Financial Behaviors of Derivative Market NG Rathi Investrade Pvt ltd Pune (MBA Finance)

A
PROJECT REPORT
ON
“FINANCIAL BEHAVIOURS OF DERIVATIVE MARKET”
For
nG RATHI INVESTRADES PVT.LTD, PUNE
SUBMITTED TO
UNIVERSITY OF PUNE
IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT OF
MASTER OF BUSINESS ADMINISTRATION (M.B.A.)
UNDER THE GUIDANCE OF
(PRO.M. S. BHAYANI)
-SUBMITTED BY-
( MAHESH BALASAHEB KOLHE)
Submitted to
S.R.E.S. College of Engineering Department of MBA, Kopargaon
2011-2013

SANJIVANI RURAL EDUCATION SOCIETY’S,
COLLEGE OF ENGINEERING,
DEPT. OF MBA
Certificate
This is to certify that Mr./Ms._Mahesh Balasaheb Kolhe
has submitted a summer project on “Financial Behaviours of Derivative
market”to University of Pune for the partial fulfillment of Master in
Business Administration(M.B.A.).

We further certify that to the best of our knowledge and belief, the
matter presented in this project has not been submitted to any other
Degree or Diploma course.
Internal Guide
(Pro.M S Bhayani)
Prof.B. M. Londhe
Head of Department
External Examiner
Declaration
I undersigned hereby declares that, the project titled “Financial Behaviours of Derivative
Market'' is executed as per the course requirement of two year full time MBA program of
University of Pune. This report has not submitted by me or any other person to any other
University or Institution for a degree or diploma course. This is my own and original
work.

Place: Pune Sd.
Date:…………….. ( MaheshBalasaheb Kolhe)
MBA-2011-13
ACKNOWLEDGEMENT:
I am indebted to Mr. PRABHAKAR KUMAR SINHA (Branch Manager), NG
RATHI INVESTRADES PVT LTD, for giving me an opportunity to work as Employee
in this esteemed organization. His knowledge and experience was a great motivating factor. This
effort would not have been possible without his able, efficient, valuable and timely advice,
insights and thoughts. I am very much thankful to sir for his valuable guidance and support.
I take this opportunity to express my heartfelt gratitude to my faculty guide Prof. M S
BHAYANI MAM. I am thankful to him for his valuable support and guidance throughout the
project.
I extend my sincere thanks to all employees of NG RATHI who helped me for my project.
Last but not the least, I would like to thank my family members and friends whose unbounded
support facilitated the successful completion of the project.
MAHESH KOLHE

DECLARATION
I hereby declare that the work done by me in the report titled “FINANCIAL BEHAVIOURS
OF DERIVATIVE MARKET” contains the primary work done by me and no part of the report
has been imitated or copied from any previous report. The report has been prepared on the basis
of the finding and the data collected during the survey that was carried out for the purpose of
completing the project. This report which is to be presented to the University of Pune is true and
genuine to the best of my knowledge and belief.
MAHESH KOLHE

INDEX
Sr. No. Title Page No.
Executive Summary
1 Introduction
2 Company Profile
3 Review of Literature
4 Research Methodology
5 Data Analysis and Interpretation
6 Findings
7 Conclusion and Suggestions
8 Bibliography and Webliography
List of Figures
Figures No Figures Name Page No
2.1 NG Rathi Group
2.2 NG Rathi Mission

List of Tables:
Table No Table Name Page No
1.1 Difference between
Forward and Future
2.1 List of Directors
2.2 Client Interface
3.1 Example of Long
Straddle
3.2 Example of Short
Straddle
3.3 Example of Long
Strangle
3.4 Example of Short
Strangle
3.5 Example of Long
Combo
5.1 Long Straddle for
TATA STEEL
5.2 Long Straddle pay-off
for TATA STEEL
5.3 Long Straddle for
RELIANCE
for RELIANCE
5.5 Long Straddle for INFY
for INFY
5.7 Short Straddle for
TATA STEEL
5.8 Short Straddle pay-off
for TATA STEEL

5.9 Short Straddle for
RELIANCE
for RELIANCE
5.11 Short Straddle for INFY
for INFY
5.13 Long Strangle for
TATA STEEL
5.14 Long Strangle pay-off
for TATA STEEL
5.15 Long Strangle for
RELIANCE
for RELIANCE
5.17 Long Strangle for INFY
for INFY
5.19 Short Strangle for
TATA STEEL
5.20 Short Strangle pay-off
for TATA STEEL
RELIANCE
for RELIANCE
INFY
for INFY
5.25 Long Combo for TATA
STEEL
5.26 Long Combo pay-off
for TATA STEEL
5.27 Long Combo for
RELIANCE
5.28 Long Combo pay-off
for RELIANCE
5.29 Long Combo for INFY

5.30 Long Combo for pay-
off for INFY
6.1 Performance of
strategies.
Executive Summary
Project: Financial Behaviors of Derivative Market
Synopsis
Every investor wants profit and wants favorable situation all the time. But this rarely
happens. Investors are exposed to huge risk when they take position in the market. The risk can
be of downside as well as of upside. Then there arises a need to insure oneself against a risk.

Derivatives are thus comes into existence. This research aims at simplifying the nature of
derivatives, understanding them and analyzing them with the use of historical data. This
research shows how investor can avoid risk using different future and options strategies viz.
Long Combo, Long and short straddle as well as Long and short strangle strategies etc. This
research does not show that loss is completely eradicated as market movements are beyond
the control of a retail investor but it does show that how it can be minimized and puts the
choice of using strategies in the hands of investor.
Derivative is an asset class whose value is derived from the value of as underlying assets. The
underlying assets could be equities, depth, currencies and the indices of these various assets as
well. Derivatives can be traded on an exchange or the trade can be over the counter.
Futures Contracts:
A futures contract is an agreement between two parties to buy or sell an asset at a certain time in
the future at a certain price. But unlike forward contracts, the futures contracts are standardized
and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies
certain standard features of the contract. It is a standardized contract with standard underlying
instruments.
1 .Options Contracts:
Options give the buyer (holder) a right but not an obligation to buy or sell an asset
in future. Options are of two types - calls and puts. Calls give the buyer the right but not the
obligation to buy a given quantity of the underlying asset, at a given price on or before a given
future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given date. One can buy and sell each of the
contracts.
Application of Option Strategy’s:
1. Option strategy is used for risk minimization in derivative market.

2. Investor could have huge benefit by using appropriate strategy while trading in derivative
market.
Objectives:
PRIMARY OBJECTIVE:-
• To study the instruments used in derivative market.
• Apply options strategies on TATA Steel, INFY, and RELIANCE market shares and
analyze the performances of strategies.
SECONDARY OBJECTIVE:-
• To advice investor on how he can use derivatives.
Findings:
1. In this project Long straddle, Short straddle, Long and Short Strangle and Long Combo
strategies are studied.
2. By analyzing the performance of Strategies there is a result:
• Short Strangle is the best strategy for TATA STEEL.
• Short Straddle is the best strategy for RELIANCE.
• Short Strangle is the best strategy for INFY.

Chapter - 1
INTRODUCTION
Finance for any company is like blood of human body. Finance helps to run the business
smoothly. Let it be expansion, diversification financial aid always comes handy. Creation,
preservation, growth, and utilization of wealth has become an important task for any business
enterprise nowadays. For not only an organization but talking in terms of national or global
economy also, finance is a well respected term. Understanding finance functions and financial
structure has become crucial for sustaining in an ever changing economy. A country with sound

financial structure is given more importance in trade and commerce. The country is considered
as an example by other countries.
Globalization has opened new avenues for all businesses. The competition is rising and so is risk.
Financial sector and the product offered also have to face this risk. Derivatives are instruments
that offer hedging and profit making opportunities to individual as well as institutional investors.
Hence, it is important to understand how these instruments are used and how risk is minimized.
WHAT ARE DERIVATIVES?....
Derivative is an asset class whose value is derived from the value of as underlying assets. The
underlying assets could be equities, depth, currencies and the indices of these various assets as
well. Derivatives can be traded on an exchange or the trade can be over the counter.
ORIGIN OF DERIVATIVES
While trading in derivatives product has grown tremendously in recent times, the earliest
evidence of these types of instruments can be traced back to ancient Greece. Even though
derivatives have been in existence in some form or the other since ancient times, the advent of
modern day derivatives contracts is attributed to farmers need to protect themselves against to
decline in crop prices due to various economic and environmental factors. Thus, derivatives
contracts initially developed in commodities. The first “future” contracts can be traced to the
Yodoya rice market in Osaka, Japan around 1650. The farmers were afraid of rice prices falling
in the future at the time of harvesting. To lock in a price (i.e. to sell the rice at a pre-determined
fixed price in future), the farmers enter into contract with the buyers.
These were evidently standardized contract, much like today’s future contract. In 1848, the
Chicago Board of Trade (CBOT) was established to facilitate trading of contract on various
commodities have remind more or less in the same form as we know them today.

