A Derivative is a financial instrument whose value depends on other, morebasic, underlying variables.

The variables underlying could be prices of tradedsecurities and stock, prices of gold or copper.D e r i v a t i v e s h a v e b e c o m e i n c r e a s i n g l y i m p o r t a n t i n t h e field of finance,Options and Futures are traded actively on m a n y e x c h a n g e s , F o r w a r d contracts, Swap and different types of options are regularly traded outsideexchanges by financial intuitions, banks and their corporate clients in whatare termed as over-the-counter markets in other words, there is no singlemarket place or organized exchanges.

There are various derivative products traded. They are; Forwards Futures Options Swaps

Forward Contract is a transaction in which the buyer and the seller agree upon a delivery of a specific quality and quantity of asset usually a commodity at a specified future date. The price may be agreed on in advance or in future. Future contract is a firm contractual agreement between a buyer and seller for a specified as on a fixed date in future. The contract price will vary according to the market place but it is fixed when the trade is made. The contract also hasa standard specification so both parties know exactly what is being done. Options contract confers the right but not the obligation to buy (call option)or sell (put option) a specified underlying instrument or asset at a specified price the Strike or Exercised price up until or an specified future date the Expiry date. The Price is called Premium and is paid by buyer of the option to the seller or writer of the option. call option gives the holder the right to buy an underlying asset by a certain date for a certain price. The seller is under an obligation to fulfill the contract andi s p a i d a p r i c e o f t h i s , w h i c h i s c a l l e d " t h e c a l l o p t i o n p r e m i u m o r c a l l o p t i o n price".A put option on the other hand gives the holder the right to sell an underlyingasset by a certain date for a certain price. The buyer is under an obligation to f u l f i l l t h e

contract and is paid a price for this, which is called "the put o p t i o n premium or put option price".

How to decide lot size? The Securities and Exchange Board of India (Sebi) in consultation with the stock exchanges has decided to standardise the Lot Size for derivative contracts on individual securities. According to a Sebi circular, the new Lot Size will be as follows: any stock future with an underlying price of equal to or over Rs 1,601 will have a lot Size of 125 units. Stock price between Rs 801-1,600, the Lot Size will be 250 units, and for price band of Rs 401-800, it will be 500 units. Similarly, for price band of Rs 201-400, Rs 101-200, Rs 51-100 and Rs 25-50 will have Lot Sizes of 1,000, 2,000, 4,000 and 8,000 units, respectively. Any stock below Rs 25, will have Lot Size in multiple of 1,000 units. For e.g. The lot size for an underlying with a price of Rs 250, i.e., in the price band of Rs 201-400, shall be 1000 units. The stock exchanges shall review the Lot Size once in every six months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the Lot Size by giving an advance notice of atleast two weeks to the market. If the revised Lot Size is higher than the existing one, it will be effective for only new contracts. In case of corporate action, the revision in Lot Size of existing contracts shall be carried out as per Sebi circular. The circular states that the above changes shall come into effect from March 31, 2010.
Band (Rs.) >1600 801 - 1600 401 - 800 201 - 400 101 - 200 51 - 100 25 - 50 < 25 Lot Size 125 250 500 1000 2000 4000 8000 A multiple of 1000

Name

Market Lot

Lot Size in Rs.

ZEE ENTERTAIN(1) YES BANK LTD WIPRO LTD(2) WELSPUN CORP(5) VOLTAS LTD(1) VIP INDUS.(2) VIJAYA BANK VIDEOCON IND UNITED SPIRITS UNITED PHOSP(2) UNITECH LTD(2) UNION BANK L ULTRATECH CM UCO BANK TVS MOTOR(1) TULIP TELECOM LTD(2) TTK PRESTIGE TRIVENI ENGIN(1) TITAN IND.(1) TECH MAHINDRA TCS LTD.(1) TATA TELESER TATA STEEL TATA POWER(1) TATA MOTORS(2) TATA MOTOR DVR-A(2) TATA GLOBAL 1/TATA COMMUNICATION TATA CHEM SYNDICATE BN SUZLON ENERGY(2) SUN TV NETWORK(5) SUN PHARMA.(1) STERLITE TECHNO LTD 2/STERLITE IND(1) STEEL AUTHOR STATE BANK SREI INT.FIN SOUTH IND.BK(1) SOBHA DEV SINTEX IND(1) SIEMENS(2) SHRIRAM TRANSPORT FI SHIPP.CORPN. SESA GOA(1) S.KUMARS NATION S&P500 INDEX RURAL ELECTRIFI RUCHI SOYA(2)

