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A PROJECT REPORT ON
COMPARATIVE STUDY ON EQUITIES W.R.TO
AUTO & OIL SECTORS
SUBMITTED BY
PIDUGU SANTOSH
HT No: 160710672043
Project Submitted in partial fulfillment for the award of the
Degree of
MASTER OF BUSINESS ADMINISTRATION
By
Osmania University, Hyderabad-500007
METHODIST COLLEGE OF ENGINEERING &TECHNOLOGY
KING KOTI, ABIDS, HYDERABAD-500001
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DEPARTMENT OF BUSINESS
MANAGEMENT
METHODIST COLLEGE OF ENGINEERING AND
TECHNOLOGY
ACKNOWLEDGEMENT
Accomplishment of any work involves many people and this
project is no exception. I take this opportunity to express my
heartfelt thanks to all those who have directly or indirectly
contributed to make this Project a success.
I am indebted to the Management of Motilal Oswal securities Ltd.,for providing me the opportunity to carry out the Project work intheir esteemed organization.
I take this opportunity to express my heartfelt thanks to Mr.LAXMAN and the entire Equities team at Motilal Oswal for their cooperation and support during the project.
I am highly indebted to the Management of my college and H.O.D.
Department of Business Management for his valuable suggestions
and advice.
It was great experience to work under the inspiring guidance of
Mrs. Ranirajan Associate Professor, Department of Business
Management. I take this opportunity to express my gratitude to his
valuable advice and suggestions for completing this project.
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At last, I would like to thank my family and friends of my collegefor the help and cooperation extended in this endeavor of mine.
DECLARATION
I hereby declare that project report entitled EquityAnalysis With Respect To Auto & Oil has been carriedout for Motilal Oswal Securities Ltd is an original and
bonafide work undertaken by me in partial fulfillment of the requirement for Master of Business Administration(MBA), Osmania University.
This project report has not been submitted to any other university for the award of degree or diploma.
(P.SANTOSH)
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TABLE OF CONTENTPage
No.
1) INTRODUCTION
2) COMPANY PROFILE
3) MARKET PROFILE
4) OBJECTIVES OF THE STUDY
5) RESEARCH METHODOLOGY
6) ANALYSIS & INTERPRETATION
7) CONCLUSION AND SUGGESTIONS
8) BIBILIOGRAPHY
LIST OF TABLES
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TABLES PAGE
No.
1. Pay off from Call Buying/Long
2. Pay off from Put Buying/Long3. Effect of increase in relevant parameter option prices
4. 29-April-2010 Future INDEX NIFTY-50
5. NIFTY 5400 Call Option Table for 29-April-2010
6. NIFTY 5400 Put Option Table for 29-April-2010
7. May 2010 Contract
8. 5000 Call Option for May 2010
9. 5000 Put Option for May 201010.5100 put option for May 2010
11.June 2010 Contract
12.5100 Call Option for June 2010
13.5100 Put Option for June 2010
LIST OF FIGURES
FIGURES PAGE
No
1. Payoff for a buyer of futures
2. Payoff for a seller of futures
3. Payoff from Cal Buying/Long
4. Payoff from Put Buying/Long
5. Services of the Networth Stock Broking Company
6. 107 NSBC Branches locations throughout India
ABSTRACT
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` The Study is based on Financial Derivatives with special
reference to Futures and Options at NETWORTH STOCK BROKING
LIMITED. Derivative market has excited from centuries as need for
both users and producers of natural resources to hedge against price
fluctuations in underlying commodities, bonds, currencies, stocks and
stock indices.
In the derivatives market Future contract was designed to solve
limitations that existed in Forward contract options are also play major
role in derivative. In Bullish market the Call option Writer incurs more
profit, where as the in Bearish market the Call option holder will incur
more losses and the put option writer will get more profit so he is
suggested to hold as Put option.
Derivatives market is an innovation to Cash market,
approximately its daily turnover reaches to the equal stage of cashmarket. In Cash market the investor has to pay the total money, but in
derivatives investors has to pay premiums or margins, which are some
percentage of total money. Derivatives are mostly used for hedging
purposes. The derivative market is newly started in India and it is not
known by every investor, so SEBI has to take steps to create
awareness among the investors as about the Derivatives segment.
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CHAPTER -1INTRODUCTION
INTRODUCTION
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A derivative is a security whose value depends on the
value of more basic underlying variable. These are also known as
contingent claims. Derivative securities have been very successful
innovation in capital market.
