INTRODUCTION:

A derivative is a financial security with a value that is reliant upon or derived from, an
underlying asset or group of assets—a benchmark. The derivative itself is a contract between
two or more parties, and the derivative derives its price from fluctuations in the underlying
asset.

The most common underlying assets for derivatives are stocks, bonds, commodities,
currencies, interest rates, and market indexes. These assets are commonly purchased through
brokerages.

Derivatives can trade over-the-counter (OTC) or on an exchange. OTC derivatives constitute

a greater proportion of the derivatives market. OTC-traded derivatives, generally have a
greater possibility of counterparty risk. Counterparty risk is the danger that one of the parties
involved in the transaction might default. These parties trade between two private parties and
are unregulated.

Conversely, derivatives that are exchange-traded are standardized and more heavily
regulated.

The Basics of a Derivative:

Derivatives can be used to hedge a position, speculate on the directional movement of an
underlying asset, or give leverage to holdings. Their value comes from the fluctuations of the
values of the underlying asset.

Originally, derivatives were used to ensure balanced exchange rates for goods traded
internationally. With the differing values of national currencies, international traders needed a
system to account for differences. Today, derivatives are based upon a wide variety of
transactions and have many more uses. There are even derivatives based on weather data,
such as the amount of rain or the number of sunny days in a region.

For example, imagine a European investor, whose investment accounts are all denominated in
euros (EUR). This investor purchases shares of a U.S. company through a U.S. exchange
using U.S. dollars (USD). Now the investor is exposed to exchange-rate risk while holding
that stock. Exchange-rate risks the threat that the value of the euro will increase in relation to

1
the USD. If the value of the euro rises, any profits the investor realizes upon selling the stock
become less valuable when they are converted into euros.

To hedge this risk, the investor could purchase a currency derivative to lock in a specific
exchange rate. Derivatives that could be used to hedge this kind of risk include currency
futures and currency swaps.

A speculator who expects the euro to appreciate compared to the dollar could profit by using
a derivative that rises in value with the euro. When using derivatives to speculate on the price
movement of an underlying asset, the investor does not need to have a holding or portfolio
presence in the underlying asset.

KEY TAKEAWAYS

 Derivatives are securities that derive their value from an underlying asset or
benchmark.
 Common derivatives include futures contracts, forwards, options, and swaps.
 Most derivatives are not traded on exchanges and are used by institutions to hedge
risk or speculate on price changes in the underlying asset.
 Exchange-traded derivatives like futures or stock options are standardized and
eliminate or reduce many of the risks of over-the-counter derivatives
 Derivatives are usually leveraged instruments, which increases their potential risks
and rewards.
In these derivatives I had taken 10 companies under the future and option contract
base:

Futures:
A futures contract—also known as simply a futures—is an agreement between two parties for
the purchase and delivery of an asset at an agreed upon price at a future date. Futures trade on
an exchange, and the contracts are standardized. Traders will use a futures contract to hedge
their risk or speculate on the price of an underlying asset. The parties involved in the futures
transaction are obligated to fulfill a commitment to buy or sell the underlying asset.

For example, say that Nov. 6, 2019, Company-A buys a futures contract for oil at a price of
$62.22 per barrel that expires Dec. 19, 2019. The company does this because it needs oil in
December and is concerned that the price will rise before the company needs to buy. Buying
2
an oil futures contract hedges the company's risk because the seller on the other side of the
contract is obligated to deliver oil to Company-A for $62.22 per barrel once the contract has
expired. Assume oil prices rise to $80 per barrel by Dec. 19, 2019. Company-A can accept
delivery of the oil from the seller of the futures contract, but if it no longer needs the oil, it
can also sell the contract before expiration and keep the profits.

In this example, it is possible that both the futures buyer and seller were hedging risk.
Company-A needed oil in the future and wanted to offset the risk that the price may rise in
December with a long position in an oil futures contract. The seller could be an oil company
that was concerned about falling oil prices and wanted to eliminate that risk by selling or
"shorting" a futures contract that fixed the price it would get in December.

Not all futures contracts are settled at expiration by delivering the underlying asset. Many
derivatives are cash-settled, which means that the gain or loss in the trade is simply an
accounting cash flow to the trader's brokerage account. Futures contracts that are cash settled
include many interest rate futures, stock index futures, and more unusual instruments like
volatility futures or weather futures.

