equities market

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A project report on EQUITIESCash & Derivatives

Executive Summary

In few years Share Market has emerged as a tool for ensuring

ones financial well being. Share Markets have not only

contributed to the India growth story but have also helped families

tap into the success of Indian Industry. As information andawareness is rising more and more people are enjoying the benefits of

investing in Share Markets. once people are aware of Share Marketinvestment opportunities, the number who decide to invest in Share

Markets increases to as many as one in every five people.

This Project gave me a great learning

experience and at the same time it gave me enough scope to implement

my analytical ability.

The first part gives an insight about Share Market and its various

aspects, the Company Profile, Objective of the study, Research

Methodology. One can have a brief knowledge about Share market and

its basics through the project.

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The second part of the Project consists of

Friday market analysis collected from past records This Project coversthe topic of FRIDAY MARKET INVESTING PLAN The datacollected has been well organized and presented. I hope the research

findings and conclusion will be of use.

CONSORTIUM SECURITIES PVT.LTD : A BRIEF

PROFILE

Consortium is one of the leading broking houses in India that

provides a wide range of services nationwide to a substantial

and diversified client base that includes retail clients, high

net worth individuals, corporates and financial institutions.

We are committed to our distinctive culture and core values,

which always place our client's interests first. Our values

emphasise integrity, transparency, commitment to

excellence and teamwork.

Over a short span of a decade, we have made tremendous

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strides that have taken us to the enviable position of one of

the leading retail broking house in the country. The company

acquired membership of National Stock Exchange equity

segment in 1996, acquired membership of National Stock

Exchange futures and options segment as a clearing and

trading member in 2000, acquired membership of Bombay

Stock Exchange (BSE) in 2000, became a depository

participant with National Securities Depository Ltd. (NSDL)

in 2001, acquired membership of two premier Commodities

Exchanges of India, namely NCDEX and MCX in 2004.

The basic strength of the company lies in technology. The

company has integrated trading screen, wherein the client

can trade on NSE, BSE and Derivatives on the single

screen. We have a large number of CTCL (computer to

computer link) installations with technology provided by

Financial Technologies and NSE IT. HCL Comnet has

connected many branches/franchisees of Consortium

through a private VSAT network (VPN), which is very

customer friendly and competitive. The company also hascommodities trading on the private VSAT network (VPN).

The spectrum of back office functions is totally automated.

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This shall ensure that the stock payout to the clients and

such other functions are carried out without manual

intervention, thus enhancing efficiency to highest levels. Our

back-office is on a highly secure oracle database.

Consortium has a very scientific risk management system in

place. The company has a separate surveillance and

monitoring department, where highly efficient and

experienced personnel are in charge of close monitoring of

terminal operations throughout the trading hours. Each and

every branch/franchisee is under continuous watch as

regards exposures, margins, timely payment of cash and

shares, turnover, mark to market profits/losses and so on.

With substantial investment in technology, and a team of

hardcore professionals, the company is confident of bringing

to the common investor the highest standards of service.

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MANAGEMENT TEAM

Our senior Management comprises a diverse talent pool that

brings together rich experience from across industry as well as

financial services.

Mr. P S Kalra - Group Chairman

Chartered Accountant

Held several Senior Management positions with one of India's

largest industrial groups

Mr. Rohit Arora Founder Director of AR Credit

Information Services, Evaluation, Monitoring andProcess Outsourcing Company.


Plus 20 years of experience in Financial Services

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Mr. P Khurana-


Plus 28 years of experience in Financial Service

Table of Contents

1. History of BSE... 14

- Vision 15

- Awards. 17

- Services... 17

2. History of NSE... 18

3. Role of SEBI 19

- Board members of SEBI

4. Introduction 20

- Listed Securities 22

- Permitted Securities 22

- Tick Size 22

- Computation of closing price of scrips in the Cash

. Segment 23

5. Compulsory Rolling Settlement (CRS) Segment 23- Trading and settlement cycle for scrips under CRS...26

6. Settlement.

- Demat pay-in. 30

- Auto delivery facility. 30

- Pay-in of securities in physical form31

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- Funds Pay-in 32

- Securities Pay-out.....32

- Funds Payout... 33

- Dematerialization of shares..33- Merits of Dematerialization.. 34

- Rematerialization. 34

7. Open interest in derivative market 35

- What is open interest. 35

- Rising market and increasing open interest...... 36

- Rising market and decreasing open interest.. 36

- falling marker and increasing open interest. . 37

- falling marker and decreasing open interest... 37

- sideways marker and increasing open interest388. The index number 38

- desirable attribute of an index..39 -

capturing behavior of portfolios ..40 -

including liquid stocks.40 -

maintaining professionally..41

impact cost.. 41

9. Futures and options.42- trading underlying versus trading single stock futures.. 43

- derivative market at nse..44

- index derivatives45

10. Future terminology..45

business growth of futures and options market

. turnover(rs. Crore)49

11. Eligibility for any stock to enter in derivative market.50

- trading mechanism..50- volumes51

- index derivatives for hedging..51

pricing futures.52

initial margin.. 53

- initial margin charged on f & o market..54

12. Convergence of futures price to spot price54

- mark to market (mtm) margin.56

open interest calculation with example...57

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13. Options..58

- option terminology..59

- strategies in futures and options..62

14. Buying a call option.63

buying a put66

- writing the call options68

- writing the buy options70

15. Firday market analysis.73

16. Conclusion.....79

17. Suggestions ..81

18. Bibliography.84

Bombay Stock Exchange Limited (the Exchange)

is the oldest stock exchange in Asia with a rich heritage. Popularly known

as "BSE", it was established as "The Native Share & Stock Brokers

Association" in 1875. It is the first stock exchange in the country to obtain

permanent recognition in 1956 from the Government of India under the

Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and

pre-eminent role in the development of the Indian capital market is widely

recognized and its index, SENSEX, is tracked worldwide.

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India's oldest and first stock exchange: Mumbai (Bombay) Stock

Exchange. Established in 1875. More than 6,000 stocks listed.

Total number of stock exchanges in India: 22

They are in: Ahmedabad, Bangalore, Calcutta, Chennai, Delhi etc.

There is also a National Stock Exchange (NSE) which is located in

Mumbai.

There is also an Over the Counter Exchange of India (OTCEI)

which allows listing of small and medium sized companies.

The regulatory agency which oversees the functioning of stock

markets is the Securities and Exchange Board of India (SEBI), which is

also located in Bombay.

Today, BSE is the world's number 1

exchange in terms of the number of listed companies and the world's

5th in transaction numbers. The market capitalization as on

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December 31, 2007 stood at USD 1.79 trillion.

