CHAPTER I

1. INTRODUCTION

1.1 INDUSTRY PROFILE
Stock market is a market where trading of company stocks, other securities and derivatives takes place. Stock exchanges are corporations or mutual organizations, which are specialized in trading stocks and securities. All sorts of company stocks are enrolled in the stock exchanges. Some of the stock markets in India are listed below: • • • • • • Bangalore Stock Exchange Mumbai (Bombay) Stock Exchange Calcutta Stock Exchange Delhi Stock Exchange Madras Stock Exchange National Stock Exchange

Mumbai (Bombay) stock exchange is India’s first stock exchange. It was founded in 1875 with total number of listed stocks being more than 6,000. In India there are total 22 stock exchanges operating across the country. The National Stock Exchange (NSE) is situated in Mumbai The small and medium sized companies can list their stocks in Over The Counter Exchange of India (OTCEI). The Securities and Exchange Board of India (SEBI) regulates the functioning of capital market and protects the interests of the investors. It is situated in Mumbai. Some functions of SEBI are as follows: • • • • Regulation of working in stock exchanges and other securities markets. Registration and regulation of the operation of collective investment plans, including mutual funds. Inhibition of fallacious and unfair business practices in the securities markets. Controlling accomplishment of shares and takeover of companies.

Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. 1

These securities include: (i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ii) Government securities; and (iii) Rights or interest in securities.

History of stock market in India The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know by the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the Government of India. National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian stock market. The history of Indian stock market is almost the same as the history of BSE. There are 23 recognised stock exchanges in India Bombay Stock Exchange ,National Stock Exchange, Ahmadabad Stock Exchange, Bangalore Stock Exchange, Bhubaneswar Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, Guwahati Stock Exchange, Hyderabad Stock Exchange ,Jaipur Stock Exchange, Ludhiana Stock Exchange, Cochin Stock Exchange, Coimbatore Stock Exchange, Madhya Pradesh Stock Exchange, Magadh Stock Exchange, Madras Stock Exchange, Mangalore Stock Exchange, Meerut Stock Exchange ,OTC Exchange Of India Pune Stock Exchange, Saurashtra Kutch Stock Exchange, Uttar Pradesh Stock Exchange, Vadodara Stock Exchange.

1.2. COMPANY PROFILE
Name of the company Year of Establishment Admin office : : : Sharekhan ltd. 1925 ShareKhan SSKI 2

A-206 Phoenix House 2nd floor,S.B.Marg, Lower Parel Mumbai - Maharashtra, INDIA- 400013 Nature of Business Services Core Services : : : Equity and Derivatives trading on BSE and NSE 1. Depository Services 2. Online Trading 3. IPO Services 4. Commodity Trading on MCX and NCDEX 5. Port folio Management services. Number of Employees Revenue Website Slogan : : : : Over 3500 Data Not Available www.sharekhan.com Your Guide to The Financial Jungle. Service Provider Depository Services, Online Services and Technical Research.

1.2.1. Background and inception of the company

Origin and Growth Sharekhan is a retail broking arm of S.S. Kantilal Ishwarlal Investors Services Pvt. Ltd., An organization with more than 8 decades of trust and credibility in the stock market. Sharekhan Ltd (Formally SSKI Investors Services Pvt Ltd.) was promoted by Mr. Shripal. S Morkharia and Mr. Shreyas. S Morkhia. It is currently India’s largest broking house. It is a member of the stock 3

The SSKI Group Comprises of Institutional broking and Corporate Finance.2. Its business includes stock broking.2. national and regional political. portfolio management and derivatives. The company’s core specialty lies in its retail distribution with a large network of branches i. economic and social situations so as to assess their impact on the economy in general. Share Khan is blessed with well-dedicated sales wings. gives them a general understanding about how the share market operates. the sectors so as to assess their impact on the economy in general. to educate the potential investors towards the share market they provide a study kit named the ‘Derivative Digest’. The Institutional broking division caters to domestic and foreign institutional investors. These are the wide-raging services offered by the share khan to its customers. Mumbai. who are looking after the various needs of the customers in a committed manner and which provide the customers with tremendous amount of satisfaction and happiness about their investment.exchange. while the Corporate Finance Division focuses on niche areas such as infrastructure. and it also gives an idea regarding the role of share brokers in the Capital Market. depository services. Whether the client come in to the company’s conventionally located officers and 4 . Its research division has several analysts continuously monitoring global. And for potential investors wanted to start the trading in the share market also provided with the study kit ‘First Step to investing in the share market’. And most importantly. For the derivates segment. Telecom and media. It is a depository participant of the NSDL and CDSL. 1. the sectors and companies they research which helps them if offering quality research and advice to clients. 510 share shops (retail shops) in 170 cities in India and sub-brokers/authorized persons. trade and post trade service on the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange). SSKI has been voted as the Top Domestic Brokerage House in the research category by Euro Money Survey and by Asia Money Survey. Nature of the Business Carried Sharekhan is a broking company. The company offers a complete range of pre trade. Its strengths lies in its investment research capabilities.e.

ii. Mutual Funds iv.trade in a dedicated ambience or issue instructions over the phone. our highly trained team and sophisticated equipment ensure smooth transactions and prompt service. Mission 5 .\ • • • • Investment Advisory Service Facilitation Services to Retail Investors. Online trading (Includes equity. To be a leading investment intermediary for transaction through both online and offline medium. 1. To be the top most company for providing investment advisory and financial planning services in India. Professional seeks to educate clients and end their confusion by custom an Investment Plan according to the needs of clients and is also today a part of company’s induction program advising employees on how to plan their investments.2. MISSION & QUALITY POLICY Vision Sharekhan practices customer centric approach to be leading broking Firm. Corporate. Depository Services Investment options includes : i. VISION.3. Commodities trading iii. Our services are available through our network of 510 Share Shops spanning 170 major towns and cities in the country. derivatives) ii. The Company Vision is: i. Portfolio management Services Sharekhan Branches are conceptualized to be place where investors can come in contact with investment opportunities in an atmosphere of convenience and comfort.

• • • To increase the customer base of investors to invest in all kind of securities.To educate and empower the individual investor to make better investment decisions through quality advice and superior service. news. Total equity solutions for the entire investment process. To retain the existing consumers with research backed advice and personalized care the needs of the consumer. operations v. a) Educate and empower i. Transparency iii. are as follows: • • Equity and derivatives trading Depository services 6 . what needs to be accomplished in order to reach the goals. Information – product. and discipline. Enjoyable experience our goals is to accomplish top most position in both online and offline medium of trade and also to remain a customer centric organization. Products and service profile The different types of products and services offered by Sharekhan Ltd. which is easy to understand. Hassle free trading vi. Sharekhan has one among the largest network of outlets of the either trading firms with 180 outlets. Quality objectives Objectives represent. iii. Integrity ii. ii. Professionalism iv.2. retail specific. 1.4. Relationship management a) Superior service i. Research backed advice.

• • • • • • • Online services Commodities trading Dial-n-trade Portfolio management Share shops Fundamental research Technical research Types of accounts in Sharekhan ltd. Sharekhan offers two types of trading account for its clients ➢ Classic Account (which include a feature known as Fast Trade Advanced Classic Account for the online users) and ➢ Speed Trade Account 7 .

1 for intra day trading.in his/her account he/she can get the exposure up to Rs. 8 . would be opened with SSKI.After hours order placement facility between 8. 750/.CLASSIC ACCOUNT This is a product for the retail investor who is risk-averse and hence prefers to invest in stocks selectively or who does not trade too frequently. The client gets exposure of up to 4 time of the deposit amount. Online trading account for investing in Equities and Derivatives b. Integration of: Online Trading +Saving Bank + Demat Account. Two dedicated numbers(1800-22-7500 and 39707500) for placing the orders using cell phones or landline phones ii.30 am c. With the online package defaults demat a/c. It’s free.Simple and Secure Interactive Voice Response based system for authentication iv. For example if the client has Rs.000/The brokerage applicable is 0. The features of the products are as follows: The registration charges are Rs. professional advice of Sharekhan limited’s Tele Brokers v. 20. For the 1st year no demat charges have to be paid.50% on delivery and 0. Free trading through Phone (Dial-n-Trade) i. This account comes with the following features: a.get the trusted. 5000/.Automatic funds transfer with phone banking facilities (for Citibank and HDFC bank customers) iii.that is a one-time payment. There is no volume commitment on the part of the client.00 am and 9.

which enables one to buy and sell in an instant.0. Market summary (Cost traded scrip. e. Charge structure Fee structure for General Individual: Charge Account Opening Classic Account Rs. This account comes with the following features: a.0. h.0. IPO investments. Trade which allows customers to trade on both case and F & O. Multiple Charting.50% Brokerage Depository Charges: Account Opening Charges 9 Rs. c.50 % Speed Trade Account Rs. j. i. 750/= Intra-day – 0. e. Single screen trading terminal for NSE Cash.10% Delivery . d. 1000. NSE F&O & BSE. NIL . There will be a common exe called speed.10 % Delivery . g. Instant order and trade confirmations by e-mail. Alerts and reminders. Technical Studies. Instant order Execution and Confirmation. b. f. tic-by-tic charts. Real-time streaming quotes.) g. Back-up facility to place trades on Direct Phone lines. Live market debts. 1000/= Intra-day . It is ideal for active traders and jobbers who transact frequently during day’s session to capitalize on intra-day price movement. SPEED TRADE ACCOUNT This is an internet-based software application. Hot keys similar to broker’s terminal. highest value etc. account opening fee Rs.d. f. Single screen interface for cash and derivatives. Instant cash transfer facility against purchase & sale of shares. The company will be merging speed trade and speed trade plus.

