NATURE OF THE PROBLEM

The turnover of the stock exchanges has been tremendously

increasing from last 10 years. The number of trades and the number of investors, who are
participating, have increased. The investors are willing to reduce their risk, so they are
seeking for the risk management tools.
Prior to SEBI abolishing the BADLA system, the investors
had this system as a source of reducing the risk, as it has many problems like no strong
margining system, unclear expiration date and generating counter party risk. In view of
this problem SEBI abolished the BADLA system.
After the abolition of the BADLA system, the investors
are seeking for a hedging system, which could reduce their portfolio risk. SEBI thought
the introduction of the derivatives trading, as a first step it has set up a24 member
committee under the chairmanship of DRL.C.Gupta to develop the appropriate
regulatory framework for derivative trading in India, SEBI accepted the
recommendations of the committee on May 11,1998 and approved the phased
introduction of the derivative trading beginning with stock index futures.
There are many investors who are willing to trade in the
derivative segment, because of its advantages like limited loss and unlimited profit by
paying the small premiums.

SCOPE OF THE STUDY:

The study is limited to Derivatives with special reference to futures and options in
the Indian context and the Hyderabad Stock exchange has been taken as a representative
Sample for the study. The study cant be said as totally perfect. Any alteration may come.
The study has only made a humble attempt at evaluating derivation market only in Indian
context. The study is not based on the international perspective of derivatives markets,
which exists in NASDAQ, NYSE etc.

OBJECTIVES OF THE STUDY:

T o analyze the derivatives market in India.

To analyze the operations of futures and options.

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

To study about risk management with the help of derivatives.

LIMITATIONS OF THE STUDY:

The following are the limitations of this study.
The scrip chosen for analysis is ICICI BANK LTD and contract taken is MAR-APR
2009 45 DAYS CONTRACT
The data collected is completely restricted to the ICICI BANK LTD of MAR-APR
2009, hence this analysis cannot be as universal.

DESCRIPTION OF THE METHOD:

The following are the steps involved in the study.
1.Selection of the scrip:
The scrip selection is done on a random basis and the scrip
selected is ICICI BANK LTD. The lot size of the scrip is 700. Profitability position of
the option holder and option writer is studied.
2.Data collection:
The data of the ICICI BANK LTD has been collected from
the The Economic Times and the Internet The data consists of the March Contract and
the period of data collection is from 02/MAR TO 08/APR-2009
3.Analysis:
The analysis consists of the tabulation of the data assessing
the Profitability positions of the option holder and the option writer, representing the data
with graphs and making the interpretations using the data.

COMPANY PROFILE

INDIA INFOLINE
India Infoline is a one-stop financial services shop, most respected for
quality of its advice, personalized service and cutting-edge technology.
Vision:
Our vision is to be the most respected company in the financial services space.

India Infoline Group:

The India infoline group, comprising the holding
company, India infoline limited and its wholly-owned subsidiaries, straddle the entire
financial services space with offerings ranging from Equity research, Equities and
derivatives trading, commodities trading, portfolio management services, mutual funds
life insurance, fixed deposits, GOI bonds and other small savings instruments to loan
products and investment banking. India infoline also owns and manages the websites
www.indiainfoline.con and www.5paisa.com.
The company has a network of 596 branches spread across 345 cities and
towns. It has more than 500,000 customers.

India Infoline limited:

India Infoline limited is listed on both the leading stock exchanges in
India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE)
and is also a member of both the exchanges. It is engaged in the businesses of Equities
broking, Wealth Advisory services and Portfolio management services. It offers broking

services in both Cash and Derivatives segments of NSE as well as the cash segments of
BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a
one-stop solution for clients trading in the equities market. It has recently launched its
investment banking and institutional broking business.

A SEBI authorized portfolio manager; it offers portfolio management

services to clients. These services are offered to clients as different schemes, which are
based on differing investment strategies made to reflect the varied risk-return preferences
of clients.

India Infoline Media and Research Services Limited:

The content services represent a strong support that drives
the broking, commodities, mutual fund and portfolio management services businesses.
Revenue generation is through the sale of content to financial and media houses, Indian
as well as global.
It undertakes equities research which is acknowledged by none other
than Forbes as Best of the web and a must read for investors in Asia. India info lines
research is available not just over the Internet but also on international wire services.
India Infoline Commodities Limited:
India Infoline Commodities Pvt Limited is engaged in the business of
commodities broking. Our experience in securities broking empowered us with the
requisite skills and technologies to allow us offer commodities broking as a contracyclical alternative to equities broking. We enjoy memberships with the MCX and
NCDEX, two leading Indian commodities exchanges, and recently acquired membership
of DGCX. We have a multi-channel delivery model, making it among the select few to
offer online as well as offline trading facilities.

India Infoline Marketing & Services:

India Infoline Marketing and Services Limited is the holding company of India Infoline
Insurance Services Limited and India Infoline Insurance Brokers Limited.
(a) India Infoline Insurance Services Limited is a registered Corporate Agent with the
Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate
Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private
Life Insurance Company. India Infoline was the first corporate agent to get licensed by
IRDA in early 2001.
(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is
a newly formed subsidiary which will carry out the business of Insurance broking. We
have applied to IRDA for the insurance broking license and the clearance for the same is
awaited. Post the grant of license; we propose to also commence the general insurance
distribution business.

India Infoline Investment Services Limited:

Consolidated shareholdings of all the subsidiary companies
engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a
Singapore-based investment institution invested USD 76.7 million for a 22.5% stake in
India Infoline Investment Services. This will help focused expansion and capital raising
in the said subsidiaries for various lending businesses like loans against securities, SME
financing, distribution of retail loan products, consumer finance business and housing

finance business. India Infoline Investment Services Private Limited consists of the
following step-down subsidiaries.
(a) India infoline Distribution Company Limited (distribution of retail loan products)
(b) Moneyline Credit Limited (consumer finance)
(c) India infoline Housing Finance Limited (housing finance).
IIFL (Asia) Private Limited:
IIFL (Asia) Private Limited is wholly owned subsidiary which
has been incorporated in Singapore to pursue financial sector activities in other Asian
markets. Further to obtaining the necessary regulatory approvals, the company has been
initially capitalized at 1 million Singapore dollars.

History:It was originally incorporated on October 18, 1995 as Probity Research and
Services Private Limited at Mumbai under the Companies Act, 1956 with Registration
No: 11 93797. We commenced our operations as an independent provider of information
analysis and research covering India businesses, financial markets and economy, to
institutional customers. We became a public limited company on April 28, 2000 and the
name of the company was changed to Probity Research and Services Limited. The name
of the company was changed to India Infoline.com on May 23, 2000 and later to India
Infoline Limited on March 23, 2001.

In 1999, the company identified the potential of the Internet to cater to a mass
retail segment and transformed our business model form providing information services

to institutional customers to retail customers. Hence the company launched Internet

portal, www.indiainfoline.com and started providing news and market information,
independent research, interviews with business leaders and other specialized features.
In May 2000, the name of our company changed to India Infolline.com Limited.
In the year 2000, we leveraged our position as a provider of financial information
and analysis by diversifying into transactional services, primarily for online trading in
Shares and securities and online as well as offline distribution of personal financial
products, like Mutual funds and RBI Bonds.
Our broking service as launched under the brand name of 5paisa through our
subsidiary, India Infoline Securities Private Limited and www.5paisa.com the e-broking
portal was launched for online trading in July 2000. Besides we also offer Real time stock
quotes, market news and price charts with multiple tools for technical analysis.

