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PROJECT REPORT
ON
DERIVATIES MARKET ANALYSIS (FUTURES & OPTIONS)
AT
MOTILAL OSWAL, NASHIK BRANCH, NASHIK
SUBMITTED TO
SAVITIBAI PHULE PUNE UNIVERSITY
IN PARTIAL FULLFILLMENT OF
MASTER BUSINESS ADMINISTRATION
YEAR 2021-2022
SUBMITTED BY
Mr. ABHISHEK AVINASH NAVALE
PROJECT GUIDE
Dr. MUGDHA P JOSHI
NASHIK
pg. 1
ACKNOWLEDGEMENT
Gratitude is the hardest emotion to express and often one does not find adequate to
convey one’s entire feelings.
I owe my gratitude to Motilal Oswal Ltd Nashik Branch for providing me the opportunity
to undergo 3 month’s summer internship training. I specially thanks to Mr. KIRAN
CHANDAK SIR, Motilal Oswal Broker for allowing me to work on the project titled
“DERIVATIES MARKET ANALYSIS (FUTURES & OPTIONS)”
It is my foremost duty to express my deep sense of gratitude and respect to MR. KIRAN
CHANDAK SIR Motilal Oswal Stock Broker for his valuable Guidance as well as
uplifting tendency and inspiring me for taking up this project work and complete it
successfully.
I would like to give sincere thanks everyone for their extreme help, self-guidance,
cooperation, and friendliness, they did it in one way or other for successful completion of
the project.
Project Guide Dr. MUGDHA JOSHI MA’AM and all teaching staff and non-teaching staff
as well as friends for their kind support, help, and assistance, which help me a lot.
ABHISHEK NAVALE
pg. 2
DECLARATION
I assure that this project is the result of my own efforts and that any other institute for the
award of any degree or diploma has not submitted it.
PLACE: NASHIK
pg. 3
EXECUTIVE SUMMARY
INTRODUCTION
The emergence of the market for derivatives products, most notably forwards,
futures and options, can be tracked back to the willingness of risk-averse economic agents
to guard themselves against uncertainties arising out of fluctuations in asset prices.
By their very nature, the financial markets are marked by a very high degree of volatility.
Through the use of derivative products, it is possible to partially or fully transfer price
risks by locking-in asset prices. As instruments of risk management, these generally do
not influence the fluctuations in the underlying asset prices. However, by locking-in
asset prices, derivative product minimizes the impact of fluctuations in asset prices on the
profitability and cash flow situation of risk-averse investors. Derivatives are risk
management instruments, which derive their value from an underlying asset. The
underlying asset can be bullion, index, share, bonds, currency, interest, etc. Banks,
Securities firms, companies and investors to hedge risks, to gain access to cheaper
money and to make profit, use derivatives. Derivatives are likely to grow even at a
faster rate in future.
pg. 4
SUGGESTIONS
While buying an option, traders should stay away from sideways or consolidated
market. ADX give insights whether the market has potential volume or not.
For holding options, the strike price should be equal to target price. Traders should buy
out of the money strike price on the basis of support and resistance levels.
In the sideways market, traders should do options writing as they may get more
premium for it.
CONCLUSIONS
The Indian derivative market has achieved tremendous growth over the years, and also has
a long history of trading in various derivatives products. The derivatives market has seen
ups and downs. The new and innovative derivative products have emerged over the time
to meet the various needs of the different types of investors. Though, the derivative market
is burgeoning with its divergent products, yet there are many issues. Among the issues that
need to be immediately addressed are those related to, lack of economies of scale, tax and
legal bottlenecks, increased off-balance sheet exposure of Indian banks, need for an
independent regulator etc. Solution of these issues will definitely lead to boost the
investors’ confidence in the Indian derivative market and bring an overall development in
all the segments of this market
pg. 5
INDEX
PAGE
SR. NO. PARTICULARS
NUMBER
4 Company Profile
7 Findings 61-62
pg. 6
1. INTRODUCTION TO THE TOPIC
pg. 7
Introduction:
The emergence of the market for derivatives products, most notably forwards,
futures and options, can be tracked back to the willingness of risk-averse economic agents
to guard themselves against uncertainties arising out of fluctuations in asset prices.
By their very nature, the financial markets are marked by a very high degree of volatility.
Through the use of derivative products, it is possible to partially or fully transfer price
risks by locking-in asset prices. As instruments of risk management, these generally do
not influence the fluctuations in the underlying asset prices. However, by locking-in
asset prices, derivative product minimizes the impact of fluctuations in asset prices on the
profitability and cash flow situation of risk-averse investors. Derivatives are risk
management instruments, which derive their value from an underlying asset. The
underlying asset can be bullion, index, share, bonds, currency, interest, etc. Banks,
Securities firms, companies and investors to hedge risks, to gain access to cheaper
money and to make profit, use derivatives. Derivatives are likely to grow even at a
faster rate in future.
pg. 8
What are futures?
In the stock market, futures are basically derivative contracts that obligate a buyer and a
seller to trade the stock of a company at a predetermined price, on a predetermined date in
the future. Here, both the buyer and the seller are obligated to honour their end of the
contract.
