Dervatives- Futures and Options

projected by:
Srishti Gupta
DERIVATIVES
Futures and Options

1
FUTURES and OPTIONS:
INFOSYS
Page 1
A PROJECT ON
INFOSYS: FUTURES AND OPTIONS
In The Subject
DERIVATIVES
Submitted By
Srishti Gupta
A023
NSE (NCCMP)
Under The Guidance Of
Prof. Amogh Gothoskar
To
National Stock Exchange
In
NCCMP
Year: 2015-16
SVKM’S
NARSEE MONJEE COLLEGE OF COMMERCE &ECONOMICS
VILE PARLE (W), MUMBAI – 400056.

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INFOSYS
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EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project on
“INFOSYS: FUTURES AND OPTIONS” submitted by Srishti Gupta student of NSE
(NCCMP) for the academic year 2015-16. This project is original to the best of our
knowledge and has been accepted for Internal Assessment.
Name & Signature of Internal Examiner: ______________________________
______________________________
Amee Vora
Principal

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INFOSYS
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DECLARATION BY THE STUDENT
I, Srishti Gupta student of NSE (NCCMP), Roll No.: A023, hereby declare that the project
titled “INFOSYS: FUTURES AND OPTIONS ” for the subject NCCMP submitted by me
for the academic year 2015-16, is based on actual work carried out by me under the guidance
and supervision of Prof. Amogh Gothoskar. I further state that this work is original and not
submitted anywhere else for any examination.
Place: Mumbai
Date: 14th
Jan, 2016
Name & Signature of Student
Name: Srishti Gupta
Signature: _________________

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ACKNOWLEDGEMENT
Projects have always been fun Learning experience, but with growing age, at this
Professtional Level, it surely demands Corporate and Depth Approach.
This project was a great learning experience and I take this opportunity to acknowledge all
those who gave me their invaluable guidance and inspiration provided to me during the
course of this project by my guide.
I would like to thank Mr Amogh Gothoskar - Professor of Derivatives.
I would also thank the NSE Department of Narsee Monjee College of Commerce &
Economics who gave me this opportunity to work on this project which provided me with a
lot of insight and knowledge of my current curriculum and industry as well as practical
knowledge.
Would sincerely thank our coordinator Mr. Harish Sharma for constant guidance over the
projects and curriculums.
I would also like to thank the library staff of Narsee Monjee College of Commerce &
Economics for equipping me with the books, journals and magazines for this project.
I would also like to thank my friends and fellow students who helped me in the cause of the
project.

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INDEX
Serial
Number
Contents Page Number
1 INFOSYS:COMPANY OVERVIEW AND
HISTORY
6
2 FUTURES: INTRODUCTION 7
3 OPTIONS: INTRODUCTION 8
4 FUTURES: ANALYSIS OF TREND IN
PRICES
9
5 OPTIONS: MONEYNESS, INTRINSIC
VALUE AND TIME VALUE
10 ONWARDS

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INFOSYS
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ABOUT INFOSYS:
Infosys is a global leader in consulting, technology, and outsourcing and next-generation
services. It enables clients in more than 50 countries to outperform the competition and stay
ahead of the innovation curve. With US$9.21 bn in LTM Q3 FY16 revenues and 193,000+
employees, Infosys is helping enterprises renew themselves while also creating new avenues
to generate value. It provides enterprises with strategic insights on what lies ahead. They help
enterprises transform and thrive in a changing world through strategic consulting, operational
leadership, and the co-creation of breakthrough solutions, including those in mobility,
sustainability, big data, and cloud computing.
HISTORY:
Established in 1981, Infosys is a NYSE listed global consulting and IT services company
with more than 193,000 employees. From a capital of US$ 250, They have grown to become
a US$ 9.21 billion (LTM Q3 FY16 revenues) company with a market capitalization of
approximately US$ 38.5 billion.