In December 2000, our subsidiary, India Infoline Insurance Services Limited

became a corporate agent for ICICI Prudential Life Insurance Company Limited. And
emerged as one of the leading corporate agents for ICICI Prudential Life Insurance
Company Limited.

In the year 2004, company launched Commodities broking through our subsidiary
India Infoline Commodities Private Ltd.

Board of Directors: As per Articles of Association, Board shall consist of not less than
three and not more than twelve directors. They are as follows:
S.
No.

Name

Designation

1.

Mr. Nirmal Jain

Chairman
Managing
Director

and

2.

Mr.R.Venkataraman

Executive
Director

3.

Mr. Sat Pal Khattar

Non-Executive
Director

4.

Mr. Sanjiv Ahuja

Non-Executive
Independent
Director

5.

Mr. Kranti Sinha

Non-Executive
Independent
Director

6.

Mr. Nilesh Shivji Non-Executive

Vikamsey
Independent
Director

Directorships in other
companies
1. India Infoline Securities
Pvt. Ltd.
2. India
Infoline
Insurance Services
Ltd.
3. India
Infoline
Commodities Pvt.
Ltd.
1. India
Infoline
Insurance Services
Ltd.
2. India Infoline.com
Distribution
Company Ltd.
1. AB Hotels Ltd.
2. GTL Ltd.
3. Prime Vetcare Pvt.
Ltd.
1. Pagro Foods Ltd.
2. India
Infoline
Insurance Services
Ltd.
1. Hindustan Motors
Ltd.
2. Larsen and Turbo
Ltd.
1. Alpha
Garments
Pvt. Ltd.
2. Miloni Consultants
Pvt. Ltd.

Key promoters of the company

Key promoters of our company are Mr. Nirmal Jain and Mr. Venkataraman,
professionals with a good academic and work experience.

Mr. Nirmal Jain has been the chairman and Managing Director of the company
since its incorporation i.e., October 18, 1995. Mr. Jain holds a MBA degree from IIM
Ahmedabad and is a member Institute of Chartered Accountants of India and the
Institute of Cost Accountants of India. He started his career in 1989 with Hindustan
Lever Limited, a subsidiary of Unilever Plc, in their commodities trading and exports
division Mr. Jain has a total experience of more than 15 years.

Mr.R.Venkataraman joined the board with effect from July 5 th, 1999. He holds a
B.Tech degree in Electronics and Electrical Communications Engineering from IIT
Kharagpur and an MBA degree from IIM Bangalore. He has senior managerial
positions in various divisions of ICICI limited, including ICICI securities limited, their
investment banking joint venture with J.P.Morgan of USA. He also worked as an equity
analyst with BZW and Taib Capital Corporation Limited. He has also held the position
of Assistant Vice President with GE Capital Services India Limited in their private
equity division. He has varied experience of more than 14 years in the financial services
sector.

Year wise Milestones of our evolution:

October 1995

Incorporated as Probity Research and

Services Pvt. Ltd.

March 1996

Launched Probity 200, research reports on

200 leading listed Indian companies.

June 1998

Launched Probity Sector reports.

May 1999

Launched our internet portal

www.indiainfoline.com and
Changed our name to India Infoline Limited.

April 2000

Our company forayed into distribution of

Mutual funds, Fixed deposits, RBI bonds
and other small savings Products.

July 2000

Our company launched www.5paisa.com the

E-broking Portal and started online trading
With membership of BSE and NSE.

December 2000

Our company obtained corporate agency for

ICICI Prudential Life Insurance Company

Ltd.

September 2001

Our company became the Depositary

Participant of NSDL.

March 2004

Our company launched commodities trading

by taking Membership of MCX.

April 2004

Our company received license from SEBI to

Offer Portfolio Management Services.

Business
India Infoline Limited
Content related service- Equity research & Online Media Property.

India Infoline Securities Pvt. Ltd.

Equities & Derivative Broking.
Depository Services.
Portfolio Management Services.

India Infoline.com Distribution Company Ltd.

Mutual funds
RBI Bonds
Fixed Deposits etc.

India Infoline Insurance Services Ltd.

Corporate agents for ICICI Prudential Life Insurance Company Ltd.

India Infoline Commodities Pvt. Ltd.

Commodities Broking.

India Infoline Investment Services Pvt. Ltd.

Margin funding & financing.

Brokerage Services
Online Brokerage: we offer subscribers real-time trading on the NSC and BSC. Apart
from this we also offer commodities.
Trading on the MCX and NCDEX. Customers can directly place orders to buy
and sell securities through our automated order processing system.

Offline Brokerage: We began offering offline brokerage services as a back up to our

online brokerage offering through our branches. This was mainly to address the interest
access problems faced by some of our retail customers.
Competition
Broking: We face competition from small local brokers (traditional) and pan India
Brokers like Kotak Securities Ltd. S.S Kantilal Ishwarlal securities Ltd, Indiabulls
Securities Ltd, ICICI Web Trade Limited, Geojit Financial Service Ltd etc.

Distribution: We face competition from small retail distributors (typically single outlet
unorganized units), brokers who have a distribution setup, old and established
distribution companies like Blue chip corporate Investment centre Limited, Bajaj
capital Ltd, karvy Securities Ltd, and banks including their PMS and wealth
Management desks.

Our strength: Our strengths are content and research online technology platform and
customer services.

Financial Performance
Key aspects of your Company's financial performance for the year 2006-07
are tabulated below:
(Rs. in Million)

Sales and other income (net of

excise duty)
Profit before tax
Provision for tax
Minority interest and equity in
earnings/ (losses) of affiliates
Profit for the year
Appropriations :
Interim dividend
Proposed dividend on equity
shares
Corporate tax on distributed
dividend
Transfer to general reserve

Consolidated
2007
2006

Parent
2007

2006

152,945
32,988
3,868

107,566
23,779
3,391

139,726
31,762
3,341

103,795
23,404
3,199

301
29,421

287
20,674

28,421

20,205

7,278

1,459

7,129

1,268
18,416

1,000
12,076

When we consider the consolidated figures, we observe that Sales and other
income have risen from Rs. 107,566 Million in FY 2006 to Rs. 152,945 Million in FY
2007. Profit for the year also has been raised from Rs. 20,674 Million in FY 2006 to Rs.
29,421 Million in FY 2007.
Sales and profit for the year grew by 42% over the previous year.
ORIGIN:

India Infoline was founded in 1995 by a group of professionals with impeccable

educational qualifications and professional credentials. Its institutional investors include
Intel capital (worlds leading technology company), CDC (promoted by UK government),
ICICI, TDA and Reeshanar.
India Infoline group offers the in tire gamut of investment products including
Stock broking, commodities broking, mutual funds, fixed deposits, GOI Relief bonds,
Post office savings and life insurance. India Infoline is the leading corporate agent of
ICICI Prudential Life Insurance Company, which is Indias No.1 private sector life
insurance company.
www.indiainfoline.com has been the only Indian website to have been listed by
none other than Forbes in its Best of the web survey of global website, not just once but
three times in a row and counting. a must read for investors in south Asia is how they
choose to describe India Infoline. It has been rated as No.1 in the category of Business
News in Asia by Alexia rating.
Stock and commodities broking is offered under the trade name 5paisa. India
Infoline commodities Pvt. Ltd, a wholly owned subsidiary if India Infoline Ltd., holds
membership of MCX.