And as far as a futures contract is concerned, the buyer of the contract is the person who
is obligated to buy the asset, while the seller of the futures contract is the person who is
obligated to sell the asset.
In the stock market, options are derivative contracts that give the buyer of the contract the
right to buy or sell the stock of a company at a predetermined price, on a predetermined
date in the future. Here, the buyer has the choice to either buy or sell the asset, while the
seller has no such right.
If the buyer of the options contract chooses to exercise their right to buy or sell the asset,
the seller of the contract will be obligated to act accordingly.
And if the buyer of the contract chooses not to exercise their right, then the seller will
again have to act accordingly.
pg. 9
Unlike a futures contract, here, in an options contract, the buyer of the contract can be
either the purchaser or the seller of an asset. In other words, the buyer of the contract can
buy the right to either buy an asset or to sell an asset.
With options contracts, there are two different types - call options and put options. This is
quite unlike futures contracts, where there’s only one type. Let’s take a look at both of
them now.
Call options
A call option contract gives the buyer of the contract the right to purchase the underlying
asset at a predetermined price on a predetermined day. In exchange for receiving this right,
the buyer of the call option contract pays a certain sum of money known as the premium
to the seller of the call option contract.
Put options
A put option contract is the inverse of a call option contract. It gives the buyer of the
contract, the right to sell the underlying asset at a pre-agreed upon price on a predetermined
day. And as with call options, the buyer will have to pay a premium to the seller for
receiving this right.
DEFINITION:
Derivative is a product whose value is derived from the value of an underlying
asset in a contractual manner. The underlying asset can be equity, forex,
commodity or any other asset.
pg. 10
2) “A contract which derives its value from the prices, or index of
prices, of underlying securities”.
In recent years, the market for financial derivatives has grown tremendously in terms of
variety of instruments available, their complexity and also turnover. In the class of equity
derivatives the world over, futures and options on stock indices have gained more
popularity than on individual stocks, especially among institutional investors, who are
major users of index-linked derivatives. Even small investors find these useful due to high
correlation of the popular indexes with various portfolios and ease of use. The lower costs
associated with index derivatives vis-a-vis derivative products based on individual
securities is another reason for their growing use.
TYPES OF DERIVATIVES:
The following are the various types of derivatives. They are:
Forwards:
A forward contract is a customized contract between two entities, where settlement takes
place on a specific date in the future at today’s pre-agreed price
Futures:
A futures contract is an agreement between two parties to buy or sell an asset in a certain
time at a certain price, they are standardized and traded on exchange.
pg. 11
Options:
Options are of two types-calls and puts. A Call option rise when market is Bullish. Only
the premium is to be paid to buy Call option. A Put option rise when market is Bearish.
Only the premium is to be paid to buy Put option. Also there are three types strike prices
to buy calls and puts with respect to the intention of the trader. In the money, at the money,
and out of the money.
Warrants:
Options generally have lives of up to one year; the majority of options traded on options
exchanges having a maximum maturity of nine months. Longer-dated options are called
warrants and are generally traded over-the counter.
Leaps:
The acronym Leaps means long-term Equity Anticipation securities. These are
Basket:
Basket options are options on portfolios of underlying assets. The underlying asset
is usually a moving average of a basket of assets. Equity index options are a form
of basket options.
Swaps:
Swaps are private agreements between two parties to exchange cash flows in the
pg. 12
a) Interest rate Swaps:
This entail swapping only the related cash flows between the parties in the same currency.
b) Currency Swaps:
These entail swapping both principal and interest between the parties, with the cash flows
in on direction being in a different currency than those in the opposite direction.
HISTORY OF DERIVATIVES:
Derivatives have had a long presence in India. The commodity derivative market has been
functioning in India since the nineteenth century with organized trading in cotton through
the establishment of Cotton Trade Association in 1875. Since then, contracts on various
other commodities have been introduced as well. Exchange traded financial derivatives
were introduced in India in June, 2000 at the two major stock exchanges, NSE and BSE.
There are various contracts currently traded on these exchanges. National Commodity &
Derivatives Exchange Limited (NCDEX) started its operations in December, 2003, to
provide a platform for commodities trading. The Derivatives market has existed from
centuries as need for both users and producers of natural resources to hedge against price
fluctuations in underlying commodities. Although trading in agriculture and other
commodities has been the driving force behind the development of Derivatives market in
India, the demand for products based on financial instruments – such as bond, currencies,
stocks and stock indices had outstripped the commodities markets.
In the exchange-traded market, the biggest success story has been derivatives on equity
products. Index futures were introduced in June 2000, followed by index options in June
2001, and options and futures on individual securities in July 2001 and November 2001,
respectively. As of 2005, the NSE trades futures and options on 118 individual stocks and
3 stock indices. All these derivative contracts are settled by cash payment and do not
involve physical delivery of the underlying product (which may be costly). Derivatives on
stock indexes and individual stocks have grown rapidly since inception. In particular,
single stock futures have become hugely popular; accounting for about half of NSE‟s
pg. 13
traded value in October 2005. In fact, NSE has the highest volume (i.e. number of contracts
traded) in the single stock futures globally, enabling it to rank 16 among world exchanges
in the first half of 2005. Single stock options are less popular than futures. Index futures
are increasingly popular, and accounted for close to 40% of traded value in October 2005.
