One of the interesting developments in financial markets over the last 15 to

20 years has been the growing popularity of derivatives or contingent claims.

In many situations, both hedgers and speculators find it more attractive to
trade a derivative on an asset than to trade the asset itself. Some derivatives
are traded on exchanges. Others are made available to corporate clients by
financial institutions or added to new issues of securities by underwriters.
In this report we have included history of Derivatives. Than we have included
Derivatives Market in India. Than after we have included stock market
Derivatives.
In this report we have taken a first look at forward, futures and options
contracts. A forward or futures contract involves an obligation to buy or sell
an asset at a certain time in the future for a certain price. There are two
types of options: calls and puts. A call option gives the holder the right to buy
an asset by a certain date for a certain price. In India the derivatives market
has grown very rapidly. There are mainly three types of traders: hedgers,
speculators and arbitrageurs.
In the next section, we have tried to determine the study of Nifty derivatives
for the short term period using the two important indicators namely Open
Interest & Put/Call Ratio. In which Put/Call Ratio analysis proves to be more
effective indicators. Moreover in the analysis of Put/Call Ratio, Combination of
Open Interest & Volume gives more accurate results.
In the last section, we have determined different trading strategies for
different market views i.e. Bullish, Bearish, Range bound & Volatile. On the
basis of investors perceptions they can use suited strategies which will
minimize the loss. There are also some arbitrage strategies prevailing in the
market like reversal, conversion etc. which give fix amount of profit
irrespective of market movements but it is not readily available in the market
but one has to grab such Opportunities.
There are many indicators which can be used while trading in derivative
market but widely used & more effective are open interest & put call
ratio. Investors can study both together & can arrive at meaningful
trend. These indicators can also be jointly used with technical analysis
indicators to find out profitable buying & selling points.
Trading strategy can be framed by individual taking several
considerations like view for the market-bullish, bearish or uncertain,
type of trader-hedger, speculator or arbitrageur, risk appetite, period of
investment, type of analysis-fundamental or technical analysis etc.But
important thing is to minimize loss & take the right opportunity. Now a
day markets are very volatile, so it is in the interest of investors to
frame volatile market strategies as stated above rather than to have
one view. Investors should have constant look on the market to execute
opportunistic strategies which gives fix amount of profit irrespective of
market fluctuations. Investors rather than keeping one view bullish or
bearish its better to have volatile market strategy with limited loss and
limited profits.