Sharekhan understand investor need for additional capital availability for daily purchaser shares. The Company’s wide network of outlets spread across the country facilities to executive the orders in secondary market. for purchasing shares at very competitive interest rates. Sharekhan will open De-mat accounts. IPO’s and Mutual Funds: Sharekhan offers the change of investing in the potentially lucrative IPO market. c. 10 . This is the new scheme introduced by the company and it also offers schemes catering to investors with varying risk return profiles. d.Annual Maintenance Charges Rs. Trading Facilities: Sharekhan as a member of NSE & BSE provides both offline and online trading facilities nationwide for trading the securities in secondary market to its clients. Depositor Services: Sharekhan is a Depository participant of National Securities Depository Limited and Central Depository and securities Limited. which will investors to convert physical certificates of shares into electronic balances in an account maintained. The equity dealers in the company will be eager to give insights into the new sets introduction in the Indian Capital market futures and options. e. from second calendar year onward SERVICE PROFILE a. Derivatives: (Futures and Options) The company also facilitates the trading system for trading in secondary market under future and options segment of NSE and BSE. It offers unique facility avail finance.a. Sharekhan is a distribution house for all mutual funds. Margin Financing: In the present rolling settlement scenario. NIL first year Rs. b. 300/= p.

industry and company specific equity research. i. They have online trading products that are customized to the habits and preferences of investors as well as traders. analyzing trends and brining innovation in their offerings. These would be sent out the borrowers. The virtual world that Sharekhan offers online trading services through. Since then. g. quarterly investment picks and long term investment picks. they have been at the forefront in understanding customer needs. It is approved intermediary of the security or lending scheme. h. Stock lending and Borrowing: One can place an order of shares with Sharekhan. Portfolio Management Services: Sharekhan securities are a registered portfolio manager with SEBI to manage portfolios on behalf of clients with discretionary and anon discretionary rights this service is a provision for those who may not have the right time to manage their stocks investment or require the service of company’s highly specialized professional team. based on the fundamentals of particular company and the industry as whole. j. Equity Research: Sharekhan has a highly rated research using involved in macroeconomic studies. these earnings fees for all investor’s idle shares. 11 . The research team’s inputs will be available as daily trading calls. Internet Trading: Investors can also trade their securities through this facility by logging into company’s website.f.com in February 2000. Online Trading: Share Khan was amongst the pioneers of online trading in India and has launched Sharekhan. Thus Sharekhan fulfils the investor need for borrowing and lending of shares.

Live management information.5. vii. Daily trading calls based technical analysis v. Sharekhan “value line “ ( A monthly publication) iii.Features of Online Trading Products: i. from Sharekhan research team. Online BSE and NSE executions through BOLT & NEAT terminals. viii.Internet based online trading session. (Daring derivatives and market strategy) vi.2. Single Screen for equities and derivatives v. iv. The affiliated banks are as follows: • HDFC BANK • UTI BANK • CITY BANK • ICICI BANK • OBC BANK • UNION BANK • INDUSAND BANK • IDBI BANK • CENTURION BANK • AXIS BANK • YES BANK 1. Daily research reports and market review. Areas of operation: 12 . which allows its customers to enjoy the facility of instant credit and transfer of funds from his savings bank account to his Sharekhan trading account. Real-time portfolio tacking a. Live streaming quotes ii. Personalized advice. Other Services: i. ii. Free access to investment advice. Price alerts iv. ix. Instant order execution and conformation iii. Cool trading products. Bank Connection:Sharekhan has affiliation with 11 banks. Multiple market watch windows vi.

It has its presence globally i.6.2. It has presence in more than 280 cities through its network of longstanding franchisees and sub brokers.Sharekhan provides a wide range of services nationwide to a substantial and diversified client base that includes retail clients. Management team Dinesh Murikya : Owner of the company Tarun Shah : CEO of the company Shankar Vailaya : Director (Operations) Jaideep Arora : Director (Products & Technology) Pathik Gandotra : Head of Research Rishi Kohli : Vice President of Equity Derivatives Nikhil Vora : Vice President of Researc 1.2. corporates and financial institutions.7. high net worth individuals.e in UAE also. Competitors information: 13 . 1.

offering complete financial solutions that encompass every sphere of life. Middle East. Religare Enterprises Limited is part of a family of companies that fall under the broader Religare brand. Religare Securities: Religare is a global financial services group with a presence across Asia. In India. Religare has also ventured into the alternative investments sphere through its holistic arts initiative and film fund. investment banking. aviation and travel. Kotak Securities. and IT products and solutions. wellness retail. Kotak Securities: Kotak Mahindra is one of India's leading financial conglomerates. Religare’s largest market. offers a range of products and services in India. From commercial banking. India bulls. the group offers a wide array of products and services ranging from insurance.Sharekhan is one of the major player in on line Trading. REL. Anand Rathi. The group has also pioneered the concept of investments in alternative asset classes such as arts and films . Africa. high net worth families and individuals. Religare serves over a million clients. life insurance. Europe and the Americas. including asset management. Motilal Oswal. along with its joint venture partners. private equity and venture capital. asset management. to stock 14 . In Mumbai the main competitors of Sharekhan are ICICI Direct. Religare securities and reliance securities.With 10. A diversified financial services group Religare Enterprises Limited (REL) offers a comprehensive suite of customer-focused financial products and services targeted at retail investors. equity and commodity broking.000 plus employees across multiple geographies. lending services. broking and lending solutions to investment banking and wealth management. wealth management. and retail investors. HDFC Securities. including corporates and institutions. which includes other global businesses such as diagnostics. high net worth individuals and corporate and institutional clients.

Mutual funds and Portfolio management service. to life insurance. It provides customers with access to Equity. Reliance Securities endeavours to change the way investors transact in equities markets and avails services. Mutual Funds and IPOs. it also provides the convenience of trading offline through variety of means.8. Investments in IPO. Portfolio Management Services. in terms of net worth. Kotak Securities Ltd. Branch dealing Desk and its network of affiliates. Investment Banking. and ranks among the top 3 private sector financial services and banking groups. It also offers secured online share trading platform and investment activities in secure. Reliance Money through its pan India presence with 6. To enable wider participation.. 1. Their offerings include stock broking through the branch and Internet. the group caters to the financial needs of individuals and corporates. a 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the industry. “Reliance Money” is a brand owned by Reliance Capital Limited. Reliance Securities with the permission of Reliance Capital Limited uses the “Reliance Money” brand to market its various services. cost effective and convenient manner. Infrastructural facilities Sharekhan investment outlets are designed to be places where retail investors can come in touch with investment opportunities in an atmosphere of convenience and comfort.broking. to mutual funds. Reliance Capital is one of India's leading and fastest growing private sector financial services companies. to investment banking.233 outlets has more than 3. including Call & Trade. Reliance Securities Ltd: Reliance Securities Limited is a Reliance Capital company and part of the Reliance Anil Dhirubhai Ambani Group.5 million customers.2. The look and 15 . Derivatives.

2.  Connectivity to NSE for trading facilities.10. 2. Sharekhan investment philosophy applies a disciplined 16 . “The clients are people.9.2. Pioneers of online trading in India amongst the top 3 online trading websites from India. Infosys. not accounts” hence successful investment management relationship begins with a clear understanding of each client’s specific needs. 5. The furniture is in CKD formats to add flexibility in using the branch for investor’s purposes. Achievements of Sharekhan 1. Voted by CNBC Awaaz as the Most Preferred Stock broker in India in 2005. 4. January 2004 edition. 1. 3.  The major portion of the branch area dedicated for customer use.  Most branches are located in the ground floor sporting huge glass frontage promoting easy accessibility and reflecting our attitude of complete transparency. Rated among the top 20 wired companies along with Reliance. Most preferred financial destination amongst online broking customers. 1. concerns and long-term objectives. Work flow model At Sharekhan it’s believed that. Awarded ‘Top Domestic Brokerage House’ four times by Euro money and Asia money. HUJl. Winners of “Best Financial Website” award. etc by ‘Business Today’.  TV and other electronic mediums to facilitate real time update and dissemination of information to our customers. The features that enable a unique facility for retailing financial services include among others: Easily visible branches set up in the commercial spaces of potential investment zones ranging between 750 sft to 1000 sft. Each branch comprises of trained and qualified investment advisors to take care of the needs of the customers.feel of the offices across India projects a consistent branch image for the company.

They published their 7-S model in their article “Structure is not 17 . at that time.000 plus retail customers being serviced through centralized call centres / web solutions. The 7-S model is better known as McKinsey 7-S model. 1. Tom Peters and Robert Waterman. ii. have been consultants at McKinsey & co. 00. This is because the two persons who developed this model. iii. 250 independent investment managers/ franchisee servicing 50.11.approach to building a customized strategy designed to meet customer’s individual financial goals and tolerance for risk. 2.2. Future Plans and prospectus: i.000 highly valued clients iv. Branches / Semi branches servicing affluent / aggressive traders through high skill financial advisor. New initiatives Portfolio management Services and commodities trading CHAPTER II McKinsey 7 s framework with special reference to organisation under study.

18 . but consists of seven elements: STRATEGY: The direction and scope of the company over the long term. reporting lines. What it does best. through to the systems at the point of contact with the customer (retail systems. The model starts on the premise that an organization is not just structure. its departments.organization” (1980) and in their books “The art of Japanese management” (1981) and “In search of excellence” (1982). SKILL: The capabilities and competencies that exist within the company. areas of expertise and responsibility. call centre. online systems. covering everything from management information systems. STRUCTURE: The basic organization of the company. systems. SYSTEMS: Formal and Informal procedures that govern everyday activity. etc).