The growth in volume of futures and options on the Nifty index, and shows that index
futures have grown more strongly than index options NSE launched interest rate futures
in June 2003 but, in contrast to equity derivatives, there has been little trading in them.
One problem with these instruments was faulty contract specifications, resulting in the
underlying interest rate deviating erratically from the reference rate used by market
participants. Institutional investors have preferred to trade in the OTC markets, where
instruments such as interest rate swaps and forward rate agreements are thriving. As
interest rates in India have fallen, companies have swapped their fixed rate borrowings
into floating rates to reduce funding costs. Activity in OTC markets dwarfs that of the
entire exchange-traded markets, with daily value of trading estimated to be Rs.30 billion
in 2004. There are basically four kinds of products or instruments available in Indian stock
market i.e., Individual Stock Futures, Stock Index Futures, Individual Stock Options and
Stock Index Option. The equity derivative market at both the platform on BSE and NSE,
the clearing and settlement cycle is same excluding the stocks and indices and tick size at
both the places.
The following table shows the trend in volumes in equity cash segment and equity
derivative segment at BSE and NSE:
pg. 14
PARTICIPANTS:
The following are the three broad categories of participants in the derivatives market:
HEDGERS:
Hedgers face risk associated with the price of an asset. They use futures or options
markets to reduce or eliminate this risk.
SPECULATORS:
Speculators wish to bet on future movements in the price of an asset. Futures and options
contracts can give them an extra leverage; that is, they can increase both the potential gains
and potential losses in a speculative venture.
ARBITRAGEURS:
Arbitrageurs are in business to take of a discrepancy between prices in two different
markets, if, for, example, they see the futures price of an asset getting out of line with the
cash price, they will take offsetting position in the two markets to lock in a profit.
pg. 15
2. LITERATURE REVIEW
pg. 16
LITERATURE REVIEW:
Review of literature is body of knowledge that aim to review the important aspects of
current and previous knowledge in a critical way. It has an ultimate objective of bringing
the reader with up to date information with present literature on a topic and makes a
foundation for another study that may be needed in the same area. It bridges the gap
between existing knowledge and the knowledge to explore. This chapter deals with the
discussion on the earlier studies relevant for the present topic of research that is investors
preference towards derivatives. To get a clear cut idea and for in-depth research work
different nations and multiple contexts in various time periods were
1. (Krishna & G January 2018): in this article named “Performance Analysis of volatile
strategy under Indian option market, explains option trading strategy are used to minimise
our risk and maximise profits. Option strategy are both combination of call and put. The
trader should thoroughly analyse the market to identify the appropriate strategy which can
face the high volatile market. Volatility is the reason for the generation of strategies.
Option strategies are used to reduce the risk during high fluctuations in the market.
Extreme movements in markets leads to high payoff on these strategies. Due to which an
effort is taken to generalize the concept of strangle and straddle in National Stock
Exchange (NSE) in India. According to option market experts straddle and strangle is the
most suitable volatility strategy. Hence, a question arises, which strategy generates higher
returns.
2. Malpani (2013): Studied how options work in investments. His findings suggested that
option trading is truly the favourite financial instrument of small investors other the past
few decades all over the world. Options trading allow investors with very small funds to
gain disproportionately big profits and to control stocks that would otherwise be too
expensive to own. Options trading are so need a very firm knowledge of the basics of
options trading before even thinking of ways to make the money out of it.
pg. 17
3. Chirag Babulal Shah (July 2013): Studied Bull Call Debit Spread Strategy on Nifty
Index Option. He back-test the Bull Call Debit Spread Strategy for a time period long
enough to cover the various practical scenarios of the capital market. A period of 6
years is taken into consideration and the market sentiments. The global scenarios,
macro or micro economics, etc. the Bull Call Debit Spread Strategy is a very basic and
easy to understand. This strategy has proved to yield profits in and implement options
strategy. The long run. The reason for the profits is the extent of loss when one goes
wrong compared to the profit when one goes right.
4. E.V.P.A.S. Pallavi 1, Dr. K. S. S. Rama Raju 2 and Dr. T. Kama Raju 3 (2013):
Studied Operational strategies and performance of options trading in India and found
that options can be used to create portfolio with unique features, capable of achieving
investment objectives. Options are used world over to hedge not only the portfolio risk
but also to maximize the return on investments.
pg. 18
3. INDUSTRY PROFILE
pg. 19
Stock Market:
Stock market is a place where people buy/sell shares of publicly listed companies. It offers
a platform to facilitate seamless exchange of shares. In simple terms, if A wants to sell
shares of Reliance Industries, the stock market will help him to meet the seller who is
willing to buy Reliance Industries. However, it is important to note that a person can trade
in the stock market only through a registered intermediary known as a stock broker. The
buying and selling of shares take place through electronic medium. We will discuss more
about the stock brokers at a later point.
