GREAT LAKES - FEB 2007

DERIVATIVES

How old are derivatives?

As old as money - very very old

Imagine a farmer in Pondicherry 5,000 years ago

He was growing rice
He faced several risks, some of which were financial
Which is the biggest financial risk he carried
Price Risk of Rice
He is afraid that price of rice in June may be unremunerative
His costs are Rs 2.50 per kg and he needs to also live

He is living in Feb and his Rice will be ready by June

What does he do?
He goes to a shopkeeper in his village and tells him I can sell my rice in June t
I will have 2 tons - they negotiate
Shopkeeper says Rs 3 per kg - they agree

What has he sold? What does he have? Where is the Rice?

It does not exist (Feb)

What has he achieved?

He has minimized his Price Risk

Has the Price Risk vanished from the world?

No - it has been transferred to the shopkeeper

Is the shopkeeper stupid?

No, he is not stupid but he nevertheless will assume the same kind of risks as
However, he may be more capable of carrying this risk
If in June the price is say Rs 2.25 - farmer may be washed out, but the shopkee
can simply decide to wait - after 3 months, price may go to Rs 3.25 and he ma
1. He may be bullish
2. He may enter into other contracts downstream
3. He may have contracts in rice, wheat, coconut, spices - and some would mak
some would make losses - overall if he makes profit, he is okay

This is the world's first derivative

In modern language, we would call this is as a FORWARD Contract

Most of the terms are clear in Feb itself

1. Buyer (Shopkeeper)
2. Seller (Farmer)
3. Underlying (Rice)
4. Specs (2 pager on what is Rice)
5. Quantity - 2 Tons
6. Price - Rs 3 per kg
7. Date of Delivery - June 25
8. Time of Delivery - 11 a.m to 2 p.m
9. Location - Shop No xxxxx, Village yyyyy
10. Penal clauses for non performance

In June, what will happen?

1. Delivery Final Settlement
2. Payment Expiry

These Forwards were useful but had some problems

1. Counterparty Risk
2. Transparency of the price
This remained a small business

One day an Exchange in Chicago thought about it and they came up with an id
We will provide SETTLEMENT GUARANTEE
When exchange started trading, prices become transparent
Transactions easily entered the zone of trillions of dollars

Now the farmer from Pondicherry could sell rice to a shopkeeper in Poland
Trust is no longer needed

Once trading started on exchanges, these FORWARDS came be known as FUT

Futures are standardized, while Forwards are customized

Once trading became convenient and less risky, speculators arrived and now t
dominate the scene - the genuine holders of that commodity are in a small mi

There is hardly any "delivery" in these markets

CBOT which trades trillions of dollars has a warehouse capacity of less than 50
Less than 1% is delivered and rest is all squared up

Even that one genuine farmer does not deliver

Farmer Pondicherry - sold his Rice Futures at Rs 3 per kg

On June 25, Spot price of Rice is say Rs 2.65 in the Pondi market
He goes and sells rice in the Pondi market and receives Rs 2.65
Simultaneously he squares up his Futures contract (buy back)
On expiry, Futures price will be equal to Spot
He will make a profit of Rs 0.35
Total - he gets - 2.65 (Pondi) + 0.35 (Chicago) = 3.00
Underlyings:
1. Commodities
2. Interest Rates
3. Forex Rates
4. Equities
5. Indices - don’t exist
6. Weather
7. Credit

Weather:
X says that tom temp in Chennai will be more than 29 deg Celsius
Y says No - it will be less
They agree to pay each other $ 1 mio for every degree up or down (from 29)

Enron started Weather Derivatives

Enron was a very innovative company - it recd several awards
All power companies in the US and Canada - face a peculiar winter problem

If winter is very harsh (minus 20 deg to min 40 deg Celsuis) - would Enron be
Very happy - huge demand for power
If winter is mild (zero to minus 20 deg), Enron is sad

Power companies - operating leverage is high

High Fixed Costs
A small change in revenue (say 10%) can create a fantastic swing in profits (sa

Harsh winter Harsh

Mild

Volatility in earnings - which stock markets don’t like

Enron created a Weather Derivative - if winter is harsh, we will pay you

but if Winter is mild, you pay us

Who do you think might be interested on the other side?