STYLE: The leadership approach of top management and the company’s overall operating approach. Financial Resources Sources of capital supply and how it will be utilized. Physical Resources Physical facilities and how they will be utilized in providing services. THE 7S MODEL WITH REFERENCE TO SHAREKHAN: STRATEGY: Sets out the vision. These set out the picture of the organization in the future typically spelling out the overall corporate strategy. Innovation Innovation in products/ services as well as innovation in skill and activities required to supply them. including areas in which new products are needed and service goals aimed at building customer loyalty. d. b.SHARED VALUES: The values and beliefs of the company. Human Resources Supply. It is the first step that the company has to take in leading its organization to ladder of success. Market Standing Description Desired share of present and new markets. trained and motivated. The major areas of Strategic Goals of Sharekhan are: Major a. development and performance of manager’s employee attitudes. c. Ultimately they guide employees towards ‘valued’ behaviour. 19 . It can also be defined as the choice of direction and action that the company adopts to achieve its objective in a competitive situation. mission. e. STAFF: The company’s people resources and how they are developed. the Strategic business unit strategy and functional Strategies. objective and major action plans and policies of the organization.

in the north and southern regions.These areas are managed by a Regional Branch Head who takes care of operation in these respective areas. Social Responsibility Responsibilities in such area as concern for community and ethical behaviour. If it is not properly defined it has a detrimental effect on the effective and efficient working because motivation and morale is low. ORGANISATION CHART: HEAD OFFICE Chairman 20 . mode of communication. Structure of any organization has to answer the following questions• • • What is basic structural form? How centralized versus decentralized is the organization? What is the relative status and power of the organization? At sharekhan the structure is clearly defined. I.f. their respective roles and rules and regulation for carrying out different tasks. The southern region covers areas like Karnataka. orders are lost due to competition. Sharekhan has its operations distributed throughout India. The organization chart for the regional office and its branches are as follows. Sharekhan has its 620 share shops across 280 cities in India with the headquarters situated at Mumbai. lack of confidence etc. g. Kerala and Tamilnadu. Productivity Efficient use of resources relatives to outcomes. The registered Office is centralized at residency road. Andhra Pradesh. Bangalore.e. decision are delayed and are of poor quality the expenses rises. It provides the frame work for relationship among different parts of the organization. It sets out formal reporting relationships. STRUCTURE: Include policies and procedures that govern the way in which the organization acts within the organization.

Promotions activities for promotions of various funds (New Recommended ones). The information systems at the various branches of sharekhan are followed by submission of MIS reports at end of their day to day activities. Sales Team At the back office day to day operations include• • • • Processing of various application forms of demat account IPO’s and forwarding the same to the Head office. Regional Zonal Heads Jr. A good system adds to the efficient and effective working of the entrepreneur. New issue promotions. Regional Back Office Dealers SYSTEMS: Systems in their frame work stands for the rules and regulations. Providing statement of account to the investors on request.Regional Heads Regional Product Heads Branch Relationship Sr. 21 . transparent and not complicated. procedures and practices that must be allowed to carry out the tasks in the organization. Addressing requests for nonpayment of sub broker’s commission. Finally MIS reporting of day to day transactions. At Sharekhan in Chintamani the procedure followed is clear. The activities of the front end operation include: • • • • • • Client Advisory Services Processing of demat account transactions. MIS reporting of day to day transactions. Portfolio Management of NRI clients.

In the online transactions. • 22 . they follow a very in effable style of functioning. • • • • Managers. suggestions are invited.The Total Quality Control System of Sharekhan has created principles about its quality philosophy• • • Create constancy of purpose and improve services for long range needs rather than short term profitability. informal conversations. Personal attention to the project trainees helps in creating a good image in the eyes of the public. They follow the system of performance appraisal on 180 degree appraisal model. Emergency meetings are held where top management and employees collectively participate. Search continually problems in the system and improve processes. CDSL. Staff has very good informal conversations that develop a sense of loyalist. • • How does the top management make decisions – Participatory Vs Top Down? How do managers spend their time in informal meetings.targets for the week is set. Style impacts the norms people follow and they work and interact with each other and with customers. online trading takes place using neat software. NSE and BSE and helps stock brokers to trade online. It is connected to NSDL. Rewards are given according to the performance. motivation. The offline is mainly connected for the purpose of conversion of physical form of shares to electronic form. etc? At sharekhan. STYLE: Style includes Leadership style of top management and overall operating style of the organization. dedication within the employees. The Electronic Data Processing (EDP) department of Sharekhan takes care of both offline and online transactions. Encourage effective two way communication and other means to drive fear throughout the organization and help people to work more productively. responsibilities are delegated. staff etc are approachable (a perfect blend of formal and informal approaches).

their backgrounds. socialized and integrated and how their careers are managed? • • • At Sharekhan. management practices. What new capabilities the organization needs to develop. The competent skills of the people include good communication and presentation skills. • • • • They are involved in all the required meetings and activities. The candidates are recruited from diverse fields of commerce like B. Get together are held for staff members to socialize. They also give a strong basis for stabilities to 23 . How people developed. which one does it need to unlearn to compete in future. selection and specialization. This can be learnt through a SWOT Analysis. strong academic record. At Sharekhan.• There is a good cordial relation between the management and the employees which shows a participatory leadership style is observed. ICWA’s. SHARED VALUES: Refers to core/ fundamental values that are widely shared in the organization and serve as guiding principles that are important. These values have great meaning because they focus attention and provide a broader sense and purpose. and competencies. SKILLS: Include distinctive competencies that reside in the organization. there are around 3500 employees working across India. Chintamani branch there are about 10 employees. consistent in the performance levels etc. These can be distinctive competencies people. The Staff are given freedom to use their innovation and creative skills. • STAFF: The staffing procedure mainly includes how the organization has to look into its people. systems and technology. CA’s and CFA’s great opportunity for fresher’s and post graduates are available. Staff also includes the organization approaches to recruitment. Com’s. MBA’s. Staff grievances are given a listening in a year. how recruits are trained.

The employees share responsibility and protect the company’s name and integrity. This can be said as the shared values of the employees of the organization. in a rapidly changing environment by providing a basic meaning to people working in the organization. which is primarily a client or investor oriented organization has embedded this quality among all its member employees. The member’s work today towards the growth and success of the unit. • • • Do people have a shared understanding of why a company exits? Do people have a shared understanding of the vision of the company? How do people describe the ways in which the company is distinctive? At Sharekhan. CHAPTER III SWOT ANALYSIS: 24 . There is no sharing of confidential/ important information with the outsiders. There is collective responsibility and accountability on the part of its members.the organization.

used in management and strategy formulation. political. compared to its competitors. s p rtu itie n Experience senioro (T )  World class technology and infrastructure. Weaknesses. skills.  Fundamental and technical research. SWOT MATRIX: S O WT IN E N L TRA M ETRA XENL (O ) Strengths  Global parentage and expertise. Opportunities and Threats of a particular company.A SWOT analysis is a tool. They can include assets. legal or cultural factors. S O S a g tr te ie U ‘S tota e se ’ k a v n g o ‘O d a ta e f E te a x rn l 25 S S a g s T tr te ie U ‘S toa o ‘T se ’ v id ’ . Opportunities and threats are external factors that create value or destroy value. It can help to identify the Strengths.  (S ) In rn l te a S n th tre g s E te a x rn l O pmanagement. economic. Strengths and weaknesses are internal factors that create value or destroy value. social. But they emerge from either the competitive dynamics of the industry/market or from demographic. or resources that a company has at its disposal.  Strict risk control systems. They can be measured using internal assessments or external benchmarking. A company cannot control them. technical.

Weakness  Many competitors.  Uncertainty of the market and volatility and fluctuations in the stock prices. Weak brand name.  Threat from new entrants into the field of stock broking. Opportunities  To grab the growing Indian market. There is 16.  Company with well diversified portfolio.6 percentage increases in Reserves and surplus in 2009 over the previous year.  Up gradation of the latest technology to give better and faster service to its clients Threats  Global economic slowdown.  Payment services are not good. preferences and taste. CHAPTER V 26 .  Scope for increasing its branch network especially in the important financial centres as well as extending its physical presence in other parts of the country.   No global reach. CHAPTER IV Analysis of balance sheet.  No direct marketing strategy.  Scope for taking its business overseas and going global. Multiple products under one roof.  Change in customer needs. The equity share capital has remained more or less the same. Investments increased by 50 percentage.  The ever increasing and challenging neck-to-neck competition specially with those established and existing reputed stock broking companies.  The Indian capital market is fluctuating.

techniques and practices of management with different activities of the organization in trading operations • • It increased my conceptual understanding of the entire subject financial derivatives. Basically stock market investments are considered to be very risky. it is possible to partially or fully transfer price risks by locking-in asset prices. 27 . derivative products minimize the impact of fluctuations in the asset prices on the probability and cash flow situation of risk-averse investors. CHAPTER VI INTRODUCTION TO THE CONCEPT “Derivative is a product whose value is derived from the value of one or more basic variables called bases (underlying asset. • It helped to link the theories. The opportunity of undergoing an in plant training for one month duration is being capitalized by me by increasing my knowledge base by working at Sharekhan. index or reference rate) in a contractual manner”. but if the scrip’s selected by the investor is favorable according to the market conditions than the investor will be able to generate high profit within a short time span.Learning experience. these generally do not influence the fluctuations in the underlying asset prices. However by locking-in asset prices. I am privileged to highlight some of the learning experience got from this training. Through the use of derivative products. As instruments of risk management.

