Anil Derivatives Projets

FINAL PROJECT
“USE OF FUTURE & OPTIONS IN BEARISH MARKET”
Under the guidance of
Mr. Prasish Barua BY-

(Technical Analyst) ANIL CHAHAR
Central Institute of Business Management Research and

Development, Nagpur
Central Institute of Business Management Research & Development, Nagpur-25

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PROJECT REPORT
ON
“Use of Futures & Options in Bearish Market”
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
BY
Mr. ANIL KAPOOR CHAHAR
UNDER THE GUIDANCE OF
Mr. PRASHANT BARUA
Central Institute of Business Management Research Development
Nagpur
2008-2010

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CERTIFICATE
This is to certify that Mr. ANIL KAPOOR CHAHAR is a bonafide student of central Institute Of
Business Management Research & Development Nagpur. And studying in MBA part IV and has
completed his final project at Motilal Securities Pvt. Ltd. And Submitted Report on topic “Use of
Future & Options In Bearish Market” under my complete guidance and supervision.
This project report is submitted to RTM Nagpur University in partial fulfillment of academic
requirement for the Degree of Master of Business Administration during the academic year
2009-2010.
I find the work comprehensive, complete and of sufficiently high standard to warrant its
presentation.
Guide Director
Mr. ANUP SUCHAK Prof. SHYAM SUKLA
Date:
Place: Nagpur

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DECLARATION
I ANIL KAPOOR CHAHAR a student of M.B.A. Part IV of CIBMRD, Nagpur her declare that,
the project entitled “Use of Futures & Options in Bearish Market” or Part there of has not been
previously submitted by me for any other Degree or diploma of any University or Scientific
Organization. The Project is the result of my bonafide work and source of literature used and all
assistance received during the course of investigation have duly acknowledged.
Date:
Place: Nagpur ANIL KAPOOR CHAHAR

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ACKNOWLEDGEMENT
I take this opportunity to convey my gratitude to those who provided me help during the course
of my study.
It is indeed a great pleasure to express my sincere thanks and great sense of gratitude to Mr.
ANUP SUCHAK for his invaluable guidance, timely help and suggestion and constant
encouragement during my project work.
I take opportunity to express sincere thanks to teaching and non teaching staff of central
Institute Of Business Management Research &Development Nagpur.
Also I’m thankful to the branch head Mr.Prashant Pimplwar, my mentor Mr. Prashish Bharne,
and Mr.harish at motilal oswal securities ltd. Nagpur Branch.
Lastly I’m thankful to my Parents and Friends for keeping my spirit alive through the
course of my project.
Date:-
Place: - Nagpur Anil Kapoor Chahar

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Introduction

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1.0 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 risk-averse economic agents to guard themselves against
uncertainties arising out of fluctuations zin asset prices. By their very nature, the financial
markets are marked by a very high degree of volatility
The following factors have been driving the growth of financial derivatives:
 Increased volatility in asset prices in financial markets,
 Increased integration of national financial markets with the international markets,
 Marked improvement in communication facilities and sharp decline in their costs,
 Development of more sophisticated risk management tools, providing economic

agents a wider choice of risk management strategies, and
 Innovations in the derivatives markets, which optimally combine the risks and
returns over a large number of financial assets, leading to higher returns, reduced
risk as well as trans-actions costs as compared to individual financial assets.

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1.2 Types of derivatives
The most commonly used derivatives contracts are forwards, futures and options which we shall
discuss in detail later. Here we take a brief look at various derivatives contracts that have come
to be used.
 Forwards: A forward contract is a customized contract between two entities, where

settlement takes place on a specific date in the future at today‟s pre-agreed price.
 Futures: A futures contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types of
forward contracts in the sense that the former are standardized exchange-traded contracts.
 Options: Options are of two types - calls and puts. Calls give the buyer the right but not
the obligation to buy a given quantity of the underlying asset, at a given price on or
before a given future date. Puts give the buyer the right, but not the obligation to sell a
given quantity of the underlying asset at a given price on or before a given date.
 Swaps: Swaps are private agreements between two parties to exchange cash flows in the
future according to a prearranged formula. They can be regarded as portfolios of forward
contracts.

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Myths about derivatives
In less than three decades of their coming into vogue, derivatives markets have become the most
important markets in the world. Financial derivatives came into the spotlight along with the rise
in uncertainty of post-1970, when US announced an end to the Bretton Woods System of fixed
exchange rates leading to introduction of currency derivatives followed by other innovations
including stock index futures. Today, derivatives have become part and parcel of the day-to-day
life for ordinary people in major parts of the world. While this is true for many countries, there
are still apprehensions about the introduction of derivatives. There are many myths about
derivatives but the realities that are different especially for Exchange traded derivatives, which
are well regulated with all the safety mechanisms in place.
What are these myths behind derivatives?
  Derivatives increase speculation and do not serve any economic purpose
 Indian Market is not ready for derivative trading
 Disasters prove that derivatives are very risky and highly leveraged
instruments
 Derivatives are complex and exotic instruments that Indian investors will
find difficulty in understanding
 existing capital market safer than Derivatives?

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Futures and options
Futures and options represent two of the most common form of "Derivatives". Derivatives are
financial instruments that derive their value from an 'underlying'. The underlying can be a stock
issued by a company, a currency, Gold etc., The derivative instrument can be traded
independently of the underlying asset.
The value of the derivative instrument changes according to the changes in the value of the
underlying.
Derivatives are of two types -- exchange traded and over the counter.
 Exchange traded derivatives, as the name signifies are traded through organized
exchanges around the world. These instruments can be bought and sold through these
exchanges, just like the stock market. Some of the common exchange traded derivative
instruments are futures and options.
 Over the counter (popularly known as OTC) derivatives are not traded through the
exchanges. They are not standardized and have varied features. Some of the popular OTC
instruments are forwards, swaps, swaptions etc.