Products: The India Infoline pvt Ltd. offers the following products.
a. E-broking
b. Distribution
c. Insurance

a. E-broking:
1. Equities
2. Derivatives
3. Commodities
The above three are traded as 5paisa.
b. Distribution:
1. Mutual funds
2. Govt of India bonds
3. Fixed deposits
c. Insurance:
1. Life insurance policies
2. Corporate sector of ICICI
3. Prudential life insurance.

INTRODUCTIO
N
TO
DERIVATIVES

INTRODUCTION TO DERIVATIVES:
The emergence of the market for derivative products, most notably
forwards, futures and options, can be traced back to the willingness of riskaverse economic agents to guard themselves against uncertainties arising out of
fluctuations in assets price. By their very nature, the financial markets are
marked by a very high degree of volatility. Through the use of derivative
products, it is possible to partially or fully transfer price risk by locking-in
asset prices. As instruments of risk management, these generally do not
influence the fluctuations in the underlying asset prices. However, by looking -in asset
price, derivative products minimize the impact of fluctuations in asset
price 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. Bank, securities firms, companies
And investors to hedge risks, to gain access to cheaper money and to make
Profit, use derivatives. Derivatives are likely to grow even at a faster rate in future.

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 .
1. A security derived from a debt instrument, share, loan whether secured or
unsecured, risk instrument or contract for difference or any other form of security.
2. A contract which derives its value from the prices, or index of prices, of
underlying securities.

PARTICIPANTS:
The following three broad categories of participants in the Derivative market

HEDGERS:
Hedgers face risk associated with the price of an asset. They use futures or options
markets to reduce or eliminate this risk.

SPECULATORS:
Speculators wish to bet on future movement in the price of an asset. Futures and options
contract 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
difference markets. If , 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
profit.

FUNCTIONS OF DERIVATIVES MARKET:

The following are the various functions that are performed by the derivatives markets.
They are:

Price in an organized derivative market reflect perception of market participants about

the future and lead the price of underlying to the perceived future level.
Derivatives market helps to transfer risk from those who have them but may not like
them to those who have an appetite for them.
Derivatives trading act as a catalyst for new entrepreneurial activity.
Derivatives markets help increase saving and investment in the long run.

TYPES OF DERIVATIVES :
The following are the various types of derivatives. They are :

FORWARDS:
A forwards contract is a customized contract between two entities, where settlement takes
place on a specific data in the future at todays pre-agreed price

FUTURES:

A future contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price

OPTIONS:
Options are of two types calls and puts. Calls give the buyers 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.

WARRANTS:
Options generally have lives of upto one year; the majority of options traded on options
exchange having a maximum maturity of nine months. Longer-dated options are called
warrants and are generally traded over-the-counter.

LEAPS:
The acronym LEAPS means Long-Term-Equity Anticipation Securities. These are
options having a maturity of upto three years.

BASKETS:
Basket options are options on portfolio of underlying asset. The underlying asset is
usually a moving average of a basket of assets. Equity index options are a form of basket
options.

SWAPS :
Swaps are private agreement between two parties to exchange cash flows in the future
according to a prearranged formula. They can be regarded as portfolio of forward
contracts.
The two commonly used swaps are:
Interest rate swaps:
These entail swapping only the interest related cash flows between the two parties in
the same currency:
Currency swaps:
These entail swapping both principle and interest between the parties, with the cash
flows in one direction being in a different currency than those in the opposite direction.

SWAPTIONS:
Swaptions are options to buy or sell a swap that will become operative at the expiry of
the options. Thus a swaption is an option on a forward swap.

RATIONALE BEHIND THE DEVELOPMENT O F

DERIVATIVES:

Holding portfolio of securities is associated with the risk of the possibility that the
investor may realize his returns, which are much lesser than what he expected to get.
There are various factors, which affect the return :
1. Price or dividend (interest)
2. Some are internal to the firm like

Industrial policy

Management capabilities

Consumers preference

Labor strike, etc.

These forces are to a large extent controllable and are termed as non
Systematic risks. An investor can easily manage such non-systematic by having a well
diversified portfolio spread across the companies, industries and groups so that a loss in
one may easily be compensated with a gain in other.
There are yet other types of influences which are external to the firm, cannot be
controlled and affect large number of securities. They are termed as systematic risk. They
are:
1. Economic
2. Political
3. Sociological changes are sources of systematic risk
For instance, inflation, interest rate, etc. their effect is to cause prices of nearly all
individual stocks to move together in the same manner. We therefore quite often find
stock price falling from time to time in spite of companys earning rising and vice versa.
Rationale behind the development of derivatives market is to manage this systematic risk,
liquidity and liquidity in the sense of being able to buy and sell relatively large amounts
quickly without substantial price concessions.
In debt market, a large position of the total risk of securities is systematic. Debt
instruments are also finite life securities with limited marketability due to their small size
relative sto many common stocks. Those factors favour for the purpose of both portfolio

hedging and speculation, the introduction of a derivative security that is on some broader
market rather than an individual security.
India has vibrant securities market with strong retail participation that has rolled over the
years. It was until recently basically cash market with a facility to carry forward positions
in actively traded A group scrips from one settlement to another by paying the required
margins and borrowing some money and securities in a separate carry forward session
held for this purpose. However, a need was felt to introduce financial products like in
other financial markets world over which are characterized with high degree of derivative
products in India.
Derivative products allow the user to transfer this price risk by looking in the asset
price there by minimizing the impact of fluctuations in the asset price on his balance
sheet and have assured cash flows.
Derivative are risk management instrument, which derive their value from an
underlying asset. The underlying asset can be bullion, index, shares, bonds, currency etc.
Any exchange fulfilling the DERIVATIVE SEGMENT AT NATIONAL STOCK
EXCHANGE:
The derivatives segment on the exchange commenced with S&P CNX Nifty index
futures on June 12, 2000. The F & O segment of NSM provides trading facilities for
the following derivative segment:
1. Index Based Futures
2. Index Based Options
3. Individual Stock Options
4. Individual Stock Futures

COMPANY NAME

CODE

LOT SIZE

ABAN OFF SHORE

ABAN

400

Associated Cement Co. Ltd.

ACC

752

Allahabad Bank

ALBK

4900

Andhra Bank

ANDHRA BANK

4600

Arvin Mills Ltd.