Increased integration of national financial markets with the international markets. a firm or investor does not benefit by laying it off in the financial market.stem from fluctuations in revenues and production costs. Marked improvement in communication facilities and sharp decline in their costs.arises when the contracting counterparties do not fulfill their obligations. Since the price of systematic risk is identical for all the participants in the financial market. commodity prices. the CAPM and Arbitrage pricing theory show that unsystematic risk has no bearing on the required rate of return. currency rates.arises mostly in the R&D and operations stages of the value chain. Economic risk.arises from changes in laws and regulations. Thus.arises from the volatility of interest rates. Only systematic risk (or market risk) is priced and. Financial risk. proving economic agents a wider choice of risk management strategies and 28 .The wide array of risks that a business firm is exposed to may be classified into five categories: Technological risk. in an efficient financial market the expected NPV of any risk hedging activity like taking an insurance cover or buying a forward contract is zero. Legal and regulatory risk. Development of more sophisticated risk management tools. and stock prices. Performance risk. Under certain plausible condition. • • • • Increased volatility in asset prices. FACTORS DRIVING THE GROWTH OF DERIVATIVES. Other things being equal. hence. WHY TOTAL RISK MATTERS Modern finance theory regards hedging activities aimed at reducing total corporate as irrelevant. a firm or investor with a high total risk exposure is likely to face financial difficulties which tend to have a disrupting effect on the profit. according to this line of reasoning. has an influence on the required rate of return.

Baskets: Baskets are the options on portfolios of underlying Assets. Leaps: Long Term Equity Anticipation Securities (LEAPS) are the options having a maturity of up to 3 years. PARTICIPANTS IN DERIVATIVES MARKET:  Hedgers  Speculators 29 . Swaptions: (Options + Forwards) are the options on a forward Swap. an option is a claim without any liability. to buy or sell an asset at an agreed price on or before a specified period of time. Futures: A futures contract is a standardized forward contract which can be traded on organized exchanges. an option is a contract that gives the holder a right. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to pre-arranged formula. without any obligation. Warrants: Longer dated options which have expiry date up to one year are called warrants. A future is a contract or an agreement between two parties to exchange an assets / currency or commodity at a certain future date at an agreed price. In fact. The trader who promises to buy is said to be in ‘ long position ‘ and the party who promises to sell said be in ‘short position’. Options: Inboard sense. More specifically. a future is a standardized form of forward contract. DERIVATIVE PRODUCTS Forwards: A forward contract is an agreement between two parties to exchange an asset for cash at a predetermined future date called the settlement date for a price that is specified today.• Innovations in the derivatives markets.

Features:  They are bilateral contracts and hence exposed to counter party risk. you have bought forward cotton or you are long forward cotton. on July 1 you will have to pay Rs-80. 30 .  Higher trading volumes in financial markets. The forward contract only specifies the terms of a transaction that will occur in future. monitoring and surveillance of the activities of various participants. As per this contract.000/. No money or cotton changes hand when the deal is signed.per bale from a cotton dealer. A forward contract represents an agreement between two parties to exchange an asset for cash at a predetermined future date called the settlement date for a price that a specified today. According to this agreement.and the cotton dealer will have to supply 100 bales. INTRODUCTION TO FORWARDS: Forward contracts are perhaps the oldest and simplest tools for managing financial risk. you have entered into a forward contract with the cotton dealer. A. Arbitrageurs ECONOMIC FUNCTIONS OF THE DERIVATIVE MARKET:  Transfer of risks.  Acts as a catalyst for new entrepreneurial activity.  Discovery of future as well as current prices. whereas the cotton dealer has sold forward cotton or is short forward cotton. if you agree on Jan 1 to buy 100 bales of cotton on July 1 at a price of Rs800/. For example.  Margining.

there is one open contract. INTRODUCTION TO FUTURES: A futures contract is a standardized forward contract which can be traded on organized exchanges. Each contract is custom designed and hence is unique in terms of contract size.  Forward contracts are generally used in real estate. When a futures contract is first listed for trading by an exchange. 31 . When one trader takes a long position on the contract for a particular price and another trader takes a short position on the contract at the same price.  If the party wishes to reverse the contract. Thus. Futures contracts are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date. expiration date and the asset type and quality.  On the expiration date. it has to compulsorily go to the same counter party. A future contract is an agreement between a buyer and a seller. gold. the contract has to be settled by the delivery of the asset. it generates a trading volume of one contract. A future is a contract or an agreement between two parties to exchange an assets / currency or commodity at a certain future date at an agreed price. At this point there is one contract which remains to be performed or settled through delivery of the asset in the future. commodities. In fact. foreign currency exchange etc. B. It is similar to the forward contract in all the respect. and the seller an obligation to sell to the buyer a specified quantity of an underlying asset at a fixed price on or before a fixed day in future. interested parties take long or short positions on the contract.  The contract price is generally not available in public domain. a future is a standardized form of forward contract. which is the terminology used to describe the number of open contracts or contracts remaining to be settled in future on any particular day. Such a contract confers on the buyer an obligation to buy from the seller. This is also referred to as open interest. The trader who promises to buy is said to be in ‘ long position ‘ and the party who promises to sell said be in ‘short position’. which often results in high prices being charged. Such a contract can be for delivery of an underlying asset.

foreign currencies.  They are marked-to-market.  Price is zero and linear payoff. monetary metals etc) Features:  Traded on an organized exchange with Notation.  Standardized contract terms are defined by exchange. greater transparency. exposures limits etc. A margin is a deposit to be made to the clearing house by the parties entering into a futures contract. Broadly there are two types of futures:  Commodity futures (Cocoa. Standardized futures contracts generate liquidity. to ensure contract compliance and guarantee settlement. Soya bean etc)  Financial futures (Index futures. Due to these inherent advantages. Gold.  Requires margin payment.  Both long and short at risk. fairness and efficiency. futures markets have been enormously successful in comparison with forward markets all over the world. debt instruments. daily market to market margin. Cotton. Aluminum. There are three types of margins:  Initial margin or performance margin  Maintenance margin 32 . stock futures. futures markets use a clearing house which employs initial margin.To eliminate counter party risk and guarantee traders. Crude oil. The price of a futures contract is determined on the floor of the exchange by forces of demand and supply.

 Variation margin The difference between forward contract and future is that future is a standardized contract in terms of quantity. irrespective of the maturity date which is called marking to the market. But you also fear that the price may also fall below Rs-291/-. Ignoring the option premium. so it has secondary markets. if you buy a call option on a certain share of XYZ Company. Types of options: 1) Call option: . Suppose current share price (S) of Reliance Industries is Rs-291/-. that the option involves 100 shares). the decision to exercise your option depends upon the share price after three months. taxes. you have the right to purchase 100 shares (assuming of course. For example. an option is a claim without any liability. to buy or sell an asset at an agreed price on or before a specified period of time. date and delivery. instead of buying the share. A call option is a contract.Gives the buyer the right. RS-280/-. INTRODUCTION TO OPTIONS: Inboard sense. It is traded on organized exchanges. but not the obligation to buy a specific futures contract at a predetermined price within a limited period of time. which gives the owner the right to buy an asset for a certain price on or before a specified date. transaction costs and the time value of money. Future contract is always settled daily. say. To reduce the chance of risk and at the same time to have the opportunity of making profit. you can buy a 3-month call option on Reliance Industries at an agreed exercise price (E) of. More specifically. without any obligation. an option is a contract that gives the holder a right. You will exercise option when the share price after three months is 33 . C. You expect that price in a three months period will go up Rs-300/-.

above Rs-280/- and you will not exercise when the share price after three month is below Rs240/-. Thus option should be exercised when: Share price at expiration > Exercise price = St>E Do not exercise option when: Share price at expiration <= Exercise price =St<E The value of call option at expiration is: Value of call option at expiration= Maximum [(share price –exercise price), 0] Ct = Max [(St – E), 0] The expression above indicates that the value of call option at expiration is the maximum of the share price minus the exercise price and zero. The call option holder’s opportunity to make profit is unlimited. It depends on the actual market price of the underlying share when the option is exercised. Greater the market value of the underlying asset, the larger is the value of the option. The following figure shows the value of call option. Value of call option

Exercise price
Unlimited pay off 0 Out-of-money 1.1 Pay-off of a call option buyer It may be observed from the above figure 1.1 that the possible outcomes can be divided into two parts: one above the exercise price and other below the exercise price. The outcome above the exercise price are said to be In-the-money and are beneficial to the option holder but Value of share in the money Fig.

34

not the outcome below the exercise price. It is the exercise price that divides the good and bad outcomes. For the call option writer, he will gain when share price is below the strike price and will lose when stock price is above the strike price. The call buyer’s gain is call seller’s loss. The figure 1.2 shows the pay-off of a call option writer.