SERVICES

BSE also has a wide range of services to empower investors and facilitate

smooth transactions:

Investor Services:The Department of Investor Servicesredresses grievances of investors. BSE was the firstexchange in the country to provide an amount of Rs.1million towards the investor protection fund; it is anamount higher than that of any exchange in thecountry. BSE launched a nationwide investor awareness

programme- 'Safe Investing in the Stock Market' underwhich 264 programmes were held in more than 200cities.

The BSE On-line Trading (BOLT): BSE On-line Trading

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(BOLT) facilitates on-line screen based trading insecurities. BOLT is currently operating in 25,000 TraderWorkstations located across over 359 cities in India.

BSEWEBX.com: In February 2001, BSE introduced theworld's first centralized exchange-based Internettrading system, BSEWEBX.com. This initiative enablesinvestors anywhere in the world to trade on the BSEplatform.

Surveillance:BSE's On-Line Surveillance System (BOSS)monitors on a real-time basis the price movements,volume positions and members' positions and real-timemeasurement of default risk, market reconstruction andgeneration of cross market alerts.

BSE Training Institute: BTI imparts capital markettraining and certification, in collaboration with reputedmanagement institutes and universities. It offers over40 courses on various aspects of the capital market andfinancial sector. More than 20,000 people haveattended the BTI programmes

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Awards

The World Council of Corporate Governance has awarded theGolden Peacock Global CSR Award for BSE's initiatives inCorporate Social Responsibility (CSR).

The Annual Reports and Accounts of BSE for the year endedMarch 31, 2006 and March 31 2007 have been awarded the

ICAI awards for excellence in financial reporting.

The Human Resource Management at BSE has won the Asia- Pacific HRM awards for its efforts in employer brandingthrough talent management at work, health management at

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work and excellence in HR through technology

Drawing from its rich past and its equally

robust performance in the recent times, BSE will continue to remainan icon in the Indian capital market

Vision

"Emerge as the premier Indian stock exchange byestablishing global benchmarks"

The National Stock Exchange (NSE) is

India's leading stock exchange covering various cities and towns across the

country. NSE was set up by leading institutions to provide a modern, fully

automated screen-based trading system with national reach. The Exchange

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has brought about unparalleled transparency, speed & efficiency, safety

and market integrity.

NSE has played a catalytic role in reforming

the Indian securities market in terms of microstructure, market practices

and trading volumes. The market today uses state-of-art information

technology to provide an efficient and transparent trading, clearing and

settlement mechanism, and has witnessed several innovations in products

& services viz. demutualisation of stock exchange governance, screen

based trading, compression of settlement cycles, dematerialisation and

electronic transfer of securities, securities lending and borrowing,

professionalisation of trading members, fine-tuned risk management

systems.

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Securities and Exchange Board of India (SEBI):

The Securities and Exchange Board

of India (SEBI) is an autonomous body established by an act of parliament in

1992. SEBI is controlled by a statutory board consisting of one chairman and

six members. SEBIs main objective is to protect the interest of investors,

and to regulate all securities market particularly the share market. SEBI is a

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market regulator whose major functions include regulation, superintendence

and control of all securities markets in India, overseeing the functioning of

stock exchanges, framing rules for trading practices, attending to and

removing investor grievances, framing rules for and regulating public issues,

training and education of investors, and all matters pertaining to market

intermediaries.

TRADING

Trading on the BOLT System is conducted from Monday to Friday

between 9:55 a.m. and 3:30 p.m. The scrips traded on the Exchangehave been classified into 'A', 'B1', 'B2','T', S', TS' 'F' ,'G' and 'Z'

groups.

The Exchange has for the guidance and benefit of the investors have

classified the scrips in the Equity Segment into 'A', 'B1', 'B2','T', S',

TS' and 'Z' groups on certain qualitative and quantitative parameters

which include number of trades, value traded, etc.

The F Group represents the Fixed Income Securities.

The T Group represents scrip's which are settled on a trade to trade

basis as a surveillance measure.

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either 50 or 100. However, the investors having quantities of securities

less than the market lot are required to sell them as "Odd Lots". The

facility of trading in odd lots of securities not only offers an exit route

to investors to dispose of their odd lots of securities but also provides

them an opportunity to consolidate their securities into market lots.

This facility of selling physical shares in compulsory demat scrips is

called an Exit Route Scheme. This facility can also be used by small

investors for selling upto 500 shares in physical form in respect of

scrips of companies where trades are required to be compulsorily

settled by all investors in demat mode.

Listed Securities:

The securities of companies which have signed Listing Agreement with

the Exchange are traded at the Exchange as "Listed Securities". Baring

a few scrips, all scrips traded in the Equity Segment at the Exchange

fall in this category.

Permitted Securities:

To facilitate the market participants to trade in securities of the

companies which are actively traded at other Regional Stock

Exchanges but are not listed on the Exchange, the Exchange has in

April 2002 decided to permit trading in such securities as Permitted

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Securities" provided they meet the relevant norms specified by the

Exchange.

Tick Size:

Tick size is the minimum differences in rates between two orders on

the same side i.e., buy or sell, entered on the system for particular scrip.

Trading in scrips listed on the Exchange is done with the tick size of 5

paise.

However, in order to increase the liquidity and enable

the market participants to put orders at finer rates, the Exchange has

reduced the tick size from 5 paise to 1 paise in case of units of mutual

funds, securities traded in "F" group and equity shares having closing

price upto Rs. 15/- on the last trading day of the calendar month.

Accordingly, the tick size in various scrips quoting upto Rs.15/- is

revised to 1 paise on the first trading day of month. The tick size so

revised on the first trading day of month remains unchanged during the

month even if the prices of scrips undergo change.

Computation of closing price of scrips in the Cash

Segment:

The closing price of scrip's is computed by the Exchange on the basis

of weighted average price of all trades executed during the last 30

minutes of the continuous trading session. However, if there is no trade

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recorded during the last 30 minutes, then the last traded price of scrip

in the continuous trading session is taken as the official closing price.

Compulsory Rolling Settlement (CRS) Segment:

As per the directive by SEBI, all transactions in all groups of securities

in the Equity Segment and Fixed Income securities listed on the

Exchange are required to be settled on T+2 basis w.e.f. from April 1,

2003. The settlement calendar, which indicates the dates of the various

settlement related activities, is drawn by the Exchange in advance and

is circulated among the market participants.

Under rolling settlements, the

trades done on a particular day are settled after a given number of

business days. A T+2 settlement cycle means that the final settlement

of transactions done on T, i.e., trade day by exchange of monies and

securities between the buyers and sellers respectively takes place on

second business day (excluding Saturdays, Sundays, bank and

Exchange trading holidays) after the trade day.