ARVINDMILL

17200

Ashok Leyland Ltd

ASHOKLEY

19100

Bajaj Auto Ltd

BAJAJAUTO

800

Bank of Baroda

BANKBARODA

1400

Bank of India

BANKINDIA

950

Bharat Electronics Ltd

BEL

550

Bharat Forge Co Ltd

BHARATFORG

200

Bharati Tele-Ventures Ltd

BHARTI

1000

Bharat Heavy Electronics Ltd

BHEL

300

Bharat Petroleum Corporation Ltd

BPCL

550

Cadlla Healthcare Limited

CADILAHC

500

Canara Bank

CANBK

1600

Century Textiles Ltd

CENTURYTEX

850

Chennai Petroleum Corp Ltd

CHENNPETRO

3600

Cipla Ltd

CIPLA

1250

Cochi Refineries Ltd

COCHINREFN

1300

Colgate Palmolive (I) Ltd

COLGATE

1050

Dabur India Ltd

DABAR

2700

GAIL (India) Ltd

GAIL

1125

Great Eastern Shipping Co.Ltd

GESHIPPING

1350

Glaxosmithkline Pharma Ltd

GLAXO

300

Grasim Industries Ltd

GRASIM

352

Gujarat Ambuja Cement Ltd

GUJAMABCEM

550

HCL Technologies Ltd

HCLTECH

2600

Housing Development Finance

Corporation Ltd
HDFC Bank Ltd

HDFC

150

HDFCBANK

400

Hero Honda Motors Ltd

HEROHONDA

400

Hindalco Industries Ltd

HINDALCO

7036

Hindustan Lever Ltd

HINDLEVER

1000

Hindustan Petroleum Corporation Ltd

HINDPERTO

1300

ICICI Bank Ltd

ICICBANK

700

Industrial development bank of India Ltd

IDBI

4800

Indian Hotel Co. Ltd

INDHOTEL

7596

Indian Rayon and Industries Ltd

INDRAYON

500

Infosys Technologies Ltd

INFOSYSTECH

200

Indian Oversea Bank

IOB

5900

Indian Oil Corporation Ltd

IOC

600

ITC Ltd

ITC

2250

Jet Airways (India) Ltd

JETAIRWAYS

2400

Jindal Steel & Power Ltd

JINDALSTEL

320

Jaiprakash Hydro-Power Ltd

JPHYDRO

12500

Powergrid Corp Ltd

Powergrid

3850

Lic Housing Finance Ltd

LICHSGFIN

1700

Mahindra & Mahindra Ltd

M&M

1248

Matrix Laboratories Ltd

MATRIXLABS

1250

Managalore Refinery and Petrolchemicals

Ltd
Mahanagar Telephone Nigam Ltd

MRPL

8900

MTNL

3200

National Aluminium Co.Ltd

NATIONALUM

2300

Neyveli Lignite Corporation Ltd

NEYVELILIG

5900

Nicolas Piramal India Ltd

NICOLASPIR

950

National Thermal Power Corporation Ltd

NTPC

1625

Oil & Natural Gas Corp.Ltd

ONGC

600

Oriental Bank Of Commerce

ORIENTBANK

2500

Patni Computer Sys Ltd

PATNI

2600

Punjab National Bank

PNB

600

Ranbaxy Laboratories Ltd

RANBAXY

1600

Reliance Energy Ltd

REL

550

Reliance Capital Ltd

RELCAPITAL

552

Reliance Industries Ltd

RELIANCE

300

Steel Authority Of India

SAIL

5400

State Bank of India

SBIN

264

Shipping Corporation of India Ltd

SCI

4800

Siemens Ltd

SIEMENS

1504

Sterlite Industries (I) Ltd

STER

876

Sun Pharmaceuticals India Ltd

SUNPHARMA

225

Syndicate Bank

SYNDIBANK

3800

Tata Chemicals Ltd

TATACHEM

2700

Tata Consultancy Services Ltd

TCS

500

Tata Power Co. Ltd

TATAPOWER

400

Tata Tea Ltd

TATATEA

550

Tata Motors Ltd

TATA MOTORS

1700

Tata Steel Co.Ltd

TATA STEEL

1528

Union Bank of India

UNIONBANK

2100

Unitech Ltd

UNITECH

9000

Vijaya Bank

VIAJYABANK

6900

Voltas Ltd

VOLTAS

5400

Wipro Ltd

WIPRO

1200

Wockhardt Ltd

WOCKPHARMA

2400

REGULATORY FRAME WORK:

The trading of derivative is governed by the provision contained in the SC
( R) A, the SBI Act, the and the regulation framed there under the rules and byelaws of
stock exchanges.

Regulation for Derivative Trading:

SEBI set up a 24 member committed under Chairman of Dr.L.C.Gupta develop the
appropriate framework for derivative 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 he Suggestive bye-laws recommended by the
committee for regulation and control of trading and settlement of Derivatives contracts.
The provision in the SC ( R ) A governs the trading in the 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. 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 at start
Derivatives Trading. 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 the derivative segment. The members of the derivatives
segment need to fulfill the eligibility conditions as lay down by the L.C.Gupta
Committee.
4. The clearing and settlement of derivatives trades shall be through a SEBI
approved Clearing House complying with the eligibility conditions as lay down
By the committee have to apply to SEBI for grant of approval.

5. Derivatives broker/dealers and Clearing members are required to seek registration

from SEBI

6. The Minimum contract value shall not be less than Rs.2 Lakh Exchange should
also submit Details of the futures contract they purpose 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.

FUTURES

DEFINITION:
A Future contract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. To facilities liquidity in the futures contract, the
exchange specifies certain standard features of the contract. The standardized items on a
futures contract are:

Quantity of the underlying

Quality of the underlying

The date and the month of delivery

The units of price quotations and minimum price change

Location of settlement

Types of futures:
On the basis of the underlying asset they derive, the futures are divided into two types:

Stock futures:

The stock futures are the futures that have the underlying asset as an index. The
index futures are also cash settled. The settlement price of the index futures shall be the
closing value of the underlying index on the expiry date of the contract.

Index futures:

The futures are the futures, which have the underlying asset as an index. The index
futures are also cash settled. The settlement price of the index futures shall be the closing
value of the underlying index on the expiry date of the contract.

Parties in the Futures Contract:

There are two parties in a future contract, the Buyer and the Seller. The buyer of the
futures contract is one who is LONG on the futures contract and the seller of the futures
contract is one who is SHORT on the futures contract.
The pay off for the buyer and the seller of the futures contract are as follows.

PAYOFF FOR A BUYER OF FUTURES:

PROFIT
P

E2

E1

L
LOSS

CASE 1:
The buyer bought the future contract at (F); if the futures price goes to E1 then the buyer
gets the profit of (FP).

CASE 2:
The buyer get loss when the future price goes less than (F); if the futures price goes to E2
then the buyer gets the loss of (FL).

PAYOFF FOR A SELLER OF FUTURES:

PROFIT

E2

L
LOSS

E1

F FUTURS PRICE
E1, E2 SETTLEMENT PRICE.

CASE 1:
The Seller sold the future contract at (F); if the futures price goes to E1 then the seller
gets the profit of (FP).

CASE 2:
The Seller gets loss when the future price goes greater than (F); if the futures price goes
to E2 then the Seller gets the loss of (FL).

