Derivatives 091208062317-phpapp02

1.1 A STUDY ON DERIVATIVES:

The only stock exchanges operating in the 19 the century were those of Bombay set up in

1875 and Ahmedabad set up in 1894. These were organized as voluntary non-profit-making

association of brokers to regulate and protect their interests. Before the control on securities

trading became a central subject under the constitution in 1950, it was a state subject and the

Bombay securities contracts (control) Act of 1925 used to regulate trading in securities. Under

this Act, The Bombay stock exchange was recognized in 1927 and Ahmedabad in 1937.

During the war boom, a number of stock exchanges were organized even in Bombay,

Ahmedabad and other centers, but they were not recognized. Soon after it became a central

subject, central legislation was proposed and a committee headed by A.D.Gorwala went into the

bill for securities regulation. On the basis of the committee's recommendations and public

discussion, the securities contracts (regulation) Act became law in 1956.

1.1.1 OBJECTIVES OF STUDY:

1. To study various trends in derivative market.

2. Comparison of the profits/losses in cash market and derivative market.

3. To find out profit/losses position of the option writer and option holder.

4. To study in detail the role of the future and options.

5. To study the role of derivatives in Indian financial market.

6. To study various trends in derivative market.

7. Comparison of the profits/losses in cash market and derivative market.

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8. To find out profit/losses position of the option writer and option holder.

9. To study in detail the role of the future and options.

10. To study the role of derivatives in Indian financial market.

1.1.2 NEED OF THE STUDY

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 expartry
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 if to help the investor in
selecting the appropriate derivates 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 identity 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.

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1.1.3 SCOPE OF THE STUDY

The study is limited to “Derivatives” with special reference to futures and options in the

Indian context; the study is not based on the international perspective of derivative markets.

The study is limited to the analysis made for types of instruments of derivates each

strategy is analyzed according to its risk and return characteristics and derivatives performance

against the profit and policies of the company.

1.1.4 LIMITATION OF THE STUDY

The subject of derivates if vast it requires extensive study and research to understand the
dept of the various instrument operating in the market only a recent plenomore. But various
international examples have also been added to make the study more comfortable.

There are various other factors also which define the risk and return preferences of an
investor how ever the study was only contained towards the risk maximization and profit
maximization objective of the investor.

The derivative market is a dynamic one premiums, contract rates strike price fluctuate on
demand and supply basis. Therefore data related to last few trading months was only consider
and interpreted.

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1.2 DEFINITION OF STOCK EXCHANGE:

"Stock exchange means any body or individuals whether incorporated or not, constituted

for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in

securities."

It is an association of member brokers for the purpose of self-regulation and protecting

the interests of its members. It can operate only if it is recognized by the Government under the

securities contracts (regulation) Act, 1956. The recognition is granted under section 3 of the Act

by the central government, Ministry of Finance.

BYLAWS:

Besides the above act, the securities contracts (regulation) rules were also made in 1957

to regulate certain matters of trading on the stock exchanges. There are also bylaws of the

exchanges, which are concerned with the following subjects.

Opening/closing of the stock exchanges, timing of trading, regulation of blank transfers,

regulation of badla or carryover business, control of the settlement and other activities of the

stock exchange, fixation of margins, fixation of market prices or making up prices, regulation of

taravani business (jobbing), etc., regulation of brokers trading, brokerage charges, trading rules

on the exchange, arbitration and settlement of disputes, settlement and clearing of the trading etc.

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1.2.1 REGULATION OF STOCK EXCHANGES:

The securities contracts (regulation) act is the basis for operations of the stock exchanges

in India. No exchange can operate legally without the government permission or recognition.

Stock exchanges are given monopoly in certain areas under section 19 of the above Act to ensure

that the control and regulation are facilitated. Recognition can be granted to a stock exchange

provided certain conditions are satisfied and the necessary information is supplied to the

government. Recognition can also be withdrawn, if necessary. Where there are no stock

exchanges, the government can license some of the brokers to perform the functions of a stock

exchange in its absence.

1.2.2 SECURITIES AND EXCHANGE BOARD OF INDIA(SEBI):

SEBI was set up as an autonomous regulatory authority by the Government of India in

1988 " to protect the interests of investors in securities and to promote the development of, and

to regulate the securities market and for matters connected therewith or incidental thereto." It is

empowered by two acts namely the SEBI Act, 1992 and the securities contract(regulation)Act,

1956 to perform the function of protecting investor's rights and regulating the capital markets.

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1.2.3 BOMBAY STOCK EXCHANGE

This stock exchange, Mumbai, popularly known as "BSE" was established in 1875 as " The
Native share and stock brokers association", as a voluntary non-profit making association. It has
an evolved over the years into its present status as the premiere stock exchange in the country. It
may be noted that the stock exchanges the oldest one in Asia, even older than the Tokyo Stock
exchange which was founded in 1878.

The exchange, while providing an efficient and transparent market for trading in
securities, upholds the interests of the investors and ensures redressed of their grievances,
whether against the companies or its own member brokers. It also strives to educate and
enlighten the investors by making available necessary informative inputs and conducting
investor education programmes.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public
representatives and an executive director is the apex body, which decides the policies and
regulates the affairs of the exchange. The Executive director as the chief executive officer is
responsible for the day today administration of the exchange. The average daily turnover of the
exchange during the year 2000-01(April-March) was Rs 3984.19 crs and average number of
daily trades 5.69 laces. However the average daily turnover of the exchange during the
year 2001-02 has declined to Rs. 1244.10 crs and number of average daily trades during the
period to 5.17 laces.The average daily turn over of the exchange during the year 2002-03 has
declined and number of average daily trades during the period is also decreased.

The Ban on all deferral products like BLESS AND ALBM in the Indian capital markets by
SEBI i.e. July 2, 2001, abolition of account Period settlements, introduction of compulsory
rolling settlements in all scrip‟s traded on the exchanges i.e. Dec 31,2001, etc., have adversely
impacted the liquidity and consequently there is a considerable decline in the daily turn over at
the exchange. The average daily turn over of the exchange present scenario is 110363 (Laces)
and number of average daily trades 1057(Laces)

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BSE INDICES:

In order to enable the market participants, analysts etc., to track the various ups
and downs in the Indian stock market, the Exchange has introduced in 1986 an equity stock
index called BSE-SENSEX that subsequently became the barometer of the moments of the share
prices in the Indian stock market. It is a "Market capitalization-weighted" index of 30
component stocks representing a sample of large, well-established and leading companies. The
base year of Sensex is 1978-79. The Sensex is widely reported in both domestic and
international markets through print as well as electronic media.

Sensex is calculated using a market capitalization weighted method. As per this
methodology, the level of the index reflects the total market value of all 30-component stocks
from different industries related to particular base period. The total market value of a company
is determined by multiplying the price of its stock by the number of shares outstanding.
Statisticians call an index of a set of combined variables (such as price and number of shares) a
composite Index. An Indexed number is used to represent the results of this calculation in order
to make the value easier to work with and track over a time. It is much easier to graph a chart
based on Indexed values than one based on actual values world over majority of the well-known
Indices are constructed using “Market capitalization weighted method ".

In practice, the daily calculation of SENSEX is done by dividing the aggregate market
value of the 30 companies in the Index by a number called the Index Divisor. The Divisor is the
only link to the original base period value of the SENSEX. The Divisor keeps the Index
comparable over a period of time and if the reference point for the entire Index maintenance
adjustments. SENSEX is widely used to describe the mood in the Indian Stock markets. Base
year average is changed as per the formula

New base year average = Old base year average*(New market Value/old market value)

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1.2.4 NATIONAL STOCK EXCHANGE

The NSE was incorporated in Nov 1992 with an equity capital of Rs. 25 crs. The
International securities consultancy (ISC) of Hong Kong has helped in setting up NSE. ISC has
prepared the detailed business plans and installation of hardware and software systems. The
promotions for NSE were financial institutions, insurances companies, banks and SEBI capital
market ltd, Infrastructure leasing and financial services ltd and stock holding corporation ltd.