In –the- money (Good outcome) 0

out –of money (Bad outcome) Value of share

Exercise price

Value of call option Fig. 1.2 Pay –off of a call option writer. 2) Put option: - Gives the buyer the right, but not the obligation, to sell a specific futures contract at a predetermined price within a limited period of time. Put option is a contract that gives the holder a right to sell specified shares at an agreed price on or before a given maturity. Thus, if you buy a put option on shares of XYZ Company, you have the right to sell 100 shares of this company at the specified price at any time between today and the specified date. Suppose the current price (S) of Reliance Industries is Rs. 291 and you expect that the price will fall within a three months. Therefore, you can buy a 3-month put option on Reliance Industries at an agreed exercise price 35

(E), say, Rs. 295. If the price actually falls to (S t) Rs. 280 after three months, you will exercise your option. You will buy the share for Rs. 280 from the market and deliver it to the put-option writer to receive Rs. 295. Your gain is Rs.15 ignoring the put option premium, transaction cost and taxes. You will not exercise if the share price rises above exercise price; the put option is worthless and its value is zero. Thus, exercise the put option when Exercise price >Share price at expiration = E > St Do not exercise put option when Exercise price <=Share price at expiration = E<St The value of put option at expiration will be Value of put option at expiration= Maximum [(Exercise price –Share price), 0] Pt = Max [(E-St), 0] PROFIT Limited profit Exercise price Value of share 0 In-the money out-of-money

Fig. 1.3 Pay-off for a put option buyer The figure 1.3 shows that the value of put option for the put option holder depends on the value of underlying asset .The value of put option is zero when it is out of the money. The potential profit of the put option is limited because share price cannot fall below zero. 36

The potential loss of the put option is limited to the exercise price. Eg. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. 37 .4 options have the index as options etc. Pay-off for a put option seller OPTION TERMINOLOGY Index options: These the 1. In India. They have an American style settlement.4 shows the pay-off for a put option seller. The figure 1. 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. underlying.The put option buyer’s gain is the seller’s loss. the potential profit of the buyer and the potential loss of the seller will reduce by the amount of premium. they have a European style settlement. Nifty options. Since the buyer has to pay a premium to the seller for purchasing a put option. Mini Nifty Stock options: Stock options are options on individual stocks. 0 Out-of-money in-the-money value of share Exercise price Limited loss Loss Fig.

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.Writer / seller of an option: The writer / seller of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. • In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cashflow to the holder if it were exercised immediately. In the case of a put. Expiration date: The date specified in the options contract is known as the expiration date.e. the 38 . Strike price: The price specified in the options contract is known as the strike price or the exercise price. An option on the index is at-the-money when the current index equals the strike price (i.e. • 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. If the index is much higher than the strike price. If the index is much lower than the strike price. Option price/premium: Option price is the price which the option buyer pays to the option seller.e. 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. 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. • Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cash flow if it were exercised immediately. spot price = strike price). the put is ITM if the index is below the strike price. spot price > strike 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. the call is said to be deep ITM. the exercise date. spot price < strike price). the strike date or the maturity. It is also referred to as the option premium.

6 193795 180253 TOTAL TURN OVER 8480063 13090478 7356242 4824174 DAILY TURN OVER 46087. its intrinsic value is zero. Usually.Cr) AVERAGE YEAR INDEX FUTURES 2008-09 2007-08 2006-07 2005-06 2853615 3820667 2539574 1513755 STOCK FUTURES 2789329 7548563 3830967 2791697 INDEX OPTIONS 2672532 1362111 791906 338469 STOCK OPTIONS 164586. an option should have no time value. K — St]. TABLE 1: Business growth of futures and options market: NSE turnover (Rs.e. Similarly. At expiration. the greater is an option's time value. Putting it another way. • Intrinsic value of an option: The option premium can be broken down into two components . it is called a European Option. the put is OTM if the index is above the strike price. An option that is OTM or ATM has only time value. all else equal.3 52153. the maximum time value exists when the option is ATM. The longer the time to expiration. the intrinsic value of a put is Max[0. if it is ITM. If the call is OTM. The intrinsic value of a call is the amount the option is ITM.i. K is the strike price and St is the spot price.call is said to be deep OTM. the intrinsic value of a call is Max[0.4 359136.intrinsic value and time value.3 29543 19220 39 . Both calls and puts have time value. In the case of a put. the greater of 0 or (K — St). European Option: When an option is allowed to exercise only on the maturity date. • Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. (St — K)] which means the intrinsic value of a call is the greater of 0 or (St — K). American Option: When an option can be exercised any time before its maturity is called an American Option.

05 3 months Theoretical value based on BlackScholes model Daily closing price Operating ranges are kept at 99% of the base price 20.05 3 months Previous day closing value of underlying security Daily settlement price Operating ranges are kept at +10 percent price Operating ranges are kept at +20 percent Quantity freeze 20.100 Last Thursday of the expiry month Re-0.05 3 months Previous day closing Nifty value Daily settlement STOCK FUTURES Individual securities N FUTSTK As specified by INDEX OPTIONS S&P CNX Nifty N OPTIDX NIFTY European Lot size.com TABLE 2: Derivative instruments available for trade in India (NSE): PRODUCT SPECIFICATIONS Underlying instrument Security descriptor Type Contract size Expiry day Price steps Trading cycle Base priceFirst day of trading Base priceSubsequent Price bands INDEX FUTURES S&P CNX Nifty N FUTIDX NIFTY Lot size-100 Last Thursday of the expiry month Re-0.000 greater units or Lower of 1% of market wide position limit stipulated for open positions or Rs-5 cr. exchange Last Thursday of the expiry month Re-0. Settlement basis MTM & final MTM & final Cash settlement on T+1 basis Daily settlement on T+1 basis and final settlement will be settlement will be 40 .05 3 months Theoretical value based on BlackScholes model Daily closing price Operating ranges are kept at 99% of the base price Lower of 1% of market wide position limit stipulated for open positions or Rs-5 cr.000 units greater or STOCK OPTIONS Individual securities N OPTSTK American As specified by exchange Last Thursday of the expiry month Re-0.nseindia.2004-05 2003-04 2002-03 2001-02 2000-01 772147 554446 43952 21483 2365 1484056 1305939 286533 51515 - 121943 52816 9246 3765 - 168836 217207 100131 25163 - 2546982 2130610 439862 101926 2365 10107 8388 1752 410 11 Source: www.

it is possible to partially or fully transfer price risks by locking-in asset prices.The problem is to analyze the derivatives that are traded in India with respect to volatility of market to minimize the risk of the investor in the derivatives market 6.cash settled on T+1 cash settled on T+1 Basis Closing price for Premium value for daily settlement and the closing value of index on expiry day for final settlement on T+3 Basis. by locking in-asset prices.2OBJECTIVES: • • • To study financial derivatives as an investment alternative. Premium value for daily settlement and the closing value on expiry day for final settlement Settlement price Basis Closing price for daily settlement and closing value on the expiry day for final settlement daily settlement and closing value on the expiry day for final settlement BSE also offers similar products in the derivatives segment. be it to hedging or trading for profits. The study analyses the various strategies that can be used by traders and investors to get maximum returns in the derivatives market. STATEMENT OF THE PROBLEM: Through the use of derivative products. Trading in F&O should be well organized approach for the purpose of which they are being used. To analyze various types of financial derivatives used by investors as an effective tools in managing risk.1. 41 . 6. To suggest option strategy to maximize payoff of an investor. However. these generally do not influence the fluctuations in the underlying asset prices. derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk– averse investors. As instruments of risk management.

3.• To analyse and recommend whether to buy stock at a reasonable price and position yourself for a big market move. RESEARCH METHODOLOGY The type of research is selected on the basis of problems identified. 6. as it exists in the present system. PLAN OF ANALYSIS: 42 . 6. Nifty Spot Rate for the period of Dec 2008-Jan 2009 6. Here the research type used is descriptive research. DATA COLLECTION: Secondary data: is collected through text books. Bearish and Neutral Strategies. Descriptive research includes fact-findings and enquiries of different kinds. The major purpose of descriptive research is a description of the state of affairs. Tools of analysis: The research will be conducted by using the strategies of futures.3. • To suggest investors in the arena of financial derivatives market for managing risk especially in the current recession period. websites.3.3.1. SAMPLING TECHNIQUE. 6.2. newspapers and company brochure. forwards and options – Bullish.3. In this project an attempt has been made to analyze various option strategies in the option market and how they help to hedge the risk.

 The strategies built are subject to Indian stock market risk and uncertain conditions. LIMITATIONS OF THE STUDY:  The study is limited to investors of Sharekhan and its Employees.The study analyses the financial instruments that can be used by the traders and investors for hedging the risk involved in buying. 6. if the investor change his risk bearing level.  The findings and suggestions are based on existing trends in the secondary market.4.  The strategy does not serve the purpose of suggesting a investor. 43 . holding and selling various kinds of financial assets in derivatives market with special focus on options.

RISK MANAGEMENT WITH FORWARD CONTRACTS: Forward contracts are perhaps the oldest and simplest tools for managing financial risk. The forward contract only specifies the terms of a transaction that will occur in future.per 10 grams as on Feb.CHAPTER VII 7. So investor can enter in to forward contract to buy gold at a price close to current market price say Rs-14. No money or gold changes hand when the deal is signed. 18 2009.1. investor have bought forward gold or in long forward gold.1. A forward contract represents an agreement between two parties to exchange an asset for cash at a predetermined future date called the settlement date for a price that is specified today. Whereas the gold dealer has sold forward gold or in short forward gold. If market price of the gold is higher than the contract price.755/. the market price of the gold tend to rise further.230/. Now according to this agreement.755/. the investor gets the profit of the difference between the market and contract price or else undergoes loss if 44 . On Mar 2 2009. the contract will be settled so that investor gets the gold at a price of Rs14. As investors are increasingly parking their money in gold because of a melting stock market and erosion in the value of other financial asset classes. Illustration with current example: The depreciation of the Indian rupee and a strong upward movement in international gold prices pushed the yellow metal to a record high of Rs-15.1DATA ANALYSIS AND INTERPRETATION: 7.per 10 grams.per 10 grams to buy on Mar 2 2009.

the price is lower than market price. Risk management with forward contracts: 7. These differences between purchases in the spot market and futures market suggest the following relationship between the spot and futures prices.2. Suppose if the market price of the gold touches Rs-15.1. RISK MANAGEMENT WITH FUTURE CONTRACTS: When you buy a security. 45 . By entering into forward contract the investor can avoid the downside risk.as projected then investor gets a profit of Rs-910/. You can buy it in the spot market and get immediate delivery or you can buy it in the futures market and obtain deferred delivery on specified future payment. you have a choice.per 10 grams.665/.