Pepsi and Coke, Movenpick and Baskin Robbins

Bank of America, Goldman Sachs, Merrills - they will start marketing these pro
They will happy in all winters

For every one Pepsi and one Enron, 1000 MBAs will arrive

Credit Derivative
The underlying is the risk of default by the issuer
You are holding a bond issued by IBM
What is the risk you carry?
Default by IBM

CDS - Swap - you go and buy this CDS instrument - price is 45 basis points (p.a
It’s a 5 year bond - so you pay every 45 cents
If IBM defualts you will get $ 100

Before Enron defaulted (one year before), CDS of Enron was quoting at 135 ba
If you had bought for Rs 1.35, you would have got Rs 100

Tata Corus deal

Corus CDS were quoting at 173 basis points (pre deal)
Once the deal was announced, CDS dealers felt that Tata Corus will be a much
entity
CDS prices, it was felt, would go downwards
Huge wave of selling started
Then Tatas announced their deal structure - they said that we will incorporate
entity in the UK (SPV) - which would take on European debt and invest in Cor
The deal structure was not very well received by the market and the price did

Market structure abroad

Exchange traded instruments
OTC markets - these are not traded in exchanges but provided by i
Merrill, Citi, BoA, etc etc
If you want to create a Forward on Rice + Wheat / 2
OTC markets are larger than exchange traded markets
Many exotics
Most people don’t understand these instruments

LTCM - Long Term Capital Management - big disaster

LTCM lost $ 3 billion
Their contracts went into trillions and these were with top 20 institutions
Alan Greenspan - we are sitting on a financial time bomb

Indian Scene
Pre independence - active commodity derivatives market
Indians are known to have been trading in London and NY markets actively
Till around the 60s comm deriv were quite popular
1960s - War with China, Nehru, instability at the Prime Minister, serious famin
Films - Mother India, Do Beegha Zamin
Villains - Ration shop owner with long queues - no kerosene, no da
Rajesh Khanna
Severe commodity shortages
1966 - PL-480 US supplied us wheat - fed to the horses
Blackwell Report - argues that India should be given nothing
bcoz India is a gone case
All Comm Deriv were banned by the Govt

In 1995, Govt found that their old problems were solved

Dr L C Gupta Committee was set up to decide how to start derivative markets
May 1998 - they recommended equity derivatives - NSE and BSE
Risk Management solutions - Prof J R Verma Committee - Nov 1998

Indian Contract Act - wagering is illegal - 1872

Securities Contract Regulation Act - derivative, index derivative, option - all th
legal notwithstanding anything in any other act ….
Parliament - Jan 2000
June 7, 2000 - BSE - Sensex Futures
June 9, 2000 - NSE - Nifty Futures
June 2001 - Index Options
July 2001 - Stock Options
July 2001 - Badla was banned
Nov 2001 - Stock Futures
Market really took up

Equity Derivatives
How old 132 years 6.5 years
No of Scrips 6,000 plus 122 +
Daily Turnover Rs 000 Cr 8 - 15 30 - 45

Native Stockbrokers Association

Under a tree, Horniman Circle

Commodity markets also started - MCX, NCDEX, NMCE Ahd, Indore Soya
MCX - Fin Tech - Software provider
Gold, silver, agri, crude and steel

Forex - not open to all - open to corporates with forex exposure - OTC market
Interest Rates - not open to all - open to corporates - OTC market

Interest Rate products for janta - failed

No weather, credit deriv in India

FUTURES
Infosys Bullish View
Stock Price 2093
You bought
In 10 days time, it goes to 2187
You sell, make a profit of 94
To buy, what do you need - Cash
Return 4.49%

Infosys March Futures 2102

You buy these Futures
You don’t need to pay the entire amount
You pay an Initial Margin 12%
You pay 252.24
This is like a Deposit which is refunded
on exit
In 10 days time, it goes to 2195
You sell, make a profit of 93
Return 36.87%

All our speculators, operators, brokers - have migrated to Futures market

In the cash market - who's left - small retail, FII, MF

These are short term markets - Futures are short term products
Futures would have an expiry date

Expiry is last Thursday - March 29th

What exactly is expiry?

