May17 1,080.00 1,082.90 1,052.00 1058.6
23May17 1,041.00 1,045.17 1,011.25 1020.45
24May17 1,030.25 1,052.00 1,023.80 1048
24May17 1,048.00 1,063.20 1,042.05 1051
27May17 1,050.00 1,062.40 1,038.00 1052
28May17 1,050.00 1,050.80 1,037.00 1040.7
29May17 1,040.95 1,059.50 1,040.05 1045.00
30May17 1,058.00 1,070.00 1,045.00 1066
4June17 1,070.00 1,098.30 1,056.20 1079.95
5June17 1,088.00 1,095.00 1,072.95 1075.45
6June17 1,079.95 1,079.95 1,059.00 1061.1
7June17 1,061.00 1,064.80 1,049.05 1059
8June17 1,049.00 1,064.90 1,040.10 1048.85
11June17 1,055.30 1,059.00 1,040.00 1046
12June17 1,045.05 1,062.75 1,039.30 1042
13June17 1,043.00 1,046.95 1,022.55 1024
14June17 1,036.60 1,051.60 1,030.30 1049.9
17June17 1,054.00 1,061.90 1,045.90 1055.65
18June17 1,049.50 1,073.17 1,048.05 1067.5
19June17 1,073.25 1,079.10 1,058.80 1078.5
20June17 1,083.40 1,098.00 1,083.40 1094
21June17 1,100.00 1,109.80 1,088.00 1105.5

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22June17 1,103.40 1,103.40 1,079.45 1085.95
25June17 1,077.00 1,107.40 1,065.95 1107
26June17 1,097.45 1,097.45 1,080.10 1085

FUTURE MARKET

BUYER SELLER
2-Apr-17 (Buying) 1139.95 1139.95
30-Apr-17 (Cl., period) 1175.10 1175.10
Profit = 17.17 Loss = 17.17
Profit =500x 17.17 = 7575, Loss =500x 17.17= 7575

Here the buyer got the PROFIT because increase of future price where as
seller got profit. If future price decrease at the time of settlement date seller will get
profit, buyer will get loss.

BUYER SELLER
1-may-17(Buying) 1173.10 1173.10
30-may-17(Cl., period) 1045.00 1045.00

= LOSS 108.10 PROFIT = 108.10

Loss =500 x 3.85 = 54050, Profit =500x 3.85= 54050

Here the buyer got the loss because decrease of future price where as seller
got profit. If future price decrease at the time of settlement date seller will get profit,
buyer will get loss.

BUYER SELLER
4 -June-17 (Buying) 1079.95 1079.95
26-June-2017 (Cl., period) 1085 1085
= PROFIT 5.05 LOSS = 5.05

Profit =500x 17.35= 12570, Loss = 500 x 20.95 = 12570.

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 Here the buyer got the PROFIT because Increase of future price where as
seller got profit. If future price increase at the time of settlement date buyer will get
profit, seller will get loss.

APRIL MAY JUNE

TCS 12350 7400 8650

TECH MAHINDRA 36850 21700 17350

HCL 36,850 2310 9210

INFOSYS 7575 54050 12570

Chart Title
60000

50000

40000

30000

20000

10000

0
TCS TECH MAHINDRA HCL INFOSYS

APRIL MAY JUNE

INTERPREATION:-from the above chart INFOSYS is very active comparing with other
companies 54050 in may 2017,lowest pay off is 2310 HCL futures in june 2017.

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 APRIL MAY JUNE

SBIN 18137.5 66081.25 10937.50

ICICI 105000 9275 206.30

ANDHRA 34200 13200 12000

HDFC 33175 20450 41750

Chart Title
120000

100000

80000

60000

40000

20000

0
SBIN ICICI ANDHRA HDFC

APRIL MAY JUNE

INTERPREATION:-from the above chart ICICI is very active comparing with other
companies 105000 in April 2017, lowest pay off is 206.30 ICICI futures in June 2017.

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 FINDINGS

The Future price of TCS, TECH MAHINDRA, HCL Technologies INFOSYS ICICI
BANK, HDFC BANK, , SBIN And ANDHRA BANK moving along with the
market price.

 If the buy price of the future is less than the settlement price, than the buyer of a future gets
profit.

 If the selling price of the future contract is greater than the settlement price, than the seller
incur losses.

 Derivative market is a good return market compared to equity market.

 Derivatives are mostly used for Speculations purposes.

 Derivatives market in India is growing rapidly unlike equity markets .Trading in

derivatives requires more than average understanding of finance, being a new concept.
Maximum numbers of investors have not yet understood the full implications of the trading
in derivatives. SEBI should act to create awareness in investors about the derivative
market.

 Derivative market is very risky compare to equity market. Form the above calculation most
of long position are very risky.

 Long position INFOSYS AND TCS got more profit.

 Here the buyer got the loss because decrease of future price where as seller got
profit. If future price increase at the time of settlement date buyer will get profit, seller
will get loss. Commented [A1]:

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 SUGGESTIONS

 In bullish market the future seller incurs more losses so the investor is suggested to go for
Long position to hold, where as the Short holder suffers in a bullish market, so he is
suggested to take short positions as per market conditions.

 In bearish market the short position holder will incur more losses so the investor is
suggested to go for alternative hedge with equity, where as the long positions will get
more losses, so he is suggested to hold stop loss order.

 In the above analysis the market price of Andhra bank is having low volatility, so the
futures buyers enjoy more profits to holders.

 The derivative market is newly started in India and it is not known by every investor, so
SEBI has to take steps to create awareness among the investors about the derivative
segment.

 In order to increase the derivatives market in India, SEBI should revise some of their
regulations like contract size, participation of FII in the derivatives market.

 Contract size should be minimized because small investors cannot afford this much of
huge premiums.

 SEBI has to take further steps in the risk management mechanism.

 SEBI has to take measures to use effectively the derivatives segment as a tool of hedging

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 CONCLUSION

 Derivates market is an innovation to cash market. Approximately its daily turnover reaches
to the equal stage of cash market. The average daily turnover of the NSE derivative
segments 2 lakh Cr

 In cash market the profit/loss of the investor depend on the market price of the underlying
asset. The investor may incur huge profits or he may incur huge losses. But in derivatives
segment the investor enjoys huge profits with limited downside.

 In cash market the investor has to pay the total money, but in derivatives the investor has to
pay premiums or margins, which are some percentage of total money.

 Derivatives are mostly used for Speculative purpose for intraday and delivery.

 In derivative segment the profit/loss of the Future position is purely depend on the
fluctuations of the underlying asset.

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 BIBILOGRAPHY

TEXT BOOKS:

 Derivatives Dealers Module Work book–NCFM-NSE Publications

 Financial Markets and Services– by GORDAN and NATRAJAN, Himalaya

Publications.
 Financial Management – by PRASANNA CHANDRA, Kalyani
Publications.
NEWS PAPERS:

 Economic times

 The Financial Express

 Business Standard

MAGAZINES:

 Business Today

 Business World

 Business India

WEBSITES:

 www.indianinfoline.com

 www.nesindia.com

 www.bseindia.com

 www.sebi.gov.in

 Derivativesindia.com

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