The transactions in securities of companies which have made

arrangements for dematerialization of their securities are settled only in

demat mode on T+2 on net basis, i.e., buy and sell positions of amember-broker in the same scrip are netted and the net quantity and

value is required to be settled. However, transactions in securities of

companies, which are in "Z" group or have been placed under "trade to

trade" by the Exchange as a surveillance measure (T and TS

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group) , are settled only on a gross basis and the facility of netting of

buy and sell transactions in such scrips is not available.

The Exchange has introduced a new segment named BSE Indonextw.e.f. January 7, 2005. S group consists of scrips from B1 & B2

group on BSE and companies exclusively listed on regional stock

exchanges having capital of 3 crores to 30 crores. All trades in this

segment are done through BOLT system under S group.

The transactions in 'F' group securities representing "Fixed Income

Securities" and " G" group representing Govt. Securities for retail

investors are also settled at the Exchange on T+2 basis.

In case of Rolling Settlements, pay-in and pay-out of both funds and

securities is completed on the same day.

The members are required to

make payment for securities sold and/ or deliver securities purchased to

their clients within one working day (excluding Saturday, Sunday,

bank & Exchange trading holidays) after the pay-out of the funds and

securities for the concerned settlement is completed by the Exchange.

This is the timeframe permitted to the members of the Exchange to

settle their funds/ securities obligations with their clients as per the

Byelaws of the Exchange.

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The following table summarizes the steps in the trading and settlement

cycle for scrips under CRS

DAY ACTIVITY

T

Trading on BOLT and daily downloading of

statements showing details of transactions and

margins at the end of each trading day.

Downloading of provisional securities and

funds obligation statements by member-

brokers.

6A/7A* entry by the member-brokers/confirmation by the custodians.

T+1

Confirmation of 6A/7A data by the

Custodians upto 11:00 a.m. Downloading of

final securities and funds obligation

statements by members .

T+2

Pay-in of funds and securities by 11:00 a.m.

and pay-out of funds and securities by 1:30

p.m. The member-brokers are required to

submit the pay-in instructions for funds and

securities to banks and depositories

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respectively by 10: 30 a.m.

T+3

Auction on BOLT at 11.00

a.m.

T+4

Auction pay-in and pay-out of funds andsecurities by 12:00 noon and 1:30 p.m.

respectively.

Thus, the pay-in and pay-out of funds

and securities takes places on the second business day (i.e., excluding

Saturday, Sundays and bank & Exchange trading holidays) of the day

of the execution of the trade.

* 6A/7A : A mechanism whereby the obligation of settling the

transactions done by a member-broker on behalf of a client is passed on

to a custodian based on confirmation of latter. The custodian can

confirm the trades done by the members on-line and upto 11 a.m. onthe next trading day. The late confirmation of transactions by the

custodian after 11:00 a.m. upto 12:15 p.m., on the next trading day is,

however, permitted subject to payment of charges for late confirmation

@ 0.01% of the value of trades confirmed or Rs. 10,000/-, whichever is

less.

The settlement of the trades (money and securities) done by a member-

broker on his own account or on behalf of his individual, corporate or

institutional clients may be either through the member-broker himself

or through a SEBI registered custodian appointed by him/client. In case

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the delivery/payment in respect of a transaction executed by a member-

broker is to be given or taken by a registered custodian, then the latter

has to confirm the trade done by a member-broker on the BOLT

System through 6A-7A entry. For this purpose, the custodians have

been given connectivity to BOLT System and have also been admitted

as clearing member of the Clearing House. In case a transaction done

by a member-broker is not confirmed by a registered custodian within

the time permitted, the liability for pay-in of funds or securities in

respect of the same devolves on the concerned member-broker.

The following statements can be downloaded by the members in their

back offices on a daily basis.

a. Statements giving details of the daily transactions entered into by

the members.

b. Statements giving details of margins payable by the member-

brokers in respect of the trades executed by them.

c. Statements of securities and fund obligation.

d. Delivery/Receive orders for delivery /receipt of securities.

The Exchange generates Delivery and

Receive Orders for transactions done by the members in A, B1, B2, S

and F and G group scrips after netting purchase and sale transactions

in each scrip whereas Delivery and Receive Orders for T, TS,"C"

& "Z" group scrips and scrips which are traded on the Exchange on

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"trade to trade" basis are generated on gross basis, i.e., without netting

of purchase and sell transactions in a scrip. However, the funds

obligations for the members are netted for transactions across all

groups of securities.

The Delivery Order/Receive Order provides information like the scrip

and quantity of securities to be delivered/received by the members

through the Clearing House. The Money Statement provides scrip

wise/item wise details of payments/receipts of monies by the members

in the settlement. The Delivery/Receive Orders and Money Statement,

as stated earlier, can be downloaded by the members in their back

office.

Settlement

Pay-in and Pay-out for 'A', 'B1', 'B2', T, S, TS, 'C',

"F", "G" & 'Z' group of securities

The trades done on BOLT/Exchange by the members in all thesecurities in CRS are now settled on the Exchange by payment of

monies and delivery of securities on T+2 basis. All deliveries of

securities are required to be routed through the Clearing House,

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The Pay-in /Pay-out of funds based on the money statement and that of

securities based on Delivery Order/ Receive Order issued by the

Exchange are settled on T+2 day.

Demat pay-in :

The members can effect pay-in of demat securities to the Clearing

House through either of the Depositories i.e. the National Securities

Depository Ltd. (NSDL) or Central Depository Services (I) Ltd.

(CDSL). The members are required to give instructions to their

respective Depository Participants (DPs) specifying details such as

settlement no., effective pay-in date, quantity, etc.

Members may also effect pay-in directly from the clients' beneficiary

accounts through CDSL. For this, the clients are required to mention

the settlement details and clearing member ID through whom they have

sold the securities. Thus, in such cases the Clearing Members are not

required to give any delivery instructions from their accounts.

In case, if a member-broker fails to deliver the securities, then the value

of shares delivered short is recovered from him at the standard/closingrate of the scrips on the trading day.

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Auto delivery facility :

Instead of issuing Delivery instructions for their securities delivery

obligations in demat mode in various scrips in a settlement /auction, afacility has been made available to the members of automatically

generating Delivery instructions on their behalf from their CM Pool

accounts maintained with NSDL and CM Principal Accounts

maintained with CDSL. This auto delivery facility is available for CRS

(Normal & Auction) and for trade to trade settlements. This facility is,

however, not available for delivery of non-pari passu shares and shares

having multiple ISINs. The members wishing to avail of this facility

have to submit an authority letter to the Clearing House. This auto

delivery facility is currently available for Clearing Member (CM) Pool

accounts and Principal accounts maintained by the members with the

respective depositories .