You did not square up these futures till March 29th
Exchange will automatically square up (sell)
At what price?
Closing price of EQUITY
Futures prices will meet Equity prices on expiry - CONVERGENCE
Closing price is not LTP - it is the last 30 min VWAP
Why 30 min?
LTP can be easily manipulated

Why should this Convergence happen?

Convergence would be automatic in a physically settled market
In a cash settled market (to put on par with physically settled system), prices a
made to Converge through a mechanism

Market behaviour will automatically tend toward convergence

If Infy spot is at 2195, Futures will be hovering around 2195 (on expiry)

What if you are bullish around March 29?

Rollover
You sell March and buy April
You will pay brokerage twice
Price difference generally is a payable for longs (April will be more expensive

You bought March at 2102

On March 29, March is at 2325 and April is at 2333 - losing 8

If you have a 20 year bullish view on Infy what should you do?
Buy Equity

Generally, Rollovers happen from the last Monday onwards

You will find experts commenting on the volume of Rollovers and the general t
is that if Rollovers are strong then market trend will be maintained
If rollovers are weak, then market vibrancy is weak - trend may be weak

Series - Three Series - Infy March, April, May

On 29th March, March will expire
On 30th March, June will open

In practice, the first month is active - the second month is pretty illiquid - the t
month is dead

Most players are short termish

Planning Commission Deriv Dealer (10:45

Short Term 5 years 15 min
Med Term 5 to 15 years Upto lunch
Long Term > 15 years End of Day

Lot Sizes
In equity, lot size is 1
In deriv, there are diff lot sizes for each scrip
Till 2 days ago, Nifty lot size was 100
Notional Contract Value = 100 x 4107 = Rs 4,10,700
IFCI - lot size was 31,500 units x Rs 8 = Rs 252,000
Logic - min value should be Rs 2 lakhs
Why? To deter the "small investor"
Lot sizes are reviewed once in a while
Now, Nifty lot size is 50 units

Open Interest
Emerges only in the Derivatives markets
Means the number of positions open in the market at any point of time

If you buy 1 contract and some one sells 1 contract and that’s the only trade ti
in that underlying, then Open Interest is defined as "1"

Infosys B1 B2 B3 S1 S2
Day One 55 -55
Day Two -17 120 -20 -83
38 120 -75 -83
Day Three -8 -55 300 40 -43
30 65 300 -35 -126

Receivables Account Market

Daily Sales made to Customer 100 Daily Volume
Closing Balance 753 Open Position

In the equity market, there is no equivalent

How many units of Open Interest are possible?

Infinite

How many shares of HLL can you buy?

220 cr

How many futures of HLL can you buy?

Infinte

This is not good - overheating

So there are legal controls

Based on criteria like no of shares outstanding, daily traded volume, volatility,

the exchanges announce the max open interest that is allowed for each mont
each underlying

HLL - max allowed is 44 lakh units

When Open Int reaches 70% of max, warning signals are issued thro the tradin
At 80%,90% signals are flashed
At 95%, final warning flashed
Post this, no dealer should take fresh positions (sq up allowed)
If done, then penalties are imposed - Rs 1 lakh per underlying per day