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Futures
A 'Future' is a contract to buy or sell the underlying asset for a specific price at a pre-determined
time. If you buy a futures contract, it means that you promise to pay the price of the asset at a
specified time. If you sell a future, you effectively make a promise to transfer the asset to the
buyer of the future at a specified price at a particular time. Every futures contract has the
following features:
 Buyer
 Seller
 Price
 Expiry
Some of the most popular assets on which futures contracts are available are equity stocks,
indices, commodities and currency.
The difference between the price of the underlying asset in the spot market and the futures
market is called 'Basis'. (As 'spot market' is a market for immediate delivery) The basis is usually
negative, which means that the price of the asset in the futures market is more than the price in
the spot market. This is because of the interest cost, storage cost, insurance premium etc., That is,
if you buy the asset in the spot market, you will be incurring all these expenses, which are not
needed if you buy a futures contract. This condition of basis being negative is called as
'Contango'.
Sometimes it is more profitable to hold the asset in physical form than in the form of futures. For
e.g.: if you hold equity shares in your account you will receive dividends, whereas if you hold
equity futures you will not be eligible for any dividend.

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When these benefits overshadow the expenses associated with the holding of the asset, the basis
becomes positive (i.e., the price of the asset in the spot market is more than in the futures
market). This condition is called 'Backwardation'. Backwardation generally happens if the price
of the asset is expected to fall.
It is common that, as the futures contract approaches maturity, the futures price and the spot
price tend to close in the gap between them i.e., the basis slowly becomes zero.

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Options
Options contracts are instruments that give the holder of the instrument the right to buy or sell
the underlying asset at a predetermined price. An option can be a 'call' option or a 'put' option.
A call option gives the buyer, the right to buy the asset at a given price. This 'given price' is
called 'strike price'. It should be noted that while the holder of the call option has a right to
demand sale of asset from the seller, the seller has only the obligation and not the right. For eg: if
the buyer wants to buy the asset, the seller has to sell it. He does not have a
similarly a 'put' option gives the buyer a right to sell the asset at the 'strike price' to the buyer.
Here the buyer has the right to sell and the seller has the obligation to buy.
So in any options contract, the right to exercise the option is vested with the buyer of the
contract. The seller of the contract has only the obligation and no right. As the seller of the
contract bears the obligation, he is paid a price called as 'premium'. Therefore the price that is
paid for buying an option contract is called as premium.

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OBJECTIVES OF
USE OF FUTURE & OPTIONS IN BEARISH MARKET
• To understand the concept and benefits of Hedging.
• Hedging principles used in Futures and Options market.
• To plan different strategies used in Futures and Options to minimize the

losses of clients.
• To show that losses can be avoided even if the market is falling.

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METHODOLOGY
To achieve the object of studying the stock market data ha been collect
Research methodology carried for this study can be two types
1. Primary
2. Secondary
PRIMARY
The data, which is being collected for the time and it is the original data is this
Project the primary data has been taken from BSE, Motilal Oswal and guide of the project.
SECONDARY
The secondary information is mostly from
 Websites
 books,
 Journals, etc.

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Methodology of the project starts with:
 The first phase we are trained and they teach us different things about futures and options
market.
 After that I have gone through the data related to Futures and Options market to
understand the main problem that people were facing during recession and due to that
were not able to cope up with their losses.
 I‟ve understood that people were in losses because they were looking Futures as an
investment segment but not as a hedging tool and they were not aware of options market.
 Then after that we have applied, different hedging strategies on the data of recession
period related to Futures and Options segment that could be used there to minimize the
losses.
The next part knows the pattern of the Futures and Options market. How they move with the
correspondence to the market movement and also the economy.
 Get the knowledge of technical as well as fundamental methods.

 Observe the patterns of the Futures and Options market used individually and mutually.

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LIMITATIONS
The various Limitations are:--
 Lack of awareness about Futures and Options segment: - Since the area is
not known before it takes lot of time in convincing people to start investing in Futures
and Options market for hedging purpose.
 Mostly people comfortable with traditional brokers: -- As people are doing

trading from their respective brokers, they are quite comfortable to trade via phone.
 Lack of Techno Savvy people and poor internet penetration: -- Since most
of the people are quite experienced and also they are not techno savvy. Also internet
penetration is poor in India.
 Some respondents are unwilling to talk: - Some respondents either do not have
time or willing does not respond as they are quite annoyed with the adverse market
conditions they faced so far.
 Misleading concepts: - Some people think that Derivatives are too risky and just
another name of gamble but they don‟t know it‟s not at all that risky for long investors.

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Company
Profile

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Company Profile
The story of Motilal Oswal Securities Ltd goes back many years, when Mr. Motilal Oswal and
Mr. Raamdeo Agrawal met each other as students in a Mumbai suburban hostel in the early
eighties. Both the young chartered accountants hailing from a rural & an unpretentious
background had a common dream viz 'to build a professional organization with strong value
systems, to provide reliable & honest investment advice to investors'. Thus was born their first
enterprise called "Prudential Portfolio Services" in 1987.

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Motilal Oswal Securities Ltd. was founded in 1987 as a small sub-broking unit, with just two
people running the show. Focus on customer-first-attitude, ethical and transparent business
practices, respect for professionalism, research-based value investing and implementation of
cutting-edge technology has enabled us to blossom into an almost 2000 member team.
SUCCESS MANTRA FOR MOSL:
The success story of MOSL is driven by 8 success sutras adopted by it namely: Trust, Integrity,
Dedication, Commitment, Enterprise, Hard work and Team play, Learning and
Innovation, Empathy and Humility. These are the values that bind success with MOSL.
Mission Statement:
“To be a well-respected and preferred global financial services organization enabling wealth
creation for all our customers.”
Today MOSL is a well diversified financial services firm offering a range of financial products
and services such as
 Wealth Management
 Broking & Distribution
 Commodity Broking
 Portfolio Management Services
 Institutional Equities
 Private Equity
 Investment Banking Services and
 Principal Strategies
MOSL has a diversified client base that includes retail customers (including High Net worth
Individuals), mutual funds, foreign institutional investors, financial institutions and corporate
clients. MOSL are headquartered in Mumbai and as of March 31st, 2009, had a network spread
over 548 cities and towns comprising 1,289 Business Locations operated by our Business
Partners and us. As at March 31st, 2009, we had 541372 registered customers.
In 2006, the Company placed 9.48% of its equity with two leading private equity investors based
out of the US – New Vernon Private Equity Limited and Bessemer Venture Partners.