There are two main stock exchanges in India where majority of the trades take place -
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Apart from these
two exchanges, there are some other regional stock exchanges like Bangalore Stock
Exchange, Madras Stock Exchange etc. But these exchanges do not play a meaningful role
anymore.
pg. 20
National Stock Exchange (NSE):
NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed
companies. It was established in the year 1992 and is located in Mumbai. NSE has a
flagship index named as NIFTY50. The index comprises of the top 50 companies based
on its trading volume and market capitalisation. This index is widely used by investors in
India as well as globally as the barometer of the Indian capital markets.
BSE is Asia’s first as well as the oldest stock exchange in India. It was established in 1875
and is located in Mumbai. It has a total of ~5,295 companies listed out of which ~3,972
are available for trading as on August 21, 2017. BSE Sensex is the flagship index of BSE.
It measures the performance of the 30 largest, most liquid and financially stable companies
across key sectors.
pg. 21
Different Market Participants:
There are a lot of individuals and corporate houses who trade in a stock market. Anyone
who buys/sells shares in a stock market are termed as a market participant. Some of the
categories of market participants are as follows:
NRI’s and Overseas Citizen of India (OCI)-These are people of Indian origin who
reside outside India.
Domestic Institutions-These are large corporate entities based in India (for example:
LIC of India).
pg. 22
Regulator of the Indian Stock Market:
Securities Exchange Board of India (SEBI) is the regulatory body of the Indian Stock
Markets. The main objective of SEBI is to safeguard the interest of retail investors,
promote the development of stock exchanges, and regulate the activities of financial
intermediaries and investors in the market. SEBI ensures the following:
The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business
fairly.
Corporate houses should not use markets as a mean to unfairly benefit themselves
From the time an investor places his order to buy shares till the time it is transferred to his
Demat account, a number of corporate entities are involved to ensure smooth transaction.
These entities are known as financial intermediaries and they work according to the rules
and regulations prescribed by SEBI. Some of the financial intermediaries are discussed
below:
1. Stock Broker:
A stock broker also known as a dealer is a professional individual who buys/sells shares
on behalf of its clients. A stock broker is registered as a trading member with the stock
exchange and holds a stock broking license. They operate under the guidelines prescribed
by SEBI. An individual need to open trading/DEMAT account to transact in the financial
market.
pg. 23
2. Depository and Depository Participants:
3. Banks:
Banks help to transfer funds from a bank account to a trading account. The client needs to
categorically mention which bank account has to be linked to the trading account to the
stock broker at the time of opening the trading account.
NSCCL and ICCL are 100% subsidiaries of National Stock Exchange and Bombay Stock
Exchange respectively. They ensure guaranteed settlement of transactions carried in stock
exchanges. The clearing corporation ensures there are no defaults either from buyers or
seller’s side.
pg. 24
4. COMPANY PROFILE
pg. 25
4.1 History and background of the organisation:
Motilal Oswal Financial Services Ltd. (MOFSL) was founded in 1987 as a small sub-
broking unit, with just 2 people running the show. Focus on customer-first attitude, ethical
and transparent business practices, respect for professionalism, research-based value
investing and implementation of cutting-edge technology have enabled us to blossom into
an 8600+ member team.
We have a diversified client base that includes retail customers (including High Net-worth
Individuals), mutual funds, foreign institutional investors, financial institutions and
corporate clients. We are headquartered in Mumbai and as of September 2021, had a
network spread over 550 cities and towns comprising 2500+ Business Locations operated
by our Business Partners, us and 34,00,000+ customers.
Research is the solid foundation on which MOFSL advice is based. Almost 10% of
revenue is invested in equity research and we hire and train the best resources to become
our advisors. At present we have 25+ research analysts’ researching over 250 companies
across 20 sectors. From a fundamental, technical and derivatives research perspective,
Motilal Oswal’s research reports have received wide coverage in the media.
pg. 26
4.2 Organization Chart:
Motilal
Ramdeo Shrada Vivek Rekha Praveen
Oswal
Agrawal Agrawal Paranjpe Shah Tripathi
(Chairman
(Chairman) (Director) (Director) (Director) (Director)
& CEO)
pg. 27
1. Retail Broking & Distribution:
Our Broking and Distribution business helps retail customers take informed investment
decisions with a strong research based advisory service. Our clients are advised by a
centralized advisory and dealing desk based in Mumbai. Extensive use of technology and
the benefit of synergized operations under one roof have helped us deliver enhanced value
to our clients. With Solid Research, Solid Advice as our guiding philosophy, our services
under the Broking and Distribution business include products such as Equities,
Derivatives, Commodities, Currency, Depository Services & Distribution of Portfolio
Management Services, Mutual Funds and Insurance.
2. Institutional Equities:
At Motilal Oswal Institutional Equities, we offer a range of institutional broking services
in the cash and derivatives segment, catering to over 740 Domestic (mutual funds, banks,
financial institutions, insurance companies) and Foreign Institutional Investors (FIIs).
Through our Corporate Access Group, we bring together global institutional investors and
corporate/thought leaders through a variety of unique forums and platforms viz. Investor
Conferences, Road Shows, Customized Itineraries, Macro inputs through interactions with
Domain Experts and Policy Makers and Field Visits.