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In the journey of over 30 years, they have catalyzed some of the major changes that have led
to India's emergence as the global destination for software services talent. They pioneered the
Global Delivery Model and became the first IT company from India to be listed on
NASDAQ. The employee stock options program created some of India's first salaried
millionaires.
FUTURES
A Futures Contract is a legally binding agreement to buy or sell any underlying security at a
future date at a pre determined price. The Contract is standardised in terms of quantity,
quality, delivery time and place for settlement at a future date (In case of equity/index
futures, this would mean the lot size). Both parties entering into such an agreement are
obligated to complete the contract at the end of the contract period with the delivery of
cash/stock. Each Futures Contract is traded on a Futures Exchange that acts as an
intermediary to minimize the risk of default by either party. The Exchange is also a
centralized marketplace for buyers and sellers to participate in Futures Contracts with ease
and with access to all market information, price movements and trends. Bids and offers are
usually matched electronically on time-price priority and participants remain anonymous to
each other. Indian equity derivative exchanges settle contracts on a cash basis. To avail the
benefits and participate in such a contract, traders have to put up an initial deposit of cash in
their accounts called as the margin. When the contract is closed, the initial margin is credited
with any gains or losses that accrue over the contract period. In addition, should there be
changes in the Futures price from the pre agreed price, the difference is also settled daily and
the transfer of such differences is monitored by the Exchange which uses the margin money
from either party to ensure appropriate daily profit or loss. If the minimum maintenance
margin or the lowest amount required is insufficient, then a margin call is made and the
concerned party must immediately replenish the shortfall. This process of ensuring daily
profit or loss is known as mark to market. However, if and ever a margin call is made, funds
have to be delivered immediately as not doing so could result in the liquidation of your
position by the Exchange or Broker to recover any losses that may have been incurred. When
the delivery date is due, the amount finally exchanged would hence, be the spot differential in
value and not the contract price as every gain and loss till the due date has been accounted for
and appropriated accordingly.

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OPTIONS
A stock option is a contract between two parties in which the stock option buyer (holder)
purchases the right (but not the obligation) to buy/sell 100 shares of an underlying stock at a
predetermined price from/to the option seller (writer) within a fixed period of time.
Option Type
The two types of stock options are puts and calls. Call options confers the buyer the right
to buythe underlying stock while put options give him the rights to sell them.
CALL OPTIONS
A call option is an option contract in which the holder (buyer) has the right (but not the
obligation)to buy a specified quantity of a security at a specified price (strike price) within a
fixed period of time (until its expiration).
For the writer (seller) of a call option, it represents an obligation to sell the underlying
security at the strike price if the option is exercised. The call option writer is paid
a premium for taking on the risk associated with the obligation.
PUT OPTIONS
A put option is an option contract in which the holder (buyer) has the right (but not the
obligation)to sell a specified quantity of a security at a specified price (strike price) within a
fixed period of time (until its expiration).
For the writer (seller) of a put option, it represents an obligation to buy the underlying
security at the strike price if the option is exercised. The put option writer is paid
a premium for taking on the risk associated with the obligation.

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FUTURES: 21-10-15 TO 21-11-15
INFOSYS News and Corporate Announcements affecting futures contract prices:
16-11-2015 :Press Release
Infosys Limited has informed the Exchange regarding a press release dated November 16,
2015 titled "Infosys Science Foundation Announces Winners of the Infosys Prize 2015".
19-11-2015 :Updates
Infosys Limited has informed the Exchange regarding a Statement dated November 19, 2015
titled "Infosys completes acquisition of Noah Consulting".
OPTIONS: 21-10-15 TO 21-11-15

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Terms Defined:
STRIKE PRICE:
The strike price is defined as the price at which the holder of an options can buy (in the case
of acall option) or sell (in the case of a put option) the underlying security when the option
isexercised. Hence, strike price is also known as exercise price.
OPTIONS PREMIUM:
The price paid to acquire the option. Also known simply as option price. Not to be confused
with the strike price. Market price, volatility and time remaining are the primary forces
determining the premium. There are two components to the options premium and they are
intrinsic value and time value.
Intrinsic Value
The intrinsic value is determined by the difference between the current trading price and the
strike price. Only in-the-money options have intrinsic value. Intrinsic value can be computed
for in-the-money options by taking the difference between the strike price and the current
trading price.Out-of-the-money options have no intrinsic value.
Time Value
An option's time value is dependent upon the length of time remaining to exercise the option,
themoneyness of the option, as well as the volatility of the underlying security's market price.
The time value of an option decreases as its expiration date approaches and becomes
worthless after that date. This phenomenon is known as time decay. As such, options are also
wasting assets.
For in-the-money options, time value can be calculated by subtracting the intrinsic value
from the option price. Time value decreases as the option goes deeper into the money.
For out-of-the-money options, since there is zero intrinsic value, time value = option price.
Typically, higher volatility give rise to higher time value. In general, time value increases as
the uncertainty of the option's value at expiry increases.