Interpretation of Open Interest

Technical Analysis - study of price patterns - history repeats itself
Interpretations are of Signals - OI is taken as one of those Signals
War - share market is nothing but a battle between bulls and bears
Land - one side will push the other to conquer more territory
We are now fighting for Reliance share price
Best books for share trading - Art of War - 2500 years old
15 days agoToday
Nifty 4223 3933 Bears are winning
Daily Volume 17000 23000 Big battle
Open Interest 32000 35000 Winners are confident

The trend is strong - in this case, bearishness

15 days agoToday
Nifty 4223 3933 Bears are winning
Daily Volume 17000 23000 Big battle
Open Interest 32000 26500 Winners are quitting

The trend is weakening

All interpretations are only right half the time

Product Usage
1. Speculation
2. Hedging
3. Arbitrage

Speculation is very simple and very convenient

Only one requirement - your view should be right

Hedging
Risk mitigation
If you have a portfolio of equity or equity oriented mutual funds - Cost Rs 125
Value - Rs 375 lakhs
You are very happy
But also nervous bcoz now the market is falling after a fairly long bull run - ne
You don’t want to sell your portfolio bcoz you are bullish long term

What can you do?

You could sell Nifty Futures in the short run of Notional Value Rs 375 lakhs
Long Portfolio and Short Nifty Futures will set off against each other
You will be hedged

If market moves down say 10% 375 37.50

and Portfolio moves down say 12% 375 45.00
(7.50)

This is as easy as it looks, but there is still a timing problem

If you hedged and then market actually went up bcoz the Budget was great

Nifty went up 15%

Portfolio went up 16%

If market moves up 15% 375 56.25

and Portfolio moves up 16% 375 60.00
3.75

This kind of hedging will make you look brilliant in one month and stupid in th

Dec 2005 to April 2006 - Very strong bullishness Sensex 9000 to 12600
May and June 2006 - Major crash - 9000

Many people felt that Sensex is overvalued at 9000 (Dec 2005)

You hedged in Dec 2005 - selling Futures
And continued to hedge in Jan, Feb, Mar, April
Then got tired - you were losing each month
You stopped hedging in May

For him, in June 2006, where is the Sensex?

9000 - 3600 = 5400

It is a question of timing - when to hedge and when to unwind the hedge

Scientific Hedging
Your portfolio movement may not be equal to Nifty movement
You can correlate your portfolio to Nifty - beta
Portfolio beta is say 1.14
Then what to do?
1.14 x 375 = Nifty we should sell 427.5

Beta of 1.14 means what? If Nifty rises by 1%, your portfolio will tend to rise b

Nifty falls by 15% 427.5 64.125

Portfolio will fall by 17.1% 375 64.125
-

Reality is more complicated

Beta is long term historical

DAY TWO - FEB 26, 2007

Futures - Players - Speculators, Hedging
Now, we begin with Arbitrage

Arbitrageur:
Has no view (he is neither bullish nor bearish)
Looks for imperfections especially in pricing
Tries to take advantage and earn almost risk free return
Returns will be low - benchmark should be a Debt Fund
You cant say that last year Sensex went up 39% and this Arbit earned only 9%

Cash and Carry Arbitrage

Spot price of Infosys 2105 Buy Equity today - Long
Infosys Futures March Series 2117 Sell Futures today - Short
Net position - zero
They know that one day CONVERGENCE will happen
The idea is that on that day I will be able to book my profit
Profit is 12
On 29th March, these prices will come close to each other (almost equal)
Infosys Equity 2337
Infosys Futures 2337

He will square up both

Equity Profit 232
Futures Profit -220
Net Net 12

This position carries no price risk

Profit 12
Investment 2105
Return 0.57%
Days 32
Annualized Return 6.50%

Investment may also be required for Initial Margins towards Futures positions
This Initial Margin can be paid in several ways (both cash and non cash format
In the above simple example, I have not considered transaction costs

The mutual fund industry has coined special schemes for Arbitrage
Around Rs 4,000 cr of mutual funds corpus are operating
They have earned Liquid Fund return plus 1 to 1.5% extra