Cotton. foreign currencies. stock futures. 46 .PV of interest or dividend dividend payments foregone Broadly there are two types of futures:  Commodity futures (Cocoa.Futures price (1+ Risk-free rate of interest) t . Crude oil. 2) Maintenance margin (app. Aluminum.5-25percent. Soya bean etc)  Financial futures (Index futures. Risk management with futures contract The futures contract is entered by a margin deposit which is to be made to the clearing house by the parties as security of possible default risk in the form of 3 types of margins: 1) Initial margin (performance margin) . = spot price . monetary Metals etc) Fig. 75 percent of initial margin) 3) Variation margin (additional fund) . debt instruments. exchange issue ‘margin call’ to deposit variation margin. Gold.if fall below margin level.

The strategy of futures contracts for managing a portfolio with a higher volatility than the market index to bring about a risk management is given as. No of futures required = value of portfolio to be hedged Value of one future contract Where beta = difference in the percentage change in the value of the portfolio being hedged and % change in the index value.Rs-1368/Value of contract= 1368 x 10 = 13680/Initial margin = 10% (13680) = 1368/Maintenance margin= 75 %( 1368) = 1026/Suppose if the margin balance is Rs-4300/. Illustration with Current example: Contract size=10 grams Gold futures contract price Feb-2009.margin deposit.The future contracts are market-to-market (MTM) process. Profit = margin balance. =4300-(1368+130) =2802/Financial futures: The financial futures consist of index and stock futures. X beta 47 .and variation margin is Rs-130/Then.

and nifty is 3046 on Jan 3.60.3046 on jan3.2741 per contract. Nifty futures needed= 50. x 1.000/. 00.3046 per contract. 2009. Gain= 305x30=Rs-9150/No. 00. of futures required = 60.000/.Rs-50. b) Long position: (mutual funds) Investment scheme.2 Sell 30 nifty futures @ Rs. then value of portfolio will be Rs-54.2 48 .and beta = 1.000/. If the nifty down by 10%. more futures contracts would be required to bring about a perfect hedge. a) Short position: Consider the portfolio value is Rs. Buy 30 nifty futures @ Rs.000 2000 Conclusion: The strategy is that for managing risk of the portfolio with a higher volatility than the market index.Illustration with current example.000 3046 = 24 no. = 2500 no. 2009.and nifty.

RISK MANAGEMENT WITH OPTION CONTRACTS: DATE 16-DEC 17-DEC 18-DEC 19-DEC 20-DEC 23-DEC 24-DEC 25-DEC 28-DEC 30-DEC 31-DEC 01-JAN 02-JAN 03-JAN 06-JAN 07-JAN 08-JAN 10-JAN 13-JAN 15-JAN 16-JAN 17-JAN 49 NIFTY SPOT RATE 2981 3041 2984 3060 3077 3039 2968 2916 2857 2922 2979 2959 3033 3046 3121 3112 2920 2873 2773 2835 2736 2828 .7.1.3.

the potential profits of the bought call are unlimited.(premium). If the Nifty index does go up you can close your position either by selling the option back to the market or exercising your right to buy the underlying shares at the exercise price. Current Example: On 24th Dec 2008.21-JAN 22-JAN 23-JAN 28-JAN 29-JAN 30-JAN 2796 2706 2713 2771 2849 2823 Table: Nifty Spot Rate for the period of Dec 2008-Jan 2009 The following strategies are analyzed for current market condition and hence forth proper guidance is given for the investor for managing the risk. As the share price rises beyond this point. Buying a call also locks in a maximum purchase When to use the long call Market outlook Bullish Volatility Rising outlook price for the life of the option. Nifty is quoting at Rs-2968/. Profits and losses The maximum loss the investor can suffer is the premium paid for the option. 1) LONG CALL: Where the investor expects the price of the underlying stock to rise.2950/.Net outlay is Rs-4000/-.and the January. Buy Nifty call at 80/. 50 .(strike price) call costs Rs-80/. the bought call can provide leveraged exposure to the price rise. which will occur if the share price at expiry is below the strike price. The investor breaks even if at expiry the share price is equal to the strike price of the option plus the premium paid.

Closing the position now will produce a net profit of 4000 Option expires worthless. In order to minimize the loss it is better to exercise the option on 7th January. which will result in loss of (3012-2950-80) × 50 = (900) Interpretation: Action 1 Action 2 If you excise the option 7th January your loss will be 900 If you do not excise the option your loss will be 4000 51 . The loss is Rs-4000/.(premium) Net profit = intrinsic value of (Break even = 2950+80) option i.Possible outcome at expiry Spot Rate = 3110 Spot Rate < 2950 Spot Rate > 3030 Option worth 4000.e. by whatever amount the share price exceeds 3030/- Graph 2: Payoff diagram of Long Call Profit 3110 3030(Break Even) Loss 2950(Strike Price) Analysis of Current Example: Date Spot Price 24/12/2008 2968 07/01/2009 3012 From Table 1 it is observed that after 7h January market never behaved as per our expectation.

and must balance the cost of the option against the rise in share price required for the strategy to be successful. time decay will start to erode the value of the option. the investor must choose whether to sell the option or exercise it. The investor needs to form a view of the time frame over which the share price movement is expected to take place. but will be more expensive than a shorter-term option. The out-ofthe money option will be the cheapest. or maintain the position in the hope of a further increase in price. 2) LONG PUT: Where the investor expects the price of the underlying stock to fall. If the share price does not rise as expected. it is often advisable to close out the position in order to recover some time value from the position. the call option taker must decide whether to close out at a profit. The longer the option position is left open. the bought put provides leveraged exposure to the price fall. Strike price: The investor will usually have a choice of strike prices. the greater the effect of time decay. Follow-up action If the share price rise takes place as expected. Buying a put option is one of the few ways 52 . If the expected share price rise does not take place soon after entering the position. but also requires the largest rise in share price.Other considerations Time decay: Time decay works against the buyer of the call. Many investors regard the at-the-money option as offering the best balance of risk and reward. The choice will be determined by whether the investor wants to own the underlying shares. If at expiry the option is in-the-money. Expiry month: A longer-term option allows more time for a rise in the share price to take place.

currently trading at Rs-3121/-.investors can speculate on a falling share price. When to use the long put Market outlook Profits losses The maximum loss the investor can suffer is the premium paid for the option. Action: On 6th January buy Nifty 2850 Put at Rs-50/.for a total consideration of Rs -2500/-. Possible outcome at expiry Spot Price 2750 Spot Price 2800 Spot Price >2850 The 2850 put will be trading at Rs 100/. Example: Situation: An investor thinks Nifty on 6th Jan. the potential profits of the bought put are limited only by a fall in the share price to zero. Put options may also be used to protect an investor's holding in the underlying stock. He therefore decides to buy Puts to gain exposure to its anticipated fall.which gives a profit of Rs 50 (100-50) × 50 = 2500. The investor breaks even if at expiry the share price is equal to the strike price of the option less the premium paid. As the share price falls beyond this point. if the position is closed out Falling Rising and Volatility outlook – 2850 Recover intrinsic value of premium The 2850 put will give loss of premium 50  50 = 2500 Graph 3: Payoff diagram of Long Put 2750 2800(Break Even) 2850 (Strike price) 53 . is overvalued and may fall substantially. which will occur if the share price at expiry is above the strike price.

The out-of-the money option will be the cheapest but also requires the largest fall in share price. the cost of the option must be weighed up against the protection required. If the investor is buying a put to protect a shareholding. but also is the most expensive option.Analysis of Current Example: Date Spot Price 06/1/2009 3121 13/1/2009 2773 15/1/2009 2835 From Table 1 it is observed that after 6th January market behaved as per our expectation. The longer the option position is left open. If the share price does not fall as expected. or maintain the position in the hope of a further increase in price. Follow-up action If the share price fall takes place as expected. If the expected share price fall does not take place soon after entering the position.1350/Interpretation: Action 1 Action 2 If you the excise the option 13th January your profit will be 1350 If you the excise the option 24th January your profit will be 750 Other considerations Time decay: Time decay works against the buyer of the put. the greater the effect of time decay. The in-the-money option locks in the highest sale price for the underlying shares. which will result in profit of (2850-2773)  500 = Rs. the put option taker must decide whether to close out at a profit. In order to Maximize the profit it is better to excise the option on 13th January. Strike price: The investor must balance the cost of the option against the fall in share price required for the strategy to be successful. it is often advisable to close out the position in order to recover some time value from the position. time decay will start to erode the value of the option. 54 .

The potential for loss is unlimited which means it is dependant on how far the stock is above the exercise price at expiry. In practical terms the seller of the call may not be able to carry the position until expiry if they have insufficient margin to carry the unrealized loss in which case the client's broker will close the position early. or sell the shares. 3) SHORT CALL: Sellers expect a gradual fall in the market and lower volatility. the holder of an in-the-money put option would usually close out the position. Action: on 6th January Sell Nifty January 2850 at Rs-50/Possible outcome at expiry Spot Price = 2950 Spot Price < 2850 The put writer will incur loss of (2950-50-2850)50=2500 The option will not be exercised & investor keeps the 55 . in which case the put would be sold. Profits and losses Your maximum profit depends on the underlying stock closing at or below the strike price of the option. The more bearish the lower strike exercise price should be in order the or When to use the short call Market outlook Volatility outlook Neutral to mildly bearish Falling to maximize premium income. in which case the option would be exercised.At expiry. rather than exercising (unless they own the underlying shares). Example: Situation: The Nifty stock index are currently trading at 2857 on 28th Dec. If the put has been bought to protect a shareholding. the investor must decide whether they want continue holding the stock. The optimal strike (exercise price to sell) is dependent on one's expectation for the stock.

time decay will start to erode the value of the option.Premium = 2500 Graph 4: Payoff diagram of Short Call Profit 2850(Strike Price) 2900 (Break Even) Loss Analysis of Current Example: Date Spot Price 28/12/2008 2857 10/1/2009 2873 2950 16/1/2009 2736 From Table 1 it is observed that after 28th Dec market behaved as per our expectation. In order to Maximize the profit it is better to excise the option on 16th January. 56 . If the expected share price fall does not take place soon after entering the position. which will result in profit of 50 50 =2500/Interpretation: Action 1 Action 2 If you the excise the option on 10th January your profit will be 1350 If you the excise the option on 24th January your profit will be 2500 Other considerations Time decay: Time decay works against the buyer of the put. Strike price: The investor must balance the cost of the option against the fall in share price required for the strategy to be successful. The out-of-the money option will be the cheapest but also requires the largest fall in share price.