It has been set up to strengthen the move towards professionalisation of the capital market
as well as provide nation wide securities trading facilities to investors.

NSE is not an exchange in the traditional sense where brokers own and manage the
exchange. A two tier administrative set up involving a company board and a governing aboard
of the exchange is envisaged.

NSE is a national market for shares PSU bonds, debentures and government securities since
infrastructure and trading facilities are provided.

NSE - NIFTY:

The NSE on April 22, 1996 launched a new equity Index. The NSE-50. The new Index
which replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the
new segment of futures and options.

“Nifty " means National Index for Fifty Stocks.

The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an
aggregate market capitalization of around Rs. 1,70,000 crs. All companies included in the Index
have a market capitalization in excess of Rs 500 crs each and should have traded for 85% of
trading days at an impact cost of less than 1.5%.

The base period for the index is the close of prices on Nov 3, 1995, which makes one year of
completion of operation of NSE‟s capital market segment. The base value of the Index has been
set at 1000.

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NSE - MIDCAP INDEX:

The NSE midcap Index or the Junior Nifty comprises 50 stocks that represents 21 board
Industry groups and will provide proper representation of the midcap segment of the Indian
capital Market. All stocks in the Index should have market capitalization of greater than Rs. 200
crs and should have traded 85% of the trading days at an impact cost of less 2.5%.

The base period for the index is Nov 4, 1996, which signifies two years for completion of
operations of the capital market segment of the operations. The base value of the Index has been
set at 1000.

Average daily turn over of the present scenario 258212 (Lacs) and number of average
daily trades 2160 (Lacs).

At present, there are 24 stock exchanges recognized under the securities contract
(regulation) Act, 1956. They are

List of Stock Exchanges recognized under the securities contract (regulation) Act, 1956

NAME OF THE STOCK EXCHANGE YEAR

Bombay stock exchange,

Ahmedabad share and stock brokers association 1875

Calcutta stock exchange association Ltd, 1957

Delhi stock exchange association Ltd, 1957

Madras stock exchange association Ltd, 1957

Indoor stock brokers association, 1957

Bangalore stock exchange, 1958

Hyderabad stock exchange, 1963

Cochin stock exchange, 1943

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Pune stock exchange Ltd, 1978

U.P stock exchange association Ltd, 1982

Ludhiana stock exchange association Ltd, 1982

Jaipur stock exchange Ltd, 1983

Gauhathi stock exchange Ltd, 1983-84

Mangalore stock exchange Ltd, 1984

Maghad stock exchange Ltd, Patna, 1985

Bhubaneshwar stock exchange association Ltd, 1986

Over the counter exchange of India, Bombay, 1989

Saurasthra kutch stock exchange Ltd, 1989

Vsdodara stock exchange Ltd, 1990

Coimbatore stock exchange Ltd, 1991

The meerut stock exchange Ltd, 1991

1National stock exchange Ltd, 1991

Integrated stock exchange, 1991,1999

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1.3 DERIVATIVES

MEANING:
The emergence of the market for derivative products, most notably forwards, futures and
options, can be traced 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 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 products minimize 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.
Annual turnover of the derivatives is increasing each year from 1986 onwards,

Year Annual turnover

1986 146 millions

1992 453 millions

1998 1329 millions

2002 & 2003 it has reached to equivalent stage of cash market

Derivatives are used by banks, securities firms, companies and investors to hedge risks, to

gain access to cheaper money and to make profits Derivatives are likely to grow even at a faster

rate in future they are first of all cheaper to world have met the increasing volume of products

tailored to the needs of particular customers, trading in derivatives has increased even in the over

the counter markets.

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In Britain unit trusts allowed to invest in futures & options .The capital adequacy norms

for banks in the European Economic Community demand less capital to hedge or speculate

through derivatives than to carry underlying assets. Derivatives are weighted lightly than other

assets that appear on bank balance sheets. The size of these off-balance sheet assets that include

derivatives is more than seven times as large as balance sheet items at some American banks

causing concern to regulators

1.3.1 DEFINITION:
Derivative is a product whose value is derived from the value of one or more basic

variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The

underlying asset can be equity, forex, commodity or any other asset.

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines

“derivative” to include-

1. A security derived from a debt instrument, share, and loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security.

2. A contract, which derives its value from the prices, or index of prices, of underlying

securities.

Derivatives are the securities under the SC(R)A and hence the trading of derivatives is

governed by the regulatory framework under the SC(R)A.

1.3.2 PARTICIPANTS IN THE DERIVATIVES MARKET
The following three broad categories of participants who trade in the derivatives market:
1. Hedgers
2. Speculators and
3. Arbitrageurs

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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 advantage of a discrepancy between prices in
two different markets.
For example, they see the futures price of an asset getting out of line with the cash price; they
will take offsetting positions in the two markets to lock in a profit.

1.3.4 FUNCTIONS OF THE DERIVATIVES MARKET:
The derivatives market performs a number of economic functions. They are:
1. Prices in an organized derivatives market reflect the perception of market participants about
the future and lead the prices of underlying to the perceived future level.
2. Derivatives, due to their inherent nature, are linked to the underlying cash markets. With the
introduction of derivatives, the underlying market witnesses higher trading volumes because
of participation by more players who would not otherwise participate for lack of an
arrangement to transfer risk.
3. Speculative trades shift to a more controlled environment of derivatives market. In the
absence of an organized derivatives market, speculators trade in the underlying cash markets.
4. An important incidental benefit that flows from derivatives trading is that it acts as a catalyst
for new entrepreneurial activity.
5. Derivatives markets help increase savings and investment in the long run. Transfer of risk
enables market participants to expand their volume of activity.

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1.3.5 TYPES OF DERIVATIVES

The most commonly used derivatives contracts are forwards, futures and options.
Here various derivatives contracts that have come to be used are given briefly:

1. Forwards
2. Futures
3. Options
4. Warrants
5. LEAPS
6. Baskets
7. Swaps
8. Swaptions

1. Forwards:
A forward contract is customized contract between two entities, where settlement
takes place on a specific date in the future at today‟s pre-agreed price

2. Futures:
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. Futures contracts are special types of forward
contracts in the sense that the former are standardized exchange-traded contracts.

3. Options:
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.

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4. Warrants:
Options generally have two lives of up to one year, the majority of options traded
on options exchanges having a minimum maturity of nine months. Longer-dated options are
called warrants and are generally traded over-the-counter.
5. Leaps:
The acronym LEAPS means Long-term Equity Anticipation Securities. These are
options having a maturity of up to three years.

6. Baskets:
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.

7. Swaps:
Swaps are private agreements between two parties to exchange cash flows in the
future according to a prearranged formula. They can be regarded as portfolios of forward
contracts. The two commonly used swaps are:

Interest rate swaps: These entail swapping only the interest related cash flows
between the parties in the same currency.
Currency swaps: These entail swapping both principal and interest between the
parties, with the cash flows in one direction being in a different currency than those
in the opposite direction.

8. Swaptions:
Swaptions are options to buy or sell that will become operative at the expiry of
the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts,
the swaptions markets has receiver swaptions and payer swaptions. A receiver swaption is an
option to receive fixed and pay floating. A payer swaption is an option to pay fixed and
receive floating.

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1.3.6 DERIVATIVES INSTRUMENTS IN INDIA
The first derivative product to be introduced in the Indian securities market is going to be
"INDEX FUTURES". In the world, first index futures were traded in U.S. on Kansas City Board
of Trade (KCBT) on Value Line Arithmetic Index (VLAI) in 1982.

Organized exchanges began trading options on equities in 1973, where as exchange traded
debt options did not appear until 1982, on the other hand fixed income futures began trading in
1975, but equity related futures did not begin until 1982.