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Moneyness is a term describing the relationship between the strike price of an option and
the current trading price of its underlying security. In options trading, terms such as in-the-
money,out-of-the-money and at-the-money describe the moneyness of options.
In-the-Money (ITM)
A call option is in-the-money when its strike price is below the current trading price of the
underlying asset.
A put option is in-the-money when its strike price is above the current trading price of the
underlying asset.
In-the-money options are generally more expensive as their premiums consist of significant
intrinsic value on top of their time value.
Out-of-the-Money (OTM)
Calls are out-of-the-money when their strike price is above the market price of the underlying
asset.
Puts are out-of-the-money when their strike price is below the market price of the underlying
asset.
Out-of-the-money options have zero intrinsic value. Their entire premium is composed of
onlytime value. Out-of-the-money options are cheaper than in-the-money options as they
possess greater likelihood of expiring worthless.
At-the-Money (ATM)
An at-the-money option is a call or put option that has a strike price that is equal to the
market price of the underlying asset. Like OTM options, ATM options possess no intrinsic
value and contain only time value which is greatly influenced by the volatility of the
underlying security and the passage of time.
Often, it is not easy to find an option with a strike price that is exactly equal to the market
price of the underlying. Hence, close-to-the-money or near-the-money options are bought or
sold instead.

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OPTIONS CONTRACT ANALYSIS:
Date: 21-10-2015
Selected Strike Price = ₹ 1140
Underlying Value: ₹ 1138.40
Options Premium: ₹ 35.85
Moneyness: The spot value of the stock is lower than its strike price as, 1138.40 <1140. The
options cannot be exercised, so they are out-of-money.
Intrinsic Value: Since, the option is out of the money. Hence its intrinsic value is 0(zero) or
we can say its intrinsic value is -1.6 (1138.40-1140).
Time Value: Option Premium-Intrinsic Value, so 35.85 - 0 = 35.85.
Date: 23-10-2015
Moneyness: The spot value of the stock is higher than its strike price as, 1149.90 >1140. The
options can be exercised, so they are in-the-money.
Intrinsic Value: The option is in-the-money. Hence its intrinsic value is 9.90 (1149.90-
1140).
Time Value: Option Premium-Intrinsic Value, so 40.55 - 9.90= 30.65.
---------------------------------------------------------------------------------------------------
Date: 26-10-2015

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Moneyness: The spot value of the stock is higher than its strike price as, 1152.15>1140. The
Intrinsic Value: The option is in the money. Hence its intrinsic value is 12.15 (1152.15-
1140).
Time Value: Option Premium-Intrinsic Value, so 41.70 – 12.15 = 29.55.
---------------------------------------------------------------------------------------------------------
Date: 27-10-2015
Intrinsic Value: Since, the option is out of the money. Hence its intrinsic value is 9.4
(1149.40-1140).
-----------------------------------------------------------------------------------------------------------
Date: 28-10-2015
Options Premium: ₹ 39
Moneyness: The spot value of the stock is higher than its strike price as, 1153.20 >1140. The
Intrinsic Value: Since, the option is in the money. Hence its intrinsic value is 13.20
(1153.20-1140).
Time Value: Option Premium-Intrinsic Value, so 39 – 13.20 = 25.80.

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-------------------------------------------------------------------------------------------------------
Date: 29-10-2015
Intrinsic Value: Since, the option is in the money. Hence its intrinsic value is 5.05 (1145.05-
1140).
----------------------------------------------------------------------------------------------------------
Date: 30-10-2015
Intrinsic Value: Since, the option is out of the money. Hence its intrinsic value is 0(zero).
--------------------------------------------------------------------------------------------------------------
Date: 02-11-2015

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-------------------------------------------------------------------------------------------------------
Date: 03-11-2015
Intrinsic Value: Since, the option is in the money. Hence its intrinsic value is 5.50 (1145.50-
1140).
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Date: 04-11-2015
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Date: 05-11-2015
--------------------------------------------------------------------------------------------------------------
Date: 06-11-2015
Moneyness: The spot value of the stock is lower than its strike price as, 1138.30<1140. The
Time Value: Option Premium-Intrinsic Value, so 25.60- 0 = 25.60.
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Date: 09-11-2015

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Date: 10-11-2015
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Date: 11-11-2015
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Date: 13-11-2015

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Date: 16-11-2015
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Date: 17-11-2015

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Date: 18-11-2015
Underlying Value: ₹ 1020
Moneyness: The spot value of the stock is lower than its strike price as, 1020 <1140. The
-----------------------------------------------------------------------------------------------------
Date: 19-11-2015
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Date: 18-11-2015

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