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The company got listed on BSE and NSE on September 9, 2007. The issue which was priced at
Rs.825 per share (face value Rs.5 per share) got overwhelming response and was subscribed
27.18 times in turbulent market conditions. The issue gave a return of 21% on the date of listing.
As of end of financial year 2008, the group net worth was Rs.7 bn. and market capitalization as
of March 31, 2008 was Rs.19 bn.
For year ended March 2008, the company showed a strong top line growth of 91% to Rs.7 bn. As
Compared to Rs.3.68 bn. last year. New businesses like investment banking, asset management
and fund based activities have contributed to this growth.
Credit rating agency Crisil has assigned the highest rating of P1+ to the Company‟s short-term
debt program.
Shareholding Pattern at on 31st December 08
As of December 31st, 2008; the total shareholding of the Promoter and Promoter Group stood
at 70.37%. The shareholding of institutions stood at 10.07% and non-institutions at 19.56%.
Their Business Streams
Our businesses and primary products and services are:
Wealth Management
Financial planning for individual, family and business wealth creation and management needs.
These are provided to customers through our Wealth Management service called „Purple‟
Broking & Distribution services
 Equity (cash and derivatives)

 Commodity Broking
 Portfolio Management Services
 Distribution of financial products
 Financing
 Depository Services
 IPO distribution

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We offer these services through our branches, Business Partner locations, the internet and mobile
channels. We also have strategic tie-ups with State Bank of India and IDBI Bank to offer our
online trading platform to its customers.
Commodity Broking
Through Motilal Oswal Commodities Broker (P) Ltd our fully owned subsidiary; we provide
commodity trading facilities and related products and services on MCX and NCDEX. Besides
access to the best of research in the form of Daily Fundamentals & Technical Reports on highly
traded commodities, our clients also get access to our exclusive Customized Trading Advice on
both the trading platforms. We offer these services through our branches, Business Partner
locations, the internet and mobile channels
Portfolio Management Services
Motilal Oswal Portfolio Management Services offer a range of investments solutions through
discretionary services. We at Motilal Oswal have helped create wealth for our customers through
our Portfolio Management Services. Our knowledge of the markets together with our
understanding of our customers and their risk profiles has helped us design a range of portfolio
offerings for our clients. These include the Value Strategy, Bulls Eye Strategy, Trillion Dollar
Opportunity Strategy and Focused Strategy Series I. As of March 31st, 2009, the Assets Under
Management of our various portfolio schemes stood at Rs.4.77 bn.
Motilal Oswal group has applied to the regulatory bodies for a license to operate as a Domestic
Asset Management Company (Mutual Fund) and we expect to begin operations soon.

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Institutional Equities
We offer equity broking services in the cash and derivative segments to institutional clients in
India and overseas. These clients include companies, mutual funds, banks, financial institutions,
insurance companies, and FIIs. As at March 31st, 2009, we were empanelled with over 300
institutional clients including 200 FIIs. We service these clients through dedicated sales teams
across different time zones.
Investment Banking
We offer financial advisory services relating to mergers and acquisitions (domestic and cross-
border), divestitures, restructurings and spin-offs through Motilal Oswal Investment Advisors
Private Ltd. (MOIAPL)
We also offer capital raising and other investment banking services such as the management of
public offerings, private placements (including qualified institutional placements), rights issues,
share buybacks, open offers/delisting and syndication of debt and equity.
MOIAPL has closed 23 transactions in 2007-08 worth US$ 1.8 billion and had 18 mandates in
hand as at March 31, 2008.
Private Equity
In 2006, our private equity subsidiary, Motilal Oswal Private Equity Advisors Private Ltd
(MOPEAPL) was appointed as the investment manager and advisor to a private equity fund,
India Business Excellence Fund, which was launched with a target of raising US$100 million.
The fund is aimed at providing growth capital to small and medium enterprises in India, with
investments typically in the range of US$3 million to US$7 million.

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Principal Strategies Group
For effective management of treasury operations and to capitalize on market opportunities, the
Group has set up a 30 member team which would be responsible for effective deployment of
funds into different trading and arbitrage strategies.
Focus on Research
Research is the solid foundation on which Motilal Oswal Securities advice is based. Almost 10%
of revenue is invested on equity research and we hire and train the best resources to become
advisors. At present we have 22 equity analysts researching over 27 sectors. From a
fundamental, technical and derivatives research perspective; Motilal Oswal's research reports
have received wide coverage in the media (over a 1000 mentions last year). Our consistent
efforts towards quality equity research has reflected in an increase in the ratings and rankings
across various categories in the Asia Money Brokers Poll over the years
Our unique Wealth Creation Study, authored by Mr. Raamdeo Agrawal, Managing Director, is
now in its 13th year. Investors keenly await this annual study for the wealth of information it has
on the companies that created wealth during the preceding five years.
Awards and Accolades
Motilal Oswal Financial Services has received many accolades in the year gone by. Some of
them are:
 Rated „Best Overall Country Research‟ for a Local Brokerage in the 2007 Asia Money
Brokers poll
 Rated India‟s top broking house in terms of total number of trading terminals by the Dun
& Bradstreet survey
 Rated „Outstanding Commodity Broking House-2007‟ by Global India

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Corporate offices & Branches
BRANCH-HEAD OFFICE
Palm Spring Centre,

2nd Floor, Palm Court Complex,
New Link Road, Malad (West),
Mumbai 400 064,
Maharashtra, India.
LOCATION OF SIP COMPANY
Motilal Oswal Securities Ltd.