MARGINS:
Margins are the deposits, which reduce counter party risk, arise in a futures contract.
These margins are collected in order to eliminate the counter party risk.

There are three types of margins:

Initial Margin:
Whenever a futures contract is signed, both buyer and seller are required to post initial
margin. Both buyer and seller are required to make security deposits that are intended to
guarantee that they will infact be able to fulfill their obligation. These deposits are Initial
margin and they are often referred as performance margins. The amount of margin is
roughly 5% to 15% of total purchase price of futures contract.

Marking to Market Margin:

The process of adjusting the equity in an investors account in order to reflect the
change in the settlement price of futures contract is known as MTM Margin.

Maintenance margin:

The investor must keep the futures account equity equal to or greater than certain
percentage of the amount deposited as Initial Margin. If the equity goes less than that
percentage of Initial margin, then the investor receives a call for an additional deposit of
cash known as Maintain Margin to bring the equity up to the Initial margin.

Pricing the Futures:

The fair value of the futures contract is derived from a model known as the Cost of Carry
model. This model gives the fair value of the futures contract.

Cost of Carry Model:

t

F=S (1+r-q)
Where
F- Futures Price
S- Spot price of the Underlying
r-Cost of Financing
q- Expected Dividing Yield
T- Holding Period

Futures terminology:
Spot price:
The price at which an asset trades in the spot market

Futures price:
The price at which the futures contract trades in the futures market

Contract cycle:

The period over which a contract trades, the index futures contracts on the NSE
have One-month, two-months 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:
It is the date specified in the futures contract. This is the last day on which the contract
will be traded, at the end of which it will cease to exist.

Contract size:
The amount of the asset that as to be delivered under one contract. For instance, the
contract size on NSES futures market in 200 Niftiest.

Basis:
In the context of financial futures, basis can be 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:
The relationship between futures prices and spot prices can be summarized in terms of
what is known as the cost of carry. This measures the storage cost plus the interest that is
paid to finance the asset less the income earned on the asset.

Open Interest ;

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

OPTIONS

DEFINITION:
The option is types of contract between two persons where one
grants the other the right to buy a specific asset at a specific price with in a specified time
period. Alternatively the contract may grand other person the right to sell a specific asset
at a specific price within a specific time period. In order to have the right, the option
buyer has to pay the seller of the option premium
The asset on which option can be derived are stocks,
commodities, indexes etc. if the underlying asset is a financial asset, than the option are
financial options like stock, options, currency options, index options etc, and if the
underlying asset is the non-financial asset the option are non-financial options like
commodity options.

PROPERTIES OF OPTIONS:
Options as several unique properties that set them a part from other
securities, the following are the properties of options:
Limited Loss
High leverage potential
Limited Life

PARITES IN AN OPITON CONTRACT:

1. Buyer of the option:

The buyer of the option is one who buys paying option premium
buys the right but not the obligation to exercise is option on seller/writer.

2. Writer/Seller of the option:

The writer of a call/put options is the one who receives the options
premium and is there by obligated to sell /buy the asset if the buyer exercise the option on
him.

TYPES OF OPTIONS:
The options are classified into various types on the basis of various variables. The
following are various types of options:

1. On the basis of the underlying asset:

On the basis of the underlying asset the options are divided into two types:

INDEX OPITONS:
The index options have the underlying asset as the index.

STOCK OPTIONS:
A stock option gives the buyer of the options the right to buy/sell stock at a
specified price. Stock options are options on the individual stocks, there are currently
more than 50 stocks are trading this segment.

2. On the basis of the market movement:

On the basis of the market movement the option are divided into two types.
They are:

CALL OPTION:

A call option is bought buy an investor when he seems that the stock
price moves upwards. A call option gives the holder of the options the right but not the
obligations to buy asset by a certain date for a certain price.

PUT OPTION:
A put option is bought by investors when he seems that the stock

price moves downwards. A put option gives the holder of the options right but not the
obligation to sell an asset by a certain date for a certain price.

3. On the basis of exercise of options:

On the basis of the exercising of the option are divided into two types.

AMERICAN OPITON:
American options are options that can be exercise at any time up to the
expiration date, most exchange trade options are American.

EUROPEAN OPTION:

European options are options that can be exercised only on the expiration date
itself. European options are easier to analysis then American options.

Pay-off profile for buyer of a call option:

The pay-off of a buyer options depends on the spot price of the underlying asset. The
following graph shows the pay-off of buyer of a call option:
PROFIT

R
ITM

E2
S

ATM

OTM

E1

P
LOSS

- Strike price

OTM

- Out of The Money

SP

- Premium/Loss

ATM

- At The Money

E1

- Spot price 1

ITM

- In The Money

E2

- Spot price 2

SR

- profit at spot price E1

CASE 1: ( Spot Price > Strike Price)

As the spot price (E1) of the underlying asset is more than strike price (S). The buyer
gets the Profit of (SR), if price increase more than E1 than profit also increase more than
SR.
CASE 2: ( Spot Price < Strike Price)
As the spot price (E2) of the underlying asset is less than strike price (s). The buyer gets
loss of (SP), if price goes down less than E2 than also his loss is limited to his premium
(SP).

Pay-off profile for seller of a call option:

The pay-off of seller of the call option depends on the spot price of the underlying asset.
The following graph shows the pay-off of seller of a call option:
PROFIT

E1

ATM

ITM

E2

S
OTM

LOSS

- Strike price

ITM

- In The Money

SP

- Premium/Loss

ATM

- At The Money

E1

- Spot price 1

OTM

E2

- Spot price 2

- Out of The Money

SR

- profit at spot price E1

CASE 1: ( Spot Price < Strike Price)

As the spot price (E1) of the underlying asset is less than strike price (S). The seller
gets the Profit of (SP), if price decreases less than E1 than also profit of the seller does
not exceed (SP).
CASE 2: ( Spot Price > Strike Price)
As the spot price (E2) of the underlying asset is more than strike price (S). The seller gets
loss of (SR), if price goes down less than E2 than the loss of the seller also increases
more than (SR).

Pay-off profile for buyer of a put option:

The pay-off of buyer of the option depends on the spot price of the underlying asset. The
following graph shows the pay off of the buyer of a call option:

- Strike price

ITM

- In The Money

SP

- Premium/Loss

OTM

- Out of The Money

E1

- Spot price 1

ATM

- At The Money

E2

- Spot price 2

SR

- profit at spot price E1

S

CASE 1: ( Spot Price < Strike Price)

As the spot price (E1) of the underlying asset is less than strike price (S). The buyer
gets the Profit of (SR), if price decreases less than E1 than the profit also increases more
than (SR).
P

CASE 2: ( Spot Price > Strike Price)

As the spot price (E2) of the underlying asset is more than strike price (S), the buyer gets
PROFIT
loss of (SP), if price goes more than E2 than the loss of the buyer is limited to his
premium (SP).