1.3.7 DERIVATIVES SEGMENT IN BSE & NSE
On June 9,2000 BSE & NSE became the first exchanges in India to introduce trading in
exchange traded derivative product with the launch of index futures on sense and Nifty futures
respectively.

Index futures was follows by launch of index options in June 2001, stock options in July
2001 and stock futures in Nov 2001.Presently stock futures and options available on 41 well-
capitalized and actively traded scripts mandated by SEBI.

Nifty is the underlying asset of the Index Futures at the Futures & Options segment of NSE
with a market lot of 200 and the BSE 30 Sensex is the underlying stock index with the market lot
of 50. This difference of market lot arises due to a minimum specification of a contract value of
Rs. 2 lakhs by Securities Exchange Board of India. A contract value is contracting Index laid by
its market lot. For e.g. If Sensex is 4730 then the contract value of a futures Index having Sensex
as underlying asset will Be 50 x 4730 = Rs. 2,36,500. Similarly if Nifty is 1462.7, its futures
contract value will be 200 x 1462.7 = Rs.2, 92,540/-.

Every transaction shall be in multiple of market lot. Thus, Index futures at NSE shall be
traded in multiples of 200 and at BSE in multiples of 50

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1.3.8 CONTRACT PERIODS:
At any point of time there will always be available near three months contract periods. For
e.g. in the month of June 2009 one can enter into either June Futures contract or July Futures
contract or August Futures Contract. The last Thursday of the month specified in the contract
shall be the final settlement date for that contract at both NSE as well BSE. Thus June 29, July
27 and August 31 shall be the last trading day or the final settlement date for June Futures
contract, July Futures Contract and August Futures Contract respectively.

When one futures contract gets expired, a new futures contract will get introduced
automatically. For instance, on 30th June, June futures contract becomes invalidated and a
September Futures Contract gets activated.

1.3.9 SETTLEMENT:
Settlement of all Derivatives trades is in cash mode. There is Daily as well as Final
Settlement.

Outstanding positions of a contract can remain open till the last Thursday of that month.
As long as the position is open, the same will be marked to Market at the Daily Settlement Price,
the difference will be credited or debited accordingly and the position shall be brought forward
to the next day at the daily settlement price. Any position which remains open at the end of the
final settlement day (i.e., last Thursday) shall be closed out by the Exchange at the Final
Settlement Price which will be the closing spot value of the underlying (Nifty or Sensex, or
respective stocks as the case may be).

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1.3.10 Regulation for Derivatives Trading

SEBI set up a 24-member committee under Chairmanship of Dr.L.C. Gupta to
develop the appropriate regulatory framework for derivatives trading in India. The committee
submitted its report in March 1998. On May 11, 1998 SEBI accepted the recommendations of
the committee and approved the phased introduction of derivatives trading in India beginning
with stock index futures. SEBI also approved the “suggestive bye-laws” recommended by the
committee for regulation and control of trading and settlement of derivatives contracts.
The provisions in the SC(R) A and the regulatory framework developed there under
govern trading in securities. The amendment of the SC(R) A to include derivatives within the
ambit of „securities‟ in the SC(R) A made trading in derivatives possible within the framework
of the Act.

1. Any exchange fulfilling the eligibility criteria as prescribed in the L C Gupta committee
report may apply to SEBI for grant of recognition under Section 4 of the SC(R) a, 1956 to
start trading derivatives. The derivatives exchange/segment should have a separate governing
council and representation of trading / clearing members shall be limited to maximum of
40% of the total members of the governing council. The exchange shall regulate the sales
practices of its members and will obtain approval of SEBI before start of trading in any
derivative contract
2. The exchange shall have minimum 50 members.
3. The members of an existing segment of the exchange will not automatically become the
members of derivative segment. The members of the derivative segment need to fulfill the
eligibility conditions as laid down by the L C Gupta committee.
4. The clearing and settlement of derivatives trades shall be through a SEBI approved clearing
corporation / house. Clearing corporation / houses complying with the eligibility conditions
as laid down by the committee have to apply to SEBI for grant of approval.
5. Derivative brokers/dealers and clearing members are required to seek registration from SEBI.
6. The minimum contract value shall not be less than Rs. 2 Lakh. Exchanges should also submit
details of the futures contract they propose to introduce.
7. The trading members are required to have qualified approved user and sales person who have
passed a certification programme approved by SEBI.

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While from the purely regulatory angle, a separate exchange for trading would be a
better arrangement. Considering the constraints in infrastructure facilities, the existing stock
(cash) exchanges may also be permitted to trade derivatives subject to the following conditions.

I. Trading should take place through an on-line screen based trading system.
II. An independent clearing corporation should do the clearing of the derivative market.
III. The exchange must have an online surveillance capability, which monitors positions, price
and volumes in real time so as to deter market manipulation price and position limits
should be used for improving market quality.
IV. Information about trades quantities, and quotes should be disseminated by the exchange in
the real time over at least two information-vending networks, which are accessible to
investors in the country.
V. The exchange should have at least 50 members to start derivatives trading.
VI. The derivatives trading should be done in a separate segment with separate membership;
That is, all members of the cash market would not automatically become members of the
derivatives market.
VII. The derivatives market should have a separate governing council which should not have
representation of trading by clearing members beyond whatever percentage SEBI may
prescribe after reviewing the working of the present governance system of exchanges.
VIII. The chairman of the governing council of the derivative division / exchange should be a
member of the governing council. If the chairman is broker / dealer, then he should not
carry on any broking or dealing on any exchange during his tenure.
IX. No trading/clearing member should be allowed simultaneously to be on the governing
council both derivatives market and cash market.

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2.1 FUTURES
Futures contract is a firm legal commitment between a buyer & seller in which they
agree to exchange something at a specified price at the end of a designated period of time. The
buyer agrees to take delivery of something and the seller agrees to make delivery.

2.2 STOCK INDEX FUTURES
Stock Index futures are the most popular financial futures, which have been
used to hedge or manage the systematic risk by the investors of Stock Market. They are called
hedgers who own portfolio of securities and are exposed to the systematic risk. Stock Index is
the apt hedging asset since the rise or fall due to systematic risk is accurately shown in the Stock
Index. Stock index futures contract is an agreement to buy or sell a specified amount of an
underlying stock index traded on a regulated futures exchange for a specified price for settlement
at a specified time future.

Stock index futures will require lower capital adequacy and margin requirements
as compared to margins on carry forward of individual scrips. The brokerage costs on index
futures will be much lower.

Savings in cost is possible through reduced bid-ask spreads where stocks are
traded in packaged forms. The impact cost will be much lower in case of stock index futures as
opposed to dealing in individual scrips. The market is conditioned to think in terms of the index
and therefore would prefer to trade in stock index futures. Further, the chances of manipulation
are much lesser.

The Stock index futures are expected to be extremely liquid given the speculative
nature of our markets and the overwhelming retail participation expected to be fairly high. In the
near future, stock index futures will definitely see incredible volumes in India. It will be a
blockbuster product and is pitched to become the most liquid contract in the world in terms of
number of contracts traded if not in terms of notional value. The advantage to the equity or cash
market is in the fact that they would become less volatile as most of the speculative activity
would shift to stock index futures. The stock index futures market should ideally have more

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depth, volumes and act as a stabilizing factor for the cash market. However, it is too early to base
any conclusions on the volume or to form any firm trend.

The difference between stock index futures and most other financial futures
contracts is that settlement is made at the value of the index at maturity of the contract.

2.3 FUTURES TERMINOLOGY

Contract Size
The value of the contract at a specific level of Index. It is

Index level * Multiplier.

Multiplier
It is a pre-determined value, used to arrive at the contract size. It

is the price per index point.

Tick Size
It is the minimum price difference between two quotes

of similar nature.