Indian Derivatives Market
As the initial step towards introduction of derivatives trading in India, SEBI set up a 24–member
committee under the Chairmanship of Dr. L. C. Gupta on November 18, 1996 to develop
appropriate regulatory framework for derivatives trading in India. The committee submitted its
report on March 17, 1998 recommending that derivatives should be declared as ‘securities’ so
that regulatory framework applicable to trading of ‘securities’ could also govern trading of
derivatives. Subsequently, SEBI set up a group in June 1998 under the Chairmanship of Prof.
J.R.Verma, to recommend measures for risk containment in derivatives market in India. The
committee submitted its report in October 1998. It worked out the operational details of
margining system, methodology for charging initial margins, membership details and net worth
criterion, deposit requirements and real time monitoring of positions requirements. In 1999, The
Securities Contract Regulation Act (SCRA) was amended to include “derivatives” within the
domain of ‘securities’ and regulatory framework was developed for governing derivatives
trading. In March 2000, government repealed a three-decade-old notification, which prohibited
forward trading in securities. The exchange traded derivatives started in India in June 2000 with
SEBI permitting BSE and NSE to deal in equity derivative segment. To begin with, SEBI
approved trading in index futures contracts based on S&P CNX Nifty and BSE–30 Sensex index,
which commenced trading in June 2000. Later, trading in Index options commenced in June
2001 and trading in options on individual stocks commenced in July 2001. Futures contracts on
individual stocks started in November 2001. In July 2012, SEBI has granted permission to MCX-
SX to deal in equity derivate.
Types of Derivatives:
1. Forward
2. Future
3. Options

4. Warrants
5. Swaps
6. LEAPS
7. Baskets
8. Swaption.
• Forward Contracts:
A forward contract is an agreement to buy or sell an asset on a specified date for a
specified price. One of the parties to the contract assumes a long position and agrees to
buy the underlying asset on a certain specified future date for a certain specified price.
The other party assumes a short position and agrees to sell the asset on the same date for
the same price. Other contract details like delivery date, price and quantity are negotiated
bilaterally by the parties to the contract. The forward contracts are normally traded
outside the exchanges.
The salient features of forward contracts are as given below:
• They are bilateral contracts and hence exposed to counter- party risk.
• Each contract is custom designed, and hence is unique in terms of contract size,
expiration date and the asset type and quality.
• The contract price is generally not available in public domain.
• On the expiration date, the contract has to be settled by delivery of the asset.
• If the party wishes to reverse the contract, it has to compulsorily go to the same counter-
party, which often results in high prices being charged.
Swaps:
Swaps are private agreements between two parties to exchange cash flows in the future
according to prearranged formula. There are two types of swaps as follows:
Interest rate swaps: This means swapping of interest related cash flows between the parties.

Currency rate swaps: This means swapping of both interest and principal but currency in each
flow is different than the other.
Warrants:
Majority of options have maturity date up to one year. Longer dated options that are traded OTC
are called Warrants.
LEAPS:
This stands for long-term Equity Application Securities. These options have maturity up to three
years.
Baskets:
Baskets options are options on portfolios of underlying asset is a moving average of a basket of
assets. Equity index options are a form of basket options.
Swaption:
These are options to buy or sell that will become operative at the expiry of the options. Thus, the
Swaption is an option on a forward swap. Rather than have calls and puts, the Swaption market
has a receiver Swaption and payer options. A receiver Swaption is an option to receive fixed and
pay floating. A payer Swaption is an option to pay fixed and receive floating.
Futures Contracts:
A futures contract is an agreement between two parties to buy or sell an asset at a certain time in
the future at a certain price. But unlike forward contracts, the futures contracts are standardized
and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies
certain standard features of the contract. It is a standardized contract with standard underlying
instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or
which can be used for reference purposes in settlement) and a standard timing of such settlement.
A futures contract may be offset prior to maturity by entering into an equal and opposite
transaction.
For Example:

Let’s say the current price of the stock is Rs.80.00 and we entered in forward contract to buy this
stock in 3 months time for Rs.81.00 (that means we hope that price will not fall lower than
Rs.81.00). if after three months price is more than Rs.81.00, let’s say Rs.83.00, than we can buy
the same stock for Rs.81.00 (as stated by forward contract) and after reselling it on the market
our payoff will we
P=83.00-81.00=2.00
If at forward maturity the stock price falls to Rs.78.00, than our loss will be
P=83.00-78.00=3.00
The above illustrate the forward contract payoff patterns for long and short position.
Distinction between the forwards and futures contracts:
Futures Forwards
Trade on an organized exchange OTC in nature
Standardized contract terms Customized contract terms
More liquid Less liquid
Requires margin payments No margin payment
Follows daily settlement Settlement happens at end of period
Table No – 1.1 Difference between Forward and Future Contract
Futures Terminology:
• Spot price:

The price at which an underlying asset trades in the spot market.
• Futures price:
The price that is agreed upon at the time of the contract for the delivery of an asset at a
specific future date.
• Contract cycle:
It is the period over which a contract trades. The index futures contracts on the NSE have
one-month, two-month and three-month expiry cycles which expire on the last Thursday
of the month. Thus a January expiration contract expires on the last Thursday of January
and a February expiration contract ceases trading on the last Thursday of February. On
the Friday following the last Thursday, a new contract having a three-month expiry is
introduced for trading.
• Expiry date:
+
Is the date on which the final settlement of the contract takes place.
• Contract size:
The amount of asset that has to be delivered under one contract. This is also called as the
lot size.
• Basis:
Basis is defined as the futures price minus the spot price. There will be a different basis
for each delivery month for each contract. In a normal market, basis will be positive. This
reflects that futures prices normally exceed spot prices.

• Cost of carry:
Measures the storage cost plus the interest that is paid to finance the asset less the income
earned on the asset.
• Initial margin:
The amount that must be deposited in the margin account at the time a futures contract is
first entered into is known as initial margin.
• Marking-to-market:
In the futures market, at the end of each trading day, the margin account is adjusted to
reflect the investor’s gain or loss depending upon the futures closing price. This is called
marking-to-market.
• Maintenance margin:
Investors are required to place margins with their trading members before they are
allowed to trade. If the balance in the margin account falls below the maintenance
margin, the investor receives a margin call and is expected to top up the margin account
to the initial margin level before trading commences on the next day.
• Open Interest :
Total long and short positions in any futures contract at any point of the day is called
open interest. In simple terms open Interest means contracts yet to be executed
completely.
• Cash settlement:
The open contracts are settled in cash. There is no physical delivery of the underlying
asset.

• Options Contracts:
Options give the buyer (holder) a right but not an obligation to buy or sell an asset in
future. Options are of two types - calls and puts. Calls give the buyer the right but not the
obligation to buy a given quantity of the underlying asset, at a given price on or before a
given future date. Puts give the buyer the right, but not the obligation to sell a given
quantity of the underlying asset at a given price on or before a given date. One can buy
and sell each of the contracts. When one buys an option he is said to be having a long
position and when one sells he is said to be having a short position.
THERE ARE TWO TYPES OF OPTIONS:
• Call option
• Put option
Call option: A call option to gives the holder the right but not the obligation to buy an assets by
a certain date for a certain price.
• Long a call: Person buys the right (a contract) to buy an asset at a certain price. We fell
that the price in the future will exceed the strike price. This is a bullish position.
• Short a call: Person sells the right (a contract) to someone that allows them to buy an
asset at a certain price. The writer feels that asset will devaluate over the time period of
the contract. This person is bearish on the asset.