Pay-off profile for seller of a put option:

LOSS

The pay-off of seller of the option depends on the spot price of the underlying asset. The
following graph shows the pay-off of the seller of a put option:

ITM

PROFIT

E2
ITM

LOSS

- Strike price

ITM

- In The Money

SP

- Premium/Loss

ATM

- At The Money

E1

- Spot price 1

OTM

E2

- Spot price 2

AT
M

OTM

E1

- Out of The Money

CASE 1: ( Spot Price < Strike Price)

As the spot price (E1) of the underlying asset is less than strike price (S). The seller
gets the Loss of (SR), if price decreases less than E1 than the loss also increases more
than (SR).

CASE 2: ( Spot Price > Strike Price)

As the spot price (E2) of the underlying asset is more than strike price (S), the seller
gets profit of (SP), if price goes more than E2 than the profit of the seller is limited to his
premium (SP).

Factors affecting the prices of an option:

The following are the various factors that affect the price of an option. They are:

Stock price:
The pay-off from a call options is the amount which the stock price exceed the strike
price. Call options therefore become more valuable stock price increases and vice versa.
The pay-off from put option is the amount; by which the strike price exceeds the stock
price. Put options therefore become more valuable as the stock price increase and vice
versa .

Strike price:
In the case of a call, as the strike price increases, the stock has to make a larger upwards
move for the option to go in the money. Therefore, for a call, as the strike increase, option
become less valuable and as strike price decrease, option becomes more valuable.

Time to expiration:
Both put and call American option become more valuable as time to expiration increases.

Volatility:
The volatility of a stock price is a measure of uncertain about futures stock price
movements. As volatility increases, the chance that the stock will do very well or very
poor increase. The value of both calls and puts therefore increase as volatility increase.

Risk free interest rate:

The option prices decline as the risk free rate increase where as the price of calls always
increases the risk free interest rate increases.

Dividends:
Dividends have the effect of reducing the stock price on the ex-dividend date. This has
negative effect on the value of call option and a positive effect on the value of put
options.

PRICING OPTIONS:
The Black Scholes Formulas for the prices of European Calls and puts on an nondividend paying stock are:

CALL OPITONS:
-rt
C= SN (D1)-Xe N(D2)

PUT OPITONS:
-rt
P = Xe N (-D2)-SN(-D2)

Where
C VALUE OF CALL OPTION
S SPOT PRICE OF STOCK
X- STRIKE PRICE
r - ANNUAL RISK FREE RETURN
t - CONTRACT CYCLE
sd STANDARD DEVIATION
2
ln(S/X)+(r+ v /2)t
d1 = -----------------------sd t
d2 = d1 -sd t

Options Terminology:
Strike Price:
The price specified in the options contract is known as a strike price or exercise
price.

Option Premium:
Options premium is the price paid by the options buyer to the option seller.

Expiration Date:
The date specified in the option contract is known as the expiration date.

In-The-Money Options:
An in the money option is an option that would lead to a positive cash inflow to the
holder if it is exercised immediately.

At-The-Money Options:
An in the money option is an option that would lead to zero cash flow if it is exercised
immediately.

Out-Of-The-Money Option:
An out of the money option is an option that would lead to a negative cash flow if it is
exercised immediately.

Intrinsic Value of an Option:

The intrinsic value of an option is ITM, if option is ITM. If the option is OTM, its
intrinsic value is ZERO.

Time Value of an Option:

The time value of an option is the difference between its premium and its intrinsic value.

ANALYSIS

ANALYSI
S:
The objective of this to analysis is to evaluate the profit/loss position of option holder and
option writer. This analysis is based on the sample data, taken ICICI BANK ltd scrip.
This analysis considered June first week contract of ICICI. The lot size of ICICI is 700.
The time period in which this analysis is done from 02/03/2009 TO 07/04/09

Price of ICICI in the Cash Market:

DATE
30-Jun-15
29-Jun-15
26-Jun-15
25-Jun-15
24-Jun-15
23-Jun-15
22-Jun-15
19-Jun-15
18-Jun-15
17-Jun-15
16-Jun-15
15-Jun-15
12-Jun-15
11-Jun-15
10-Jun-15
09-Jun-15
08-Jun-15
05-Jun-15
04-Jun-15
03-Jun-15
02-Jun-15
01-Jun-15

MARKET PRICE
308
311.2
311.7
314.8
317.75
313.5
315.05
304.55
303.35
301.35
302.05
299.2
295.95
288.5
292.5
287.1
283.15
284.1
290.1
295.75
304.5
316.45

MARKET PRICE Rs.

330
320
310
300
290
280
270
260

42184 42180 42178 42174 42172 42170 42166 42164 42160 42158 42156
42185 42181 42179 42177 42173 42171 42167 42165 42163 42159 42157
MARKET PRICE Rs.

The closing price of ICICI at the end of contract period is 360.20 and 385.20 is
considered as settlement price.
The following table explains the amount of transaction between option holder and option
writer.

The first column explains the trading date.

The second column explains the market price in cash segment on that date.

The call column explains the call/put options which are considered. Every call/put
as three sub columns.

The first column consists of the premium value per share of the contract, second
column consist of volume of the contract, and the third column consist of total
premium value paid by the buyer.

CALL PRICES:

DATE

MARKET
PRICE

02-MAR-09
03-MAR-09
04-MAR-09
05-MAR-09
06-MAR-09
09-MAR-09
11-MAR-09
12-MAR-09
13-MAR-09
16-MAR-09
17-MAR-09
18-MAR-09
19-MAR-09
20-MAR-09
23-MAR-09
24-MAR-09
25-MAR-09
26-MAR-09
30-MAR-09
31-MAR-09
01-APR-09
02-APR-09
06-APR-09
08-APR-09

340.50
328.10
324.75
304.20
296.40
284.30
269.60
262.95
284.25
308.70
324.15
338.10
322.90
346.65
355.10
365.75
374.20
385.20
374.20
365.70
337.95
332.60
349.45
360.20

TOTAL

CA-340
PREMIU
M

VOLUME
(000)

TOTAL
VALUE
(000)

25
15.3
12
5
3
2
1.5
1
3
4.1
8.3
12.1
7.2
15
6.1
4
3
2.1
6
9
15
17
12
8.5

155.3
165.2
171.6
184.3
167.1
152.1
171.2
210.5
169.1
155
145
158.2
162.1
125.1
110.2
95.5
120
117.1
135.8
125.2
146
158
132
163

3882.5
2527.56
2059.2
921.5
501.3
304.2
256.8
210.5
507.3
635.5
1203.5
1914.22
1167.12
1876.5
672.22
382
360
245.91
814.8
1126.8
2190
2686
1584
1385.5

3594.6

29414.93

CA-320

CA-360

PREMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

PREMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

10
15
12
8
6
5
3
2
4
8
10
3
10
3
2
1
0
0
0
1
8
9
6
4

120.2
125.1
135.2
140
151.2
125.4
181.2
187.2
175.2
164.1
120.8
110.1
145.2
85.1
65.2
55
35
48
59.4
35.1
85.1
110
95.6
66.9

1202
1876.5
1622.4
1120
907.2
627
543.6
374.4
700.8
1312.8
1208
330.3
1452
255.3
130.4
55
0
0
0
35.1
680.8
990
573.6
267.6