Contract Month
The month in which the contract will expire.

Expiry Day
The last day on which the contract is available for trading.

Open interest
Total outstanding long or short positions in the market at any specific point in
time. As total long positions for market would be equal to total short positions, for
calculation of open Interest, only one side of the contracts is counted.

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Volume
No. Of contracts traded during a specific period of time. During a day, during a
week or during a month.

Long position
Outstanding/unsettled purchase position at any point of time.

Short position
Outstanding/ unsettled sales position at any point of time.

Open position
Outstanding/unsettled long or short position at any point of time.

Physical delivery
Open position at the expiry of the contract is settled through delivery of the
underlying. In futures market, delivery is low.

Cash settlement
Open position at the expiry of the contract is settled in cash. These contracts
Alternative Delivery Procedure (ADP) - Open position at the expiry of the contract is settled
by two parties - one buyer and one seller, at the terms other than defined by the exchange.
World wide a significant portion of the energy and energy related contracts (crude oil,
heating and gasoline oil) are settled through Alternative Delivery Procedure.

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2.4 Pay off for futures:

A Pay off is the likely profit/loss that would accrue to a market participant with change in
the price of the underlying asset. Futures contracts have linear payoffs. In simple words, it means
that the losses as well as profits, for the buyer and the seller of futures contracts, are unlimited.

Pay off for Buyer of futures: (Long futures)
The pay offs for a person who buys a futures contract is similar to the pay off for a
person who holds an asset. He has potentially unlimited upside as well as downside. Take the
case of a speculator who buys a two-month Nifty index futures contract when the Nifty
stands at 1220. The underlying asset in this case is the Nifty portfolio. When the index moves
up, the long futures position starts making profits and when the index moves down it starts
making losses

.

Pay off for seller of futures: (short futures)
The pay offs for a person who sells a futures contract is similar to the pay off for a
person who shorts an asset. He has potentially unlimited upside as well as downside. Take
the case of a speculator who sells a two-month Nifty index futures contract when the Nifty
stands at 1220. The underlying asset in this case is the Nifty portfolio. When the index moves
down, the short futures position starts making profits and when the index moves up it starts
making losses.

25

3.1 OPTIONS

An option agreement is a contract in which the writer of the option grants the buyer of the
option the right to purchase from or sell to the writer a designated instrument at a specific price
within a specified period of time.

Certain options are shorterm in nature and are issued by investors another group of
options are long-term in nature and are issued by companies.

3.2 OPTIONS TERMINOLOGY:

Call option:
A call is an option contract giving the buyer the right to purchase the stock.

Put option:
A put is an option contract giving the buyer the right to sell the stock.

Expiration date:
It is the date on which the option contract expires.

Strike price:
It is the price at which the buyer of a option contract can purchase or sell the stock
during the life of the option

Premium:
Is the price the buyer pays the writer for an option contract.

Writer:
The term writer is synonymous to the seller of the option contract.

Holder:
The term holder is synonymous to the buyer of the option contract.

27

Straddle:
A straddle is combination of put and calls giving the buyer the right to either buy
or sell stock at the exercise price.

Strip:
A strip is two puts and one call at the same period.

Strap:
A strap is two calls and one put at the same strike price for the same period.

Spread:
A spread consists of a put and a call option on the same security for the same time
period at different exercise prices.

The option holder will exercise his option when doing so provides him a benefit over
buying or selling the underlying asset from the market at the prevailing price. These are three
possibilities.

1. In the money: An option is said to be in the money when it is
advantageous to exercise it.
2. Out of the money: The option is out of money if it not advantageous to exercise it.

3. At the money: IF the option holder does not lose or gain whether he exercises his option
or buys or sells the asset from the market, the option is said to be at the money. The exchanges
initially created three expiration cycles for all listed options and each issue was assigned to one
of these three cycles.

January, April, July, October.
February, March, August, November.
March, June, September, and December.

In India, all the F and O contracts whether on indices or individual stocks are available for
one or two or three months series and they expire on the Thursday of the concerned month.

28

3.3 CALL OPTION:
An option that grants the buyer the right to purchase a designated instrument is
called a call option. A call option is a contract that gives its owner the right, but not the
obligation, to buy a specified price on or before a specified date.

An American call option can be exercised on or before the specified date only. European
options can be exercised on the specified date only.

3.4 PUT OPTION:

An option contract giving the owner the right, but not the obligation, to sell a specified
amount of an underlying security at a specified price within a specified time. This is the opposite
of a call option, which gives the holder the right to buy shares.

A put becomes more valuable as the price of the underlying stock depreciates relative
to the strike price. For example, if you have one Mar 09 Taser 10 put, you have the right to sell
100 shares of Taser at $10 until March 2008 (usually the third Friday of the month). If shares
of Taser fall to $5 and you exercise the option, you can purchase 100 shares of Taser for $5 in
the market and sell the shares to the option's writer for $10 each, which means you make $500
(100 x ($10-$5)) on the put option. Note that the maximum amount of potential proft in this
example ignores the premium paid to obtain the put option.

3.5 FACTORS DETERMINIG OPTION VALUE:

Stock price
Strike price
Time to expiration
Volatility
Risk free interest rate
Dividend

29

3.6 DIFFERENCE BETWEEN FUTURES & OPTION:

FUTURES OPTIONS

1) Both the parties are obligated to perform. 1) Only the seller (writer) is obligated to perform.

2) With futures premium is paid by either party. 2) With options, the buyer pays the seller a
premium.
3) The parties to futures contracts must perform
at the settlement date only. They are not 3) The buyer of an options contract can exercise
obligated to perform before that date. any time prior to expiration date.

4) The holder of the contract is exposed to the 4) The buyer limits the downside risk to the option
entire spectrum of downside risk and had the premium but retain the upside potential.
potential for all upside return.
5) In options premiums to be paid. But they are
5) In futures margins to be paid. They are very less as compared to the margins.
approximate 15-20% on the current stock
price.

3.7 Advantages of option trading:

Risk management: put option allow investors holding shares to hedge against a possible
fall in their value. This can be considered similar to taking out insurance against a fall in
the share price.

Time to decide: By taking a call option the purchase price for the shares is locked in.
This gives the call option holder until the Expiry day to decide whether or exercised the
option and buys the shares. Likewise the taker of a put option has time to decide whether
or not to sell the shares.

30

Speculations: The ease of trading in and out of option position makes it possible to trade
options with no intention of ever exercising them. If investor expects the market to rise,
they may decide to buy call options. If expecting a fall, they may decide to buy put
options. Either way the holder can sell the option prior to expiry to take a profit or limit a
loss. Trading options has a lower cost than shares, as there is no stamp duty payable
unless and until options are exercised.
Leverage: Leverage provides the potential to make a higher return from a smaller initial
outlay than investing directly however leverage usually involves more risks than a direct
investment in the underlying share. Trading in options can allow investors to benefit from
a change in the price of the share without having to pay of the share.

3.8 Summary of options

Call option buyer Call option writer (seller)

Pays premium Receives premium
Right to exercise and buy the share Obligation to sell shares if exercised
Profits from rising prices Profits from falling prices or remaining
Limited losses, potentially unlimited neutral
gain Potentially unlimited losses, limited gain
Put option buyer Put option writer (seller)

Pays premium Receives premium
Right to exercise and sell shares Obligation to buy shares if exercised
Profits from falling prices Profits from rising prices or remaining
Limited losses, potentially unlimited neutral
gain Potentially unlimited losses, limited gain

31

4.1 SHAREKHAN

Sharekhan is one of India's largest and leading financial services companies. It is an

online stock trading company of SSKI Group (S.S. Kantilal Ishwarlal Securities Limited) which

has been a provider of India-based investment banking and corporate finance service for over 80

years.