Our highly-rated Research, strong Corporate Access, and efficient Sales & Trading
support are the cornerstones of our Institutional Broking services.
3. Private Equity:
Our Private Equity business was founded with a vision to become the most respected mid-
market focused alternate asset manager in India with a focus on providing Growth Capital
and Real Estate private equity. Right from inception, Motilal Oswal Private Equity
pg. 28
(MOPE) was visualized as an asset management platform for entrepreneurs by
entrepreneurs. MOPE is managing and advising three growth capital and four real estate
funds, with a combined corpus of approximate Rs6500 crore. One of the few funds in India
with a strong focus and presence in Tier 2 & 3 towns.
5. Investment Banking:
At our Investment Banking business, we combine wide deal experience, deep
understanding of various industries and extreme customer orientation to deliver optimal
outcomes to our clients. This is facilitated by our expertise across various investment
banking products and well entrenched relationships with the investor community, market
intermediaries & Indian and International corporates.
The team comprises over 20 professionals having substantial experience in the full range
of Investment Banking advisory and transaction solutions to both Indian and International
clients, covering private placement of equity, M&A advisory and Equity Capital Markets
transactions.
Since inception in 2006, the investment banking unit has executed marquee transactions
in Equity Capital Markets, M&A and Private Capital Raising, thereby establishing a solid
track record in the investment banking space.
pg. 29
6. Asset Management:
India’s only 100% equity fund house with a defined investing philosophy. A highly
differentiated asset management company, our endeavor is to offer focused mutual funds,
PMS and AIF strategies based on our core competence of equity research and investing.
We inherit the equity expertise from our sponsor, Motilal Oswal Financial Services
Limited which has over 30 years of experience led by our founder and thought leader -
Ramdeo Agrawal. Through his series of 25 Annual Wealth Creation Studies, our distinct
investment philosophy has evolved and is being continuously refined with the application,
insights and practical learnings of our experienced equity investment and research team.
Our equity offerings have been riding on our investment philosophy, Buy Right: Sit Tight
where Buy Right means buying high quality growth oriented companies at a fair price and
Sit Tight means staying invested in them over a long time to realize the full growth
potential of the underlying business. Coupled with a ‘Buy and Hold’ strategy, we endeavor
to manage portfolios with around 20-25 high conviction holdings and low portfolio churn.
7. Home Finance:
Motilal Oswal Home Finance Limited (MOHFL), promoted by the Motilal Oswal Group,
provides one of the fastest turn-around times for processing applications, enabling credit
access on fair terms. Provision of value-added proposition like Property Services and
Insurance Services, and best in class service for customer segments makes MOHFL the
preferred choice of over 60,000 customers in the lower middle-income segment.
pg. 30
5. RESEARCH METHODOLOGY
pg. 31
5.1 Outline of the problem:
The study analyses various derivatives used to minimize risk in Indian capital market.
It foresees the difficulties facial to choose the underlying assets in the derivatives and
to analyze the current scenario of derivatives markets in India.
Different investment avenues are available investors. Stock market also offers good
investment opportunities to the investor alike all investments, they also carry certain risks.
The investor should compare the risk and expected yields after adjustment off tax on
various instruments while talking investment decision the investor may seek advice from
expertly and consultancy include stock brokers and analysts while making investment
decisions. The objective here is to make the investor aware of the functioning of the
derivatives.
Derivatives act as a risk hedging tool for the investors. The objective is to help the investor
in selecting the appropriate derivatives instrument to the attain maximum risk and to
construct the portfolio in such a manner to meet the investor should decide how best to
reach the goals from the securities available.
To identify investor objective constraints and performance, which help formulate the
investment policy?
The develop and improvement strategies in the with investment policy formulated. They
will help the selection of asset classes and securities in each class depending up on their
risk return attributes.
pg. 32
5.3 Objectives of the study:
Scope:
Limitations:
Primary data:
Primary data is the kind of data that is collected directly from the data source without going
through any existing sources. It is mostly collected specially for a research project and
may be shared publicly to be used for another research. It is often reliable, authentic, and
objective in as much as it was collected with the purpose of addressing a particular research
problem.
pg. 33
For the study primary data has been collected through questionnaire survey.
Secondary data:
Secondary data is the data that has been collected in the past by someone else but made
available for others to use. They are usually once primary data but become secondary when
used by a third party.
For the study secondary data has been collected through books and internet websites.
Convenience technique:
For the study Convenience Sampling technique has been used. Convenience
sampling involves using respondents who are “convenient” to the researcher. There is
no pattern whatsoever in acquiring these respondents—they may be recruited merely
asking people who are present in the street, in a public building, or in a workplace. In
business and Market research, convenience sampling provides data from the perspective
of the audience about the brand image and reputation. It is also used to obtain opinions
about newly launched products or on a small-scale project.