Options:
An options contract is similar to a futures contract in that it is an agreement between two
parties to buy or sell an asset at a predetermined future date for a specific price. The key
difference between options and futures is that, with an option, the buyer is not obliged to
exercise their agreement to buy or sell. It is an opportunity only, not an obligation—futures
are obligations. As with futures, options may be used to hedge or speculate on the price of the
underlying asset.

Imagine an investor owns 100 shares of a stock worth $50 per share they believe the stock's
value will rise in the future. However, this investor is concerned about potential risks and
decides to hedge their position with an option. The investor could buy a put option that gives
them the right to sell 100 shares of the underlying stock for $50 per share—known as
the strike price—until a specific day in the future—known as the expiration date.

Assume that the stock falls in value to $40 per share by expiration and the put option buyer
decides to exercise their option and sell the stock for the original strike price of $50 per share.
If the put option cost the investor $200 to purchase, then they have only lost the cost of the

3
option because the strike price was equal to the price of the stock when they originally bought
the put. A strategy like this is called a protective put because it hedges the stock's downside
risk.

COMPANIES UNDER FUTURE:

1. JSW STEEL

The flagship company of JSW Group, JSW Steel is one of India’s leading integrated
steel manufacturers with a capacity of 18 MTPA. It is one of the fastest growing companies
in India with a footprint in over 100 countries. With state-of-the-art manufacturing facilities
located in Karnataka, Tamil Nadu and Maharashtra, it is recognized for its innovation and
quality.

JSW offers a wide gamut of steel products that includes Hot Rolled, Cold Rolled, Bare &
Pre-painted Galvanized & Galvalume, TMT Rebars, Wire Rods and Special Steel.

JSW Steel continues to enhance its capabilities to meet the rapidly changing global market
needs. To stay on the leading edge of technical advancement, JSW has entered into
technological collaboration with JFE Steel Corp, Japan to manufacture high strength and
advanced high strength steel for the automobile sector. JSW Steel has also entered into a joint
venture with Marubeni-Itochu Steel Inc. Tokyo, to set up a state–of-the-art steel processing
centers.To strengthen its global network, the Company has also acquired a Pipe and Plate
making steel mill in Baytown, Texas in USA. By end of next decade, JSW Steel aims to
produce 40 million tons of steel annually.

2. JUSTDIAL

Just Dial started on telephone in 1996. They finally launched the web-based version in 2007.
Lots of internal conflicts about whether to do this – because of the fear that the internet
business would cannibalize the voice based business. Interestingly, their internet business
grew like a hockey stick, and at the same time the voice-based business continued to grow at
the same rate as before.

No one wanted to fund an idea that had failed once. It was clear that product development
was the ultimate strength, so they focused on getting the accurate data in place. They also

4
capitalised on the ‘wow’ factor for the user, as it was a unique, powerful idea. The word-of-
mouth publicity did the rest.

They managed revenue of Rs 25 lakh in the first year. Eventually, the dial-for-information
service became a hit among consumers, peaking in 2004 after the increase in cellular
penetration. They moved from renting office space and equipment to leasing it, and by 2004,
owning it. Just Dial’s headquarters have spread from 300 sq ft to a 40,000 sq ft office in the
suburbs of Mumbai. This, besides the 1,75,000 sq ft office space across India. More
importantly, they are no longer limited to the phone; Just Dial is on the Net, WAP and SMS;
it’s a multiple platform local search engine.

3. SUNTV

Sun TV is an Indian Tamil language cable and satellite television channel launched on 14
April 1993. It is the flagship channel of the Chennai-based Sun TV Network. It was founded
and is owned by Kalanithi Maran. Sun TV launched its HD version on 11 December
2011.[3] Sun TV was the most viewed entertainment channel in India. BARC reports say Sun
TV as No.1 Entertainment Channel Sun TV on 14 April 2019 completes 26 years in TV
industry with Silver Jubilee. Sun TV launched its second GEC, Sun Life Channel which
telecasted retro songs and movies is repositioned as Sun TV second GEC channel by 7
October 2018, The channel will focus more on urban and youth related contents.

4. TORRENT POWER

Torrent Power is one of the leading brands in the Indian power sector. With an all-round
experience in generation, transmission and distribution of power, and a proven track record of
implementing large power projects, the Company is the most experienced private sector
player in Gujarat. The Company is also engaged in manufacturing and supply of power
cables.