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.
• Long a put: Buy the right to sell an asset at a predetermined price. We feel that the asset
will devalue over the time of the contract. Therefore we can sell the asset at a higher price
than is the current market value. This is a bearish position.
• Short a put: sell the right to someone else. This will allow them to sell the asset at a
specific price. We feel the price will go down and we do not .this is a bullish position.
Option Terminology:
• Index options: Have the index as the underlying. They can be European or American.
They are also cash settled.
• Stock options: They are options on individual stocks and give the holder the right to buy
or sell shares at the specified price. They can be European or American.
• Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/writer.
• Writer of an option: The writer of a call/put option is the one who receives the option
premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. There
are two basic types of options, call options and put options.

• Call option: It gives the holder the right but not the obligation to buy an asset by a
• Put option: It gives the holder the right but not the obligation to sell an asset by a certain
date for a certain price.
• Option price/premium: It is the price which the option buyer pays to the option seller. It
is also referred to as the option premium.
• Expiration date: The date specified in the options contract is known as the expiration
date, the exercise date, the strike date or the maturity.
• Strike price: The price specified in the options contract is known as the strike price or
the exercise price.
• American options: These can be exercised at any time up to the expiration date.
European options: These can be exercised only on the expiration date itself. European
options are easier to analyze than American options and properties of an American option are
frequently deduced from those of its European counterpart.

IN-THE-MONEY OPTION: ITM option generates positive cash inflow. But the calculation for
IPM option changes for call and put options. In call option, if strike price < spot price then the
option is ITM. But in put option, if strike price > spot price then the option is ITM.
AT-THE-MONEY OPTION: When strike price = spot price then option is said to be ATM.
This holds true for call and put option.
OUT-OF-MONEY OPTION: OTM option generates negative cash inflow. In case of OTM
call option, the strike price > spot price in case of OTM put option strike price < spot price.
SETTLEMENT: This option contracts are cash settled. Unlike in future, there is no marketing-
to-market in options. Lump sum amount is paid at the time of entering into the contract.
Participants in a Derivative Market:
The derivatives market is similar to any other financial market and has following three broad
categories of participants:
• Hedgers: These are investors with a present or anticipated exposure to the underlying
asset which is subject to price risks. Hedgers use the derivatives markets primarily for
price risk management of assets and portfolios.
• Speculators: These are individuals who take a view on the future direction of the
markets. They take a view whether prices would rise or fall in future and accordingly buy

or sell futures and options to try and make a profit from the future price movements of
the underlying asset.
• Arbitrageurs: They take positions in financial markets to earn riskless profits. The
arbitrageurs take short and long positions in the same or different contracts at the same
time to create a position which can generate a riskless profit.
NEED FOR RESEARCH:-
When the market is operated by the forces of demand and supply, some degree of volatility is
bound to be present. Same rule applies to capital market buyer and seller have different motives
when they execute their part in transaction and these motives are backed by the emotions. The
emotions, expectations, and action of market players highly influence the price movements.
The whole idea behind derivatives must be understood to know the importance of derivatives.
Derivatives act as risk hedging tool for investors. Various usage strategies and derivatives act as
buffer in case of unfavorable conditions. Hence, there is need to understand, evaluate, and
present the these strategies and their relevance taking actual data.

Objectives of Rasearch :
PRIMARY OBJECTIVE:-
• To study the instruments used in derivative market.
• Apply options strategies on TATA Steel, INFY, and RELIANCE market shares and
analyze the performances of strategies.
SECONDARY OBJECTIVE:-
• To advice investor on how he can use derivatives.
Chapter – 2

Company Profile
Company’s profile:
NG RATHI INVESTRADES PVT LTD is one of the most renowned brokerage houses
in Pune. The promoters share 16 years of rich experience in the broking segment. It is a fully
integrated capital markets intermediary dedicated towards providing you with a technology

driven investment platform. NGRIPL is a member of National Stock Exchange (NSE), Bombay
Stock Exchange (BSE) as well as the leading commodity exchange of India i.e. MCX. NGRIPL
is also registered as a Depository Participant of CDSL.
ABOUT COMPANY:
NG RATHI INVESTRADES PVT LTD is one of the most renowned brokerage houses in Pune,
India. It has a total experience of 15 years in the stock broking business.
Our company is one of the prestigious houses in Pune, having membership of National Stock
Exchange of India Ltd. (NSE) and The Stock exchange of Mumbai (BSE) for Capital and
Derivative Market segments. We offer an entire ambit of broking services to our clients.
With the principles of integrity in all dealings, combining strong business ethics, NG RATHI
INVESTRADES PVT LTD. Has build up a reputation where trust is the bottom line. A
reputation clearly indicated by its impressive and ever growing list of clients. Our customers rely
on us because of our ability to devise innovative solution and manage complex transactions.
Rathi Brothers, of NG RATHI INVESTRADES PVT LTD. are regarded as one of the most
successful investors / traders amongst the pune based stock traders / brokers. They have gained
recognition for their value investing approach towards the markets. They are amongst the very
few who have traded and invested with a more diverse group of stock market trading strategies in
the past fifteen years.
Rathi brothers are noted for their adherence to the value investing philosophy and for their
personal frugality despite of their immense wealth. The basic ideas of investing are to look at
stock as business, use the markets fluctuations to your advantage, and seek of margin of safety
(stop loss). That’s what they guide. Using what they learned, they feel confident enough to teach
as “Investment Principles”.
MAIN PURPOSE:

The main purpose of Rathi Brothers is to provide proper guidance to our estimated clients &
share their valuable experience through our calls to help earn countless profit. ”OUR
GURUMANTRA IS TO BOOK MINIMUM LOSS & HOLD FOR HUGE PROFIT”.
NG RATHI PRODUCTS:
• EQUITY/SHARES: - We provide you with the best guidance in the dynamic world of
stock market with the effective trading solutions, value-added tools and services to
enhance your trading experience.
• DERIVATIVES (FUTURE & OPTIONS):- Best guidance with low risk and high
returns in derivatives. Since past few years, Future & Options segment has emerged as a
popular medium for trading in financial markets.
• PRIMARY MARKET (IPO):-We provide IPO services to the clients so that they can
conveniently apply for the Various IPO.
• ONLINE TRADING:-We avail you with user friendly Hi-speed trading platforms
provided by NSE, BSE, and MCX.
• FINANCIAL REEARCH: - Direct communication between clients and relationship
managers, Effective investment advice and research reports mailed on daily basis for next
trading sessions, Daily calls during market hours with trade wise conformation on
mobiles.
• DEPOSITARY SERVISES:- We provide risk-free and prompt depositary service,
automated pay in facility, access information on-line, quarterly demat statements, view
demat A/C statement online, competitive transaction charges.
• KNOWLEDGE HUB: - Dedicated classroom and experience people for providing you
complete knowledge about advance fundamental and technical analysis. Get 15 years of

stock market experience from one of the longest and most successful stock market
trading persona.
THE MANAGEMENT:
The management at NGRIPL is the CRUX of our foundation. We boost of a versatile board with
rich and varied experience. Each member of the board is an eminent personality.
Nitin M Rathi (Chairman) Mr. Nitin M Rathi a man of substance, versatile in business. He is
Bachelors of Electronics but his interest brought him to this field
and now he contributes his rich experience of more than 16 years
in the capital markets with a focus on the derivatives segment, to
the growth of Dreams Investrades Pvt. Ltd. He has evolved as a
catalyst in nurturing business for NG RATHI INVESTRADES
PVT LTD. He is a Director of Dreams Capital Pvt. Ltd.
Girish Madhukar Rathi
(Managing Director)
Mr. Girish Rathi has a rich and Varied experience of more than 10
years in all aspects of the Equity Capital Markets. Being the
founder member of Dreams Group, he has nurtured the group as
his own child. He is one of the Board members of the Dreams
Group. He is a former member of Pune Stock Exchange.
Neha Nitin Rathi (Director) Mrs. Neha Rathi has done her Masters in Commerce. She is a

multifaceted personality with a rich experience of more than 10
years in the capital markets. She gives credit for her knowledge in
the markets to her husband, Mr. Nitin Rathi.
Gopal Subhash Kalantri
(Director)
Mr. Gopal Kalantri, a conceptually strong man with strong
principal and ethics. He too has a rich and Varied experience of 18
plus years in the Capital Markets. He has fundamentally sound
knowledge of all the companies listed on the Exchange.
Sham Subhash Kalantri
(Director)
Mr. Sham Kalantri, a Dynamic personality, an active participant in
the Capital markets with a graceful experience of 10 plus years. He
has a respectful reputation in the community. He is on the Board.
Pushkar Phatak
(Executive Director)
Mr. Pushkar Phatak an MBA in finance having more than 10 years
experience in financial sector was inducted on the board of the
company to strengthen the organization but with his distinct
abilities, just in a short time span, he has mastered the skills of
efficient and resourceful management. He is the one who rekindles
the spirit of NG RATHI INVESTRADES PVT LTD. to be the
Best in the Industry.
Table No : 2.1 – List of Company’s Director
WHY CHOOSE NG RATHI:
• Personalized service.
• Expert's advice.
• Dedicated research team.
• Experienced promoters.
• Training platform.