Sample size:
A sample size of 55 traders has been taken for the study.
pg. 34
5.7 Strategies used to trade according to the survey:
There are some candle patterns which gives signals to buy in the uptrend.
a) Hammer: The hammer candlestick pattern is formed of a short body with a long lower
wick, and is found at the bottom of a downward trend. The wick should be at least 1.5
times of the body. A hammer shows that although there were selling pressures during
the day, ultimately a strong buying pressure came to pick up the price. The green
hammers indicate a stronger bull market than red hammers.
b) Inverse hammer: A similarly bullish pattern is the inverted hammer. The only
difference being that the upper wick is long, while the lower wick is short. It indicates
a buying pressure, followed by a selling pressure that was not strong enough to drive
the market price down. The inverse hammer suggests that buyers will soon have
control of the market.
c) Piercing line: The piercing line is also a two-stick pattern, made up of a long red
candle, followed by a long green candle. There is usually a significant gap down
between the first candlestick’s closing price, and the green candlestick’s opening. the
green candle should be at least 70% of the red candle. Which indicates the strong
buying pressure.
d) Morning star: The morning star candlestick pattern is considered a sign of hope in a
market downtrend. It is a three-stick pattern: one short-bodied candle between a long
red and a long green. the ‘star’ will have no overlap with the longer bodies, as the
market gaps both on open and close. It signals that the selling pressure of the first day
is subsiding, and a bull market is on the horizon.
e) Three white soldiers: The three white soldiers’ pattern occurs over three days. It
consists of consecutive long green candles with small wicks, which open and close
pg. 35
progressively higher than the previous day. It is a very strong bullish signal that occurs
after a downtrend, and shows a steady advance of buying pressure.
There are some candle patterns which gives signals to buy in the downtrend.
a) Hanging man: The hanging man is the bearish equivalent of a hammer, it has the same
shape but forms at the end of an uptrend. It indicates that there was a significant sell-
off during the day, but that buyers were able to push the price up again. The large sell-
off is often seen as an indication that the bulls are losing control of the market.
b) Shooting star: The shooting star is the same shape as the inverted hammer, but is
formed in an uptrend, it has a small lower body, and a long upper wick. Usually, the
market will gap slightly higher on opening and rally to an intra-day high before closing
at a price just above the open – like a star falling to the ground.
c) Bearish engulfing: A bearish engulfing pattern occurs at the end of an uptrend. The
first candle has a small green body that is engulfed by a subsequent long red candle. It
signifies a peak or slowdown of price movement, and is a sign of an impending market
downturn. The lower the second candle goes, the more significant the trend is likely to
be.
d) Evening Star: The evening star is a three-candlestick pattern that is the equivalent of
the bullish morning star. It is formed of a short candle sandwiched between a long
green candle and a large red candlestick. It indicates the reversal of an uptrend, and is
particularly strong when the third candlestick erases the gains of the first candle.
e) Three black crows: The three black crows: candlestick pattern comprises of three
consecutive long red candles with short or non-existent wicks. Each session opens at a
similar price to the previous day, but selling pressures push the price lower and lower
with each close. Trader’s interpret this pattern as the start of a bearish downtrend, as
the sellers have overtaken the buyers during three successive trading days.
pg. 36
B) Price Action
Support and Resistance: support and resistance is to buy near support in uptrends or
the parts of ranges or chart patterns where prices are moving up and to sell/sell short near
resistance in downtrends or the parts of ranges and chart patterns where prices are moving
down. When it breaks the resistance and back-tests it, it’s resistance then starts a new
journey begins from there, and the old resistance becomes support. And vice-versa.
Candlesticks also acts as a confirmation in such cases. There are chart patterns like
Pennants, Flags, Wedges, Triangles, Cup and Handles, Head and Shoulder, Double Tops,
Gaps, etc. these patterns helps to select the breakout stocks. And when a particular stock
gives a breakout, a high volume comes in that stock.
pg. 37
a) Pennants: A pennant is a type of continuation pattern formed when there is a large
movement in a security, known as the flagpole, followed by a consolidation period
with converging trend lines the pennant followed by a breakout movement in the same
direction as the initial large movement.
b) Flags: Bullish flag formations are found in stocks with strong uptrends and are
considered good continuation patterns. The pole is the result of a vertical rise in a
stock and the flag results from a period of consolidation. The flag can be a horizontal
rectangle but is also often angled down away from the prevailing trend.
d) Triangles: Triangles can be best described as horizontal trading patterns. At the start
of its formation, the triangle is at its widest point. As the market continues to trade in
a sideways pattern, the range of trading narrows and the point of the triangle is formed.
e) Cup and Handle: A cup and handle is a technical indicator where the price movement
of a security resembles a “cup” followed by a downward trending price pattern. This
drop, or “handle” is meant to signal a buying opportunity to go long on a security.
f) Head and Shoulder: A head and shoulders pattern is a chart formation that appears as
a baseline with three peaks, where the outside two are close in height and the middle
is highest. In technical analysis, a head and shoulders pattern describes a specific chart
formation that predicts a bullish-to-bearish trend reversal.
g) Double Top: A double top is an extremely bearish technical reversal pattern that forms
after an asset reaches a high price two consecutive times with a moderate decline
between the two highs. It is confirmed once the asset's price falls below a support level
equal to the low between the two prior highs.
pg. 38
h) Gaps: Gaps occur unexpectedly as the perceived value of the investment changes, due
to underlying fundamental or technical factors. Gaps are classified as breakaway,
exhaustion, common, or continuation, based on when they occur in a price pattern and
what they signal.