Pay-in of securities in physical form:

In case of delivery of securities in physical form, the members have to

deliver the securities to the Clearing Hose in special closed pouches

along with the relevant details like distinctive numbers, scrip code,quantity, etc., on a floppy. The data submitted by the members on

floppies is matched against the master file data on the Clearing House

computer systems. If there is no discrepancy, then the securities are

accepted.

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Funds Pay-in:

The bank accounts of members maintained with the clearing banks,

viz., Bank of India, HDFC Bank Ltd., Oriental Bank of Commerce.,

Standard Chartered Bank, Centurion Bank Ltd., UTI Bank Ltd., ICICI

Bank, Indusind Bank Ltd., Union Bank of India and Hongkong

Shanghai Banking Corporation Ltd. are directly debited through

computerized posting for their funds settlement obligations.

In case of those members, whose funds pay-in obligations are not

cleared at the scheduled time, action such as levy of penalty and/or

deactivation of BOLT TWSs, is initiated as per penalty norms

prescribed .

Securities Pay-out:

In case of demat securities, the same are credited by the Clearing

House in the Pool/Principal Accounts of the member-brokers. The

Exchange has also provided a facility to the member-brokers for

transfer of pay-out securities directly to the clients' beneficiary owner

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accounts without routing the same through their Pool/Principal

accounts in NSDL/ CDSL. For this, the concerned member-brokers are

required to give a client wise break up file which is uploaded by the

member-brokers from their offices to the Clearing House. Based on the

break up given by the member-brokers, the Clearing House instructs

depositories, viz., CDSL & NSDL to credit the securities to the

Beneficiary Owners (BO) Accounts of the clients. In case delivery of

securities received from one depository is to be credited to an account

in the other depository, the Clearing House does an inter depository

transfer to give effect to such transfers.

In case of physical securities, the Receiving Members

are required to collect the same from the Clearing House on the pay-out

day.

Funds Payout:

The bank accounts of the members having pay-out of funds are

credited by the Clearing House with the Clearing Banks on the pay-in

day itself

In case, if a member-broker fails to deliver the securities, then the value

of shares delivered short is recovered from him at the standard/closing

rate of the scrips on the trading day.

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Dematerialization of shares:

Dematerialization as the name suggests, is a term used for conversion

of shares from their physical form to electronic form. This conversion is

done by NSDL and CDSL. The CDSL acts as a depository for BSE,

whereas the NSDL acts as a depository for NSE. After dematerialization,

shares cease to exist in their physical form.

Merits of dematerialization:

No risk of being fake or stolen shares.

No stamp duty while transfer of shares.

Free from tedious paperwork as it was in the physical form.

Stock exchanges have now discarded the concept of marketable lots,

small lots and odd lots.

Rematerialization:

Rematerialization is the reverse of dematerialization. It means to convert

the electronically held shares back into physical form. You have the

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complete freedom of conversion from electronic form to physical form

whenever you want to do so.

OPEN INTEREST IN DERIVATIVE MARKET

Open interest means the total number of open contracts on a

security, that is, the number of future contracts or options contracts that

have not been exercised, expired or full filled by delivery. Hence we

can say that the open interest position at the end of each day represents

the net increase or decrease in the number of contracts for that day.

However, it is to be noted that open interest is not the same as trading

volume. Trading volume represents the total number of contracts that

are traded during a day, inclusive of both squared off (closed)

positions and new positions. Thus, for any day, the trading volume will

always be higher than the open interest.

What is open interest?

Every trade in the exchange would have an impact on the open

interest for that day. Say, for example, A buys one contract of Nifty

on Monday while B buys two on the same day. Open interest at the

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end of the day will be three. On Tuesday, while A sells his one

contract to C, B buys another Nifty contract. The open interest at

the end of the day is now four. In other words, if both parties to the

trade initiate a new position, it increases the open interest by one

contract.

But if the traders square off their existing

positions, Open interest will decrease by the same number of contracts.

However, if one of the parties to the transaction squares off his

position while the other creates one open interest will remain

unchanged. Open interest, thus, mirrors the flow of money into the

derivatives market, which makes it a vital indicator of market direction.

Here is how you interpret open interest.

RISING MARKET AND INCREASING OPEN INTEREST

If the markets are on an uptrend and open interest is also

increasing, it its a bullish signal. It implies the entry of new players

into the market, who are creating fresh long positions and suggests the

flow of extra money into the market.

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RISING MARKET AND DECREASING OPEN INTEREST

If despite a rise in market, the open interest decreases, it can be

interpreted as a precursor to a trend reversal. The lack of additions to

open interest shows that the markets are rising on the back of short-

sellers covering their existing positions. This also implies that money is

flowing out of the market, given that open interest is decreasing.

FALLING MARKET AND INCREASING OPEN INTEREST

When open interest records an increase in value amidst falling

market, it could be a bearish signal. Though a rise in open interest

means that new money is probably being used for creating fresh short

positions, which will lead to a further downtrend.

FALLING MARKET AND DECREASING OPEN INTEREST

If open interest decreases in a falling market, it can be attributed

to the forced squaring- off of long positions by traders. It, thus,represents a trend reversal, since the downtrend in the market is likely

to reverse after the long positions have been squared off. Thus, in a

falling market, a declining open interest can be considered a signal

indicating the strengthening of the market.

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SIDEWAYS MARKET AND INCRESING OPEN INTEREST

If the open interest decreases in a

sideways market, we can say that flat market trends will continue for

some more time. A decrease in open interest only represents the

squaring-off of old positions and lack of any new positions might result

in a sideways or weak trends in the market.

Though open interest is a good barometer of where the markets

are heading; it is only an indicator that helps us trade intelligently it

cannot be considered foolproof.

THE INDEX NUMBER

An index is a number which measures the change in a

set of values over a period of time. A stock index represents the changein value of a set of stocks which constitute the index. More specifically,

a stock index number is the current relative value of a weighted

average of the prices of a pre-defined group of equities. It is a relative

value to the weighted average of prices at some arbitrarily chosen

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starting date or base period. The starting value or base of the index is

usually set to a number such as 100 or 1000. for example the base

value of the Nifty was set to 1000 on the start date of November 3,

1994.

A good stock market index is on which captures the behavior

of the overall equity market. It should represent the market, it should be

well diversified and yet highly liquid. Movements of the index should

represent the returns obtained by typical portfolios in the country.