JM, Benchmark, Pru I, Kotak, UTI, JM 2, StanC

FIIs are very active - risk free return is v interesting, rupee is very stable

HNIs and Brokers - very active

Infosys 2105 2117 12 6.50%

Satyam xxxx
SBI bbb
Reliance aaa
I Bank ccc

These large markets are perfect

If markets were perfect, then there should be no arbitrage
Maybe the markets are not so perfect

Lot of money
Sudden money can corrupt
Equity - glamorous
Deriv - more glamorous
First 3 months, you will increase your exposure
In one day, you can lose your last 30 years of income
Warren Buffet - never forget the Post Office (Debt Funds, Low Risk Funds)

Keep a good chunk of your investments in low risk debt funds etc
Within debt funds, arbit funds are pretty good

OPTIONS
Long Fut, Long Eq, Long MF, Long Asset

Profit
Upside - happy - unlim
Price Downside - sad - unlim
Loss

Long Call
 b c
a
a = -43
b = 2150
c = 2193
You are bullish on Infosys
Equity 2105 You need cash
Futures 2117 High risk
Infosys 2150 March Call 43 Premium, Value, Cost, Price

You can buy this Option and pay Rs 43

What do you get?
You get "appreciation above 2150" (if any) on the day of expiry
India is a cash settled system - you will never get Infosys shares
2150 is the strike price (clearly known when you buy the instrument)

Expiry Pr You get You paid Net Net

2500 350 43 307 Limited Losses
2200 50 43 7 Unlimited Profits
2193 43 43 0
1973 0 43 -43
1573 0 43 -43

Short Call
Limited Profits
Unlimited Losses
43

2150 2193
Insurance industry
How many buyers of Insurance policies in India? Millions
How many sellers? 15 companies

Same in Options
A Life Insurance Policy is also a Call Option - underlying Life
The only diff between Infy Option and a Life Option is that in one of them expir
is known

Short Options Players

Institutions - Citi, Goldman
India - Large Brokers, FIIs, HNIs - rich, gutsy, ambitious, systems, active, math
Capable

Long Option Players

Retail

Very few Short Options are sold on the assumption that Infy will go down

Long Put

View Risk Profits Losses Premium

Long Fut Bullish High Unlimited Unlimited N.A.
Short Fut Bearish High Unlimited Unlimited N.A.
Long Calls Bullish Low Unlimited Limited Pay
Short Calls Bearish High Limited Unlimited Receive
Long Puts Bearish Low Unlimited Limited Pay
Short Puts Bullish High Limited Unlimited Receive

Intrinsic and Time Value

Equity 2103
Total Intrinsic Time
2150 43 0 43
2000 141 103 38
2100 105 3 102

Intrinsic keeps changing with change in the price of Infy

Time value keeps changing with passage of time

American and European Options

Concept of Exercise of Options

Any time you buy an Option, the most common way to get out is Sell it
But sometimes, markets may be illiquid - you cant sell
So, this window is available - Exercise
Exercise is rare bcoz it is suboptimal

After market hours, you give an Exercise notice to the exchange

I want to sell my option - please find a buyer
Exchange finds a buyer - random computerized algorithm

At what price?
At Intrinsic Value
You are giving up Time Value

Only the buyer can exercise

The exchange assigns this Option to a counterparty - Assignment
Exercise becomes more common closer to expiry - time value is negligible
Market closes at 3:30 - exercise window closes at 4:15
If there is big news after 3:30 but before 4:15 - exercise becomes interesting

2178
2150 Call
Bad news at 3:45
Tom Infy will open at a low

In an American Option you can EXERCISE on any trading day

In a European Option you cant - you can either sell or wait for expiry

In India, stock options are American style

Index options are European style
That is also international practice

STRATEGIES
The English language has 26 alphabets
The derivative language has 6 basic alphabets
We combine alphabets to make words, sentences, paragraphs, books