pg. 39
\
C) Indicators
a) Relative Strength Index: RSI helps to identify weather the stock is over performing
or under performing stock. Usually a stock below 30 RSI is said to be under performing
stock and above 70 it is said to be as over performing stock. When it gives a strong
buying candle and if RSI is above 30-35 then we can say the stock is going to get in
the Uptrend.
b) Moving Average Convergence Divergence: MACD helps to track weather the stock
is in the reverse trend mode or not. When RSI is above 30-35 with a strong buying
candle, at that time MACD gives the buying signals. Buying line signal (Green) crosses
Selling signal line (Red) then it is the buying signal for that particular stock.
d) Pivot Standard Points: Pivot Standard Points are the average of the previous days
open, high, low, close. It acts as a support and resistance. It gives the levels of stock.
pg. 40
It predicts how much a stock and rise or fall or where it can open. We can also use
Fibonacci levels in Pivot Standard Points.
e) Average Directional Index: ADX gives the confirmation of the trend in the market.
When ADX crosses 25, it means there is a huge buying or selling in the market. It is
mainly useful for the traders who trades in options. It secures from the sideways or
consolidated market trend.
f) Volume: Volume indicators shows the number of shares are getting traded. The stock
with high volume has a good movement. It attracts traders to trade in a particular stock.
Usually stocks which trades more then 5,00,000 volumes are good to trade. As there
is a good fluctuation. Stocks above Rs.300 are good to trade as there are chances to
operate the stocks which are below Rs.300.
pg. 41
Trade Setup using the indicators with candle stick patterns and price
action:
pg. 42
Here, according to the survey, a trade setup has been shown. Nifty
Index chart has been taken for example in the Daily Time frame:
a) It conducts the Flag and Pole pattern. When the candle breaks the flag pattern it closed
at a positive direction and the up-trend got started.
b) Then it took support on the horizontal flat line on the lower side and started an upside
movement.
c) Then it gave a strong buy signal by giving the 3 white soldiers candlestick pattern.
d) The candles were taking the support on the up-trend line.
e) The volume indicator was green which was giving the indication that a huge buying is
coming in the Nifty Index.
f) RSI also crossed it’s 35 levels and was moving in the upside direction.
g) MACD also crossed its Histogram levels which is in black.
h) ADX is fluctuating in the both the sides. So when it is moving above 20-25 we can
buy the stock as market is following the uptrend.
i) The candles are taking the support on the Pivot Standard Points while going in the
upside trend.
j) When the last Red Candle was near to the support of 200MV, it got upside, as the
buyers was heavily buying. After crossing 50MV, the stock continued the up-trend for
some more time.
k) When the stock broke the support of up-trend line, after that a huge red candle formed
and it again took support of the horizontal flat line.
l) So, when it broke the flag and pole pattern, after taking the support of the horizontal
flat line and also of 200MV, we can buy nifty option of 17,600 CE as we expect an up-
trend from there. Also we will put a stop-loss of the past red candle and will buy when
there will be a closing of the green candle above the closing opening of red candle.
m) This strategy is used for taking the long buying call. As we expect higher return.
pg. 43
6: DATA ANALYSIS AND INTERPRETATION
pg. 44
Data Analysis and Interpretation:
Data interpretation refers to the process of using diverse analytical methods to review data
and arrive at relevant conclusions. The interpretation of data helps researchers to
categorize, manipulate, and summarize the information in order to answer critical
questions.
Basis Percentage
Interpretation:
Based on the above pie chart, 21.8% of the traders use technical analysis, 14.5% of them
use market trends, 7.3% of them use news and 56.4% of them use all of them.
pg. 45
Time frame Percentage
Intraday 27.3%
Scalping 14.5%
Interpretation:
34.5% of traders hold their positions on the basis of candlesticks, 27.3% trade intraday,
23.6% trade till expiry, and 14.5% trade scalping.
pg. 46
Prefer Trade Percentage
Interpretation:
According to the pie chart above, 45.5% of traders prefer options buying, 36.4% of them
prefer future buying, 10.9% of them prefer options writing, and 7.3% of them prefer future
writing.
pg. 47
Segment Percentage
Options 29.1%
Futures 18.2%
Interpretation:
According to the above chart, 36.4% of traders prefer stock options, 29.1% prefer options,
18.2% prefer futures, and 16.4% prefer stock futures.
pg. 48
Margin Percentage
Interpretation:
Based on the above pie chart, 43.6% of traders use margin trades for buying options, 30.9%
for buying futures, 20% for shorting options, and 5.5% for shorting futures.
pg. 49
Basis Percentage
Interpretation:
According to the pie chart, 45.5% of trader’s trade in equity, 32.7% in futures and options,
14.5% in currency, and 7.3% in commodities.
pg. 50
Basis Percentage
Scalping 21.80%
Hedging 18.2%
Interpretation:
According to the above pie chart, 34.5% of traders use positional trading, 25.5% use swing
trading, 21.8% use scalping, and 18.2% use hedging.