NG RATHI BUSINESS:
• Equity Trading.
• Derivatives Trading.
• IPO.
• Online Trading.
• Financial Research.
• Depository Services.
NG RATHI GROUP:
• NG RATHI INVESTRADES PVT LTD
• NG COMMODITIES PVT LTD
• NG RATHI ASSOCIATES
Fig : 2.1 Group of NG RATHI
NG RATHI VISSION AND MISSON:

Fig : 2.2 Missionof NG RATHI
Competitive advantage of NG Rathi:
• Lowest Brokerage
• Online Money Transfer.
• Daily Confirmation Calls.
• Daily Contract Notes.
• Providing Funding Facility
CLIENT INTERFACE:
Retail Spectrum Intuitional Spectrum Wealth Spectrum
Positioning
Leverage reach and offer
integrated product and service
portfolio.
Leverage relationship with
growing SME segment
spared across India.
To be client centric wealth
management advisory firm
for the high net worth
individuals (HNIs).
Product & services
• Equity Trading
• Derivatives
• Portfolio Management Services
• Premier Client Group Services

Trading
• IPO
• Online Trading
• Financial Research
• Depository
Services
• Arts Initiative
• International Advisory Fund Management
services
Table No : 2.2 Client Interface
Chapter - 3
Review of Literature

In literature review I read various books suggested by the Branch Manager of NG RATHI and Project
Guide. I also visited some websites and collected data on the topic:
Author Name - Hull John C.
Book Name - Option and Other Derivatives ( 6th
Edition)
For analyzing the strategies book of NCFM Module is used.
By using this book write the information about strategies which is as shown bellow –
• Options Contracts:
Options give the buyer (holder) a right but not an obligation to buy or sell an asset in
future. Options are of two types - calls and puts. Calls give the buyer the right but not the
obligation to buy a given quantity of the underlying asset, at a given price on or before a
given future date. Puts give the buyer the right, but not the obligation to sell a given
quantity of the underlying asset at a given price on or before a given date. One can buy
and sell each of the contracts. When one buys an option he is said to be having a long
position and when one sells he is said to be having a short position.
THERE ARE TWO TYPES OF OPTIONS:
• Call option

• Put option
• Call option: It gives the holder the right but not the obligation to buy an asset by a
• Put option: It gives the holder the right but not the obligation to sell an asset by a certain
date for a certain price.
STRATEGY 1 : LONG STRADDLE
A Straddle is a volatility strategy and is used when the stockprice / index is expected to showlarge movements.
This strategy involves buying a call as well as put on the same stock / index for the same maturity and strike price,
to take advantage of a movement in either direction, a soaring or plummeting value of the stock/ index. If the price
of the stock/ index increases, the call is exercised while the put expires worthless and if the price of the stock / index
decreases,the put is exercised, the call expires worthless. Either way if the stock/ index shows volatility to cover the
cost of the trade, profits are to be made. With Straddles, the investoris direction neutral. All that he is looking out
for is the stock/ index to break out exponentially in either direction.
When to Use: The investor thinks that the underlying stock/ index will experience
significant volatility in the near term.
Risk: Limited to the initial premium paid.
Reward: Unlimited
Breakeven:
· Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
UBP = 4500 + 207 = 4707
Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
LBP = 4500 – 207 = 4293
Example
Suppose Nifty is at 4450 on 27th April. An investor, Mr. A enters a long straddle by buying a May Rs 4500
Nifty Put for Rs. 85 and a May Rs. 4500 Nifty Call for Rs. 122. The net debit taken to enter the trade is Rs
207, which is also his maximum possible loss.
Strategy : Buy Put + Buy Call.
On expiry Nifty
closes at
Net Payoff from
Put
Purchased (Rs.)
Net Payoff from
Call
Purchased (Rs.)
Net Payoff
(Rs.)

4200 215 -122 93
4234 181 -122 59
4300 122 -122 0
4500 -155 -122 -207
4700 -85 78 7
4707 -85 85 0
4766 -85 144 59
Table No : 3.1 Example of Long Straddle
STRATEGY 2 : SHORT STRADDLE
It is a strategy to be adopted when the investor feels the market will not show much movement.
He sells a Call and a Put on the same stock / index for the same maturity and strike price. It
creates a net income for the investor. If the stock / index does not move much in either direction,
the investor retains the Premium as neither the Call nor the Put will be exercised. However,
incase the stock / index moves in either direction, up or down significantly, the investor’s losses
can be significant. So this is a risky strategy and should be carefully adopted and only when the
expected volatility in the market is limited. If the stock / index value stays close to the strike
price on expiry of the contracts, maximum gain, which is the Premium received is made.
When to Use: The investor thinks that the underlying stock / index will experience very little
volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received.
Breakeven:
UBP = 4500 + 207 = 4707
· Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
LBP = 4500 – 207 = 4293
Example

Suppose Nifty is at 4450 on 27th April. An investor, Mr. A, enters
into a short straddle by selling a May Rs 4500 Nifty Put for Rs. 85
and a May Rs. 4500 Nifty Call for Rs. 122. The net credit received is
Rs. 207, which is also his
maximum possible profit.
Net Pay-offTable:
On expiry Nifty
closes at
Net Payoff from
Put
Sold (Rs.)
Net Payoff from
Call Sold (Rs.)
Net pay-off
4234 -181 122 -59
4293 -122 122 0
4300 -115 122 7
4500 85 122 207
4700 85 -78 7
4707 85 -85 0
Table No : 3.2 Example Short Straddle
STRATEGY 3 : LONG STRANGLE
A Strangle is a slight modification to the Straddle to make it cheaper to execute. This
strategy involves the simultaneous buying of a slightly out-of-the-money (OTM) put and a
slightly out-of-the-money (OTM) call of the same underlying stock / index and expiration date.
Here again the investor is directional neutral but is looking for an increased volatility in the stock
/ index and the prices moving significantly in either direction. Since OTM options are purchased
for both Calls and Puts it makes the cost of executing a Strangle cheaper as compared to a

Straddle, where generally ATM strikes are purchased. Since the initial cost of a Strangle is
cheaper than a Straddle, the returns could potentially be higher. However, for a Strangle to make
money, it would require greater movement on the upside or downside for the stock / index than it
would for a Straddle. As with a Straddle, the strategy has a limited downside (i.e. the Call and
the Put premium) and unlimited upside potential.
When to Use: The investor thinks that the underlying stock / index will experience very high
levels of volatility in the near term.
Risk: Limited to the initial premium paid
Reward: Unlimited
Breakeven:
UBP = 4700 + 66 = 4766
LBP = 4300 – 66 = 4234
Example
Suppose Nifty is at 4500 in May. An investor, Mr. A, executes a Long Strangle by buying a
Rs. 4300 Nifty Put for a premium of Rs. 23 and a Rs 4700 Nifty Call for Rs 43. The net
debit taken to enter the trade is Rs. 66, which is also his maxi mum possible loss.
Strategy : Buy OTM Put + Buy OTM Call
Net Pay-offTable:
On expiry Nifty
closes at
Net Payoff from
Put
Purchased(Rs.)
Net Payoff from
Call Purchased
(Rs.)
Net pay-off
4200 77 -43 34
4234 43 -43 0
4400 -23 -43 -66
4500 -23 -43 -66
4766 -23 23 0
4800 -23 57 34