Pukhraj House (Super Franchisee),
VIP Road, Dharampeth,
Nagpur.-440010, Maharashtra.
Tel.:0712-2554495, 3291306, 3291304

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FUTURES
AND
OPTIONS

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FUTURES AND OPTIONS
Futures & options are derivatives, which derive their values from equity as their underlying.
Hence our Equity Advisory Group (EAG) equipped with all the required skills and
understanding of Equity Derivatives, will act as your advisors in futures & options segment
as well to help you take informed trading decisions.
Why Futures and Options
Derivatives instruments are primarily hedging tools. Clients can be assisted in protecting the
downside risk to their portfolio using appropriate combination of options. Our advisory is
skilled to help you in maximizing your gains from your existing corpus using numerous
strategies based on the direction and intensity of the views. Derivatives give an ability to
leverage; given the risk appetite clients can extrapolate their gains with the timely assistance
of our advisory. The Equity Advisor doesn‟t stop at just that, he goes a step further to ensure
that your trades are settled and traded with proper margin in your account in a timely
manner. This allows us to give you a convenient single window service and your advisor
becomes the single point contact for all your equity related matters.
You can avail of our services from all our Business locations and through E broking across

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History of Futures and Options
History of futures
The origins of futures trading can be traced to Ancient Greek, in Aristotle's writings. He tells the
story of Thales, a poor philosopher from Miletus who developed a "financial device, which
involves a principle of universal application." Thales used his skill in forecasting and predicted
that the olive harvest would be exceptionally good the next autumn. Confident in his prediction,
he made agreements with local olive-press owners to deposit his money with them to guarantee
him exclusive use of their olive presses when the harvest was ready. Thales successfully
negotiated low prices because the harvest was in the future and no one knew whether the harvest
would be plentiful or pathetic and because the olive-press owners were willing to hedge against
the possibility of a poor yield. When the harvest-time came, and a sharp increase in demand for
the use of the olive presses outstripped supply, he sold his future use contracts of the olive
presses at a rate of his choosing, and made a large quantity of money.
Introduction to Futures:
Futures markets were designed to solve the problems that exist in forward markets. A futures
contract is an agreement between two parties to buy or sell an asset at a certain time in the future
at a certain price. But unlike forward contracts, the futures contracts are standardized and
exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain
standard 27 features of the contract. It is a standardized contract with standard underlying
instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or
which can be used for reference purposes in settlement) and a standard timing of such settlement.
A futures contract may be offset prior to maturity by entering into an equal and opposite
transaction. More than 99% of futures transactions are offset this way. The standardized items in
a futures contract are:
· Quantity of the underlying

· Quality of the underlying
· The date and the month of delivery
· The units of price quotation and minimum price change
· Location of settlement

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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 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 asset that has to be delivered under one contract. Also
called as lot size.
 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.

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 Marking-to-market: In the futures market, at the end of each trading day, the margin
account is adjusted to reflect the investor's 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 account never 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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History of Options
It is not known when the first option contract traded; however, similar contracts can be traced
back as far as the Romans and the Phoenicians, who used them in shipping, and ancient Greece,
where a mathematician and philosopher named Thales used them to secure a low price for olive
presses in advance of the harvest. They were also used in the tulip trading craze in Holland in the
1600s.
Options appeared in America roughly the same time as stocks. At first they were not traded on an
exchange; trades were done privately between buyers and sellers. Growth in options trading
remained slow for the next few decades, mostly because trading by phone without being able to
determine the real market for a contract made them illiquid and cumbersome to trade.
Introduction to Options
In this section, we look at the next derivative product to be traded on the NSE, namely options.
Options are fundamentally different from forward and futures contracts. An option gives the
Holder of the option the right to do something. The holder does not have to exercise this right.
In contrast, in a forward or futures contract, the two parties have committed themselves to
Doing something. Whereas it costs nothing (except margin requirements) to enter into a futures
Contract, the purchase of an option requires an up-front payment.

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Options Terminology
 Index options: These options have the index as the underlying. Some options are
European while others are American. Like index futures contracts, index options
Contracts are also cash settled.
 Stock options: Stock options are options on individual stoc ks. Options currently trade on
over 500 stocks in the United States. 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 option on the seller/writer.
 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 exercises on him.
There are two basic types of options, call options and put options:
 Call option: A call option gives the holder the right but not the obligation to
Buy an asset by a certain date for a certain price.
 Put option: A put option gives the holder the right but not the obligation to
Sell an asset by a certain date for a certain price.
 Option price/premium: Option price is the price which the option buyer pays to the
option seller. It is also referred to as the option premium.
 Expiration date: The date specified in the options contract is known as the expiration
date, the exercise date, the strike date or the maturity.
 Strike price: The price specified in the options contract is known as the strike price or
the exercise price.

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 American options: American options are options that can be exercised at any time up to
the expiration date. Most exchange-traded options are American.
 European options: European options are options that can be exercised only on the
expiration date itself. European options are easier to analyze than American options and
properties of an American option are frequently deduced from those of its European
counterpart.
 In-the-money option: An in-the-money (ITM) 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 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 (ATM) 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 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.
 Time value of an option: The time value of an option is the difference between its
premium and its intrinsic value. Both calls and puts have time value. An option that is
OTM or ATM has only time value. Usually, the maximum time value exists when the
option is ATM. The longer the time to expiration, the greater is an option's time value, all
else equal. At expiration, an option should have no time value.

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Hedging

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What Is Hedging?
The best way to understand hedging is to think of it as insurance. When people decide to hedge,
they are insuring themselves against a negative event. This doesn't prevent a negative event from
happening, but if it does happen and you're properly hedged, the impact of the event is reduced.
So, hedging occurs almost everywhere, and we see it every day. For example, if you buy house
insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.
Portfolio managers, individual investors and corporations use hedging techniques to reduce their
exposure to various risks. In financial markets, however, hedging becomes more complicated
than simply paying an insurance company a fee every year. Hedging against investment risk
means strategically using instruments in the market to offset the risk of any adverse price
movements. In other words, investors hedge one investment by making another.
Technically, to hedge you would invest in two securities with negative correlations. Of course,
nothing in this world is free, so you still have to pay for this type of insurance in one form or
another.
Although some of us may fantasize about a world where profit potentials are limitless but also
risk free, hedging can't help us escape the hard reality of the risk-return tradeoff. A reduction in
risk will always mean a reduction in potential profits. So, hedging, for the most part, is a
technique not by which you will make money but by which you can reduce potential loss. If the
investment you are hedging against makes money, you will have typically reduced the profit that
you could have made, and if the investment loses money, your hedge, if successful, will reduce
that loss.