One of the very few fully integrated power companies in India encompassing the entire value
chain of the power industry, Torrent Power possesses a unique advantage that allows it to
function with unparalleled efficiency and meticulous attention when it comes to providing
last mile connectivity to its customers.

5
Be it ambitious power generation projects or efficient distribution at the grass-root level or
providing uninterrupted power supply to industries or 24X7 customer care initiatives -
Torrent Power is all about transforming lives.

5. ZEEL

The company was launched on 2 October 1991 as Zee Telefilms, brandname that was
retained until 2006. In 2002, the company acquired a majority stake (51%) in ETC Networks.
In 2006, they acquired Integrated Subscriber Management Services Limited, and in
November 2006, it acquired an 50% stake in Taj television, owner of TEN Sports. On that
same year, the company was rebranded as Zee Entertainment Enterprises.

In February 2010, the business acquired an additional stake (95%) in TEN Sports.

In 2008, Zee Networks launched Zee Motion Pictures and Zee Limelight (now Zee Studios)
for the development, production, distribution and marketing of mainstream films in Indian
languages, As Zee Telefilms, the company formed part of BSE Sensex from 2000-2005. The
news and regional entertainment channel business was spunoff into a separate company in
2006 as Zee News.

In May 2011, Star Den entered into a 50/50 joint venture with Zee Turner and Zee
Entertainment Enterprises (ZEEL) to distribute and market all channels owned by the
company and ZEEL, their respective affiliated channels and other third-party channels in
India, Nepal and Bhutan.

It also owns a music label, Zee Music Company.

In 2015 Zee acquired Sarthak TV, an Odia-language pay-television channel. One year later,
on 28 July 2016, it launched Zee One, aimed at the German market. A Polish version of the
channel was launched in 2017.

In 2016, Zee launched Zee Mundo, a Spanish-language Bollywood movie channel targeting
Latin America.

In 2017, the company acquired the majority stake of the Reliance Broadcast Network.[4] It
also fully purchased 9X Media and INX Music. A partially-owned subsidiary, Diligent
Media Corporation, is a publisher of Indian daily newspapers and websites. DMC is a joint
venture between Zee and the Dainik Bhaskar Group.

6
COMPANIES UNDER OPTION:

1. HINDUSTAN PETROLEUM CORP LTD:

Hindustan Petroleum Corporation Limited is a holding company. The Company is engaged in

the business of refining of crude oil and marketing of petroleum products. It operates through
two segments: Downstream, and Exploration and Production of Hydrocarbons. The
Downstream segment engages in refining, marketing and transportation of petroleum
products. It offers motor spirit, high-speed diesel and liquefied petroleum gas (LPG). Its
products and services include aviation turbine fuel; bulk fuels and petroleum products that are
marketed to industrial consumers; LPG (HP Gas); Lubes (HP Lubes), and product pipelines.
It has refineries at Mumbai and Vishakhapatnam, LPG bottling plants and Lube blending
plants. Its refineries upgrade the crude petroleum into various products and over 300 grades
of lubricants, specialties and greases. The Company's marketing infrastructure includes a
network of installations, depots, retail outlets, aviation service stations and LPG distributors.

2. HINDUSTAN UNILEVER LIMITED:

Hindustan Unilever Ltd (HUL) is India's largest fast-moving consumer goods company. HUL
operates in seven business segments. Soaps and detergents includes soaps, detergent bars,
detergent powders and scourers. Personal products include products in the categories of oral
care, skin care (excluding soaps), hair care, talcum powder and color cosmetics. Beverages
include tea and coffee. Foods include staples (atta, salt and bread) and culinary products
(tomato-based products, fruit-based products and soups). Ice creams include ice creams and
frozen desserts. Others include chemicals and water business.

HUL's product portfolio includes leading household brands such as Lux, Lifebuoy, Surf
Excel, Rin, Wheel, Fair & Lovely, Pond's, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk,
Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall's and Pureit. HUL
is a subsidiary of Unilever, one of the world's leading suppliers of Food, Home Care,
Personal Care and Refreshment products with sales in over 190 countries.