Table No : 3.3 Example of Long Strangle
STRATEGY 4. SHORT STRANGLE
This strategy involves the simultaneous selling of a slightly out-of-the-money (OTM) put and a
slightly out-of-the-money (OTM) call of the same underlying stock and expiration date. This
typically means that since OTM call and put are sold, the net credit received by the seller is less
as compared to a Short Straddle, but the break even points are also widened. The underlying
stock has to move significantly for the Call and the Put to be worth exercising. If the underlying
stock does not show much of a movement, the seller of the Strangle gets to keep the Premium.
When to Use: This options trading strategy is taken when the options investor thinks that the
underlying stock will experience little volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:
· Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
UBP = 4700 + 66 = 4766
· Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
LBP = 4300 – 66 = 4234
Example
Suppose Nifty is at 4500 in May. An investor, Mr. A, executes a Short Strangle by selling a
Rs. 4300 Nifty Put for a premium of Rs. 23 and a Rs.
4700 Nifty Call for Rs 43. The net credit is Rs. 66, which is also hismaximum possible gain.
Strategy : Sell OTM Put + Sell OTM Call

Net Pay-offTable:
On expiry Nifty
closes at
Net Payoff from
Put
Sold(Rs.)
Net Payoff from
Call Sold (Rs.)
Net pay-off
4200 -77 43 -34
4234 -43 43 0
4400 23 43 66
4500 23 43 66
4766 23 -23 0
4800 23 -57 -34
Table No : 3.4 Example of Short Strangle
STRATEGY 5 : LONG COMBO : SELL A PUT,
BUY A CALL
A Long Combo is a Bullish strategy. If an investor is expecting the price of a stock to move up
he can do a Long Combo strategy. It involves selling an OTM (lower strike) Put and buying an
OTM (higher strike) Call. This strategy simulates the action of buying a stock (or a futures) but
at a fraction of the stock price. It is an inexpensive trade, similar in pay-off to Long Stock, except
there is a gap between the strikes (please see the payoff diagram). As the stock price rises the
strategy starts making profits. Let us try and understand Long Combo with an example.
When to Use: Investor is Bullish on the stock.
Risk: Unlimited (Lower Strike + net debit)
Reward: Unlimited
Breakeven:
Higher strike + net debit
500 + 1 = 501

Example:
A stock ABC Ltd. is trading at Rs. 450. Mr. XYZ is bullish on the stock. But does not want
to invest Rs. 450. He does a Long Combo. He sells a Put option with a strike price Rs. 400
at a premium of Rs. 1.00 and buys a Call Option with a strike price of Rs. 500 at a
premium of Rs. 2. The net cost of the strategy (net debit) is Rs. 1.
Strategy : Sell a Put + Buy a Call
Net Pay-offTable:
ABC Ltd
Closes at
Net Payoff from
Put
Sold(Rs.)
Net Payoff from
Call Buy (Rs.)
Net pay-off
550 1 48 49
501 1 -1 0
500 1 -2 -1
450 1 -2 -1
400 1 -2 -1
350 -49 -2 -51
Table No : 3.5 Example of Long Combo
For a small investment of Re. 1 (net debit), the returns can be very high in a Long Combo,
but only if the stock moves up. Otherwise the potential losses can also be high.

Chapter - 4
Research
Methodology

RESEARCH METHODOLOGY:
Research is of a great importance to find out the nature, extent, and causes of the research, issue
under study, Research Methodology is the processes in which various steps are generally adopted
by a research are outlined.
The study aims to delineate the methodology, employed to undertaken this study. Research is a
common parlance, which refers to a search for knowledge.
Project design:
ResearchProblem:
This research is aimed at understanding the uses of derivatives. These instruments serve a
purpose of profit maximization and risk minimization. Considering a limited amount of data,
various strategies are worked out.
Hypothesis:
The derivative strategies help the investor to know his actual profit or loss. On that basis he can
take appropriate position in the market and avail the situation.
Secondary data- This data is collected by someone else and used by the researcher. It is
borrowed from a published or non-published source. In this project the data is collected from
• Various books related to stock market.
• Books related to Financial Management.
• Reference given by Relationship Manager.
• Website.
Sampling design:

In this project ‘Non-probability sampling’ is used. In this type there is a sample of units where
the selected units in the sample have an unknown probability of being selected and where some
units of the target population may even have no chance at all of being in the sample .
Sample Unit – Option price of Infosys, Reliance and Tata Steel.
Sampling Frame – List of shares trading in derivatives section of NSE.
Purposive sampling was used to select the share and the time period.INFY, RELIANCE and
TATA STEEL were purposefully selected because they have highest trading value in Option
after Nifty.
The time period of one month was selected as the shortest expiry time of a contract is one month.
Analysis Methodology:
Randomly selected five option strategies have been applied on INFY, Reliance and
Tata Steel shares to obtain best payoff for any investor
Price on first day of month is considered as the starting price and payoff are calculated on the
expiring date
Limitations and Scope:
• Current month option chain is considered. Near and far month chains have
not been considered. They might lead to higher payoff.
• Liquidation of position is considered as on expiry and not any other day
between the any date and expiry date.

Chapter No. 5
DATA ANALYSIS AND
INTERPRETATION
Option Strategies:
Long Straddle: Buy Call, Buy Put.

A Straddle is a volatility strategy and is used when the stock price / index is expected to
show large movements. This strategy involves buying a call as well as put on the same
stock / index for the same maturity and strike price, to take advantage of a movement in
either direction, a soaring or plummeting value of the stock / index. If the price of the stock/
index increases, the call is exercised while the put expires worthless and if the price of the stock /
index decreases, the put is exercised, the call expires worthless. Either way if the stock / index
shows volatility to cover the cost of the trade, profits are to be made. With Straddles, the investor
is direction neutral. All that he is looking out for is the stock / index to break out exponentially in
either direction.
Base Table:
Instrument Symbol EXPIRY_DT Strike
Price
Option Premium Spot
Price
OPTSTK TATA
STEEL
25 July 2013 230 CE 0.05 222.85
OPTSTK TATA
STEEL
25 July 2013 230 PE 7 222.85
Table No : 5.1 Long Straddle for Tata Steel
Actions:
Buy a call of Strike 230.
Buy a put of Strike 230.
Calculationof TATA STEELMarketshare for Long Straddle strategy.
Net premium = Call premium + Put premium
= 0.05 + 7 = 7.05

Breakeven:
· Upper Breakeven Point = Strike Price Of Long Call + Net Premium Paid
UBP = 230 + 7.05 = 237.05
· Lower Breakeven Point = Strike Price Of Long Put - Net Premium Paid
LBP = 230 – 7.05 = 222.95
Payoff Table:
Calculation of TATA STEEL Market share for Long straddle strategy.
Strike
price
Call
Closing
Prices
Net
payoff
from buy
call
Put
Closing
Prices
Net
payoff
from buy
put
spot market rate
of tata steel
Net
Payoff
210 -107.1 -94.25 0.3 13.15 222.85 -81.1
215 -51.05 -43.2 0.55 8.4 222.85 -34.8
220 -2.5 0.35 0.3 3.15 222.85 3.5
225 -0.25 -2.4 2.25 0.1 222.85 -2.3
230 -0.05 -7.2 -7 -14.15 222.85 -21.35
235 0.05 -12.1 -12.05 -24.2 222.85 -36.3
240 0.05 -17.1 -16.95 -34.1 222.85 -51.2
245 0.05 -22.1 -19 -41.15 222.85 -63.25
250 0.05 -27.1 -26.85 -54 222.85 -81.1
220 is the best strike price at which the net pay off is higher.
Table No : 5.2 Long Straddle Pay-off for Tata Steel
Base Table:
Price
Option Premium Spot
Price

OPTSTK RELIANCE 25 July 2013 880 CE 31.05 890.75
OPTSTK RELIANCE 25 July 2013 880 PE 24.10 890.75
Table No : 5.3 Long Straddle for Reliance
Actions:
Calculationof RELIANCE Marketshare for Long Straddle strategy.
= 31.05+24.10= 55.15
Breakeven:
UBP = 880 + 55.15 = 935.15
LBP = 880 – 55.15 =824.85