pg. 51
Basis Percentage
Volume 27.3%
Both 50.9%
None 9.1%
Interpretation:
The above pie chart indicates that 27.3% of traders select strike price based on volume,
12.7% on open interest, 50.9% on both, and 9.1% do not select based on volume or open
interest.
pg. 52
Basis Percentage
Up Trend 36.4%
Interpretation:
According to the above pie chart, 36.4% of traders prefer hedging in uptrends, 18.2%
prefer it in downtrends, 9.1% prefer it in sideways, and 36.4% prefer it all.
pg. 53
Basis Percentage
0-15 10.9%
15-30 43.6%
30-45 32.7%
Above 45 12.7%
Interpretation:
From the pie chart above, 43.6% of traders target options in the 15-30 range, 32.7% in the
30-45 range, 12.75 in the above 45 range, and 10.9% in the 0-15 range.
pg. 54
Basis Percentage
Yes 67.3%
No 32.7%
Interpretation:
As shown in the pie chart above, 67.3% of traders prefer to set a stop loss or trailing stop
loss, and 32.7% don't.
pg. 55
Basis Percentage
1:2 38.2%
1:3 38.2%
1:4 20%
1 : 4 above 3.6%
Interpretation:
According to the above pie chart, 38.2% of traders have a risk-to-reward ratio of 1:2,
38.2% have a risk-to-reward ratio of 1:3, 20% have a risk-to-reward ratio of 1:4, and 3.6%
have a risk-to-reward ratio of 1:4 and higher.
pg. 56
Basis Percentage
0 – 1 Year 45.5%
Interpretation:
From the above pie chart, 45.5% of traders have experience between 0-1 year, 30.9% of
them have experience between 1-2 years, 18.2% of them have experience between 2-3
years, and 5.5% of them have experience above 5 years.
pg. 57
Basis Percentage
Yes 21.8%
No 78.2%
Interpretation:
The above pie chart shows that 21.8% of traders have traded hero zero trade and 78.2%
have not.
pg. 58
Basis Percentage
Interpretation:
According to the above pie chart, 30.9% of trader’s trade in one lot with intention of getting
higher profits, 27.3% trade in multiple lots for small profits, 27.3% hedge to have limited
losses and secure profits, and 14.5% short options to enjoy the premium.
pg. 59
Basis Percentage
Nifty 50 36.4%
Other 12.7%
Interpretation:
According to the above pie chart, 36.4% of trader’s trade in Nifty 50, 36.4% of them trade
in stock futures and options, 14.5% of them trade in Nifty bank, and 12.7% trade in other
segments.
pg. 60
7: FINDINGS
pg. 61
Findings:
It is found after survey that most of the trader’s trade on the basis of news, technical
analysis and market trend.
It is observed that traders often buy or sell on the basis of candlestick patterns.
Options is the most preferred segment by traders.
Equity options is the most actively traded segment in derivatives.
Based on the survey, traders analyze both, open interest and volume before entering
into a contract.
It is observed that most common target is between 15-30 points to have a safe trade.
Based on the survey traders mostly prefer one lot to make profits.
pg. 62
8: SUGGESTIONS AND CONCLUSION
pg. 63
Suggestions:
While buying an option, traders should stay away from sideways or consolidated market.
ADX give insights whether the market has potential volume or not.
Traders should use stop-loss while trading in options. It should be set carefully with the
help of candle as well as support and resistance. Options trading Can expose an investor
to unlimited losses. Stop-loss is a core strategy in its own to limit the losses.
As there are high fluctuations in the market due to expiry on Thursday, beginner should
avoid trading on Thursday.
For intraday options buying, traders should buy at the money options strike price as there
is a high Open Interest. As when the base price crosses the strike price of an options, then
the open interest of that contract decreases. And then huge institutions do options writing
at that strike price.
For holding options, the strike price should be equal to target price. Traders should buy
out of the money strike price on the basis of support and resistance levels.
In the sideways market, traders should do options writing as they may get more premium
for it.
pg. 64
Conclusions:
The Indian derivative market has achieved tremendous growth over the years, and also has
a long history of trading in various derivatives products. The derivatives market has seen
ups and downs. The new and innovative derivative products have emerged over the time
to meet the various needs of the different types of investors. Though, the derivative market
is burgeoning with its divergent products, yet there are many issues. Among the issues that
need to be immediately addressed are those related to, lack of economies of scale, tax and
legal bottlenecks, increased off-balance sheet exposure of Indian banks, need for an
independent regulator etc. Solution of these issues will definitely lead to boost the
investors’ confidence in the Indian derivative market and bring an overall development in
all the segments of this market
pg. 65
Annexure:
Questionnaire:
Name:
Age:
Email ID:
pg. 66
5. How would you use the margin to trade?
o Buying an Options
o Shorting an Options
o Buying Futures
o Shorting Futures
pg. 67
10. What is your target in options?
o 0-15
o 15-30
o 30-45
o Above 45
pg. 68
16. In which derivatives you trade the most?
o Nifty 50
o Nifty Bank
o Stock Futures & options
o Other
pg. 69
Bibliography:
Books:
www.fidelity.com
Websites:
www.sebi.gov.in
www.nse-india.com
www.bseindia.com
www,google.com
pg. 70
pg. 71