35
How Do Investors Hedge?
Hedging techniques generally involve the use of complicated financial instruments known as
derivatives, the two most common of which are options and futures. We're not going to get into
the nitty-gritty of describing how these instruments work, but for now just keep in mind that with
these instruments you can develop trading strategies where a loss in one investment is offset by a
gain in a derivative difficult to achieve in practice.
What Hedging Means to You
The Downside
Every hedge has a cost, so before you decide to use hedging, you must ask yourself if the
benefits received from it justify the expense. Remember, the goal of hedging isn't to make money
but to protect from losses. The cost of the hedge - whether it is the cost of an option or lost
profits from being on the wrong side of a futures contract - cannot be avoided. This is the price
you have to pay to avoid uncertainty.
We've been comparing hedging versus insurance, but we should emphasize that insurance is far
more precise than hedging. With insurance, you are completely compensated for your loss
(usually minus a deductible). Hedging a portfolio isn't a perfect science and things can go wrong.
Although risk managers are always aiming for the perfect hedge, it is
The majority of investors will never trade a derivative contract in their life. In fact most buy-and-
hold investors ignore short-term fluctuation altogether. For these investors there is little point in
engaging in hedging because they let their investments grow with the overall market.

36
So why learn about hedging?
Even if you never hedge for your own portfolio you should understand how it works because
many big companies and investment funds will hedge in some form. Oil companies, for example,
might hedge against the price of oil while an international mutual fund might hedge against
fluctuations in foreign exchange rates. An understanding of hedging will help you to comprehend
and analyze these investments.

37
DIFFERENT
STRATEGIES
USED

38
Options strategies: long call
Purchasing calls has remained the most popular strategy with investors since listed options were
first introduced. Before moving into more complex bullish and bearish strategies, an investor
should thoroughly understand the fundamentals about buying and holding call options.
Market Opinion?
Bullish to Very Bullish
When to Use?
This strategy appeals to an investor who is generally more interested in the dollar amount of his
initial investment and the leveraged financial reward that long calls can offer. The primary
motivation of this investor is to realize financial reward from an increase in price of the
underlying security. Experience and precision are key to selecting the right option (expiration
and/or strike price) for the most profitable result. In general, the more out-of-the-money the call
is the more bullish the strategy, as bigger increases in the underlying stock price are required for
the option to reach the break-even point.

39
Options Strategies: Long Put
A long put can be an ideal tool for an investor who wishes to participate profitably from a
downward price move in the underlying stock. Before moving into more complex bearish
strategies, an investor should thoroughly understand the fundamentals about buying and holding
put options.
Market Opinion?
Bearish
When to Use?
Purchasing puts without owning shares of the underlying stock is a purely directional strategy
used for bearish speculation. The primary motivation of this investor is to realize financial
reward from a decrease in price of the underlying security. This investor is generally more
interested in the dollar amount of his initial investment and the leveraged financial reward that
long puts can offer than in the number of contracts purchased.
Experience and precision are key in selecting the right option (expiration and/or strike price) for
the most profitable result. In general, the more out-of-the-money the put purchased is the more
bearish the strategy, as bigger decreases in the underlying stock price is required for the option to
reach the break-even point.

40
Options Strategies: Married Put
An investor purchasing a put while at the same time purchasing an equivalent number of shares
of the underlying stock is establishing a "married put" position - a hedging strategy with a name
from an old IRS ruling.
Market Opinion?
Bullish to Very Bullish
When to Use?
The investor employing the married put strategy wants the benefits of stock ownership
(dividends, voting rights, etc.), but has concerns about unknown, near-term, downside market
risks. Purchasing puts with the purchase of shares of the underlying stock is a directional and
bullish strategy. The primary motivation of this investor is to protect his shares of the underlying
security from a decrease in market price. He will generally purchase a number of put contracts
equivalent to the number of shares held.

41
Options Strategies: Protective Put
An investor who purchases a put option while holding shares of the underlying stock from a
previous purchase is employing a "protective put."
Market Opinion?
Bullish on the Underlying Stock
When to Use?
The investor employing the protective put strategy owns shares of underlying stock from a
previous purchase, and generally has unrealized profits accrued from an increase in value of
those shares. He might have concerns about unknown, downside market risks in the near term
and wants some protection for the gains in share value. Purchasing puts while holding shares of
underlying stock is a directional strategy, but a bullish one.

42
Options Strategies: Covered Call
The covered call is a strategy in which an investor writes a call option contract while at the same
time owning an equivalent number of shares of the underlying stock. If this stock is purchased
simultaneously with writing the call contract, the strategy is commonly referred to as a "buy-
write." If the shares are already held from a previous purchase, it is commonly referred to an
"overwrite." In either case, the stock is generally held in the same brokerage account from which
the investor writes the call, and fully collateralizes, or "covers," the obligation conveyed by
writing a call option contract. This strategy is the most basic and most widely used strategy
combining the flexibility of listed options with stock ownership.
Market Opinion?
Neutral to Bullish on the Underlying Stock
When to Use?
Though the covered call can be utilized in any market condition, it is most often employed when
the investor, while bullish on the underlying stock, feels that its market value will experience
little range over the lifetime of the call contract. The investor desires to either generate additional
income (over dividends) from shares of the underlying stock, and/or provide a limited amount of
protection against a decline in underlying stock value.

43
Options Strategies: Cash Secured Put
According to the terms of a put contract, a put writer is obligated to purchase an equivalent
number of underlying shares at the put's strike price if assigned an exercise notice on the written
contract. Many investors write puts because they are willing to be assigned and acquire shares of
the underlying stock in exchange for the premium received from the put's sale. For this
discussion, a put writer's position will be considered as "cash-secured" if he has on deposit with
his brokerage firm a cash amount (or equivalent) sufficient to cover such a purchase.
Market Opinion?
Neutral to Slightly Bullish

44
When to Use?
There are two key motivations for employing this strategy: either as an attempt to purchase
underlying shares below current market price, or to collect and keep premium from the sale of
puts which expire out-of-the-money and with no value. An investor should write cash secured
put only when he would be comfortable owning underlying shares, because assignment is always
possible at any time before the put expires. In addition, he should be satisfied that the net cost for
the shares will be at a satisfactory entry point if he is assigned an exercise. The number of put
contracts written should correspond to the number of shares the investor is comfortable and
financially capable of purchasing. While assignment may not be the objective at times, it should
not be a financial burden. This strategy can become speculative when more puts are written than
the equivalent number of shares desired to own.