Payoff Table
Calculation of long straddle strategy for reliance market shares.
strike
price
Buy call call payoff Buy Put
Put
Payoff
Spot Price
of
Reliance
share
Net
Payoff
800 -90.8 -0.05 4.5 95.25 890.75 95.2
820 -72.75 -2 7 77.75 890.75 75.75
840 -57.65 -6.9 10.65 61.4 890.75 54.5
860 -43.4 -12.65 16.35 47.1 890.75 34.45
880 -31.05 -20.3 -24.1 -13.35 890.75 -33.65
900 21.45 12.2 -33.5 -42.75 890.75 -30.55
920 14.25 -15 -48.3 -77.55 890.75 -92.55
940 9.25 -40 -119.5 -168.75 890.75 -208.75
960 5.8 -63.45 -135.25 -204.5 890.75 -267.95
800 is the best strike price at which net payoff is high.
Table No : 5.4 Long Straddle Pay-off for Reliance
Base Table:
Price
Option Premium Spot
Price
OPTSTK INFY 25 July 2013 2950 CE 0.15 2915.3
OPTSTK INFY 25 July 2013 2950 PE 44.75 2915.3
Table No : 5.5 Long Straddle for INFY
Actions:

Calculationof INFY Marketshare for Long Straddle strategy.
= 0.15+44.75= 44.90
Breakeven:
UBP = 2950 + 44.90 = 2994.90
LBP = 2950-44.90 = 2905.1
Payoff Table:
Calculation of INFY Market share price by using Long Straddle Strategy.
Strike
price
Call Closing
Prices
Net payoff
from buy
call
Put Closing
Prices
Net payoff
from buy put
spot market
rate of INFY
Net Pay-
off
2750 -163.7 1.6 0.1 165.4 2915.3 167
2800 -112.35 2.95 0.05 115.35 2915.3 118.3
2850 -59.55 5.75 0.05 65.35 2915.3 71.1
2900 -12.8 2.5 0.75 16.05 2915.3 18.55
2950 -0.15 -34.85 -44.75 -79.45 2915.3 -114.3
3000 0.05 -84.65 -82 -166.7 2915.3 -251.35
3050 0.05 -134.65 -953.95 -1088.65 2915.3 -1223.3
3100 0.1 -184.6 -993.55 -1178.25 2915.3 -1362.85
3150 0.05 -234.65 -1033.55 -1268.25 2915.3 -1502.9
2750 IS THE BEST STRIKE PRICE AT WHICH MARKET PROFIT IS HIGH.
Table No : 5.6 Long Straddle pay-off for INFY

Short Straddle: Call sold, PUT sold.
A Short Straddle is the opposite of Long Straddle. It is a strategy to be adopted when the
Investor feels the market will not show much movement. He sells a Call and a Put on the
Same stock / index for the same maturity and strike price. It creates a net income for the
Investor. If the stock / index does not move much in either direction, the investor retains
The Premium as neither the Call nor the Put will be exercised. However, incase the stock /Index
moves in either direction, up or down significantly, the investor’s losses can be
Significant. So this is a risky strategy and should be carefully adopted and only when the
Expected volatility in the market is limited. If the stock / index value stays close to the
Strike price on expiry of the contracts, maximum gain, which is the Premium received is
made.
Base Table:
Price
Option Premium Spot
Price
OPTSTK TATA
STEEL
25 July 2013 230 CE 0.05 222.85
OPTSTK TATA
STEEL
25 July 2013 230 PE 7.00 222.85
Table No : 5.7 Short Straddle for TATA STEEL
Actions:
Calculationof TATA STEELMarketshare for Short Straddle strategy.

= 0.05+7.00 = 7.05
Breakeven:
UBP = 230 + 7.05 = 237.05
LBP = 230 – 7.05 =222.95
Payoff Table:
Calculation of TATA STEEL Market share for Short straddle strategy.
Strike
price
Call
Closing
Prices
Net payoff
from call
sold
Put Closing
Prices
Net payoff
from put
sold
spot
market
rate of tata
steel
Net
Payoff
210 107.1 119.95 -0.3 12.55 222.85 132.5
215 51.05 58.9 -0.55 7.3 222.85 66.2
220 2.5 5.35 -0.3 2.55 222.85 7.9
225 0.25 -1.9 -2.25 -4.4 222.85 -6.3
230 0.05 -7.1 7 -0.15 222.85 -7.25
235 -0.05 -12.2 12.05 -0.1 222.85 -12.3
240 -0.05 -17.2 16.95 -0.2 222.85 -17.4
245 -0.05 -22.2 19 -3.15 222.85 -25.35
250 -0.05 -27.2 26.85 -0.3 222.85 -27.5
210 is best strike price at which net pay-off is very high.
Table No : 5.8 Short Straddle Pay-off for TATA STEEL
Base Table:

Price
Option Premium Spot
Price
Table No : 5.9 Short Straddle for RELIANCE
Actions:
Calculationof RELIANCE Marketshare for Short Straddle strategy.
= 31.05+24.10= 55.15
Breakeven:
UBP = 880 + 55.15 = 935.15
LBP = 880 – 55.15 =824.85
Payoff Table:

Calculation of Short Straddle Strategy of Reliance market share.
strike
price
call
sold
call
payoff put sold
put
payoff
Spot Price
of Reliance
market
price
Net
Payoff
800 90.8 181.55 -4.5 86.25 890.75 267.8
820 72.75 143.5 -7 63.75 890.75 207.25
840 57.65 108.4 -10.65 40.1 890.75 148.5
860 43.4 74.15 -16.35 14.4 890.75 88.55
880 31.05 41.8 24.1 34.85 890.75 76.65
900 -21.45 -30.7 33.5 24.25 890.75 -6.45
920 -14.25 -43.5 48.3 19.05 890.75 -24.45
940 -9.25 -58.5 119.5 70.25 890.75 11.75
960 -5.8 -75.05 135.25 66 890.75 -9.05
820 is the best strike price at which net pay-off is higher.
Table No : 5.10 Short Straddle Pay-off for RELIANCE
Base Table:
Price
Option Premium Spot
Price
Table No : 5.11 Short Straddle for INFY
Actions:

Calculationof INFY Marketshare for Short Strddle strategy.
= 0.15+44.75= 44.90
Breakeven:
UBP = 2950 + 44.90 = 2994.90
· Lower Breakeven Point = Strike PriceOf Long Put - Net Premium Paid
LBP = 2950-44.90 = 2905.1
Payoff Table:

Calculation of INFY Market share price by using Short Straddle Strategy.
Strike
price
Call Closing
Prices
Net payoff
from call
sold
Put Closing
Prices
Net payoff
from put sold
spot market
rate of INFY Net Payoff
2750 163.7 329 -0.1 165.2 2915.3 494.2
2800 112.35 227.65 -0.05 115.25 2915.3 342.9
2850 59.55 124.85 -0.05 65.25 2915.3 190.1
2900 12.8 28.1 -0.75 14.55 2915.3 42.65
2950 0.15 -34.55 44.75 10.05 2915.3 -24.5
3000 -0.05 -84.75 82 -2.7 2915.3 -87.45
3050 -0.05 -134.75 953.55 818.85 2915.3 684.1
3100 -0.1 -184.8 993.55 808.85 2915.3 624.05
3150 -0.05 -234.75 1033.55 798.85 2915.3 564.1
3050 is the best strike price at which market profit is high.
Table No : 5.12 Short Straddle for INFY
Option Strategies:
Long Strangle : Buy OTM Put, Buy OTM Call
This strategy involves the simultaneous buying of a slightly out-of-the-money (OTM) put and a
slightly out-of-the-money (OTM) call of the same underlying stock / index and expiration
date.
However, for a Strangle to make money, it would require greater movement on the upside
or downside for the stock / index than it would for a Straddle. As with a Straddle, the
strategy has a limited downside (i.e. the Call and the Put premium) and unlimited upside
potential.
Base Table:

Price
Option Premium Spot
Price
OPTSTK TATA
STEEL
25 July 2013 220 CE 2.5 222.85
OPTSTK TATA
STEEL
25 July 2013 240 PE 16.95 222.85
Table No : 5.13 Long Strangle for TATA STEEL
StockName – TATA STEEL
Strike Price - 230
Actions:
Calculationof TATA STEELMarketshare for Long Straddle strategy.
= 2.5+16.95 = 19.45
Breakeven:
UBP = 220 + 19.45 = 239.45
LBP = 240 – 19.45 = 220.55
Payoff Table:

Calculation of TATA STEEL Market share for Long Strangle strategy.
On Expiry
Nifty close
at
Put closing
prices
net pay of from
put purchased
Call closing
prices
net pay of
from call
purchased
Spot market
rate of Tata
Steel
Net pay-
off
200 0.05 -22.9 -116.85 -94 222.85 -116.9
205 0.2 -18.05 -60.65 -42.8 222.85 -60.85
210 0.3 -13.15 -107.1 -94.25 222.85 -107.4
215 0.55 -8.4 -51.05 -43.2 222.85 -51.6
220 -0.3 -2.55 -2.5 0.35 222.85 -2.2
240 -16.95 34.1 -0.05 -17.2 222.85 16.9
245 -19 41.15 0.05 -22.1 222.85 19.05
250 -26.85 54 0.05 -27.1 222.85 26.9
255 -31.35 63.5 0.05 -32.1 222.85 31.4
255 is the bst strike price at which net pay-off is good.
Table No : 5.14 Long Strangle pay-off for TATA STEEL
Base Table:
Price
Option Premium Spot
Price
Table No : 5.15 Long Strangle for RELIANCE
Actions:

Calculationof RELIANCE Marketshare for Long Strangle strategy.
= 0.05+0.05 = 0.1
Breakeven:
UBP = 920 + 0.1 = 920.1
LBP = 840 – 0.1 = 839.9
Payoff Table:

Reliance Calculation for Long Strangle
Strike
Price
Put
purchased
Net Payoff put
purchased
Call
purchased
Net payoff
Call
purchased
Stock
Price
Net
Payoff
760 0.05 130.8 -146.95 -16.2 890.75 114.6
780 0.05 110.8 -122 -11.25 890.75 99.55
800 0.1 90.85 -93.22 -2.47 890.75 88.38
820 0.05 70.8 -72.6 -1.85 890.75 68.95
840 -0.05 50.7 -52.75 -2 890.75 48.7
920 -25.75 -55 -0.05 -29.3 890.75 -84.3
940 -39 -88.25 0.05 -49.2 890.75 -137.45
960 -62.5 -131.75 0.05 -69.2 890.75 -200.95
980 -73 -162.25 0.05 -89.2 890.75 -251.45
760 is the best strike price at which net pay-off is higher.
Table No : 5.16 Long Strangle pay-off for RELIANCE
Base Table:
Price
Option Premium Spot
Price
Table No : 5.17 Long Strangle for INFY
Actions:

Calculationof INFY Marketshare for Long Strangle strategy.
= 0.05 + 0.05 = 0.1
Breakeven:
UBP = 3050 + 0.1 = 3050.1
LBP = 2850 – 0.1 = 2849.9
Payoff Table:

Calculation of INFY Market share price by using Long Strangle Strategy.
Strike
price
Call Closing
Prices
Net pay-off
from call
perchased
Put Closing
Prices
Net pay-off
from put
perchased
spot
market rate
of INFY Net Pay-off
2650 -262 3.3 0.05 265.35 2915.3 268.65
2700 -209.2 6.1 0.05 215.35 2915.3 221.45
2750 -163.7 1.6 0.1 165.4 2915.3 167
2800 -112.35 2.95 0.05 115.35 2915.3 118.3
2850 -59.55 5.75 -0.05 65.25 2915.3 71
3050 -0.05 -134.75 -953.95 -1088.65 2915.3 -1223.4
3100 0.1 -184.6 -993.55 -1178.25 2915.3 -1362.85
3150 0.05 -234.65 -1033.55 -1268.25 2915.3 -1502.9
3200 0.05 -284.65 -361 -645.7 2915.3 -930.35
2650 IS the best strike price at which pay-off is high.
Table No : 5.18 Long Strangle pay-off for INFY
Option Strategies:
Short Strangle : Sell OTM Put, SellOTM Call

This options trading strategy is taken when the options investor thinks that the
underlying stockwill experience little volatility in the near term. This strategy
involves the simultaneous selling of a slightly out-of-the-money (OTM) put and a
slightly out-of-the-money (OTM) call of the same underlying stockand expiration
date.
Base Table:
Price
Option Premium Spot
Price
OPTSTK TATA
STEEL
25 July 2013 220 CE 2.5 222.85
OPTSTK TATA
STEEL
25 July 2013 240 PE 16.95 222.85
Table No : 5.19 Short Strangle for TATA STEEL
StockName – TATA STEEL
Strike Price - 230
Actions:
Sell a call of Strike 220.
Sell a put of Strike 240.
Calculationof TATA STEELMarketshare for Short Strangle strategy.

= 2.5+16.95 = 19.45
Breakeven:
UBP = 220 + 19.45 = 239.45
LBP = 240 – 19.45 = 220.55
Payoff Table:
Calculation of TATA STEEL Market share for Short Strangle strategy.
On Expiry
Nifty
close at
Put closing
prices
Net pay-
off from
put sold
Call closing
prices
Net pay-off
from call
sold
Spot market
rat of Tata
Steel
Net Pay-
off
200 -0.05 22.8 116.85 139.7 222.85 162.5
205 -0.2 17.65 60.65 78.5 222.85 96.15
210 -0.3 12.55 107.1 119.95 222.85 132.5
215 -0.55 7.3 51.05 58.9 222.85 66.2
220 0.3 3.15 2.5 5.35 222.85 8.5
240 16.95 -0.2 0.05 -17.1 222.85 -17.3
245 19 -3.15 0.05 -22.1 222.85 -25.25
250 26.85 -0.3 -0.05 -27.2 222.85 -27.5
255 31.35 -0.8 -0.05 -32.2 222.85 -33
200 is the best strike price at which Net pay-off is higher.
Table No : 5.20 Short Strangle pay-off for TATA STEEL
Base Table:

Price
Option Premium Spot
Price
Table No : 5.21 Short Strangle for RELIANCE
Actions:
Calculationof RELIANCE Marketshare for Short Strangle strategy.
= 0.05+0.05 = 0.1
Breakeven:
UBP = 920 + 0.1 = 920.1
LBP = 840 – 0.1 = 839.9
Payoff Table:

Reliance Calculation for short Strangle Strategy.
Strike
Price
Put
purchased
Net Payoff
put
purchased
Call
purchased
Net payoff
Call
purchased
Stock Price Net Payoff
760 -0.05 130.7 146.95 277.7 890.75 -147
780 -0.05 110.7 122 232.75 890.75 -122.05
800 -0.1 90.65 93.22 183.97 890.75 -93.32
820 -0.05 70.7 72.6 143.35 890.75 -72.65
840 0.05 50.8 52.75 103.5 890.75 -52.7
920 25.75 -3.5 0.05 -29.2 890.75 25.7
940 39 -10.25 -0.05 -49.3 890.75 39.05
960 62.5 -6.75 -0.05 -69.3 890.75 62.55
980 73 -16.25 -0.05 -89.3 890.75 73.05
980 is the best strike price at which net patoff is higher.
Table No : 5.12 Short Strangle pay-off for RELIANCE
Base Table:
Price
Option Premium Spot
Price
Table No : 5.23 Short Strangle for INFY
Actions:

Calculationof INFY Marketshare for Short Strangle strategy.
= 0.05 + 0.05 = 0.1
Breakeven:
UBP = 3050 + 0.1 = 3050.1
LBP = 2850 – 0.1 = 2849.9
Payoff Table:

Calculation of INFY Market share price by using Short Strangle Strategy.
Strike
price
Call Closing
Prices
Net pay-off
from call
sold
Put
Closing
Prices
Net pay-
off from
put sold
spot
market
rate of
INFY
Net Pay-
off
2650 262 527.3 -0.05 265.25 2915.3 792.55
2700 209.2 424.5 -0.05 215.25 2915.3 639.75
2750 163.7 329 -0.1 165.2 2915.3 494.2
2800 112.35 227.65 0.05 115.35 2915.3 343
2850 59.55 124.85 0.05 65.35 2915.3 190.2
3050 0.05 -134.65 953.95 819.25 2915.3 684.6
3100 -0.1 -184.8 993.55 808.85 2915.3 624.05
3150 -0.05 -234.75 1033.55 798.85 2915.3 564.1
3200 -0.05 -284.75 361 76.3 2915.3 -208.45
2650 is the best strike price at which net profit is high.
Table No : 5.24 Short Strangle for INFY