SSKI caters to most of the prominent financial institutions, foreign and domestic,

investing in Indian equities. It has been valued for its strong research-led investment ideas,

superior client servicing track record and exceptional execution skills.

The key features of sharekhan are as follows:

 You get freedom from paperwork.

 There are instant credit and money transfer facilities.

 You can trade from any net enabled PC.

 After hour orders facilities.

 You can go for online orders over the phone.

 Timely advice and research reports

 Real-time Portfolio tracking.

 Information and Price alerts.

Sharekhan provides assistance and the advice like no one else could. It has created

special information tools to help answer any queries. Sharekhan‟s first step program, built

specifically for new investors, is testament to of its commitment to being your guide throughout

your investing life cycle.

33

4.2 SHAREKHAN SERVICES:

The tag line of Sharekhan says that it is your guide to the financial jungle. As per the tag

line there are many amazing services that Sharekhan offers like technical research, fundamental

research, share shops, portfolio management, dial-n-trade, commodities trade, online services,

depository services, equity and derivatives trading (including currency trading). With

Sharekhan‟s online trading account, you can buy and sell shares at anytime and from anywhere

you like.

With a physical presence in over 300 cities of India through more than 800 "Share

Shops" with more than 3000 employees, and an online presence through Sharekhan.com, India's

premier, it reaches out to more than 8, 00,000 trading customers.

A Sharekhan outlet online destination offers the following services:

 Online BSE and NSE executions (through BOLT & NEAT terminals)

 Free access to investment advice from Sharekhan's Research team

 Sharekhan Value Line (a monthly publication with reviews of recommendations, stocks

to watch out for etc)

 Daily research reports and market review (High Noon & Eagle Eye)

 Pre-market Report (Morning Cuppa)

 Daily trading calls based on Technical Analysis

 Cool trading products (Daring Derivatives and Market Strategy)

 Personalized Advice

 Live Market Information

 Depository Services: Demat Transactions

34

 Derivatives Trading (Futures and Options)

 Commodities Trading

 IPOs & Mutual Funds Distribution

 Internet-based Online Trading: Speed Trade

Sharekhan has one of the best state-of-art web portals providing fundamental and

statistical information across equity, mutual funds and IPOs. Surfing can be done across 5,500

companies for in-depth information, details about more than 1,500 mutual fund schemes and IPO

data. Other market related details such as board meetings, result announcements, FII

transactions, buying/selling by mutual funds and much more can also be accessed.

It provides a complete life-cycle of investment solution in Equities, Derivatives,

Commodities, IPO, Mutual Funds, Depository Services, Portfolio Management Services and

Insurance. It also offers personalized wealth management services for High Net worth

individuals.

4.3 ONLINE SERVICES

The online trading account can be chosen as per trading habits and preferences, that is the

classic account for most investors and speed trade for active day traders. Sharekhan also provides

a free software called “Trade tiger” to all its account holders.

The Classic Account enables you to trade online for investing in Equities and

Derivatives on the NSE via sharekhan.com; it gives access to all the research content and also

comes with a free Dial-n-Trade service enabling to buy shares using the telephone.

35

Its features are:

 Streaming quotes (using the applet based system)

 Multiple watch lists

 Integrated Banking, demat and digital contracts

 Instant credit and transfer

 Real-time portfolio tracking with price alerts and, of course, the assurance of secure

transactions

The Trade Tiger is a next-generation online trading product that brings the power of the

broker's terminal to your PC. It's the perfect trading platform for active day traders. Its features

are:

 A single platform for multiple exchange BSE & NSE (Cash & F&O), MCX,

NCDEX, Mutual Funds, IPO‟s

 Multiple Market Watch available on Single Screen

 Multiple Charts with Tick by Tick Intraday and End of Day Charting powered with

various Studies

 Graph Studies include Average, Band- Bollinger, Know Sure Thing, MACD, RSI,

etc

 Apply studies such as Vertical, Horizontal, Trend, Retracement & Free lines

 User can save his own defined screen as well as graph template, that is, saving the

layout for future use

 User-defined alert settings on an input Stock Price trigger

 Tools available to gauge market such as Tick Query, Ticker, Market Summary,

Action Watch, Option Premium Calculator, Span Calculator

36

 Shortcut key for FAST access to order placements & reports

 Online fund transfer activated with 12 Banks

 Sharekhan provides you the facility to trade in Commodities through Sharekhan

Commodities Pvt. Ltd. a wholly owned subsidiary of its parent SSKI. It trades on two

major commodity exchanges of the country:

 Multi Commodity Exchange of India Ltd, Mumbai (MCX) and

 National Commodity and Derivative Exchange, Mumbai (NCDEX).

For trading in any commodity, initial margin of around 10% on any commodity is to be

maintained. Sharekhan has launched its own commodity derivatives micro-site. The site is

available through the Sharekhan home page www.sharekhan.com. Along with the site Sharekhan

has launched several commodity derivatives products (both research and trading) too. The

products have been listed below:

 Commodities Buzz: a daily view on precious metals and agro commodities.

 Commodities Beat: a summary of the days trading activity.

 Traders Corner: Under commodity trading calls, there are two types of trading calls:

 Rapid Fire: (short-term calls for 1 day to 5 days updated daily)

 Medium-term Plays: (medium-term calls for 1 month to 3 months updated

weekly or in between if needed)

 Sharekhan Xclusive: the commodity research reports and analyses (periodical).

 Market Scan: the daily commodity market data and statistics (end of day).

 All these products are both e-mailed as newsletters and published on the commodity

derivatives site

37

DATA ANALYSIS
&
INFERENCE

38

GMR INFRASTRUCTURE

39

5.1 GMR Infrastructure
5.1.1 GMR INFRA PROFILE

GMR Group is a Bangalore headquartered global infrastructure major with
interests in the Airports, Energy, Highways and Urban infrastructure (including SEZ). In
addition, the other focus area of the Group is the Agri-business with Sugar as its main product-
line. The Group is also actively engaged in the areas of Education, Health, Hygiene and
Sanitation, Empowerment & Livelihoods and Community-Based Programmes under its
Foundation wing, reaffirming its grass root presence as change agents of society in the field of
Corporate Social Responsibility. A dedicated division, the GMR Varalakshmi Foundation,
manned by committed professionals, oversees and manages these projects across India.

With its foray into the Airports sector, the Group has established itself as a front runner and
pioneer in the core infrastructure areas of the country.

Going forward, the Group will actively seek opportunities in core areas of the country‟s
infrastructure development including Transportation and Property Development. All these would
be driven by a single minded path of translating the vision of the Group by building
entrepreneurial organisations that make a difference to society through creation of value.

GMR International

GMR Group seeks aggressive growth opportunities, by expanding its business bandwidth and
presence in the global market place in the areas of Energy, Airports and property development
around airports. International forays will help GMR improve earnings from new opportunities,
access international talent and raise international capital at cheaper rates.

GMR International - a separate division was formed to harness these opportunities with its
head quarters at London. GMR International will embrace the company‟s Values and Beliefs and
will build on its strengths to meet global standards of entrepreneurship, flexibility and
effectiveness. It will be a dedicated international organisation with responsibility for investments
and operations. As an owner, developer and operator building internationally competitive skills in
procurement, operations and maintenance it will leverage GMR‟s existing strengths in bidding,
financing, project management, and partnership development.

GMR International manages the Group‟s maiden foray into the global infrastructure
market

40

Projects:

The Sabiha Gokcen International Airport

InterGen

Island Power

Airports
Delhi International Airport (P) Limited
GMR Hyderabad International Airport Limited
Istanbul Sabiha Gokcen International Airport

Highways

Tambaram - Tindivanam
Tuni - Anakapalli
Ambala - Chandigarh
Adloor - Gundla Pochanpalli
Tindivanam - Ulunderpet
Farukhnagar - Jadcherla
Hyderabad-Vijaywada
Chennai Outer Ring Road

Agri Business

Sankili Sugar Plant
Ramdurg Sugar Complex
Haliyal Sugar Complex

Global Presence Projects
Having proven its credentials as a leading infrastructure conglomerate in India, GMR is
expanding its operations globally. It now has presence in the following countries.