45
Options Strategies: Bull Call Spread
Establishing a bull call spread involves the purchase of a call option on a particular underlying
stock, while simultaneously writing a call option on the same underlying stock with the same
expiration month, at a higher strike price. Both the buy and the sell sides of this spread are
opening transactions, and are always the same number of contracts. This spread is sometimes
more broadly categorized as a "vertical spread": a family of spreads involving options of the
same stock, same expiration month, but different strike prices. They can be created with either all
calls or all puts, and be bullish or bearish. The bull call spread, as any spread, can be executed as
a"unit" in one single transaction, not as separate buy and sell transactions. For this bullish
vertical spread, a bid and offer for the whole package can be requested through your brokerage
firm from an exchange where the options are listed and traded.
Market Opinion?
Moderately Bullish to Bullish

46
When to Use?
Moderately bullish
An investor often employs the bull call spread in moderately bullish market environments, and
wants to capitalize on a modest advance in price of the underlying stock. If the investor's opinion
is very bullish on a stock it will generally prove more profitable to make a simple call purchase.
Risk Reduction
An investor will also turn to this spread when there is discomfort with either the cost of
purchasing and holding the long call alone, or with the conviction of his bullish market opinion.

47
Options Strategies: Bear Put Spread
Establishing a bear put spread involves the purchase of a put option on a particular underlying
stock, while simultaneously writing a put option on the same underlying stock with the same
expiration month, but with a lower strike price. Both the buy and the sell sides of this spread are
opening transactions, and are always the same number of contracts. This spread is sometimes
more broadly categorized as a "vertical spread": a family of spreads involving options of the
same stock, same expiration month, but different strike prices. They can be created with either all
calls or all puts, and be bullish or bearish. The bear put spread, as any spread, can be executed as
a "package" in one single transaction, not as separate buy and sell transactions. For this bearish
vertical spread, a bid and offer for the whole package can be requested through your brokerage
firm from an exchange where the options are listed and traded.
Market Opinion?
Moderately Bearish to Bearish
When to Use?
Moderately bearish
An investor often employs the bear put spread in moderately bearish market environments, and
wants to capitalize on a modest decrease in price of the underlying stock. If the investor's opinion
is very bearish on a stock it will generally prove more profitable to make a simple put purchase.
Risk reduction
An investor will also turn to this spread when there is discomfort with either the cost of
purchasing and holding the long put alone, or with the conviction of his bearish market opinion.

48
49
Options Strategies: Collar
A collar can be established by holding shares of an underlying stock, purchasing a protective put
and writing a covered call on that stock. The option portions of this strategy are referred to as a
combination. Generally, the put and the call are both out-of-the-money when this combination is
established, and have the same expiration month. Both the buy and the sell sides of this spread
are opening transactions, and are always the same number of contracts. In other words, one collar
equals one long put and one written call along with owning 100 shares of the underlying stock.
The primary concern in employing a collar is protection of profits accrued from underlying
shares rather than increasing returns on the upside.
Market Opinion?
Neutral, following a period of appreciation
When to Use?
An investor will employ this strategy after accruing unrealized profits from the underlying
shares, and wants to protect these gains with the purchase of a protective put. At the same time,
the investor is willing to sell his stock at a price higher than current market price so an out-of-
the-money call contract is written, covered in this case by the underlying stock.

50
Options Strategies: Long Straddle
The long straddle is simply the simultaneous purchase of a long call and a long put on the same
underlying security with both options having the same expiration and same strike price. Because
the position includes both a long call and a long put, the investor in a straddle should have a
complete understanding of the risks and rewards associated with both long calls and long puts.
**Since the straddle involves two trades, a commission charge is likely for the purchase (and any
subsequent sale) of each position -- one commission for the call and one commission for the put.
Market Opinion?
Increasing volatility and large price swings in the underlying security. Potentially profit from a
big move, either up or down, in the underlying price during the life of the options.

51
When to Use?
Purchasing only long calls or only long puts is primarily a directional strategy. The long straddle
however, consisting of both long calls and long puts is not a directional strategy, rather it is one
where the investor feels large price swings are forthcoming but is unsure of the direction. This
strategy may prove beneficial when the investor feels large price movement, either up or down,
is imminent but is uncertain of the direction.
An instance of when a straddle may be considered is when the investor believes there is news
forthcoming. An example may be when one is anticipating news regarding a drug in trials from a
biotechnology company. The investor feels the news surrounding the drug will introduce large
price swings in the underlying but is unsure of whether this news will have a positive or negative
impact on the price. If the news is positive, this may positively impact the price of the security. If
the news is disappointing, the stock could decline considerably. The risk is the stock remaining
at the strike price of the straddle until expiration.

52
Options Strategies: Long Strangle
The long strangle is simply the simultaneous purchase of a long call and a long put on the same
underlying security with both options having the same expiration but where the put strike price is
lower than the call strike price. Because the position includes both a long call and a long put, the
investor using a long strangle should have a complete understanding of the risks and rewards
associated with both long calls and long puts.
Market Opinion?
Increasing volatility and extremely large price swings in the underlying security. Potentially
profit from a large move, either up or down, in the underlying price during the life of the options.