Unlimited combinations are possible with alphabets and with derivative instru

You are bullish on Infosys

You want to buy the 2150 call for Rs 43
But you find this is too expensive
What to do?
You are paying Rs 43 for what?
You will get "appreciation beyond 2150"
How much appreciation?
Unlimited
Do you think Infy will go to Infinity by March 29?
So how much do you think it will appreciate?
2300
So why pay for infinity?
How not to pay for infinity?
Sell a 2300 Call (price Rs 12)
You will receive some premium and you are giving up gains beyond 2300

You are buying a 2150 call for Rs 43 and selling a 2300 call for Rs 12

Other Examples:
1. Buy a 2150 Call for Rs 43 and sell a 2250 Call for Rs 18
2. Buy a 2150 Call for Rs 43 and sell a 2000 Call for Rs 125
3. Buy a 2150 Call for Rs 43 and Buy a 2150 Put for Rs 82
4. Buy a 2150 Call for Rs 43 and Buy a 2050 Put for Rs 38
5. Buy a 2150 Call for Rs 43 and Sell a 2150 Put for Rs 80

BULL SPREAD

75 119
2175
2150 2181
2300
2250
25 31

You got a premium of Rs 12 which helped you to reduce

You gave gains beyond 2300 - so the payoff became a st

BEAR SPREAD

82
2150
2000 2082

-68
 LONG STRADDLE

2025 2150 2275

-125

View - market will be volatile

We do not know the direction
LONG STRANGLE

2050 2150 2231

1969

-81
View - market will be volatile
We do not know the direction

2150

2050

2083
Synthetic is a combination of instruments which creates a payoff similar to ano
instrument

I have created in 5 above a Synthetic Long Futures contract (by combining a L

and a Short Put)

Option Pricing
Calls being bullish products will appreciate when the market is bullish and Put
appreciate when the market is bearish
In simplistic terms this is true

How to define pricing is a very basic question

A 2150 Call at Rs 43 is priced higher than a 2400 Call which is priced at Rs 12
Infosys equity 2103 43 = 24% Imp Vol
12 = 35% Impl Vol
Is gold more expensive than coal?
Yes
Bcoz we have something called "currency"
Gold - 10 gms - Rs 8942
Coal - 10 gms - Rs 0.27

We need a new "currency" - more sophisticated

2011 G Sec 7% Rs 102.25

2013 G Sec 6.5% Rs 101.05
We need a new "currency" - more sophisticated

When options started around 1970s - people priced them intuitively

Black and Scholes - Paper

Five Inputs: Sure

1. Stock price Yes
2. Strike price Yes
3. Volatility No
4. Time to Expiry Yes
5. Interest Rate Largely Yes

Whether an option is expensive or not - how to decide?

You input your data and the model tells you that the price should be Rs 39
Actual price is Rs 43
They go back and change the Volatility assumption to make the model price co
the market price
Historical Volatility was 22% 39
Implied Volatility 24% 43

Implied Vol is the currency uses

Industry - 15 Sellers and 15 mio Buyers

Economics - Prices are based on Supply versus Demand

You go to a petrol pump - Rs 51.37 price
You negotiate -Rs 30 per Lt
You go to the stock market and ask for Infosys - Rs 2103
I want this for Rs 1703

Most of us are price takers - very few of us are price makers

15 mio buyers are price takers - 15 sellers are the price makers

15 mio buyers know nothing, 15 sellers know everything

Indian market does work based on these models plus market savviness

Time Value

2103 2150

Straight lines are payoffs on expiry day

 Straight line represents Intrinsic Value
Curve represents Total Value
Difference between the Curve and the Straight Lines re
Time