2000 1000 500 2000 2000 250 4000 2000 250 2000 8000 1000 250 2000 4000 2000 125 2000 2500 500 250 14000 500 2500 1250 2500 4000 1000 1000 2000 8000 500 500 8000 2000 2000 125 8000 9000 1000 2000 250 500 2000 1000 4000 250 1000 2000

256,000.00 291,100.00 196,975.00 141,700.00 184,200.00 29,487.50 219,600.00 347,600.00 181,962.50 265,300.00 196,000.00 227,300.00 298,937.50 130,100.00 236,000.00 263,600.00 347,025.00 31,500.00 470,250.00 299,300.00 295,525.00 206,500.00 205,550.00 244,625.00 238,875.00 252,500.00 364,200.00 200,200.00 353,650.00 206,500.00 190,400.00 146,575.00 264,550.00 292,800.00 217,600.00 171,900.00 237,568.75 208,800.00 202,950.00 237,550.00 187,400.00 180,937.50 286,075.00 123,800.00 192,650.00 123,400.00 313,687.50 202,200.00 204,900.00

ROLTA (I) RIL COM VEN(5) RENUKA SUGAR(1 RELIANCE POWER LTD RELIANCE IND. REL.INFRASTRU REL.CAPITAL RAYMOND LTD. RANBAXY LAB(5) PUNJ.NAT.BANK PUNJ LLOYD(2) PTC INDIA PRAJ IND.(2) POWER GRID CORP. POWER FINAN POLARIS SOFT(5) PIRAMAL HEALTH(2) PETRONET LNG PATNI COMPUTER(2) PATEL ENGG.(1) PANTALOON RETAIL(2) ORIENTAL BANK ORCHID CHEM ORACLE FINANC(5) OPTO CIRCUIT ONGC CORP.(5) ON MOBILE GLOBAL LTD OIL INDIA LTD NTPC LTD NSE-PSE NSE-MIDNEW NSE-INFRA NSE-CNX-IT NSE-BANK NSE- 50 NHPC LIMITED NEYVELI LIGN NCC LTD(2) NATIONAL ALU(5) NAT.MINERAL(1) MUNDRA PORT & SPEC(2) MRPL MRF LTD. MPHASIS BFL MINI NIFTY MERCATOR LINES(1) MCLEOD RUSSEL(5) MAX INDIA(2) MARUTI SUZUKI (I)(5) MAHINDRA & MAHINDRA(5) MAHANGR TELE

2000 2000 4000 2000 250 500 500 1000 500 250 4000 4000 4000 4000 1000 2000 500 2000 500 2000 1000 1000 1000 125 1000 1000 2000 250 2000 75 150 100 50 25 50 9000 2000 4000 2000 1000 2000 4000 125 500 20 8000 1000 1000 250 500 8000

127,000.00 156,000.00 128,400.00 176,800.00 203,237.50 206,575.00 154,575.00 388,650.00 219,975.00 230,837.50 202,400.00 202,800.00 317,400.00 412,800.00 178,500.00 257,800.00 185,050.00 335,100.00 225,425.00 184,600.00 187,050.00 277,750.00 167,850.00 253,606.25 205,300.00 269,900.00 141,600.00 290,162.50 353,000.00 216,000.00 305,700.00 250,200.00 307,930.00 230,186.25 253,280.00 206,100.00 154,200.00 160,800.00 108,900.00 189,600.00 255,000.00 250,800.00 959,150.00 163,225.00 101,311.00 177,600.00 229,550.00 171,250.00 250,000.00 376,750.00 221,600.00

LUPIN LTD.(2) LIC HOUS.FIN<2) LARSEN TUBRO(2) LANCO INFRA(1) KS OILS LTD(1) KOTAK BANK(5) KINGFISHER AIRLINE KARNATKA BANK JUBILANT FOODWORKS LTD JSW STEEL JSW ISPAT STEEL JSW ENERGY LTD JP POWER VENT. JINDAL SOUTH JIND.STEEL POW(1) JIND.SAW(2) JET AIRWAYS JAIPRA.ASSOCITES(2) JAIN IRRIG(2) IVRCL LTD(2) ITC LTD(1) IRB INFRASTRUCTURE INFOSYS LTD(5) INDUSIND BNK INDRA GAS INDIAN OVER. INDIAN OIL CORP INDIAN HOTEL(1) INDIAN BANK INDIABUL REAL(2) INDIA INFOLINE(2) INDIA CEMENT IFCI LTD. IDFC IDEA CELLULAR IDBI LTD. ICICI BANKIN HOUSING DEVELOP INFRA HOTEL LEELA(2) HINDALCO(1) HIND.ZINC(2) HIND.UNILEVER(1) HIND.PETROL HIND.OIL EXP HIND.CONST(1) HEXAWARE TEC(2) HERO MOTOCORP(2) HDFC(2) HDFC BANK(2) HCL TECHNO(2) HAVELLS IND(5)