3. HINDUSTAN ZINC LTD:

Hindustan Zinc Limited (HZL) is an India-based company, which is engaged in the mining
and smelting of zinc, lead and silver metal in India. The Company's segments are Mining and

7
smelting of zinc, lead and silver, and Wind energy. The Company's operations include
approximately five zinc-lead mines, over four zinc smelters, a lead smelter, a zinc-lead
smelter, approximately seven sulfuric acid plants, a silver refinery plant and over six captive
power plants in the state of Rajasthan. In addition, the Company also has a rock-phosphate
mine in Maton near Udaipur in Rajasthan and zinc, lead, silver processing and refining
facilities in the State of Uttarakhand.

The Company also has wind power plants in the States of Rajasthan, Gujarat, Karnataka,
Tamil Nadu and Maharashtra. It has a metal production capacity of over one million tons per
annum with its key lead-zinc mines in Rampura Agucha and Sindesar Khurd, and smelting
complexes in Chanderiya and Dariba, all in the state of Rajasthan.

4. INDIAN OIL CORPORATION:

The company's operations include refineries, pipelines and marketing. Their portfolio of
brands includes Indane LPGas, SERVO lubricants, XTRAPREMIUM petrol and
XTRAMILE diesel and Propel Petrochemicals. In exploration and production, Indian Oil's
domestic portfolio includes 11 oil and gas blocks and two coal bed methane blocks while the
overseas portfolio consists of 10 blocks spread across Libya, Iran, Gabon, Nigeria, Timor-
Leste, Yemen and Venezuela.

Indian Oil Corporation Ltd was established in the year 1959 as Indian Oil Company Ltd. In
the year 1964, Indian Refineries Ltd merged with Indian Oil Corporation Ltd. Indian Oil
Blending Ltd a wholly owned subsidiary was merged with Indian Oil on May 2006. The
company transferred their entire equity holding in Indian Strategic Petroleum Reserves Ltd
(ISPRL) to the Oil Industry Development Board, a government body functioning under the
Ministry of Petroleum & Natural Gas. Consequently, ISPRL ceased to be a wholly owned
subsidiary in May 2006.

5. ITC:

Established in 1910, ITC Limited is a diversified conglomerate with businesses spanning Fast
Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded
Apparel, Education & Stationery Products, Incense Sticks and Safety Matches; Hotels,
Paperboards and Packaging, Agri Business and Information Technology. The Company was
incorporated on August 24, 1910 under the name Imperial Tobacco Company of India

8
Limited. As the Company's ownership progressively Indianised, the name of the Company
was changed to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974.
In recognition of the ITC's multi-business portfolio encompassing a wide range of businesses,
the full stops in the Company's name were removed effective September 18, 2001. The
Company now stands rechristened 'ITC Limited,' where 'ITC' is today no longer an acronym
or an initialised form.

RETURN:

A return, also known as a financial return, in its simplest terms, is the money made or lost on
an investment over some period of time.

A return can be expressed nominally as the change in dollar value of an investment over time.
A return can also be expressed as a percentage derived from the ratio of profit to investment.
Returns can also be presented as net results (after fees, taxes, and inflation) or gross returns
that do not account for anything but the price change.

KEY TAKEAWAYS

 A return is the change in price on an asset, investment, or project over time, which
may be represented in terms of price change or percentage change.
 A positive return represents a profit while a negative return marks a loss.
 Returns are often annualized for comparison purposes, while a holding period return
calculates the gain or loss during the entire period an investment was held.
 Real return accounts for the effects of inflation and other external factors, while
nominal return only is interested in price change. Total return for stocks includes price
change as well as dividend and interest payments.
 Several return ratios exist for use in fundamental analysis.
Understanding Returns
Prudent investors know that a precise definition of return is situational and dependent on the
financial data input to measure it. An omnibus term like profit could mean gross, operating or
net, before tax or after tax revenues or income. An omnibus term like investment could mean
selected, average or total assets, debt or equity.