53
When to Use?
Purchasing only long calls or only long puts is primarily a directional strategy. The long strangle
however, consisting of both long calls and long puts is a not a directional strategy, rather one
where the investor feels extremely large price swings are forthcoming but is unsure of the
direction. This strategy may prove beneficial when the investor feels large price movement,
either up or down, is about to happen but uncertain of the direction.
An instance of when a strangle may be considered is when an earnings announcement is

forthcoming. The investor feels the projected announcement will introduce large price
swings in the underlying. If the earnings announcement and future outlook is positive, this may
positively impact the price of the security. If the earning announcement and outlook is negative,
or fails to impress investors, the stock could decline considerably. The risk is the stock remains
stable or between the strike price of the call and strike price of the put until expiration. Another
risk is that the stock's move does not produce a corresponding option price increase that is
enough to cover the two premiums paid for the position. Declining implied volatility will also
negatively impact this strategy.

54
Payoff
&
Pricing of
Futures and Options

55
Payoff for futures
Futures contracts have linear payoffs. In simple words, it means that the losses as well as profits
for the buyer and the seller of a futures contract are unlimited.
These linear payoffs are fascinating as they can be combined with options and the underlying to
generate various complex payoffs.
Payoff for buyer of futures: Long futures
The payoff for a person who buys a futures contract is similar to the payoff for a person who
holds an asset. He has a potentially unlimited upside as well as a potentially unlimited downside.
Take the case of a speculator who buys a two-month Nifty index futures contract when the Nifty
stands at 1220. The underlying asset in this case is the Nifty portfolio. When the index moves up,
the long futures position starts making profits, and when the index moves down it starts making
losses. Figure 5.1 shows the payoff diagram for the buyer of a futures contract.
Payoff for seller of futures: Short futures
The payoff for a person who sells a futures contract is similar to the payoff for a person who
shorts an asset. He has a potentially unlimited upside as well as a potentially unlimited downside.
Take the case of a speculator who sells a two-month Nifty index futures contract when the Nifty
stands at 1220. The underlying asset in this case is the Nifty portfolio. When the index moves
down, the short futures position starts making profits, and when the index moves up, it starts
making losses. Figure 5.2 shows the payoff diagram for the seller of a future Contract

56
Figure 5.1 Payoff for a buyer of Nifty futures
The figure shows the profits/losses for a long futures position. The investor bought futures when
the index was at 1220. If the index goes up, his futures position starts making profit. If the index
falls, his futures position starts showing losses.
Profit
1220
Nifty
Figure 5.2 Payoff for a seller of Nifty futures

The figure shows the profits/losses for a short futures position. The investor sold futures when
the index was at 1220. If the index goes down, his futures position starts making profit. If the
index rises, his futures position starts showing losses.
Profit
1220
0 Nifty Loss

57
5.2 Options payoffs
The optionality characteristic of options results in a non-linear payoff for options. In simple
words, it means that the losses for the buyer of an option are limited, however the profits are
potentially unlimited. For a writer, the payoff is exactly the opposite. His profits are limited to
the option premium; however his losses are potentially unlimited.
These non-linear payoffs are fascinating as they lend themselves to be used to generate various
payoffs by using combinations of options and the underlying. We look here at the six basic
payoffs.
5.2.1 Payoff profile of buyer of asset: Long asset
In this basic position, an investor buys the underlying asset, Nifty for instance, for 1220, and
sells it at a future date at an unknown price,S4 it is purchased, the investor is said to be “long” the
asset. Figure 5.3 shows the payoff for a long position on the Nifty.1
Figure 5.3 Payoff for investor who went Long Nifty at 1220
The figure shows the profits/losses from a long position on the index. The investor bought the
index at 1220. If the index goes up, he profits. If the index falls he looses.
Profit
+60
0 1160 1220 1280
Loss

58
5.2.2 Payoff profile for seller of asset: Short asset
In this basic position, an investor shorts the underlying asset, Nifty for instance, for 1220, and
buys it back at a future date at an unknown price S4 Once it is sold, the investor is said to be
“short” the asset. Figure 5.4 shows the payoff for a short position on the Nifty.
Figure 5.4 Payoff for investor who went Short Nifty at 1220
The figure shows the profits/losses from a short position on the index. The investor sold the
index at 1220. If the index falls, he profits. If the index rises, he looses.
Profit
+60
0 1160 1220 1280
Nifty
-60 Loss
5.2.3 Payoff profile for buyer of call options: Long call
A call option gives the buyer the right to buy the underlying asset at the strike price specified in
the option. The profit/loss that the buyer makes on the option depends on the spot price of the
underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher
the spot price, more is the profit he makes. If the spot price of the underlying is less than the
strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid

59
for buying the option. Figure 5.5 gives the payoff for the buyer of a three month call option
(often referred to as long call) with a strike of 1250 bought at a premium of 86.60.
5.2.4 Payoff profile for writer of call options: Short call
A call option gives the buyer the right to buy 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
buyer‟s profit is the seller‟s loss. If upon expiration, the spot price exceeds the strike price, the
buyer will exercise the option on the writer. Hence as the spot price increases the writer of the
option starts making losses. Higher the spot price, more is the loss he makes. If upon expiration
the spot price of the underlying is less than the strike price, the buyer lets his option expire un-
exercised and the writer gets to keep the premium. Figure 5.6 gives the payoff for the writer of a
three month call option (often referred to as short call) with a strike of 1250 sold at a premium of
86.60.
Figure 5.5 Payoff for buyer of call option
The figure shows the profits/losses for the buyer of a three-month Nifty 1250 call option. As can
be seen, as the spot Nifty rises, the call option is in-the-money. If upon expiration, Nifty closes
above the strike of 1250, the buyer would exercise his option and profit to the extent of the
difference between the Nifty-close and the strike price. The profits possible on this option are
potentially unlimited. However if Nifty falls below the strike of 1250, he lets the option expire.
His losses are limited to the extent of the premium he paid for buying the option.
Profit
1250
Nifty

60
0 Loss
Figure 5.6 Payoff for writer of call option
The figure shows the profits/losses for the seller of a three-month Nifty 1250 call option. As the
spot Nifty rises, the call option is in-the-money and the writer starts making losses. If upon
expiration, Nifty closes above the strike of 1250, the buyer would exercise his option on the
writer who would suffer a loss to the extent of the difference between the Nifty-close and the
strike price. The loss that can be incurred by the writer of the option is potentially unlimited,
whereas the maximum profit is limited to the extent of the up-front option premium of Rs.86.60
charged by him.
Profit
86.60
1250
0 Nifty
1 Loss
5.2.5 Payoff profile for buyer of put options: Long put
A put option gives the buyer the right to sell the underlying asset at the strike price specified in
the option. The profit/loss that the buyer makes on the option depends on the spot price of the
underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower
the spot price, more is the profit he makes. If the spot price of the underlying is higher than the
strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid
for buying the option. Figure 5.7 gives the payoff for the buyer of a three month put option (often
referred to as long put) with a strike of 1250 bought at a premium of 61.70.