A market index is very important for its use

As a barometer for market behavior,

As a benchmark portfolio performance,

As an underlying in derivative instruments like index futures,

In passive fund management by index funds

Also acts a barometer for lot of elements such as liquidity in themarket, the growth of the economy, the investors confidence,

government policies etc.

DESIRABLE ATTRIBUTE OF AN INDEX

A good market index should have the following attributes:

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It should capture the behavior of a large variety of different

portfolios in the market.

The stocks included in the index should be highly liquid.

It should be professionally maintained.

Capturing Behavior Of Portfolios

A good market index should accurately reflect the behavior of the

overall market as well as of different portfolios. This is achieved by

diversification in such a manner that a portfolio is not vulnerable to any

individual stock or industry risk. A well diversified index is more

representative of the market. However there is diminishing returns

form diversification, there is very little gain by diversifying beyond a

point; the more serious problem lies in the stocks that are included inthe index when it is diversified. We end up including illiquid stocks,

which actually worsen the index. Since an illiquid stock does not

reflect the current price behavior of the market, its inclusion in index

results in an index, which reflects, delayed or stale price behavior

rather than current price behavior of the market.

Including Liquid Stocks

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Liquidity is much more than trading frequency, it is about ability

to transact at a price, which is very close to the current market price.

For example, a stock is considered liquid if one can buy some shares at

around Rs.120.05 and sell at around Rs.119.95, when the market price

is ruling at Rs.120. a liquid stock has very tight bid ask spread.

Maintaining Professionally

It is now clear that an index should contain as many stocks with

as little impact cost as possible. This necessarily means that the same

set of stocks would not satisfy these criteria at all times, a good index

methodology must therefore incorporate a steady pace of change in the

index set. It is crucial that such changes are made at a steady pace. It is

very healthy to make a few changes every year, each of which is small

and does not dramatically alter the character of the index, on a regular

basis, the index set should be reviewed, and brought inline with the

current state of market, to meet the application needs of users, a time

series of the index sold be available.

Impact cost

Market impact cost is a measure of the liquidity of the market. It

reflects the costs faced when actually trading an index. For a stock to

qualify for possible inclusion into the index, it has to have market

impact cost of below 0.75% when doing Nifty trades of half a crores

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rupees. The market impact cost on a trade of Rs.3 million of the full

Nifty works out to be about 0.05%. This means that if Nifty is at 4000,

a buy order goes through at 4002, i.e. 4000+ (4000*0.0005) and a sell

order gets 3998 i.e. 4000-(4000*0.0005)

FUTURES AND OPTIONS

An option is different form futures in several ways. At practicallevel, the option buyer faces an interesting situation. He pays for the

options in full at the time it is purchased. After this, he only has an

upside. There is no possibility of the options position generating any

further losses to him. This is different form futures, which is free to

enter into, but can generate very large losses. This characteristic makes

options attractive to many occasional market participants, who cannotput in the time to closely monitor their futures positions.

Buying put options is buying insurance. To buy a put option on

Nifty is to buy insurance which reimburses the full extent to which

Nifty drops below the strike price of the put option. This is attractive to

many people, and to mutual funds creating guaranteed return

products.

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TRADING UNDERLYING VERSUS TRADING SINGLE

STOCK FUTURES

The single stock futures market in India has been a great success

story across the world. NSE ranks first in the world in terms of number

of contracts traded in single stock futures. One of the reasons for the

success could be the ease of trading and settling these contracts.

To trade securities, a customer must open a security trading

account with a securities broker and a demat account with a securities

depository. Buying security involves putting up all the money upfront.

With the purchase of shares of a company, the holder becomes a part

owner of the company. The shareholder typically receives the rights

and privileges associated with the security, which may include the

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receipt of dividends, invitation to the annual shareholders meeting and

the power to vote.

Selling securities involves buying the security before selling it.

Even in cases where short selling is permitted, it is assumed that the

securities broker owns the security and then lends it to the trader so

that he can sell it, besides, even if permitted, short sales on security can

only be executed on an up tick.

To trade futures, a customer must open a futures trading account

with a derivatives broker. Buying futures simply involves putting in the

margin money. They enable the futures traders to take a position in the

underlying security without having to open an account with a securities

broker. With the purchase of futures on a security, the holder

essentially makes a legally binding promise or obligation to buy the

underlying security at some point in the future. Security futures do not

represent ownership in a corporation and the holder is therefore not

regarded as a shareholder.

DERIVATIVE MARKET AT NSE

The derivatives trading on the NSE commenced with S&P CNX

Nifty Index futures on June 12, 2000. The trading in index options

commenced on June 4, 2001 and trading in options on individual

securities commenced on July 2, 2001. Single stock futures were

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launched on November9, 2001. Today, both in terms of volume and

turnover, The mini derivative Futures & Options contract on

S&P CNX Nifty was introduced for trading on January 1,

2008 while the long term option contracts on S&P CNX

Nifty were introduced for trading on March 3 2008

NSE is the largest derivatives exchange in India.

Currently, the derivatives contracts have a

maximum of 3-month expiration cycles. Three contracts are available

for trading, with 1 month, 2 months and 3 months expiry.

A new contract is introduced on the next trading day following

the expiry of the near month contract.

INDEX DERIVATIVES

Index derivatives are derivative contracts which have the index

as the underlying. The most popular index derivatives contract the

world over is index futures and index options. NSEs market index, the

S&P CNX Nifty was scientifically designed to enable the launch of

index- based products like index derivatives and index funds. The first

derivative contract to be traded on NSEs market was the index futures

contract with the Nifty as the underlying. This was followed by Nifty

options and thereafter by sectoral indexes, CNX IT and BANK Nifty

contracts.

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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 months expiry cycles which expire on the last Thursday of the

month. Thus a January expiration contract expires on the last Thursday

of January.

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 asset that has to be delivered

under one contract. For instance, the contract size on NSEs futures

market is 200 Nifties.

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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.

INITIAL MARGIN: the amount that must be deposited in the margin

account at the time

a futures contract is first entered into is known as initial margin.

MARKET TO MARKET: in the futures market, at the end of eachtrading day, the margin account is adjusted to reflect the investors gain

or loss depending upon the futures closing price. This is called

Marking-to-market.

MAINTENANCE MARGIN: This is somewhat lower than the initial

margin. This is set to ensure that the balance in the margin accountnever becomes negative. If the balance in the margin account falls

below the maintenance margin, the investor receives a margin call and

is expected to top up the margin account to the initial margin level

before trading commences on the next day.

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A futures contract is different from the underlying stock in the

following ways:

When we buy a stock, we pay the full value of the transaction

(i.e. the number of shares multiplied by market price of each

share) whereas in futures we pay only the margin which is a

fraction of the total transaction value.