9
FUTURE:

OVERALL RETURN FOR 5 COMPANIES

STOCKS RETURN
0

JSWSTEEL -0.103
-0.05
JUSTDIAL -0.059
SUNTV -0.085
-0.1
TORRENTPOWER -0.085
ZEEL -0.134
-0.15
RETURN

1. JSWSTEEL

S.NO MONTH RETURN 0.1

0.05
1 JULY 0 0
-0.05 1 2 3 RETURN
2 AUGUST -0.1809
-0.1
-0.15
3 SEPTEMBER 0.0776
-0.2

2. JUSTDIAL

0.1
S.NO MONTH RETURN
0.05
1 JULY 0
0
1 2 3 RETURN
-0.05

2 AUGUST -0.1280 -0.1

-0.15
3 SEPTEMBER 0.0683

10
 3. SUNTV

S.NO MONTH RETURN 0.06

0.04
0.02
1 JULY 0
0
-0.02
2 AUGUST -0.1192 -0.04 1 2 3 RETURN
-0.06
3 SEPTEMBER 0.0341 -0.08
-0.1
-0.12
-0.14

4. TORRENT POWER

0.04
S.NO MONTH RETURN 0.02
0
1 JULY 0.0081 -0.02 1 2 3
-0.04
RETURN
2 AUGUST -0.1152 -0.06
-0.08
3 SEPTEMBER 0.0219 -0.1
-0.12
-0.14

5. ZEEL

S.NO MONTH RETURN 0.04

0.02
1 JULY -0.1281 0
-0.02
2 AUGUST 0.0304 -0.04 1 2 3
RETURN
-0.06
3 SEPTEMBER -0.0370 -0.08
-0.1
-0.12
-0.14

11
OPTION:

OVERALL RETURN FOR 5 COMPANIES

STOCKS RETURNS
HINDPETRO 0.0001
HINDUNILVR 0.061
HINDZINC -2.849
IOC 0.0001
ITC -4.454

-1

-2 RETURNS

-3

-4

-5

1. HINDPETRO

0.6
S.NO MONTH RETURN
0.5
1 JULY -0.2585 0.4
0.3
2 AUGUST 0.5042 0.2
RETURN
0.1
3 SEPTEMBER -0.2456
0
-0.1 1 2 3
-0.2
-0.3

12
 2. HINDUNIL

1
S.NO MONTH RETURN 0.8
0.6
1 JULY 0 0.4
0.2
2 AUGUST 0.8296
0 RETURN
3 SEPTEMBER -0.7677 -0.2
1 2 3
-0.4
-0.6
-0.8
-1

3. HINDZINC

4
S.NO MONTH RETURN 3
2
1 JULY 2.8594 1
0 RETURN
2 AUGUST -2.8594 -1
-2
1 2 3
3 SEPTEMBER 0.0001 -3
-4

4. IOC

4
S.NO MONTH RETURN
3

1 JULY -0.5408 2
1 RETURN
2 AUGUST -1.1895 0
-1
3 SEPTEMBER 3.1928 1 2 3
-2

13
 5. ITC

3
S.NO MONTH RETURN
2
1
1 JUNE 1.9000 0
-1 RETURN
2 JULY -2.2272 -2 1 2 3
-3
3 AUGUST -4.1271 -4
-5

STANDARD DEVIATION

KEY TAKEAWAYS

 Standard deviation measures the dispersion of a dataset relative to its mean.

 A volatile stock has a high standard deviation, while the deviation of a stable blue-
chip stock is usually rather low.
 As a downside, it calculates all uncertainty as risk, even when it’s in the investor's
favor—such as above average returns.
Using Standard Deviation
Standard deviation is an especially useful tool in investing and trading strategies as it helps
measure market and security volatility—and predict performance trends. As it relates to
investing, for example, one can expect an index fund to have a low standard deviation versus
its benchmark index, as the fund's goal is to replicate the index.

On the other hand, one can expect aggressive growth funds to have a high standard deviation
from relative stock indices, as their portfolio managers make aggressive bets to generate
higher-than-average returns.

A lower standard deviation isn't necessarily preferable. It all depends on the investments one
is making, and one's willingness to assume the risk. When dealing with the amount of
deviation in their portfolios, investors should consider their personal tolerance for volatility
and their overall investment objectives. More aggressive investors may be comfortable with

14
an investment strategy that opts for vehicles with higher-than-average volatility, while more
conservative investors may not.

Standard deviation is one of the key fundamental risk measures that analysts, portfolio
managers, advisors use. Investment firms report the standard deviation of their mutual
funds and other products. A large dispersion shows how much the return on the fund is
deviating from the expected normal returns. Because it is easy to understand, this statistic is
regularly reported to the end clients and investors.