500 1000 250 8000 8000 500 8000 2000 250 250 9000 4000 8000 250 500 2000 500 4000 2000 4000 2000 2000 125 1000 500 2000 1000 4000 1000 2000 4000 4000 4000 2000 4000 2000 250 2000 8000 1000 2000 1000 1000 2000 8000 4000 125 500 625 500 1000

234,925.00 231,550.00 330,850.00 102,400.00 55,600.00 246,925.00 203,200.00 161,300.00 213,575.00 153,687.50 97,650.00 184,800.00 299,600.00 110,150.00 265,825.00 259,900.00 131,500.00 277,800.00 242,500.00 151,000.00 411,800.00 313,700.00 339,875.00 276,250.00 202,850.00 186,100.00 269,850.00 242,800.00 199,350.00 125,600.00 240,600.00 301,800.00 101,600.00 233,600.00 388,400.00 196,300.00 196,325.00 132,000.00 266,400.00 136,850.00 251,000.00 397,150.00 289,250.00 264,300.00 183,200.00 338,400.00 259,431.25 333,150.00 290,375.00 205,075.00 425,100.00

GVK POWERINF(1) GUJ.PETRONET GUJ.MINERAL(2) GUJ.FLOURO(1) GREAT OFFSHORE GRASIM IND. GODREJ INDUS(1) GMR INFRASTR(1) GLAXO LTD. GITANJALI GE GAIL (I) LTD G.E.SHIPING FORTIS HEATHCA(I) FIRSTSOURCE SOLUTION FINANCIAL TECH(2) FEDERAL BANK EXIDE IND(1) EVEREST KANT(2) ESSAR OIL ESCORTS LTD EDUCOMP SOLN 2/DR.REDDYS LAB(5) DOW JONES IND AVG INDEX DLF LTD(2) DIVI'S LAB.(2) DISH TV(1) DHANALAK.BNK DEV CRED BANK DENA BANK DELTA CORP LTD(1 DECCAN CHRONIC(2) DABUR INDIA(1) CUMMINS IND(2) CROMPT.GREVES(2) CORE EDUCATION(2) COLGATE PALM(1) COAL INDIA LTD CIPLA LTD(2) CHAMBAL FERT CESC LTD. CENTURY CENTRAL BANK OF I CANARA BANK CAIRN IND BOSCH LTD BOMBAY RAYON BOM DYEING BIOCON LTD(5) BHUSHAN STEEL 2/BHARTI ARTL(5 BHARAT PETRO

8000 2000 2000 500 1000 125 1000 8000 125 1000 500 1000 2000 12000 250 1000 2000 4000 2000 2000 500 250 25 1000 500 4000 2000 8000 4000 2000 4000 2000 700 1000 1000 250 1000 1000 2000 1000 1000 2000 500 1000 125 1000 1000 1000 500 1000 500

91,600.00 180,300.00 359,000.00 216,975.00 100,450.00 307,625.00 197,950.00 170,400.00 241,050.00 348,450.00 200,575.00 229,400.00 230,000.00 103,800.00 155,787.50 397,750.00 240,400.00 166,600.00 140,300.00 168,300.00 110,875.00 395,925.00 302,437.50 222,000.00 382,275.00 274,200.00 110,000.00 322,000.00 268,000.00 148,900.00 190,200.00 192,800.00 248,745.00 137,450.00 291,000.00 251,075.00 335,150.00 331,900.00 187,400.00 249,850.00 274,500.00 187,600.00 225,950.00 321,050.00 881,250.00 216,400.00 396,200.00 328,750.00 159,675.00 393,200.00 279,875.00