Nepal

Upper Karnali - Hydro Power Project (300 MW)

Himtal - Hydro Power Project (250 MW)

41

United Kingdom

InterGen - Energy

Netherlands

InterGen - Energy

Philippines

InterGen - Energy

Australia

InterGen - Energy

Mexico

InterGen - Energy

Istanbul, Turkey

Sabiha Gokcen International Airport - Airports

Singapore

Island Power

Company Information

GMR Infrastructure Limited was originally incorporated on May 10, 1996 as a public limited
company called Varalakshmi Vasavi Power Projects Limited in the State of Andhra Pradesh. On
May 23, 1996 we received our certificate of commencement of business. On May 31, 1999 we
changed our name to GMR Vasavi Infrastructure Finance Limited. On July 24, 2000 we changed
our name to GMR Infrastructure Limited (GIL). On October 4, 2004 we shifted our registered
office from the State of Andhra Pradesh to the State of Karnataka.

The Company is an infrastructure holding company formed to fund the capital requirements of
the GMR Group‟s initiatives in the infrastructure sector. GIL is engaged in development of
various infrastructure projects in power and transportation sectors through several special
purpose vehicles.

42

5.1.2 GMR INFRA MAY MONTH ANALYSIS

GMR INFRA MAY EQUITY TABLE:-

Symb Ser Date Prev Open High Low Last Close Average Total Turnover in
ol ies Close Price Price Price Price Price Price Traded Lacs
Quantity
GMRI EQ 4-May- 113 118 119 115 116.35 116.6 117.27 4966641 5824.518409
NFRA 09
GMRI EQ 5-May- 116.6 117.5 122.4 115 118.85 119.3 119.71 7553513 9042.489716
NFRA 09 5
GMRI EQ 6-May- 119.3 120.8 122.9 113.35 116.4 115.2 119.36 6326565 7551.337826
NFRA 09 5 5
GMRI EQ 7-May- 115.2 116.7 118.4 114.15 116.55 116.1 116.06 5089291 5906.878162
NFRA 09 5 5 5
GMRI EQ 8-May- 116.1 117 117.7 112.1 117.1 117.1 115.61 3900000 4508.909404
NFRA 09 5
GMRI EQ 11-May- 117.1 118.7 119.6 111 111.15 111.9 113.67 3316682 3770.069377
NFRA 09 5 5
GMRI EQ 12-May- 111.9 112.9 117 110.55 115.85 115.9 114.15 4161604 4750.46704
NFRA 09 5
GMRI EQ 13-May- 115.9 117 117.8 110.15 110.55 111.3 114.24 4696165 5364.980309
NFRA 09 5
GMRI EQ 14-May- 111.3 110.5 112.9 105.6 112.25 112.4 110.83 3605092 3995.469767
NFRA 09 5
GMRI EQ 15-May- 112.4 113.6 117.7 112.25 112.5 113.4 115.06 4462193 5134.164822
NFRA 09 5
GMRI EQ 18-May- 113.4 122.9 147 122.9 134.7 137.3 135.08 62439 84.340472
NFRA 09
GMRI EQ 19-May- 137.3 145 157.9 121.65 149.3 152.9 145.66 21068986 30689.75392
NFRA 09 5 5
GMRI EQ 20-May- 152.9 148 165.9 142.35 159.7 158.4 159.52 11364457 18129.00169
NFRA 09 5 5 5
GMRI EQ 21-May- 158.4 158 173 158 172.2 170.2 167.96 18201627 30570.93059
NFRA 09 5 5
GMRI EQ 22-May- 170.2 171 173.6 161.15 168.15 168.6 167.66 11647961 19528.54452
NFRA 09 5 5 5
GMRI EQ 25-May- 168.6 170 171.4 162.3 164.2 164.9 165.19 5937486 9808.248222
NFRA 09 5 5
GMRI EQ 26-May- 164.9 168 172.4 155.25 158.5 157.4 166.26 12411987 20636.71993
NFRA 09 5
GMRI EQ 27-May- 157.4 161.1 167.3 161.1 163.6 163.7 164.27 10949461 17987.06952
NFRA 09 5
GMRI EQ 28-May- 163.7 164 168 160.85 163.45 162.4 163.65 10002596 16368.87623
NFRA 09
GMRI EQ 29-May- 162.4 165 169.4 162 162.9 164.5 166.61 12791895 21312.62356
NFRA 09 5

47

Interpretation:-
This analysis is useful to know where to buy and sell the options such as Call and Puts.

Open Price=118 On 4th May 09

Low Price=110.15 On 13th May 09

High Price=173.65 On 22nd May 09

Close price=164.55 On 29th May 09

In the above graph I calculate Breakeven point for GMRINFRA Stock.

Break Even Point(BEP) = (High Price + Low Price)/2

= (173.65+110.15)/2

= 141.5

Again I found margin of safety (MOS)

(1) Margin of safety (mos) = opening share value – BEP

48

=118-141.5

=-23.5

So here margin of safety is negative value. So here investor gets more Loss and shorts. Here
investor can buy put options to get more profits. Investors should not go for call options at this
point

(2) Margin of safety (mos) =high share value –BEP

=173.65-141.5

=32.15

So here margin of safety is Positive value. So here investor gets more profits and longs. So
at this point investor can sell their Call options to get more profis.

(3) Margin of safety (mos) =LOW share value – BEP

=110.15-141.5

=-31.35

So here margin of safety is negative. so here investor gets more losses and more shorts.
Investor can sell their Put Option at this point to incur more profits.

49

GMRINFRA MAY CALL OPTION TABLE(Strike price=135)

Instrument Symbol Opti Date Expiry Strike Clos Settle Price Turnover in
on Price e Lacs
OPTSTK GMRINFRA CA 4-May-09 28-May-09 135 8.05 3.1 0
OPTSTK GMRINFRA CA 6-May-09 28-May-09 135 2 2 6.85
OPTSTK GMRINFRA CA 7-May-09 28-May-09 135 2 2.2 0
OPTSTK GMRINFRA CA 13-May-09 28-May-09 135 0.65 0.65 6.78
OPTSTK GMRINFRA CA 28-May-09 28-May-09 135 3 0 0

50

OBSERVATIONS AND FINDINGS

MAY CALL OPTIONS

Buyers Pay OFF:
 As brought 1 Lot of GMRINFRA that is 1250 those who buy for 135 paid 3.1
Premium Per Share.
 Settlement Price is 163.75

Spot price 163.75
Strike price 135.00
Amount 28.75
Premium Paid (-) 3.1
Net Profit 25.65*1250=32062.5
Buyer Profit = Rs 32062.5(Net Amount)

Because it is positive it is IN THE MONEY contract, hence buyer will get more profit,
incase spot price increase buyer profit also increases.

SELLERS PAY OFF:
 It is in the money for the buyer, so it is n out of the money for seller , hence his loss is
also increases.

Strike price 135.00

Spot price 163.75

Amount -28.75

Premium Received 3.1

Loss -25.65*1250=-32062.5

Seller loss = Rs -32062.5(Loss)

Because it is negative it is out of the money, hence seller will get more loss, incase spot
price decreases in below strike price, seller get profit in premium level.

51

GMRINFRA MAY PUT OPTION TABLE(Strike price=135):-

Instrument Symbol Option Date Expiry Strike Settle Price
Price
OPTSTK GMRINFRA PA 4-May-09 28-May-09 135 21.1
OPTSTK GMRINFRA PA 15-May-09 28-May-09 135 22

52


MAY PUT OPTION

BUYERS PAY OFF:

 Those who have purchased put option at a strike price 135, the premium payable is 21.1.
 On the expiry date the spot market price enclosed at 155.95.