Option Strategies:
Long Combo : Sell Put, Buy Call.
This is the Bullish Strategy where the investor expects rise in price. Compared to holding shares
this is less expensive strategy. As price of the underlying starts moving up the Combo starts
making money. As downside and upside give unlimited loss and profit respectively, this strategy
should be used only when investor is sure of the upside. Here investor buys 1 OTM Call and Put
each. The Call strike > Put Strike .Upward movement is expected in this strategy.
Base Table:
Price
Option Premium Spot
Price
OPTSTK TATA
STEEL
25 July 2013 235 CE 0.05 222.85
OPTSTK TATA
STEEL
25 July 2013 225 PE 2.25 222.85
Table No : 5.25 Long Combo for TATA STEEL
Actions:
Buy 1 OTM call at Strike 235.
Sell 1 OTM put of Strike 225.
Calculationof TATA STEELMarketshare for Long Combo strategy.
Net DEBIT = Call premium - Put premium

= 0.05 – 2.25 = -2.2
Breakeven:
Higher strike + Put premium = 235 + (-2.2) = 232.8
Payoff Table:
Calculation of TATA STEEL Market share for Long Combo strategy.
Strike
price
Put
Closing
Prices
Net pay-off
from put sold
Call Closing
Prices
Net pay-off
from call
purchased
Spot
market
rate of Tata
Steel
Net Pay-
off
210 -0.3 12.55 -107.1 -94.25 222.85 -81.7
215 -0.55 7.3 -51.05 -43.2 222.85 -35.9
220 -0.3 2.55 -2.5 0.35 222.85 2.9
225 2.25 0.1 -0.25 -2.4 222.85 -2.3
230 7 -0.15 -0.05 -7.2 222.85 -7.35
235 12.05 -0.1 -0.05 -12.2 222.85 -12.3
240 16.95 -0.2 0.05 -17.1 222.85 -17.3
245 19 -3.15 0.05 -22.1 222.85 -25.25
250 26.85 -0.3 0.05 -27.1 222.85 -27.4
220 is the best strike price at which net pay-off is high.
Table No : 5.26 Long Combo pay-off for TATA STEEL

Base Table:
Price
Option Premium Spot
Price
Table No : 5.27 Long Combo for RELIANCE
Actions:
Buy 1 OTM call of Strike 900.
Sell 1 OTM of Strike 860.
Calculationof RELIANCE Marketshare for Long Combo Strategy.
Net Debit = Call premium - put premium
= 21.45 – 16.35 = 5.1
Breakeven:
Higher strike + Net debit
900 + 5.1 =905.1
Payoff Table:

Reliance Calculation for Long Combo Strategy.
strike
price Put Sold
Net Pay-off
from put
sold
Call
Purchased
Net Pay-off from
call purchased Stock Price Net Pay-off
800 -4.5 86.25 -90.8 -0.05 890.75 86.3
860 -7 23.75 -72.75 -42 890.75 65.75
840 -10.65 40.1 -57.65 -6.9 890.75 47
860 16.35 47.1 -43.4 -12.65 890.75 59.75
880 24.1 34.85 -31.5 -20.75 890.75 55.6
900 33.5 24.25 21.45 12.2 890.75 12.05
920 43.8 14.55 14.25 -15 890.75 29.55
940 119.5 70.25 9.25 -40 890.75 110.25
960 135.25 66 5.8 -63.45 890.75 129.45
960 is the strike price at which profit is maximum..
Table No : 5.28 Long Combo pay-off for RELIANCE
Base Table:
Price
Option Premium Spot
Price

Table No : 5.29 Long Combo for INFY
Actions:
Buy 1OTM call of Strike 3000.
Sell 1OTM put of Strike 2900.
Calculationof INFY Marketshare for Long combo strategy.
Net debit = Call premium - Put premium
= 0.05 – 0.75 = -0.7
Breakeven:
= Higher strike + Net debit = 3000 + (-0.7) = 2999.3
Payoff Table:

Calculation of INFY Market share price by using Long Combo Strategy.
Strike
price
Call
Closing
Prices
Net payoff
from call
purchased
put Closing
Prices
Net payoff
from put
sold
spot market
rate of INFY
Net Pay-
off
2750 -163.7 1.6 -0.1 165.2 2915.3 166.8
2800 -112.35 2.95 -0.05 115.25 2915.3 118.2
2850 -59.55 5.75 -0.05 65.25 2915.3 71
2900 -12.8 2.5 0.75 16.05 2915.3 18.55
2950 -0.15 -34.85 44.75 10.05 2915.3 -24.8
3000 -0.05 -84.75 82 -2.7 2915.3 -87.45
3050 0.05 -134.65 953.95 819.25 2915.3 684.6
3100 0.1 -184.6 993.55 808.85 2915.3 624.25
3150 0.05 -234.65 1033.55 798.85 2915.3 564.2
3050 is the best strike price at which pay-off is very high.
Table No : 5.30 Long Combo pay-off for TATA STEEL

Chapter - 6
FINDINGS
Long Straddle:

This is a bullish strategy. Loss is limited in same region by upper and lower BEP.
Risk is limited in long straddle to the initial premium paid.
Short Straddle:
This strategy is used when market does not show much movement at the market
in the near term. Risk is unlimited and profit is limited to the premium received.
Long Strangle:
This strategy is require when greater movement on the upside or downside in
stock/index. Loss is limited to the initial premium paid and profit is unlimited.
Short Strangle:
This strategy involves the simultaneous selling of a slightly
out-of-the-money (OTM) put and a slightly out-of-the-money (OTM) call. Loss is unlimited.
Long Combo:
This is strictly bullish strategy. Profit > Loss after equal intervals on both upside
and downside.
Performance of Strategies:
Company Long Short Long Short Long Best

Name Straddle Straddle Strangle Strangle Combo Strategy
Performance
TATA
STEEL
220
(3.5)
210
(132.5)
255
(31.4)
200
(162.5)
220
(2.9)
Short Strangle
Reliance 800
(95.20)
820
(207.25)
760
(114.6)
980
(73.05)
860
(129.45)
Short Straddle
INFY 2750
(3.5)
210
(132.5)
255
(31.4)
200
(162.5)
220
(2.9)
Short Strangle
Table No : 6.1 Performance of Strategies
• Short Strangle is the bestfor TATA STEEL.
• Short Straddle is the beststrategy for RELIANCE.
• Short Strangle is the beststrategy for INFY.

Chapter - 7
CONCLUSION AND
SUGGESTIONS

1. Derivatives depend largely on the underlying asset. The change in underlying might not
make change of the same potential in derivatives but the change in the same direction.
2. Taking position in both stock and futures help to buffer the risk to a greater extent than to
take position in any one of the mentioned.
3 .As for the strategies, Long straddle, Short Straddle, Long Strangle, Short Strangle, Long
Combo are both analyzed using INFY, Reliance and Tata Steel share values.
• Short Strangle option shows more profit for INFY.
• Short Straddle is the best strategy while making a huge profit in
Reliance.
• Short Strangle shows the better profit for Tata Steel.
Acc.to performance of the strategies Short Position in the market gives
Good returns.
• On the other hand Long position of the Straddle, Strangle & Long combo strategy deals
purely with a call and put and hence amount required is much less which tends to
increase profit over investment.
• Option Strategies work in specific conditions. When market movement is favorable then
these strategies bring huge profits but in case of unfavorable conditions, investor should
know his risk appetite and exit the market accordingly.

Chapter - 8
Bibliography and
Webliography

Bibliography:
Following books were referredfor carrying out the projectreport:
• Hull John C, “ Option and Other Derivatives” ( 6th
Edition)
Page No.( 25-36) , (203 – 214 )
2. NCFM modules, “ Derivatives Market Dealers Module “
Option Strategies ( Study Material )
Webliography:
Following Websites were usedfor carrying out the projectreport :
www.nseindia.com
www.bseindia.com
www.ngrathi.com
www.moneycontrol.com
www.yahoofinance.com
www.googlefinance.com
www.moneybhai.com

Financial Behaviors of Derivative Market NG Rathi Investrade Pvt ltd Pune (MBA Finance)

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