BHARAT HEAVY(2) BHARAT FORGE(2) BHARAT ELEC. BGR ENERGY SYSTEM LTD BF UTILITIES(5) BEML LTD BATA INDIA BANK OF INDIA BANK OF BARODA BALRAMPUR CHIN(1) BAJAJ HOLDING&INVEST BAJAJ HINDUSTAN(1) BAJAJ AUTO LTD AXIS BANK LTD AUROBINDO PHARM(1) ASIAN PAINT ASHOK LEYLAND(1) ARVIND LTD AREVA T&D INDIA(2) APOLLO TYRE(1) ANDHRA BANK AMBUJA CEMENT(2) ALSTOM POWER ALOK INDS. ALLAHABAD BK ADI BIRLA NUVO ADANI POWER LTD ADANI ENTER(1) ACC ABG SHIPYARD ABB LTD.(2) ABAN OFFSHOR(2) 3I INFOTECH

625 1000 125 500 500 500 500 500 250 4000 500 4736 250 250 2000 125 8000 4000 1000 4000 2000 2000 500 10000 1000 250 2000 500 250 1000 250 500 8000

180,781.25 272,500.00 190,418.75 136,575.00 193,300.00 261,350.00 319,450.00 172,500.00 185,975.00 178,800.00 359,150.00 136,160.00 427,412.50 257,637.50 194,000.00 359,325.00 212,400.00 345,200.00 208,300.00 265,600.00 202,300.00 324,800.00 197,150.00 194,000.00 164,850.00 228,500.00 154,100.00 172,900.00 303,125.00 428,000.00 159,612.50 183,700.00 164,000.00

RINL Date 10-nov-2007 10 Nov 2011

price

lot size 7150 4000

Margin:-

What is margin money? The aim of margin money is to minimize the risk of default by either counter-party. The payment of margin ensures that the risk is limited to the previous days price movement on each outstanding position. However, even this exposure is offset by the initial margin holdings. Margin money is like a security deposit or insurance against a possible Future loss of value.

To minimize credit risk to the exchange, traders must post a margin or a performance bond, typically 5%-15% of the contract's value. To minimize counterparty risk to traders, trades executed on regulated futures exchanges are guaranteed by a clearing house. The clearing house becomes the buyer to each seller, and the seller to each buyer, so that in the event of a counterparty default the clearer assumes the risk of loss. This enables traders to transact without performing due diligence on their counterparty. Margin requirements are waived or reduced in some cases for hedgers who have physical ownership of the covered commodity or spread traders who have offsetting contracts balancing the position.

Clearing margin are financial safeguards to ensure that companies or corporations perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. Customer margin Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. Futures Commission Merchants are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance bond margin.

Initial margin is the equity required to initiate a futures position. This is a type of performance bond. The maximum exposure is not limited to the amount of the initial margin, however the initial margin requirement is calculated based on the maximum estimated change in contract value within a trading day. Initial margin is set by the exchange. If a position involves an exchange-traded product, the amount or percentage of initial margin is set by the exchange concerned. In case of loss or if the value of the initial margin is being eroded, the broker will make a margin call in order to restore the amount of initial margin available. Often referred to as variation margin, margin

called for this reason is usually done on a daily basis, however, in times of high volatility a broker can make a margin call or calls intra-day. Calls for margin are usually expected to be paid and received on the same day. If not, the broker has the right to close sufficient positions to meet the amount called by way of margin. After the position is closed-out the client is liable for any resulting deficit in the clients account. Some U.S. exchanges also use the term maintenance margin, which in effect defines by how much the value of the initial margin can reduce before a margin call is made. However, most non-US brokers only use the term initial margin and variation margin. The Initial Margin requirement is established by the Futures exchange, in contrast to other securities Initial Margin (which is set by the Federal Reserve in the U.S. Markets). A futures account is marked to market daily. If the margin drops below the margin maintenance requirement established by the exchange listing the futures, a margin call will be issued to bring the account back up to the required level.

Maintenance margin A set minimum margin per outstanding futures contract that a customer must maintain in his margin account.

Margin-equity ratio is a term used by speculators, representing the amount of their trading capital that is being held as margin at any particular time. The low margin requirements of futures results in substantial leverage of the investment. However, the exchanges require a minimum amount that varies depending on the contract and the trader. The broker may set the requirement higher, but may not set it lower. A trader, of course, can set it above that, if he does not want to be subject to margin calls.

Performance bond margin The amount of money deposited by both a buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit.

Return on margin (ROM) is often used to judge performance because it represents the gain or loss compared to the exchanges perceived risk as reflected in required margin. ROM may be calculated (year/trade_duration) (realized return) / (initial margin). The Annualized ROM is equal to (ROM+1) -1. For example if a trader earns 10% on margin in two months, that would be about 77% annualized.