As the share price falls beyond this point. the investor must decide whether they want continue holding the stock. It can also be used as a way to buy stock cheaply. which will occur if the share price at expiry is above the strike price. the option will be exercised and the investor will be required to buy the underlying stock at the strike price of the option. the potential losses of the sold put are limited only by a fall in the share price to zero. but also is the most expensive option. or sell the shares. in which case the put would be sold. Neutral to mildly bullish Falling 57 . rather than exercising (unless they own the underlying shares). or maintain the position in the hope of a further increase in price. If the share price does not fall as expected. the greater the effect of time decay. If the investor does not close out an in-the-money put before expiry. Follow-up action If the share price fall takes place as expected. the holder of an in-the-money put option would usually close out the position. 4) SHORT PUT: The written put can provide the investor with extra income in flat to rising markets. If the put has been bought to protect a shareholding. the put option taker must decide whether to close out at a profit. The investor breaks even if at expiry the share price is equal to the strike price of the option less the premium paid. At expiry. When to use the short put Market outlook Volatility outlook Profits and losses The maximum profit the investor can make is the premium received for writing the option.If the investor is buying a put to protect a shareholding. The in-the-money option locks in the highest sale price for the underlying shares. The longer the option position is left open. the cost of the option must be weighed up against the protection required. This strategy is generally used when the investor expects the share price to remain steady or increase slightly over the life of the option. it is often advisable to close out the position in order to recover some time value from the position. in which case the option would be exercised.

Example: Situation: The Nifty stock index are currently trading at 2736 on 16th January Action: on 16th January Sell Nifty Jan 2750 put at Rs-90/- Possible outcome at expiry Spot Price =2750 Spot Price >2930 The put writer will incur loss of (2930-90-2750) × 50 = 4500 The option will not be exercised & investor keeps the Premium = 4500 Graph 5: Payoff diagram of Short Put Profit 2840 (Break Even) 2930(Strike Price) Loss 2750 Analysis of Current Example: Date Spot Price 16/1/2009 2736 21/1/2009 2796 From Table 1 it is observed that after 16th January market behaved as per our expectation. In order to Maximize the profit it is better to excise the option on 21st Jan. which will result in profit of 90 × 50 = Rs.4500/- Interpretation: Action 1 If you the excise the option 21st January your profit will be 4500 58 .

which is less then the price of the stock at the time of writing the option. Time decay: Time decay works in favor of the put writer. The investor does not get to buy the stock. the purchase price is effectively the strike price of the option less the premium received . Follow-up action If at expiry the stock is trading below the strike price. but has benefited from the receipt of the premium. If the stock price stays steady. Exercise: The put writer must be wary of early exercise. the bull spread is a lower cost way to gain exposure to such a market movement. Alternatively. the investor should consider buying back the put if they do not want to own the stock. 5) BULL SPREAD: If the investor is not bullish enough to buy a call outright but expects the share price to rise moderately. If the share price at expiry is above the strike price. as this is the option with the most time value. When to use the bull spread Market outlook Volatility outlook moderately bullish steady to increasing 59 . the put writer will be exercised unless the position has been closed out.Other considerations Cheap stock: Many investors write put options as a way of buying stock cheaply. A put option is generally more likely than a call option to be exercised early. the investor could roll the option position to a later month and possibly a different strike price. The strategy consists of the purchase of a call option and the sale of a call option with a higher strike price. If the share price falls and the option is exercised. the option will expire worthless. As expiry approaches. the atthe-money option will deliver the most profit to the put writer.

(3000+130). Rs-1250/The 3000 call gains intrinsic value and profit is equal to the intrinsic value of the 3000 calls less the net debit of Rs-25. Total outlay and maximum loss is 5250. Spot Price 3000-3050 Spot price >3050 Graph 6: Payoff Diagram of Bull Spread Profit 3050 3025(Break Even) Loss 3000 Analysis of Current Example: Date Spot Price 02/1/2009 3033 07/1/2009 3112 60 . the spot price of Nifty is 3033. Bull call spread Example: Situation: On 2nd January. Buy 1 Nifty January 3000 call option at Rs-30/. Possible out come at expiry Spot price < 3000 Both the 3000 and 3050 calls are worthless and the maximum loss is equal to the net cost of establishing the spread i.e. the point just before which the 3050 calls may be exercised. The position can be closed for a maximum profit of Rs-25 above 3050 i. Maximum profit is (3050-3000-25)× 50 =1250/-.e. Break even is Rs-3130/. Maximum profit is therefore realized at 3050. difference in intrinsic value of two calls less than net debit (50-25).a.and sell 1 January 3050 call at Rs-05/-.

the strike price of the sold option. less the cost of the spread. If the stock rises quickly to this level. at expiry. The bull put spread can also be viewed as writing a put with protection in place against a collapse in the market. which will result in profit of (3050-3000-25) × 50 = Rs. In order to Maximize the profit it is better to exercise the option on 7th January. the spread will often be unwound early in order to avoid the risk of early exercise on the short leg. The maximum loss possible is the cost of the spread and will be incurred when the share price is at or below the strike price of the bought option at expiry.1250 Interpretation: Action 1 If you the excise the option 7th January your profit will be 1250 b. they make the call spread more expensive to enter. In this case. Maximum profit will occur if. the share price is at. or above. As with the call spread. Profit and Losses While the short call reduces the risk inherent in taking an outright call it also limits the profits that can be made. The investor may decide to construct the spread in this way if the options are perceived to be overpriced. Bull Put Spread The bull spread can be constructed using puts instead of calls. Since entering the put spread involves selling volatility. The higher delta of the long call means that the spread will increase in value as the share price rises. the higher option premiums will benefit the trader. The maximum loss is the difference between the strike prices less the premium received. The maximum profit obtainable is the difference between the strike prices of the two options. with the taken put out-of-the-money The maximum profit from the bull put spread is the premium received when the spread is established. 61 . the written put may be close to being at-the-money.From Table 1 it is observed that after 2nd January market behaved as per our expectation. In contrast. the investor buys the lower strike option and sells the higher strike option.

If. it may be advisable to exit the strategy once the upper strike price is reached. Follow-up action If the stock unexpectedly rises sharply. the share price has fallen to the strike price of the sold option. the spread may be unwound before the taken call loses too much time value. less the cost of the spread.Other considerations Limited risk/limited reward: The bull spread is a cheaper strategy than simply buying a call option. As a result. Cost of strategy: The investor must be satisfied that the cost of the spread is worth the potential reward. the trader may well choose to unwind the 62 . However it also caps the profits that can be earned. If the stock declines to these levels. When to use the bear spread Market outlook Volatility outlook moderately bearish steady to increasing Profits and losses As with the bull spread. Although time value is helpful around the strike price of the short leg. the maximum profit will be earned. unwinding the strategy early removes the risk of exercise on the short call. at expiry. The maximum profit to be earned is the difference between the strike prices of the two options. If the stock price falls suddenly. The strategy consists of the purchase of a put option and the sale of a put option with a lower strike price. 6) BEAR SPREAD: The bear spread can be considered when the investor expects a moderate fall in the market but is not prepared to pay to take a put outright. the profit potential is also reduced. the written leg of this strategy serves to reduce the cost of entering the position. Commission costs on entering and exiting will be greater for this strategy than when buying a call outright.

spread early. so the profit is (2750-2700-4)× 50 = 2300 spot price <2700 a. in order to avoid the possibility of excise on the short leg. Situation: On 13th January spot rate of Nifty is trading at 2773. at expiry. The maximum potential loss is the cost of the spread. Possible outcome at expiry.e. You buy 1 Nifty January 2750 put at RS-90/. The purchase puts have higher exercise price than those written. spot price > Rs-2750 spot price 2750-2700 spot price 2700 Both puts are worthless and the maximum loss is equal to the net cost of establishing the spread i. This will occur if. Rs-200 The position can be closed out for the intrinsic value of the Rs-2750 put.and sell 1 Nifty 2700 put at Rs-86/-. the share price is above the exercise price of the bought option. The maximum potential profit of Rs200 is realized just before the level at which the 2700 put may be exercised by the holder The position can be closed for the difference in the intrinsic value of two puts. Bear Put spread A bear put spread involves the purchase and sale of puts at different exercised price but with the same expiry date. Maximum profit and maximum loss Rs-200/Graph 7: Payoff diagram of Bear Spread Profit 2700 2704 (Break Even) Loss 2750 Analysis of Current Example: Date 16/1/2009 21/1/2009 22/1/2009 63 .