10
7
6
4
3.50
3.15
2.10
1.50
2.80
5
6.5
7.10
5
8
10
8
4
1
10
13
12
9
8
15

130
145.2
164.2
185.1
187.5
191.6
210.5
195.6
175.2
154
135
147
165.3
174
130
137
165
225.1
185
125
130
149
159
164

1300
1016.4
985.2
740.4
656.25
603.54
442.05
293.4
490.56
770
877.5
1043.7
826.5
1392
1300
1096
660
225.1
1850
1625
1560
1341
1272
2460

TOTAL

2621.3

16264.8

3929.3

24826.6

DAT
E
02-MAR-09
03-MAR-09
04-MAR-09
05-MAR-09
06-MAR-09
09-MAR-09
11-MAR-09
12-MAR-09
13-MAR-09
16-MAR-09
17-MAR-09
18-MAR-09
19-MAR-09
20-MAR-09
23-MAR-09
24-MAR-09
25-MAR-09
26-MAR-09
30-MAR-09
31-MAR-09
01-APR-09
02-APR-09
06-APR-09
08-APR-09

TOTAL

MARKE
T
PRICE
340.50
328.10
324.75
304.20
296.40
284.30
269.60
262.95
284.25
308.70
324.15
338.10
322.90
346.65
355.10
365.75
374.20
385.20
374.20
365.70
337.95
332.60
349.45
360.20

CA-380
PREMIU
M

VOLUME
(000)

TOTAL
VALUE
(000)

5.6
4.2
3.4
2.8
2
1.5
1
1
1.2
2.3
4.5
5.6
3.5
6
7.5
9
10
8
15
10
5
4
5.6
9

120.3
128.6
145.2
156.1
175.8
195.3
225
285
215.6
196.1
185.2
196.5
235.1
175.9
154.8
186.2
162.4
120.8
85.2
65.2
120
148.5
160.4
175.4

673.68
540.12
493.68
437.08
351.6
292.95
225
285
258.72
451.03
833.4
1100.4
822.85
1055.4
1161
1675.8
1624
966.4
1278
652
600
594
898.24
1578.6

4014.6

18848.95

CA-400

CA-420

PREMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

PREMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

2
1
0
0
0
0
0
0
0
0
0
0
0
2
3
4
3
0
6
5
2
1.2
3.5
5

120
153.6
0
0
0
0
0
0
0
0
0
0
0
115.4
120.6
118.6
140.5
0
135
95
162
178
146
172

240
153.6
0
0
0
0
0
0
0
0
0
0
0
230.8
361.8
474.4
421.5
0
810
475
324
213.6
511
860

1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1.5
2.5
1.8
1.1
0
0
0
0

120.5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
125
110.1
135.6
146.5
142.8
0
0
0
0

120.5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
125
165.15
339
263.7
157.08
0
0
0
0

TOTAL

1656.7

5075.7

780.5

1170.43

PUTPRICES:

DAT
E

02-MAR-09
03-MAR-09
04-MAR-09
05-MAR-09
06-MAR-09
09-MAR-09
11-MAR-09
12-MAR-09
13-MAR-09
16-MAR-09
17-MAR-09
18-MAR-09
19-MAR-09
20-MAR-09
23-MAR-09
24-MAR-09
25-MAR-09
26-MAR-09
30-MAR-09
31-MAR-09
01-APR-09
02-APR-09
06-APR-09
08-APR-09
TOTAL

MARKE
T
PRICE
340.50
328.10
324.75
304.20
296.40
284.30
269.60
262.95
284.85
308.70
324.15
338.10
322.90
346.65
355.10
365.75
374.20
385.20
374.20
365.70
337.95
332.60
349.45
360.20

PA-360
REMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

5
2
1
0
0
0
0
0
0
0
1
2
1.5
5.2
10
8
3
5
7
12
5
4
6
15

124.3
149.5
168.5
0
0
0
0
0
0
0
185
142.1
156.2
125.9
95.6
115.6
128.9
146.2
164.5
85.4
65.4
96.8
134.7
48.6

621.5
299
168.5
0
0
0
0
0
0
0
185
284.2
234.3
654.68
956
924.8
386.7
731
1151.5
1024.8
327
387.2
808.2
729

2133.2

197748

PA-340

PA-380

PREMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

18
12
10
6
4
2.1
0
0
1
2.5
4.3
10
7.9
10
8
4
2.5
0
4
5.8
12
10
11
5

120.3
132.5
138.6
146.8
85.7
67.5
0
0
15.3
68.4
137.6
98.4
168.4
121
68.4
48.6
38.2
0
49.2
69.4
162.4
168.6
136.1
68.7

2165.4
1590
1386
880.8
342.8
141.75
0
0
15.3
171
591.68
984
1330.36
1210
547.2
194.4
95.5
0
196.8
402.52
1948.8
1686
1497.1
343.5

TOTAL

2110.1

17720.91

DATE

02-MAR-09
03-MAR-09
04-MAR-09

PREMIUM

VOLUME
(000)

TOTA
L
VALUE
(000)

2
0
0
0
0
0
0
0
0
0
0
6.1
0
4.3
4
8.3
9
8
10
8
3
2.1
3
6

32
0
0
0
0
0
0
0
0
0
0
20.4
0
39.5
48.6
120.4
136.5
186.4
68.4
56.9
28.2
25.4
38.4
75.6

64
0
0
0
0
0
0
0
0
0
0
124.44
0
169.85
194.4
999.32
1228.5
1491.2
684
455.2
84.6
53.34
115.2
453.6

876.7

6117.65

PA-400

MARKET
PRICE

340.50
328.10
324.75

PREMIUM

VOLUME
(000)

TOTAL
VALUE
(000)

0
0
0

0
0
0

0
0
0

05-MAR-09
06-MAR-09
09-MAR-09
11-MAR-09
12-MAR-09
13-MAR-09
16-MAR-09
17-MAR-09
18-MAR-09
19-MAR-09
20-MAR-09
23-MAR-09
24-MAR-09
25-MAR-09
26-MAR-09
30-MAR-09
31-MAR-09
01-APR-09
02-APR-09
06-APR-09
08-APR-09
TOTAL

304.20
296.40
284.30
269.60
262.95
284.85
308.70
324.15
338.10
322.90
346.65
355.10
365.75
374.20
385.20
374.20
365.70
337.95
332.60
349.45
360.20

0
0
0
0
0
0
0
0
0
0
1
2.5
3.8
4.2
3
5
3.8
0
0
1.1
2.6

0
0
0
0
0
0
0
0
0
0
120
128.5
121.3
112.8
135.8
95.6
38.4
0
0
28
32.6

0
0
0
0
0
0
0
0
0
0
120
321.25
460.94
473.76
407.4
478
145.92
0
0
30.8
84.76

813

2522.83

PA-420

PA-440

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1.8
1.5
0
0
0
0
0

VOLUME
(000)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
67.2
38.2
0
0
0
0
0

TOTAL
VALUE
(000)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
120.96
57.3
0
0
0
0
0

TOTAL

95.5

178.26

PREMIUM

PREMIUM
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

VOLUME
(000)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

TOTAL
VALUE
(000)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

NET PAY OFF FOR CALL OPITON HOLDERS AND

WRITERS:
MARKE
T
PRICE

CALL
S

VOULM
E
(000)

PREMIU
M
(000)

PROFIT
TO
HOLDE
R
(000)

NET
PROFIT
TO
HOLDE
R
(000)

NET
PROFIT
TO
WRITE
R
(000)

360.20
360.20
360.20
360.20
360.20
360.20

320
340
360
380
400
420

2621.3
3594.6
3929.3
4014.6
1656.7
780.5

16264.8
29414.93
24826.6
18848.95
5075.7
1170.43

89111.46
43195.99
785.86
0
0
0

89111.46 -89111.46
43195.99 -43195.99
785.86 24040.74
-18848.95 18848.95
-5075.7
5075.7
-1170.43
1170.43

OBSERVATIONS AND FINDINGS:

Six call options are considered with six different strike prices.