Strike Price 135
Spot price 155.95
Net Pay Off -20.95*1250=-26187.5
Already Premium paid is 21.1
So, he get loss up to Rs 26187.5

Because it is negative, out of the money contract, hence buyer gets more loss, incase spot price
decrease in below strike price, buyer get profit in premium level.

SELLERS PAY OFF:
 As seller is entitled only for premium so,if he is in profit and also seller has to get
total profit.

Spot Price 155.95
Strike Price 135
Net Pay off 20.95*1250=26187.5

Already Premium Received 21.1
So, he can get profit up to Rs 26187.5

Because it is positive, in the money Contract, hence seller gets more profit, incase Spot price
decrease in below strike price seller can get loss in premium.

53

GMR(May Options) Strike Price=135
180
160
140
120
100
Price

80 Put Price
60
Call Price
40
20 Average GMR Price
0

Date

From the above graph You can see that there is a drastic increase in share price of
GMRINFRA due to QIP issue $500 million on May 14th 09. So that is the reason share price of
GMRINFRA has increased drastically.

From the above news investors can buy call options to book profits in future. So in the
above graph we can see that the GMRINFRA call prices has been increased from 14th may
onwards .So its in the money for buyers who buy the call option. Its out of the money for the
sellers of the call option.

By above graph we can get that Put Price is reverse to the Spot price. If the Spot price
increases then put prices get decreases and if the spot price decreases then put prices starts
increasing, So these both are inversely proportional to each other.

54

GMRINFRA MAY FUTURE ANALYSIS:-

The Objective of this analysis is to evaluate the profit/loss position futures . This analysis is based on
sample data taken of GMR INFRA scrip. This analysis considered the May Contract on GMRINFRA.
The lot size of GMRINFRA is 1250,the time period in which this analysis done is from 4-05-2009 to 28-
05-2009.

Instru Symbo Date Expiry Ope Hig Low Close LTP Settle No. of Turnover in Open Int
ment l n h Price contracts acs
FUTS GMRIN 4-May- 28-May- 114. 117 113. 115.85 115.3 115.85 1349 7819.73 13775000
TK FRA 09 09 8 .45 9 5
FUTS GMRIN 5-May- 28-May- 115. 122 115. 119 118.3 119 2680 15975.69 14290000
TK FRA 09 09 6 6 5
FUTS GMRIN 6-May- 28-May- 119 122 112. 114.6 115.5 114.6 2351 13944.95 13865000
TK FRA 09 09 .25 2 5
TK FRA 09 09 .5 2
TK FRA 09 09 4 1
TK FRA 09 09 5 .7 2
TK FRA 09 09 5 .5 2
FUTS GMRIN 13-May- 28-May- 116. 117 110. 111 111.0 111 1614 9199.92 14660000
TK FRA 09 09 25 .5 35 5
TK FRA 09 09 .9 7 5
TK FRA 09 09 5 .3 25
TK FRA 09 09 .9 2 5
FUTS GMRIN 19-May- 28-May- 144 156 121 152.95 150 152.95 5193 37561.15 13130000
TK FRA 09 09
TK FRA 09 09 55 .8 9 5
FUTS GMRIN 21-May- 28-May- 160 174 159 171.95 173.4 171.95 7575 64043.81 13000000
TK FRA 09 09 .1
TK FRA 09 09 8 7
TK FRA 09 09 7 8 5
TK FRA 09 09 .75 25 5
TK FRA 09 09 9 15
TK FRA 09 09 05 .4 95

55

GMRINFRA(May Futures)
210
180
150
120
Price

90
30 Future Price
0
4-May-09

6-May-09

8-May-09

10-May-09

12-May-09

14-May-09

16-May-09

18-May-09

20-May-09

22-May-09

24-May-09

26-May-09

28-May-09
Date

Future Market

BUYER SELLER
12/05/09(buying) 115.85 115.85

28/05/09(Closing Period) 162.4 162.4

Profit = 46.55 Loss = 46.55

Profit 46.55*1250=58187 Loss 46.55*1250=58187

Because buyer Future price will increase so, profit also increases. Seller Future price also
increases so he can get loss. Incase seller Future will decreases, he can get profit.

The closing Price of GMRINFRA at the end of contract period is 162.4 and this is
considered as settlement price.

56

5.1.3 GMR INFRA JUNE MONTH ANALYSIS

GMRINFRA JUNE EQUITY:-

Symbol Seri Date Prev Open High Low Last Close Average Total Turnover in
es Close Price Price Price Price Price Price Traded Lacs
Quantity
GMRINF EQ 1-Jun- 164.55 167 176.4 162.55 175.2 175.1 171.15 19950076 34144.15905
RA 09
GMRINF EQ 2-Jun- 175.1 178.9 180.85 168.1 172.2 172.9 173.62 15822276 27470.65369
RA 09
GMRINF EQ 3-Jun- 172.9 176.9 177.35 167.15 171.95 172.75 173.15 11234059 19451.91789
RA 09
GMRINF EQ 4-Jun- 172.75 172.1 179.9 172 178 177.75 177.94 16706677 29728.11388
RA 09
GMRINF EQ 5-Jun- 177.75 180 183.5 169.05 170.45 170.55 177.04 17578054 31120.95275
RA 09
GMRINF EQ 8-Jun- 170.55 174.9 174.9 156.7 157.75 160.2 165.28 16210921 26793.31401
RA 09
GMRINF EQ 9-Jun- 160.2 159.8 170 149.05 167.35 166.55 161.3 19634278 31670.47058
RA 09
GMRINF EQ 10-Jun- 166.55 169 172 158 162.9 162.55 165.35 12369000 20452.47894
RA 09
GMRINF EQ 11-Jun- 162.55 163.4 145.36 136 137.45 138 147.29 14231441 22669.03497
RA 09
GMRINF EQ 12-Jun- 138 157 163.2 152.4 158.8 159.45 158.88 23539810 37400.17848
RA 09
GMRINF EQ 15-Jun- 159.45 155 157 146 148.05 147.65 150.89 13210538 19933.32656
RA 09
GMRINF EQ 16-Jun- 147.65 145.1 153 142.1 150.6 151.35 149.6 11553437 17284.0867
RA 09
GMRINF EQ 17-Jun- 151.35 151 154 142.1 143.95 143.95 148.91 10745434 16001.49497
RA 09
GMRINF EQ 18-Jun- 143.95 145 146.8 137.2 143.85 143.15 142 11585108 16450.62817
RA 09
GMRINF EQ 19-Jun- 143.15 145.05 148.9 141.8 147.95 147.3 146 8967831 13093.16327
RA 09
GMRINF EQ 22-Jun- 147.3 149.9 151 138.65 139 139.75 144.75 11218177 16237.97072
RA 09
GMRINF EQ 23-Jun- 139.75 135.1 142.7 134.45 138.25 138.6 139.05 14718034 20464.88749
RA 09
GMRINF EQ 24-Jun- 138.6 140 142.3 135.7 139.15 139.2 139.45 11490518 16022.96305
RA 09
GMRINF EQ 25-Jun- 139.2 140.35 141.5 133.25 135.45 134.75 136.88 13960618 19108.99344
RA 09
GMRINF EQ 26-Jun- 134.75 137 139.55 134.1 137.35 136.75 137.11 9372467 12850.29593
RA 09
GMRINF EQ 29-Jun- 136.75 138.15 157.25 138.15 154.35 155.15 151.77 43432666 65915.85738
RA 09
GMRINF EQ 30-Jun- 155.15 155.9 157.25 140.1 141.35 141.85 145.57 23533314 34256.29143
RA 09

57

Interpretation:-

This analysis is useful to know where to buy and sell the options such as Call and Puts.