STANDARD DEVIATION-FUTURE:

S.NO STOCKS SD

1 JSWSTEEL 0.0337

2 JUSTDIAL 0.0307

3 SUNTV 0.0270

4 TORRENTPOWER 0.0135

5 ZEEL 0.0308

0.04

0.035

0.03

0.025

0.02

0.015
SD
0.01

0.005

15
STANDARD DEVIATION-OPTION

S.NO STOCKS SD

1 HINDPETRO 0.7300

2 HINDUNILVR 0.9089

3 HINDZINC 0.8461

4 IOC 1.6468

5 ITC 1.7906

2
1.8
1.6
1.4
1.2
1
0.8
0.6 SD
0.4
0.2
0

VOLATILITY:
Volatility is a statistical measure of the dispersion of returns for a given security or market
index. In most cases, the higher the volatility, the riskier the security.

Volatility can either be measured by using the standard deviation or variance between returns
from that same security or market index.

16
In the securities markets, volatility is often associated with big swings in either direction. For
example, when the stock market rises and falls more than one percent over a sustained period
of time, it is called a "volatile" market.

Market volatility can be seen through the VIX or Volatility Index. The VIX was created by
the Chicago Board Options Exchange as a measure to gauge the 30-day expected volatility of
the U.S. stock market derived from real-time quote prices of S&P 500 call and put options. It
is effectively a gauge of future bets investors and traders are making on the direction of the
markets or individual securities. A high reading on the VIX implies a risky market.

A variable in option pricing formulas showing the extent to which the return of
the underlying asset will fluctuate between now and the option's expiration. Volatility, as
expressed as a percentage coefficient within option-pricing formulas, arises from daily
trading activities.

ANNUAL VOLATILITY: FUTURE

STOCKS VOLATILITY

JSWSTEEL 65%

JUSTDIAL 59%

SUNTV 52%

TORRENTPOWER 26%

ZEEL 59%

17
 70%

60%

50%

40%

30%

20% VOLATILITY

10%

0%

ANNUAL VOLATILITY: OPTION

STOCKS VOLATILITY

HINDPETRO 14%

HINDUNILVR 17%

HINDZINC 16%

IOC 31%

ITC 34%

18
 0.4

0.35

0.3

0.25

0.2

0.15
VOLATILITY
0.1

0.05

OPEN INTEREST:

KEY TAKEAWAYS

 Open interest is the total number of outstanding derivative contracts, such as options
or futures that have not been settled.
 Open interest equals the total number of bought or sold contracts, not the total of both
added together.
 Open interest is commonly associated with the futures and options markets.
 Increasing open interest represents new or additional money coming into the market
while decreasing open interest indicates money flowing out of the market.
Changes to Open Interest
It's important to note that open interest equals the total number of contracts, not the
total of each transaction by every buyer and seller. In other words, open interest is the total of
all the buys or all of the sells, not both.

The open interest number only changes when a new buyer and seller enter the market,
creating a new contract, or when a buyer and seller meet—thereby closing both positions. For
example, if one trader has ten contracts short (sale) and another has ten contracts long

19
(purchase), and these traders then buy and sell ten contracts to each other, those contracts are
now closed and will be deducted from open interest.

Open interest is commonly associated with the futures and options markets, where the
number of existing contracts changes from day to day. These markets differ from the stock
market, where the outstanding shares of a company's stock remain constant once a stock
issuance has been completed.

A common misconception of open interest lies in its purported predictive ability. It

cannot forecast price action. High or low open interest reflects investor interest, but it does
not mean that their views are correct or their positions will be profitable.

OPEN INTEREST: FUTURE

COMPANIES OPEN INTEREST PERCENTAGE

INTEREST(LAKHS) CHANGE(LAKHS)
JSWSTEEL 62284 1476 2.43%
JUSTDIAL 2282 1064 4.89%
SUNTV 4614 114 2.53%
TORRENTPOWER 5756 -4,000 -0.07%
ZEEL 17197 3107 1.84%