The current market price on the expiry date is 360.20 and this is considered as
final settlement price.

The premium paid by the options holders whose strike price is far and greater than
the current price have paid high amounts of premium than those who are near to
the current market price.

The call options holders whose strike price less than the current market price are
said to be In-The-Money. The calls with strike price 320,340,360 are said to be InThe-Money, since, if they exercise they will get profits.

The call options holders whose strike price is less than the current market price
are said to be Out-Of-The-Money. The call with strike price of 380,400,420 are
said to be Out-Of-The-Money, since, if they exercise, they will get losses.

FINDINGS:
The premium of the options with strike price of 360 and 380 is high since most of the
period of the contract the cash market moving around 380 mark.

FINDINGS:
1. The contracts with strike price 380,400,420 get no profit since there strike price is
more than the settlement price.
2. The contract with strike price 320,340,360 gets the profit.

NET PAY OFF OF PUT OPTION HOLDERS AND

WRITERS:
MARKE
T
PRICE

360.20
360.20
360.20
360.20
360.20
360.20

PUT
S

340
360
380
400
420
440

VOULME PREMIU
(000)
M
(000)

2110.1
2133.2
876.7
813
95.5
0

PROFIT
TO
HOLDER
(000)

17720.91
197748
6117.65
2522.83
178.26
0

0
0
11241.01
29834.57
5532.64
0

NET
NET
PROFIT PROFIT
TO
TO
HOLDER WRITER
(000)
(000)
-17720.91
-197748
11241.01
29834.57
5532.64
0

17720.91
197748
-11241.01
-29834.57
-5532.64
0

OBSERVATIONS AND FINDINGS:

Six put options are considered with six different strike prices.

The current market price on the expiry date is Rs.360.20 and this is considered as
final settlement price.

The premium paid by the options holders whose strike price is far and greater than
the current market price have paid high amounts of premium than those who are
near to the current market price.

The put options holders whose strike price is more than the current market price
are said to be In-The-Money. The puts with strike price 380,400,420,440 are said
to be In-The-Money, since, if they exercise they will get profits.

The put options holders whose strike price is less than the current market price are
said to be Out-Of-The-Money. The put with strike price 340,360 are said to be
Out-Of-The-Money, since, if they exercise, they will get losses.

FINDINGS:

The premium of the option with strike price 360 is higher when compared to other
strike prices. This is because of the movement of the cash market price of the ICICI
between 320 and 380.

FINDINGS:

The put option holders whose strike price is more than the settlement price are InThe-Money

The put option whose strike price is less than the settlement price are Out-Of-TheMoney

DATA OF ICICI FUTURES OF THE MAY MONTH:

DATE

FUTURE CLOSING
PRICE (Rs.)

CASH CLOSING
PRICE (Rs.)

30-Jun-15
29-Jun-15
26-Jun-15
25-Jun-15
24-Jun-15
23-Jun-15
22-Jun-15
19-Jun-15
18-Jun-15
17-Jun-15
16-Jun-15
15-Jun-15
12-Jun-15
11-Jun-15
10-Jun-15
09-Jun-15
08-Jun-15
05-Jun-15
04-Jun-15
03-Jun-15
02-Jun-15
01-Jun-15

311.35
314.4
314.55
318.95
320.7
316.95
318.75
308.6
307.05
305.15
306
302.1
300.5
293.85
297.95
290.6
288.05
289.85
296.65
297.9
305.8
317.5

308
311.2
311.7
314.8
317.75
313.5
315.05
304.55
303.35
301.35
302.05
299.2
295.95
288.5
292.5
287.1
283.15
284.1
290.1
295.75
304.5
316.45

Chart Title
330
320
310
300
290
280
270
260

42184 42180 42178 42174 42172 42170 42166 42164 42160 42158 42156
42185 42181 42179 42177 42173 42171 42167 42165 42163 42159 42157
FUTURE CLOSING PRCE Rs.

CASH CLOSING PRICE Rs

OBSERVATIONS AND FINDINGS:

The cash market price of the ICICI is moving below the futures price.

If the buy price of the futures is less than the settlement price, then the buyer of the
futures gets loss.

If the selling price of the futures is less than settlement price, then the seller incur
profit.

SUMMARY

SUMMARY
Derivative market is an innovation to cash market. Approximately its daily turnover
reaches to the equal stage of cash market. The average daily turnover of the NSE
derivative segment is
Presently the available scrips in futures and options segment
In cash market the profit/loss of the investor depends on the market price of the
underlying asset. The investors may incur huge profits or he may incur huge losses.
But it derivatives segment the investor enjoys huge profits with limited downside.
In cash market the investor as to pay the total money, but in derivatives the investor
has to pay premium or margins, which are some percentage of total money.
Derivatives are mostly used for hedging purpose.
In the derivatives segment the profit/loss of the option holder/option writer is purely
depended on the fluctuations of the underlying asset

CONCLUSIONS

CONCLUSIONS;
In bullish market the call options writer incurs more losses so the investor is suggested
to go for a call option to hold, where as the put options holder suffers in bullish
market, so he is suggested to write a put option.
In bearish market the call options holder will incur more losses so the investor is
suggested to go for a call options to write, where as the put options writer will get
more losses, so he is suggested to hold a put options.
In the above analysis the market price of ICICI Bank LTD is having low volatility, so
the call options writers enjoy more profit to holders.

RECOMMENDATI
ONS

RECOMMENDATIONS

The derivative market is newly started in India and it is not known by every
investor, so SEBI has to take steps to create awareness among the investors about
the derivative segment.

In order to increase the derivative market in India, SEBI should revise some of
their regulations like contract size, participation of FII in the derivative market.

Contract size should be minimized because small investor cannot afford this much
of huge premiums

SEBI has to take further steps in the risk management mechanism.

SEBI has to take measures to use effectively the derivatives segment as a tool of
hedging.

BIBLOGRA
PHY

BIBLIOGRPAHY

BOOKS
FINANCIAL MANAGEMENT

- PRASANNA CHANDRA

DERIVATIVES CORE MODULE - NCFM MATERIAL

SECURITY ANALYSIS OF PORTFOLIO MANAGEMENT
-AVADHANI

WEBSITES
www.derivativesindia.com
www.indiainfoline.com
www.nseindia.com
www.bseindia.com
www.hseindia.org
www.5paisa.com