There is no time limit of settlement in cash market but in case of

futures contracts, they are dated. An Indian futures settlement

currently takes place on the last Thursday of every month. So the

current months futures expire on the months last Thursday. If a

trader has to carry his position to the next month, he has to shift

his position to the next months future.

One can only go long in the spot market. We cannot short sell

unless we borrow the stock, something which is neither cheaper

nor convenient whereas one can go long or short on the futures

depending on his short term view of the markets.

The cash market has a lot of none, i.e. a person can buy any stock

in the multiple of one unit where as a futures contract is the

smallest unit which one can trade in the futures market.

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There is no way of taking a position on the index through the

cash market whereas futures facilitate trading of index futures.

A futures contract price is the sum of cash price

and the monthly cost of carry. The cost of carry should always be

positive because a futures trade is really a carried forward product

similar to the erstwhile badla. But just as badla rates sometimes

become negative when the market sentiment is bearish, the cost of

carry can also similarly be negative when the sentiment is poor.

Business growth of futures and optionsmarket: Turnover (Rs.crore)

Month

Indexfutures

Indexoptions

Stockoptions

Stockfutures

Jun-00 35 0 0 0

Jun-01 590 195 0 0

Jun-02 2,123 389 4,642 16,178Jun-03 9,348 1,942 15,042 46,505

Jun-04 64,017 8,473 7,424 78,392

Jun-05 77,218 16,133 14,799 1,63,096

Jun-06 2,43,572 57,969 11,306 2,43,950

Jun-07 2,40,797 92,503 21,928 4,51,314

Jun-08 3,77,939 3,08,709 21,430 3,75,987

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Source: NCFM Derivative Module Work Book

ELIGIBILITY FOR ANY STOCK TO ENTER IN

DERIVATIVE MARKET

Non promoter holding (free float capitalization) should not be

less than Rs.750 crores for the last 6 months.

Daily Average Trading value should not be less than 5 crores in

last 6 months

It must be traded least 90% of Trading days in last 6 months.

Non Promoter Holding must at least be 30%

BETA should not be more than 4 (for previous 6 months)

TRADING MECHANISM

The futures and options trading system of NSE, called NEAT-

F&O trading system, provides a fully automated screen-based trading

for Nifty futures & options and stock futures & options on a nation

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wide basis and an online monitoring and surveillance mechanism. It

supports an anonymous order driven market which provides complete

transparency of trading operations and operates on strict price-time

priority. It is similar to that of trading of equities in the cash market

segment. The NEAT-F&O trading system is accessed by two types of

users. The trading members have access to functions such as order

entry, order matching, order and trade management. It provides

tremendous flexibility to users in terms of kinds of orders that can be

placed on the system. various conditions like Immediate or Cancel,

Limit/Market price, Stop loss, etc. can be built into an order. The

clearing members use the trader workstation for the purpose of

monitoring the trading members for whom they clear the trades.

Additionally, they can enter and set limits to positions, which a trading

member can take.

VOLUMES

The trading volumes on NSEs derivatives market have seen a

steady increase since the launch of the first derivatives contract, i.e.

index futures in June 2000. The average daily turnover at NSE now

exceeds Rs.35000 crores. A total of 216,883,573 contracts with a

total turnover of Rs. 7,356,271 crores were traded during 2006-

2007.

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INDEX DERIVATIVES FOR HEDGING

To understand the use and functioning of the index derivatives

markets, it is necessary to understand the underlying index. By looking

at an index, we know how the market is faring. Index derivatives allow

people to cheaply alter their risk exposure to an index (hedging) and to

implement forecasts about index movements (speculation). Hedging

using index derivatives has become a central part of risk management

in the modern economy.

Pricing the Futures

A futures price can be simply derived by applying

the cost of carry logic, by which the fair value of a futures contract can

be determined. Every time the observed price deviates form the fair

value, arbitragers would enter into trades to capture the arbitrage profit.

This in turn would push the futures price back to its fair value. The cost

of carry model used for pricing futures is as follows:

F=SerT

Where:

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r= cost of financing continuously compounded interest rate

T= Time till expiration in years

e= 2.71828

Example:

Security XYZ ltd trades in the spot market at Rs. 1150. Money can be

invested at 11% p.a. The fair value of a one month futures contract on

XYZ is calculated as follows:

F = SerT

=1150*e0.11*1/12

=1160

INITIAL MARGIN

At the inception of a contract every client is required to pay

initial margin. This margin is must to every trading member.

Initial margins are charged on Trade by Trade basis

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Initial margins are charged by NSCCL

Initial margins are charged for the purpose of recovery and safe

guard against the fluctuation in the market.

A future value is calculated on cost of carry model.

INITIAL MARGINS CHARGED ON F&O MARKET

Index futures: 5%

Index options: 3%

Stock options: 7.5%

CONVERGENCE OF FUTURES PRICE TO SPOT PRICE

As the delivery month of a futures contract is approached, the

futures price converges to the spot price of the underlying asset. When

the delivery period is reached, the futures price equals or is very close

to the spot price.

To see why this so, we first suppose that the futures price is above

the spot price during the delivery period. Traders then have a clear

arbitrage opportunity:

Short a futures contract

Buy the asset

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Make the delivery

These steps are certain to lead to a profit

equal to the amount by which the futures price exceeds the spot price.

As traders exploit this arbitrage opportunity, the futures price will fall.

Suppose next that the futures price is below the spot price during the

delivery period. Companies interested in acquiring the asset will find it

attractive to enter into a long futures contract and then wait for delivery

to be made. As they do so, the futures price will tend to rise.

The result is that the futures price is very

close to the spot price during the delivery period.

The convergence of the futures price to the spot

price when future price is above the spot price can

be pictorially represented as follow:

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Figure: A

The convergence of the futures price to the spot

price when future price is below the spot price can

be pictorially represented as follows:

Figure: B

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MARK TO MARKET (MTM) MARGINS

MTM margins is charged on continuous Basis t the end of each

day on Daily basis of cumulative net out standing open position.

CM (clearing member) is responsible to collect and settle the

daily MTM Margins (Profits/loss) from their trading members

according to their open positions.

TM (Trading Member) are responsible to collect and settle the

daily MTM margins for pay in/ pay out of their clients according

to the clients open position.

For calculating MTM margin future last hour average price is

takes, if it is not traded on that day or last half hour MTM is

calculated on theoretical price model.

MTM margin balance at he year end shown in current asset

account.