Delta represents the slope of the Curve

Delta represents the compass of your derivatives ship

Buy 2150 call - 50,000 units 50000 0.42 21000

Sell 2400 call - 84,000 units -84000 0.04 -3360
Sell 2000 put - 15,000 units -15000 -0.2 3000
Buy 1950 put - 5,000 units 5000 -0.12 -600
Buy Futures - 67,000 units 67000 1 67000
87040
Delta is positive 87,040 units (suppose)
1. You are bullish
2. You will gain Rs 87,040 for every one rupee upward move in Info
3. You are taking an equal risk on the downside

You are not so bullish nor are you willing to take so much risk

Selling options not bcoz they are bullish or bearish but bcoz they want to "eat
premium - khanewala

They will calls and puts (and swallow two side premiums)

Thereafter - they can leave it open or hedge it

255 Short Straddle

 3745 4000 4255

Premium of Rs 130 Call and Rs 125 Put = Rs 255

Nifty closes at 4040
Call payout - 40
Put payout - zero
255 - 40 = 215 profit

Nifty closes at 4358

Call payout - 358
Put payout - zero
255 - 358 = 103 loss

1. Assume that you are selling a Straddle on the last Friday of each month
Strike is the nearest multiple of 50
2. Collecting a premium based on 24% Imp Vol
3. Days will be either 28 or 35
4. Look at next month last Thu Nifty Close
5. Payouts to be quantified
6. Work out the net profit

First Row - 2006 (start with last Friday of Dec 2005)

Second Row - 2005
Third Row - 2004
 ll my rice in June to you

me kind of risks as the farmer

ut, but the shopkeeper

Rs 3.25 and he may sell
nd some would make profits

came up with an idea

eeper in Poland

be known as FUTURES

arrived and now they

y are in a small minority

city of less than 50,000 sq ft

 down (from 29)

winter problem

- would Enron be happy or sad

swing in profits (say 45%)

Post Weather Deriv Profit

Graph

Mild

will pay you

marketing these products

45 basis points (p.a.)

s quoting at 135 basis points

rus will be a much stronger

we will incorporate a new

t and invest in Corus
and the price did not fall

s but provided by institutions

 0 institutions

markets actively

ster, serious famines

no kerosene, no dal

iven nothing

erivative markets

tive, option - all this is

rivatives
5% of the age
2% of the scrips
More than twice

d, Indore Soya

ure - OTC market

utures market
d system), prices are

(on expiry)

e more expensive than March)

s and the general thought

intained
may be weak

retty illiquid - the third

riv Dealer (10:45)

to lunch
d of Day

int of time

’s the only trade till today

S3 Op Int
55

158
-234
-234 395
 volume, volatility, free float, etc
wed for each month for

ued thro the trading system

ng per day
onfident

nds - Cost Rs 125 lakhs

long bull run - need protection

ue Rs 375 lakhs
ach other

Profit
Loss
Net Net

dget was great

Loss
Profit
Net Net

th and stupid in the other

00 to 12600

nd the hedge
o will tend to rise by 1.14%

Profit
Loss

bit earned only 9%

day - Long
oday - Short
almost equal)

Futures positions
nd non cash formats)
ion costs

s very stable
w Risk Funds)

side - happy - unlimited profit

wnside - sad - unlimited loss
 Premium
Strike
BEP

ue, Cost, Price

trument)

mited Losses
limited Profits

mited Profits
limited Losses
n one of them expiry date

stems, active, math models

will go down

Short Put

Margins
Yes
Yes
No
 Yes
No
Yes

ut is Sell it
e is negligible

omes interesting

or expiry

hs, books

h derivative instruments
beyond 2300

0 call for Rs 12

ped you to reduce your cost

payoff became a straight line
 will be volatile
ow the direction

will be volatile
ow the direction
ayoff similar to another

(by combining a Long Call

t is bullish and Puts will

 is priced at Rs 12
= 24% Imp Vol
= 35% Impl Vol

hould be Rs 39
 the model price come to

t savviness

me Value
e Straight Lines represents

Bu
Be
Bu
Be
Bu
Net Bu

pward move in Infosys

they want to "eat up" the

ut = Rs 255

of each month