61
Figure 5.7 Payoff for buyer of put option
The figure shows the profits/losses for the buyer of a three-month Nifty 1250 put option. As can
be seen, as the spot Nifty falls, the put option is in-the-money. If upon expiration, Nifty closes
below the strike of 1250, the buyer would exercise his option and profit to the extent of the
difference between the strike price and Nifty-close. The profits possible on this option can be as
high as the strike price. However if Nifty rises above the strike of 1250, he lets the option expire.
His losses are limited to the extent of the premium he paid for buying the option.
Profit
1250
0 Nifty
61.70
Loss
Payoff profile for writer of put options: Short put
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
buyer‟s profit is the seller‟s loss. If upon expiration, the spot price happens to be below the strike
price, the buyer will exercise the option on the writer. If upon expiration the spot price of the
underlying is more than the strike price, the buyer lets his option expire un-exercised and the

62
writer gets to keep the premium. Figure 5.8 gives the payoff for the writer of a three-month put
option (often referred to as short put) with a strike of 1250 sold at a premium of 61.70.
Figure 5.8 Payoff for writer of put option
The figure shows the profits/losses for the seller of a three-month Nifty 1250 put option. As the
spot Nifty falls, the put option is in-the-money and the writer starts making losses. If upon
expiration, Nifty closes below the strike of 1250, the buyer would exercise his option on the
writer who would suffer a loss to the extent of the difference between the strike price and Nifty-
close. The loss that can be incurred by the writer of the option is a maximum extent of the strike
price(Since the worst that can happen is that the asset price can fall to zero) whereas the
maximum profit is limited to the extent of the up-front option premium of Rs.61.70 charged by
him.
Profit
61.70
1250
0 Nifty
Loss

63
SUMMARY:
Derivatives market is on innovation to cash market, approximately its daily turnover reaches to
equal stage of cash market.
In the cash market. The profit/ loss of the investor depend on the market price of the underlying
asset. The investor may incur huge profit or he may incur huge loss but in derivative segment the
investor enjoys huge profit with limited down side. In cash market the investor as to pay the total
money. But in derivatives the investor as to pay premium or margins which are some
percentage of total money.
Derivatives are mostly used for hedging purpose. In derivatives segment the profit/loss of the
option holder/option writer is purely depended on the fluctuations of the under lying assets

64
Conclusion
Derivatives are extremely important and have a big impact on other financial market and the
economy. The project is designed to upgrade investor’s knowledge with the basics of how to
make investment decisions in futures & options with reference to bear market. Analyze the
fundamental, technical and other factors for dealing in futures & options. Hedging is for
minimizing risk not for maximizing the profit. For many investors, options are useful as tools of
risk management.
In cash market the profit/loss of the investor may be limited, but in the Derivative market. The
investor can enjoy unlimited profits and minimize the losses incurred.
In derivatives market the investors enjoys the privilege of paying less amount in case of options.
Derivatives are mostly used for hedging purpose.

65
Bibliography:-
1) Derivatives Market (Basic) Module:--NCFM

2) Economic Times
3) Business Standard
4) www.Motilaloswal.com
5) www.nseindia.com
6) www.moneycontrol.com
7) www.derivativesindia.com
8) A Beginner's Guide To Hedging

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FINAL PROJECT

“USE OF FUTURE & OPTIONS IN BEARISH MARKET”

Under the guidance of

Mr. Prasish Barua BY-

Central Institute of Business Management Research and

Central Institute of Business Management Research & Development, Nagpur-25

“Use of Futures & Options in Bearish Market”

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

Mr. ANIL KAPOOR CHAHAR

UNDER THE GUIDANCE OF

Mr. PRASHANT BARUA

Central Institute of Business Management Research Development

Central Institute of Business Management Research & Development, Nagpur-25

Mr. ANUP SUCHAK Prof. SHYAM SUKLA

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

 Increased volatility in asset prices in financial markets,

 Increased integration of national financial markets with the international markets,

 Marked improvement in communication facilities and sharp decline in their costs,

 Development of more sophisticated risk management tools, providing economic

Central Institute of Business Management Research & Development, Nagpur-25

 Forwards: A forward contract is a customized contract between two entities, where

Central Institute of Business Management Research & Development, Nagpur-25

What are these myths behind derivatives?

  Derivatives increase speculation and do not serve any economic purpose

 Indian Market is not ready for derivative trading

 existing capital market safer than Derivatives?

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

• To understand the concept and benefits of Hedging.

• Hedging principles used in Futures and Options market.

• To plan different strategies used in Futures and Options to minimize the

• To show that losses can be avoided even if the market is falling.

Central Institute of Business Management Research & Development, Nagpur-25

Research methodology carried for this study can be two types

The secondary information is mostly from

Central Institute of Business Management Research & Development, Nagpur-25

 Get the knowledge of technical as well as fundamental methods.

Central Institute of Business Management Research & Development, Nagpur-25

The various Limitations are:--

 Mostly people comfortable with traditional brokers: -- As people are doing

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

SUCCESS MANTRA FOR MOSL:

Central Institute of Business Management Research & Development, Nagpur-25

Shareholding Pattern at on 31st December 08

Broking & Distribution services

 Equity (cash and derivatives)

Central Institute of Business Management Research & Development, Nagpur-25

Portfolio Management Services

Central Institute of Business Management Research & Development, Nagpur-25

Central Institute of Business Management Research & Development, Nagpur-25

Awards and Accolades

Central Institute of Business Management Research & Development, Nagpur-25

Palm Spring Centre,

LOCATION OF SIP COMPANY