OPEN INTEREST CALCULATION

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OPTIONS

An option is a contract, or a provision of a contract, that gives

one party (the option holder) the right, but not the obligation, to

perform a specified transaction with another party (the option issuer or

option writer) according at specified terms. The owner of a property

might sell another party an option to purchase the property any time

during the next three months at a specified price. For every buyer of an

option there must be a seller. The seller is often referred to a s the

writer. As with futures, options are brought into existence by being

traded, if none is traded, none exists; conversely, there is no limit to the

number of option contracts that can be in existence at any time. As with

futures, the process of closing out options positions will cause contracts

to cease to exist, diminishing the total number.

Thus an option is the right to buy or sell a specified amount of a

financial instrument at a pre- arranged price on, or before, a particular

date.

There are two options which can be exercised:

Call option, a right to buy is referred to as a call option.

Put option, the right to sell is referred as a put option.

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OPTION TERMINOLOGY

INDEX OPTIONS: these options have the index as the underlying.

Some options are European while others are American. European style

options can be exercised only on the maturity date of the option, which

is known as the expiry date. An American style option can be exercised

at any time up to, and including, the expiry date. It is to be noted that

the distinction has nothing to do with geography. Both type of the

option are traded through out the world

STOCK OPTIONS: Stock options are options on individual stocks.

A contract gives the holder the right to buy or sell shares at the

specified price.

BUYER OF AN OPTION: the buyer of an option is the one who by

paying the option premium buys the right but not the obligation to

exercise his options on the seller/writer.

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WRITER OF AN OPTION: The writer of a call/put option is the

one who receives the option premium and is thereby obliged to sell/buy

the asset if the buyer exercised on him.

STRIKE PRICE: the price specified in the options contract is known

as the strike price or the exercise price.

IN THE MONEY OPTION: An in the money option is an option

that would lead to a positive cash flow to the holder if it were exercised

immediately. A call option on the index is said to be in-the-money

(ITM) when the current index stands at a level higher than the strike

price (i.e. spot price> strike price). If the index is much higher than the

strike price, the call is said to be deep ITM.. In the case of a put, the put

is ITM if the index is below the strike price.

AT THE MONEY OPTION: An at the money option is an option

that would lead to zero cash flow if it were exercised immediately. An

option on the index is at the money when the current index equals the

strike price(i.e. spot price = strike price).

OUT OF THE MONEY OPTION: An out of the money (OTM)

option is an option that would lead to a negative cash flow if it were

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exercised immediately. A call option on the index is out of the money

when the current index stands at a level which is less than the strike

price(i.e. spot price < strike price). If the index is much lower than the

strike price, the call is said to be deep OTM. In the case of a put, the

put is OTM if the index is above the strike price.

INTRINSIC VALUE OF AN OPTION: The option premium can

be broken down into two components- intrinsic value and time value.

The intrinsic value of a call is the amount the option is ITM, if it is

ITM. If the call 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. Usually, the

maximum time value exists when the option is ATM. The longer the

time to expiration, the greater is an options time value, or else equal.

At expiration, an option should have no time value.

STRATEGIES IN FUTURES AND OPTIONS

The following are the four basic strategies in options market

which can be further designed in combination of one or more of the

basic strategies, but all the complex strategies are based on the

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following 4 basic kind of strategies, so the understanding of these 4

strategies is very essential before we go any further:

BUYING A CALL OPTION

A buyer of the option paying a premium (price) for the option to

buy a specified quantity at a specified price any time prior to the

maturity of the option.

We can consider the live example of taking a call option of GMR

Infrastructure at a strike price of Rs.500, a call can be taken upto a

duration of 3 months form now. Here we have taken a call at the strike

price of Rs.500, at a premium of Rs. 25 on 01-06-2009.

The following is the tabulation of the payoffs at expiration.

STOCK PRICE ON

EXPIRY

GROSS PAYOFF ON

OPTION

NET PAYOFF ON

OPTION

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400 0 -25

450 0 -25

500 0 -25

550 50 25

600 100 75650 150 125

700 200 175

750 250 225

Table: A

The following is the graphical representation of the above strategy:

CALL OPTION PAYOFF

-50

0

50

100

150

200

250

300

PRICE

PAYOFF

GROSS PAYOFF

NET PAY OFF

400 450 500 550 600 650 700 750

Figure: C

In the above example when GMR falls to a price of Rs.400, the

buyer of the option can purchase the share form the market at Rs.400

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with out exercising the right to buy the stock at Rs.500. However, on

that he incurs a loss of Rs.25 as the premium being paid for the option

remaining unexercised. But suppose that the share prices rise to Rs.750

then the holder of the option has the right to purchase that share at a

price of Rs.500 form the seller of the option. In this case any price level

above Rs.525 (500+25), which is the breakeven point, results in a profit

for the buyer of the option. Investment in the above option is

Rs.25*1000=Rs.25000.

In the above diagram we can notice that the payoffs are one to

one after the price of the underlying security rises above the exercise

price. When the security price is less than the exercise price, the option

is referred to as out of the money.

Form the above figure it can be seen that the investor who is

already long i.e. holds a stock bears a loss only to the extent of Rs.25

because no matter if the share price fall below Rs.500 the investor is

not holding any stock. Once the investor is either long or short the

stock he can adopt any of these strategies to hedge his risk.

The above strategy was applied in the month of June

The following are the updates

DATE STRIKE

PRICE

OPEN HIGH LOW

01-06-2009 500 27 27 23

15-06-2009 500 54 64.75 52.45

21-06-2009 500 99 104.50 99

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27-06-2009 500 200.90 249 200.90

Table: B

As it can be seen from the above table that the call option price of

the stock has given a fantastic return of over 900% on investment of

Rs.25000 only. Here the risk of the above investment was limited only

to Rs.25000

BUYING A PUT

The second strategy is the put strategy where the buyer of the put

option has to pay a premium(price) for the option to sell a specified

quantity at a specified price any time prior to the maturity of the option.

Here we take the example of buying a put option on the stock of AIR

DECCAN. The exercise price was Rs.140. The premium paid on the

above option was Rs.4.10 on 04-06-2009. investment in the above

strategy is Rs.4.10*2500=Rs.10,250.

The pay off form a put can be illustrated. Notice that the payoffs are

one to one when the price of the security is less than the exercise price.

PRICE GROSS PAYOFF NET PAYOFF

110 30 24.9

120 20 14.9

130 10 4.9

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140 0 -4.1

150 0 -4.1

160 0 -4.1

170 0 -4.1

Table: C

Following are the update of the above option

DATE STRIKE

PRICE

OPEN HIGH LOW

04-06-2009 140 4.40 4.40 4.40

07-06-2009 140 4.00 4.00 4.00

08-06-2009 140 4.90 8.75 4.90

27-06-2009 140 6.75 6.75 6.75

Table: D


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PUT OPTION PAYOFF

-10

-5

0

5

10

15

20

25

30

35

PRICE

PAYOFF

GROSS PAYOFF

NET PAYOFF

110 120 130 140 150 160 170

Figure: D

A put option is a contact giving its owner the right to sell a fixed

amount of a specified underlying asset at a price at any time on or

before a fixed date. On the expiration date, the value of the put on a per

share basis will be the larger of the exercise price minus the stock price

or zero.