Commission costs on entering and exiting can significantly reduce profitability. giving greater flexibility when entering and exiting the spread.Spot Price 2736 2796 2706 From Table 1 it is observed that after 16th January market behaved as per our expectation. The trader may decide to use calls instead of puts in order to take advantage of options that are viewed as overpriced.2300 Interpretation: Action 1 Action 2 If you the excise the option 22nd January your profit will be 2300 If you the excise the option 21st January your loss will be 2300 b. Follow-up action 64 . the receipt of higher premiums is a benefit. Bear call spread The bear spread can be constructed using calls instead of puts. the potential for profit is also reduced. The bear call spread can be seen as writing a call with protection against an unexpected rise in the market. As a result. which effectively provides a ceiling to the potential loss if the market should rise. The maximum profit available is the value of the premium received. Since the trader is selling the spread. Other considerations Limited risk/limited reward: The bear spread costs less to place than the outright purchase of a put option. There may also be greater liquidity in calls than puts. As with the put spread. Cost of strategy: The investor must be satisfied that the cost of the spread is justified by the potential reward. In this instance. and take a call out-of-the-money. The maximum loss is the difference between the strike prices less the premium received. In order to Maximize the profit it is better to excise the option on 22nd January. the trader buys the higher strike option and sells the lower strike option. the trader may write a call around the money. which will result in profit of (2750-2700-4)  50 = Rs.

The strategy is that for managing risk of the portfolio with a higher volatility than the market index. Time decay will benefit the spread around the lower strike price. CHAPTER VIII SUMMARY OF FINDINGS: Though forwards are not traded in the organized exchange. more futures contracts would be required to bring about a perfect hedge. it may be advisable to exit the strategy once the lower strike price is reached. The futures are used as an effective risk management tools in the organized stock markets as well as commodities market.If the stock unexpectedly falls sharply. If the stock price rises suddenly. FOR OPTIONS STRATEGIES: 65 . the spread may be unwound before the taken put loses too much time value. however the trader will usually be more concerned with avoiding exercise on the short leg. they are used as risk management tools in an unorganized market especially in the commodities market without any formal procedure.

the share price is above the exercise price of the bought option.  In Bull Spread. 66 . the share price has fallen to the strike price of the sold option. In Long Call. the maximum profit depends on the underlying stock closing at or below the strike price of the option and will be limited premium received. The maximum loss possible is the cost of the spread and will be incurred when the share price is at or below the strike price of the bought option at expiry. The investor breaks even if at expiry the share price is equal to the strike price of the option less the premium paid. The potential for loss is unlimited which means it is dependant on how far the stock is above the exercise price at expiry. The maximum potential loss is the cost of the spread. at expiry. the maximum profit the investor can make is the premium received for writing the option. This will occur if. which will occur if the share price at expiry is below the strike price.  In Short Call. As the share price falls beyond this point. the potential losses of the sold put are unlimited. the potential profits of the bought call are unlimited. the maximum loss the investor can suffer is the premium paid for the option. which will occur if the share price at expiry is above the strike price. The investor breaks even if at expiry the share price is equal to the strike price of the option less the premium paid. which will occur if the share price at expiry is above the strike price. the maximum profit will be earned. As the share price falls beyond this point. the maximum profit obtainable is the difference between the strike prices of the two options.  In Bear Spread. The investor breaks even if at expiry the share price is equal to the strike price of the option plus the premium paid. at expiry.  In Short put. less the cost of the spread. the maximum profit to be earned is the difference between the strike prices of the two options. If. less the cost of the spread. the maximum loss the investor can suffer is the premium paid for the option. As the share price rises beyond this point.  In Long Put.

 Know the limits of risk management tools.SUGGESTIONS: In today’s world. the put option taker must decide whether to close out at a profit.  In case of Long Call. and volatility to increase. For Option strategies:  The Long Call strategy is generally used when you expect the share price to rise. managing risk is a daunting task.  Align risk management with strategy.  Employ a mix of real and financial methods.  Learn when it is worth reducing risk.the out-of-the-money option will be cheapest. In coping with this challenge the following inter-related suggestions need to be borne in mind.  Be realistic in selecting a strike price .  The Long Put strategy is generally used when you expect the share price to fall. it is often advisable to close out the position in order to recover some time value from the position. The longer the option position is left open. and volatility to increase. but also requires a large move in the share price for the Long Call strategy to be profitable.  Proactively manage uncertainties. 67 .  In case of Long Put. the greater the effect of time decay. if the share price does not rise as expected. or maintain the position in the hope of a further increase in price. if the share price fall takes place as expected.

the spread may be unwound before the taken put loses too much time value. if the stock price rises suddenly.  The Short Put strategy is generally used when the investor expects the share price to remain steady or increase slightly over the life of the option.  The Bear Spread strategy is generally used when the investor expects a moderate fall in the market but is not prepared to pay to take a put outright. thereby maintaining the strangle. the investor could roll the option position to a later month and possibly a different strike price. be sure that the cost of the spread is justified by the potential reward. As a shareholder. Alternatively.  In case of Short Call as expiry approaches.  alternative is to vary the break-even points of the strategy by rolling one of the legs up or down.  While using Bear Spread. This Long Put strategy is suitable for shorter periods when you fear a market downturn. the investor should consider buying back the put if they do not want to own the stock.  The Bull Spread strategy is generally used when an investor is expecting a limited rise in the price of the stock.  In Bear Spread.  While using Bull Spread. it is not practical to have protection in place 12 months of the year. be sure that the cost of the spread is justified by the potential reward. if the stock unexpectedly falls sharply. it may be advisable to exit the strategy once the lower strike price is reached. If at expiry the stock is trading below the strike price.  In Bear Spread. the put writer will be exercised unless the position has been closed out. 68 .  The Short Call strategy is generally used when sellers expect a gradual fall in the market and lower volatility.

The Long Put. When uncertainty about market is more it is wise to use strategies. it is better to hold on to Short put strategies. Bull Spread and Long Strangle strategies are suitable to use. be sure that the premium received is worthy of the risk taken. Time decay. CONCLUSIONS By analyzing all these strategies we can conclude that during bullish market outlook Long Call. Thus. Its objective is thus to support and encourage all the necessary structural changes in the products or institutions architecture that allows market participants to increase the benefits extract from the economic functions of derivatives at controlled risk levels. It is necessary to ensure that cost of strategy must be justified by the potential reward. To summarize the role of regulation is the cushion and help other market monitoring mechanism such as competition or reputation to maintain a fair and orderly financial markets in which innovation is encouraged.  Use the short strangle over the short straddle if you have any doubts about the market's neutrality. one could view the role of regulation as that of a player of last resort that guarantees that 69 . When you expect market to be neutral for few forth coming days. Since of the potential for unlimited losses. Cost of strategy and volatility. While using any option strategy it is also required to consider factors like Strike price. Short Put. Short Call and Bear Spread are best suited during bearish market condition.

500. ANNEXURE BALANCE SHEET Mar ' 09 66.00 356.40 446.29 1.00 Mar ' 07 54.00 0.56 0.40 0.16 25.24 0.89 0.00 0.79 0.00 0.00 75.00 Mar ' 08 66.00 3.00 200.00 1947.73 0.72 0.the economic benefits associated to the derivative trading activity remains on the efficient .50 258.08 0.19 0.01 0.00 Equity Share Capital Share Application Money Preference Share Capital Reserves & Surplus Secured Loans Unsecured Loans Total Gross Block Less : Revaluation Reserve 70 .64 3.00 305.risk/return frontier.

86 0.84 60.36 0.01 682.28 21.00 10.23 554.64 850.42 0.99 291.97 71 .79 185.00 253.74 446. Loans & Advances Less : Current Liabilities & Provisions 3.57 5.53 9.80 Market Value of Quoted Investments Contingent liabilities Number of Equity shares outstanding (in Lacs) 15.78 685.01 600.03 550.00 1947.72 339.00 445.07 400.01 0.00 Net Block Capital Work-in-progress Investments Current Assets.81 7.51 0.87 25.31 0.37 0.00 1.90 120.Less : Accumulated Depreciation 0.97 0. 5 10.81 0.28 30.56 Total Net Current Assets Miscellaneous expenses not written Total Book Value of Unquoted Investments 545.05 0.

com 72 .R. www.Bagri.BIBLIOGRAPHY 1.D.strike-price-options. “Business Research Methods”. Tata McGraw Hill.Vohra & B. NCFM study material – Derivative Module. N. 5. “Security Analysis and Portfolio Management”. Prasanna Chandra. www.nseindia. Donald R Cooper & Pamela S Schindler. 3rd Edition.bseindia.sharekhan. 3. “Future and Options”.com 7. www. 4.com 6. Tata McGraw Hill.com 8. 3rd Edition. www. Tata Mcgraw Hill. 8th Edition 2.

NSDL . MCX . www. BSE .NATIONAL EXCHANGE FOR AUTOMATED TRADING 7.NATIONAL SECURITIES DEPOSITORY LIMITED 2. N OPTIDX NIFTY . N FUTIDX NIFTY .com List of abbreviations used.CENTRAL SECURITIES DEPOSITORY LIMITED 3.STANDARD AND POOR’S CRISIL NSE EXCHANGE 50 9.MULTI COMMODITY EXCHANGE 15.NSE OPTIONS STOCK 14.MARK TO MARKET 10. NCDEX . 1.NSE FUTURE STOCKS 11. N OPTSTK . SEBI – SECURITIES EXCHANGE BOARD OF INDIA 73 . N FUTSTK .NATIONAL STOCK EXCHANGE 4. CSDL .9.LONG TERM EQUITY ANTICIPATION SECURITIES 8. BOLT .BOMBAY STOCK EXCHANGE 5.NSE FUTURE INDEX 50 12. NEAT . NSE .NSE OPTIONS INDEX 50 13. MTM .NATIONAL COMMODITY AND DERIVATIES EXCHANGE 16. S&P CNX nifty . LEAPS .BOMBAY ONLINE TRADING SYSTEM 6.wikipedia.

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