Open Price=167 On 1st June 09

Low Price=133.25 On 5th June 09

High Price=183.5 On 25th June 09

Close price=141 On 30th June 09

In the above graph I calculated Break Even point for GMRINFRA Stock for June
Month.

Break Even Point(BEP) = (High Price + Low Price)/2

= (183.5+133.25)/2

= 158.37

58

Again I found margin of safety (MOS)

(1) Margin of safety (mos) = opening share value – BEP

=167-158

=9

So here margin of safety is Positive value. So here investor gets more profits and longs.
Investor can buy call options to get more profits. Investors should not go for put options at this
point

(2) Margin of safety (mos) =high share price –BEP

=183-158

=25

So here margin of safety is Positive value. So here investor gets more profits and longs. So
at this point investor can sell their Call options to get more profits.

(3) Margin of safety (mos) =Low share value – BEP

=133.25-158

=-24.75

So here margin of safety is negative. So here investor gets more losses and shorts. Investor
can sell their Put Option at this point to incur more profits.

59

GMRINFRA JUNE CALL OPTION TABLE(Strike Price=155) :-

Instrument Symbol Option Date Expiry Strike Settle Price
Price
OPTSTK GMRINFRA CA 1-Jun-09 25-Jun-09 155 29.4
OPTSTK GMRINFRA CA 25-Jun-09 25-Jun-09 155 0

60


JUNE CALL OPTIONS

Buyers Pay OFF:
 As brought 1 Lot of GMRINFRA that is 1250 those who buy for 155 paid 29.4
Premium Per Share.
 Taken Spot price on 11th june 09 is 138.Such as Call option is sold on 11th June

Spot price 138.00
Strike price 155.00
Amount -17
Net Loss -17*1250=-21250
Buyer Loss = Rs 21250(Net Amount)

Because it is negative it is OUT OF THE MONEY contract, hence buyer will get more
Loss, incase spot price decreases buyer Loss also increases.

SELLERS PAY OFF:
 It is OUT OF THE MONEY for the buyer, so it is IN THE MONEY for seller , hence his
Profit increases.

Strike price 155.00

Spot price 138.00

Amount 17

Profit 17*1250=21250

Seller Profit = Rs 21250(Profit)

Because it is positive so it is IN THE MONEY, hence seller will get more profit, incase
spot price increases in above strike price, seller get loss in premium level.

61

GMRINFRA JUNE PUT OPTION TABLE(Strike Price=155):-

Instrument Symbol Option Date Expiry Strike Price Settle Price
OPTSTK GMRINFRA PA 1-Jun-09 25-Jun-09 155 8.9
PTSTK GMRINFRA PA 4-Jun-09 25-Jun-09 155 6.2
OPTSTK GMRINFRA PA 25-Jun-09 25-Jun-09 155 0

62


JUNE PUT OPTION

BUYERS PAY OFF:

 Those who have purchase put option at a strike price 135, the premium payable is 8.9.
 On the expiry date the spot market price enclosed at 155.95.

Strike Price 155
Spot price 139.2
Amount 15.8
Premium Paid(-) 8.9
Profit 6.9*1250=8625

So, he got profit up to Rs 8625

Because it is positive, IN THE MONEY contract, hence buyer gets profit, incase spot price
increases above strike price, buyer get loss in premium level.

SELLERS PAY OFF:
 As seller is entitled only for premium so,if buyer is in profit and also seller has to get
total loss.

Spot Price 139.2
Strike Price 155
Amount -15.8
Premium received (+) 8.9
Loss -6.9*1250=-8625

Already Premium Received
So, he can get Loss up to Rs 8625

Because it is Loss, OUT OF THE MONEY Contract, hence seller gets more Loss , incase Spot
price increases above strike price seller can get profit in premium.

63

GMRINFRA JUNE FUTURE ANALYSIS:-

The Objective of this analysis is to evaluate the profit/loss position futures . This analysis is
based on sample data taken of GMR INFRA scrip. This analysis considered the May Contract on
GMRINFRA. The lot size of GMRINFRA is 1250,the time period in which this analysis done is
from 1-06-2009 to 25-06-09

Instru Symbol Date Expiry Op Hig Lo Close LTP Settle No. of Turnover Open Int
ment en h w Price contracts in lacs
FUTS GMRINFRA 1-Jun- 25- 167 177 162 176.0 175.95 176.05 9497 81453.39 23635000
TK 09 Jun-09 .8 .4 5
TK 09 Jun-09 .9 .75 .2
TK 09 Jun-09 .3 .75 .3
FUTS GMRINFRA 4-Jun- 25- 171 10. 171 178.3 178.5 178.3 7396 65900.83 22000000
TK 09 Jun-09 .9 5 .9
TK 09 Jun-09 .65 5
FUTS GMRINFRA 8-Jun- 25- 174 174 155 158.3 156 158.3 5362 44171.44 21655000
TK 09 Jun-09 .1
TK 09 Jun-09 .3 .65 5
FUTS GMRINFRA 10- 25- 168 170 157 162.0 162.95 162.05 4651 38265.41 25320000
TK Jun-09 Jun-09 .75 .15 5
FUTS GMRINFRA 11- 25- 163 164 155 157.5 157.6 157.55 4445 35463.05 26475000
TK Jun-09 Jun-09 .1 .25 .5 5
FUTS GMRINFRA 12- 25- 159 163 152 159.4 159.25 159.4 11438 90979.06 30380000
TK Jun-09 Jun-09 .65 .15
FUTS GMRINFRA 15- 25- 157 157 145 147.3 147.5 147.35 5372 40518.95 29600000
TK Jun-09 Jun-09 .4 .4 .2 5
FUTS GMRINFRA 16- 25- 143 153 142 151.5 150.7 151.55 4175 31211.01 29440000
TK Jun-09 Jun-09 .35 .25 5
FUTS GMRINFRA 17- 25- 150 154 140 143.1 143.15 143.1 4368 32499.43 28370000
TK Jun-09 Jun-09 .7 .15 .35
FUTS GMRINFRA 18- 25- 143 146 136 142.8 144 142.8 5375 38053.13 25490000
TK Jun-09 Jun-09 .45 .65
FUTS GMRINFRA 19- 25- 145 148 141 146.8 147.6 146.8 4437 32290.93 23350000
TK Jun-09 Jun-09 .4 .25
FUTS GMRINFRA 22- 25- 148 150 138 139.9 139.3 139.9 5283 38225.04 19820000
TK Jun-09 Jun-09 .5 .55 .8
FUTS GMRINFRA 23- 25- 136 142 135 139.3 138.8 139.35 5754 40174.64 16190000
TK Jun-09 Jun-09 .9 .8 .1 5
FUTS GMRINFRA 24- 25- 140 142 136 139.7 139.65 139.75 5100 35670.08 10010000
TK Jun-09 Jun-09 .3 .7 5
FUTS GMRINFRA 25- 25- 141 141 133 134.7 134.7 134.75 3570 24630.91 3890000
TK Jun-09 Jun-09 .3 .8 .4

64

GMR(June Futures)
200
180
160
140
120
Price

100
80
60
20
0 Future Price
1-Jun-09
3-Jun-09
5-Jun-09
7-Jun-09
9-Jun-09
11-Jun-09
13-Jun-09
15-Jun-09
17-Jun-09
19-Jun-09
21-Jun-09
23-Jun-09
25-Jun-09
Date

Future Market

BUYER SELLER
12/06/09(buying) 159.4 159.4

26/06/09(Closing Period) 134.7 134.7

Loss = 24.7 Profit = 24.7

Loss 24.7*1250=30875 Profit 24.7*1250=30875

Because buyer Future price will decreases so, loss also increases. Seller Future price
decreases so he can get profit. Incase seller Future will increases, he can get Loss.

The closing Price of GMRINFRA at the end of contract period is 134.7 and this is
considered as settlement price.

65

PUNJAB NATIONAL BANK

66

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