In the above diagram we can notice how the down side risk is

minimized if the stock is volatile and the share prices may fall.

Here an investor will get profits only if the stock falls below Rs.134.9

In this option the investor has gained 64.6% with in a month.

WRITING THE CALL OPTIONS

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Table: E

Following are the updates of the option rates in the market:

DATE STRIKE

PRICE

OPEN HIGH LOW

01-Jun-2009 140.00 8.5 8.5 8.5

12-Jun-2009 140.00 2.4 4.2 2.1

20-Jun-2009 140 4.35 4.85 2.35

28-Jun-2009 140 4.30 4.90 4.2Table: F


CALL WRITTING PAYOFF CHART

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

PRICE

PAYOFF

GROSS PAYOFF

NET PAYOFF

110 120 130 140 150 160 170

Figure: E

From the above we can notice that the liability is potentially

unlimited when a investor are writing options.

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Here we can see that the investment in this option is nil, as the

call writer will get the premium at which he is writing. The net return

on this option at the expiry period was Rs.10,624.

WRITING OF PUT OPTIONS

A put option gives the buyer the right to sell the underlying asset

at the strike price specified in the option. For selling the option, the

writer of the option charges a premium, the profit/loss that the buyer

makes on the option depends on the spot price of the underlying.

Whatever is the buyers profit is the sellers loss. If upon expiration,

the spot price of the underlying happens to be below the strike price,

the buyer will exercise the option on the writer. If upon the expiration

the spot price of the underlying is more than the strike price, the buyer

lets his option expire un-exercised and the writer gets to keep the

premium.

The put writer will first get a premium of amount Rs.9375

Following is the payoff chart of writing the put option

PRICE GROSS PAYOFF NET PAYOFF

650 -150 -125

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700 -100 -75

750 -50 -25

800 0 25

850 0 25

900 0 25Table: G


WRITING PUT OPTION PAYOFF

-200

-150

-100

-50

0

50

PRICE

PAYOFF

GROSS PAYOFF

NET PAYOFF

650 700 750 800 850 900

Figure: F

As with the written call, the upside is limited to the premium of the

option (the initial price). The downside is limited to the minimum asset

price-which is zero. We can clearly see from these diagrams that the

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investor, depending upon his risk appetite and the outlook about the

market conditions, can minimize his losses.

The net return on this option at the expiry period was Rs.8, 212.5

FIRDAY MARKET ANALYSIS

DATE 1 2 3 4 5DIFFERENC

E

06-Mar 8198 8104 8348 8047 8326 128

13-Mar 8344 8481 8793 8481 8757 413

20-Mar 9002 8951 9000 8867 8967 -35

27-Mar 100031003

71012

8 99131004

8 45

17-Apr 109471106

81134

01094

61102

3 76

24-Apr 111351115

01136

31107

01132

9 194

08-May 121171209

21218

11176

51187

6 -241

15-May 118721194

91221

91194

91217

2 300

22-May 13736

1366

3

1393

7

1361

1

1388

7 151

29-May 142961432

01472

71432

01462

5 329

1PRE'S

CLOSED

2 Open

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3 HIGH

4 LOW

5 CLOSING

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Conclusions according to my study

Volatile markets are characterized by wide price

fluctuations and heavy trading.

Inverters get time to pay money ie clearing of cheque will

be on monday.

Settlement day or closing day of week.

In my study its says that to invest on

Thursday and withdraw on firday . stock broker says Monday

as black monday

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CONCLUSIONS

1) Derivatives in equity specially are more suited to provide for

hedging and more cost effective. It has less risky and more

profitable.

2) As the stock Index Futures and Options are available, the FIIs

buying /selling operations can be performed at greater speed and

less cost and without adding too much to market volatility.

3) Most of investors are trading not only in derivatives for hedging,

but also for other purposes.

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4) Derivatives do not create any new risk. They simply manipulate

risks and transfer them to those who are willing to bear these

risks.

5) Hedging through derivatives reduces the risk of owning a

specified asset, which may be share currency etc.

6) All derivative instruments are very simple to operate. Treasury

managers and portfolio managers can hedge all risks without

going through the tedious process of hedging each day and

amount/share separately.

7) Derivatives also offer high liquidity. Just as derivatives can be

contracted easily, it is also possible for companies to get out of

positions in case that market reacts otherwise. This also does not

involve much cost.

8) Derivatives are not only desirable but also necessary to hedge the

complex exposure and volatility that the financial companies

generally face in the capital markets today.

9) All derivative products are low cost products. Companies can

hedge a substantial portion of their balance sheet exposure, with

a low margin requirement.

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There is no assured route for

success. This is a fact which is universally applicable and so in case of

investment. There is no short cut formula which could be applied

instantly and make money out of it instantly in the stock market.

Therefore, a good investment takes time, patience, hard work and

perseverance to achieve success. Over the next ten twenty years, Indian

capital market and stock market may offer some of the best and lucrative

opportunities to make big money as compared to other investment

avenues.

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SUGGESTIONS

1. There is a need to educate the investor in futures and options

market, due to its complex nature an investor fails to understand

the risk reward of a particular strategy, which may result into

losses for the investor.

2. An investor must also be thought as to which strategy must beapplied at what situation, as application of appropriate strategy at

appropriate situation will results into profitable transactions

3. An investor must also be suggested to write certain derivative

exams conducted by leading financial organization in the country

for proper understanding of the derivative market.

4. The research reports must be made more explanatory which must

show the risk covered in a particular strategy and the return

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which the investor can expect, it must be accompanied by payoff

chart along with the line graph of the strategy suggested.

5. Anand Rathi Securities can conduct certain investor education

camps in collaboration with leading media channels, which will

serve both the purpose which are brand advertisement and

investor awareness.

6. There is a need to start derivative trading at all stock exchanges

in all over India. As of now its limited to BSE and NSE.

7. A formal mechanism should be established for co-ordination

between SEBI and RBI in respect of all financial derivatives

8. Administrative machinery of existing stock exchanges should be

strengthened wherever necessary. Tight supervision is essential

for successful derivative trading.

9. SEBI has to implement more powerful rules and regulations and

implement certain measures for taking strict action against all

illegal transactions.

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equities market

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