80000
60000
40000
20000
0
JSWSTEEL

20
 2500 5000
2000 4000
1500
3000
1000
2000
500
0 1000

0
SUNTV

7000 20000
6000
5000 15000
4000
10000
3000
2000
5000
1000
0 0
-1000
ZEEL

OPEN INTEREST:OPTION

OPEN INTEREST PERCENTAGE

COMPANIES INTEREST(LAKHS) CHANGE(LAKHS)
HINDPETRO 2320 -1,72,200 -6.91%

HINDZINC 624 32,000 5.41%

HINDUNI 6921 -5,400 -0.77%

ITC 588 -1,36,800 -5.24%

IOC 494 -5,04,000 -23.49%

21
2500 700
2000 600
1500 500
1000 400
500
300
0
200
-500
100
0

8000 700
7000 600
6000 500
5000
400
4000
300
3000
2000 200

1000 100
0 0
-1000 HINDUNI -100 ITC

600
500
400
300
200
100
0
-100 IOC

22
 PRICE OPEN INTEREST INTERPRETATION
Increase in Price Increase in Open Interest Indication of new money
coming and indicates further
continuance of uptrend
Increase in Price Decrease in Open Interest Increase in price is due to
short covering of positions
Decrease in Price Increase in Open Interest Decrease in price is due to
newly build short positions
and further weakness is
predicted
Decrease in Price Decrease in Open Interest Traders unwinding their long
positions by selling existing
contracts

COMPANIES INTERPRETATION
JSWSTEEL Indication of new money coming and
indicates further continuance of uptrend
JUSTDIAL Indication of new money coming and
indicates further continuance of uptrend
SUNTV Indication of new money coming and
indicates further continuance of uptrend
TORRENTPOWER Decrease in price is due to newly build short
positions and further weakness is predicted
ZEEL Indication of new money coming and
indicates further continuance of uptrend
HINDPETRO Decrease in price is due to newly build short
positions and further weakness is predicted
HINDZINC Indication of new money coming and
indicates further continuance of uptrend
HINDUNI Decrease in price is due to newly build short
positions and further weakness is predicted

23
 ITC Decrease in price is due to newly build short
positions and further weakness is predicted
IOC Decrease in price is due to newly build short
positions and further weakness is predicted

CONTANGO AND BACKWARDIZATION

Contango is a situation where the futures price of a commodity is higher than the spot
price. Contango usually occurs when an asset price is expected to rise over time. This results
in an upward sloping forward curve. Futures contract supply and demand affect the futures
price at each available expiration. In contango, investors are willing to pay more for a
commodity at some point in the future. The premium above the current spot price for a
particular expiration date is usually associated with the cost of carry. Cost of carry can
include any costs the investor would need to pay to hold the asset over a period of time. With
commodities, the cost of carry generally includes storage costs and cost risks associated with
obsolescence.

In all futures market scenarios, the futures price will usually converge toward the spot
price as the contracts approach expiration. This is because of the large number of buyers and
sellers in the market which effectively make markets efficient, eliminating substantial
arbitrage opportunities. As such, a market in contango will see gradual decreases in the price
to meet the spot price at expiration.

Backwardation is when the current price—spot—price of an underlying asset is

higher than prices trading in the futures market. Backwardation is sometimes confused with
an inverted futures curve. In essence, a futures market expects higher prices at longer
maturities and lower prices as you move closer to the present day when you converge at the
present spot price.

The opposite of backwardation is contango, where the futures contract price is higher
than the expected price at some future expiration. Backwardation can occur as a result of a
higher demand for an asset currently than the contracts maturing in the future through the
futures market. The primary cause of backwardation in the commodities' futures market is a
shortage of the commodity in the spot market.

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CONTANGO AND BACKWARDIZATION:

COMPANIES CONTANGO/BACKWARDIZATION
JSWSTEEL Contango
JUSTDIAL Backwardation
SUNTV Contango
TORRENTPOWER Backwardation
ZEEL Contango

300
250
200 Close
150
100 Settle
50 Price
0
1 5 9 1317212529

750

700
Close
650

600 Settle
Price
550
1 5 9 13 17 21 25 29

25
600
500
400 Close
300
200 Settle
100 Price
0
1 5 9 1317212529

320
Close
310
300
290
280
270
260
250
1 5 9 13 17 21 25 29

26
 500
400
300
200
100 Close
Settle Price
0
1 4 7 10 13 16 19 22 25 28 31

CONCLUSION:

 To determine the hedging effectiveness of index futures and stock futures.

 To study whether futures market are performing their price discovery function.
 To study whether introduction of futures and options have destabilized the underlying
market.
 To examine whether trading in futures market is done for hedging or speculation.
 To examine whether market quality in terms of efficiency and liquidity have enhanced after
the introduction of derivatives products.

In other words, whether derivatives are playing their part as risk management tools and how
it is benefiting the underlying market in terms of pricing efficiency, liquidity and stability through the
supposed informational role of derivatives trading.

27