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 in asset prices. By their
very nature, financial markets are marked by a very high degree of
volatility. Through the use of derivative products, is possible to partially
or fully transfer price risks by a locking - in asset prices. As
instruments of risk management, these generally do not influence the
fluctuation in the underlying asset prices.
However, by locking-in asset prices, derivative products
minimize the impact of fluctuations in asset prices on the profitability
and cash flow situation of risk-averse investor.
Derivatives are risk management instruments, which drive their
value form underlying asset. Underlying asset can be bullion, index,
share, bonds, currency, interest etc.
MAIN TOPICS OF STUDY
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1. INTRODUCTION TO DERIVATIVE
The origin of derivatives can be traced back to the need of farmers to
protect themselves against fluctuations in the price of their crop. From
the time it was sown to the time it was ready for harvest, farmers wouldface price uncertainty. Through the use of simple derivative products, it
was possible for the farmer to partially or fully transfer price risks by
locking-in asset prices. These were simple contracts developed to
meet the needs of farmers and were basically a means of reducing
risk.
A farmer who sowed his crop in June faced uncertainty over theprice he would receive for his harvest in September. In years of
scarcity, he would probably obtain attractive prices. However, during
times of oversupply, he would have to dispose off his harvest at a very
low price. Clearly this meant that the farmer and his family were
exposed to a high risk of price uncertainty.
On the other hand, a merchant with an ongoing requirement of grains too would face a price risk that of having to pay exorbitant prices
during dearth, although favorable prices could be obtained during
periods of oversupply. Under such circumstances, it clearly made
sense for the farmer and the merchant to come together and enter into
contract whereby the price of the grain to be delivered in September
could be decided earlier. What they would then negotiate happened to
be futures-type contract, which would enable both parties to eliminate
the price risk.
In 1848, the Chicago Board Of Trade, or CBOT, was established
to bring farmers and merchants together. A group of traders got
together and created the to-arrive contract that permitted farmers to
lock into price upfront and deliver the grain later. These to-arrive
contracts proved useful as a device for hedging and speculation on
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price charges. These were eventually standardized, and in 1925 the
first futures clearing house came into existence.
Today derivatives contracts exist on variety of commodities such
as corn, pepper, cotton, wheat, silver etc. Besides commodities,
derivatives contracts also exist on a lot of financial underlying like
stocks, interest rate, exchange rate, etc.
2. DERIVATIVE DEFINED
A derivative is a product whose value is derived from the value of one
or more underlying variables or assets in a contractual manner. Theunderlying asset can be equity, forex, commodity or any other asset. In
our earlier discussion, we saw that wheat farmers may wish to sell their
harvest at a future date to eliminate the risk of change in price by that
date. Such a transaction is an example of a derivative. The price of this
derivative is driven by the spot price of wheat which is the underlying
in this case.
The Forwards Contracts (Regulation) Act, 1952, regulates the
forward/futures contracts in commodities all over India. As per this the
Forward Markets Commission (FMC) continues to have jurisdiction
over commodity futures contracts. However when derivatives trading in
securities was introduced in 2001, the term security in the Securities
Contracts (Regulation) Act, 1956 (SCRA), was amended to include
derivative contracts in securities. Consequently, regulation of
derivatives came under the purview of Securities Exchange Board of
India (SEBI). We thus have separate regulatory authorities for
securities and commodity derivative markets.
Derivatives are securities under the SCRA and hence the trading of
derivatives is governed by the regulatory framework under the SCRA.
The Securities Contracts (Regulation) Act, 1956 defines derivative to
include-
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A security derived from a debt instrument, share, loan whether secured
or unsecured, risk instrument or contract differences or any other form
of security.
A contract which derives its value from the prices, or index of prices, of
underlying securities.
3. TYPES OF DERIVATIVES MARKET
Exchange Traded Derivatives Over The Counter Derivatives
National Stock Bombay Stock National
Commodity &
Exchange Exchange Derivative
Exchange
Index Future Index option Stock optionStock future
Figure.1 Types of Derivatives Market
4. TYPES OF DERIVATIVES
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Figure.2 Types of Derivatives
(i) FORWARD CONTRACTS
A forward contract is an agreement to buy or sell an asset on a
specified date for a specified price. One of the parties to the contract
assumes a long position and agrees to buy the underlying asset
on a certain specified future date for a certain specified price. The
other party assumes a short position and agrees to sell the asset
on the same date for the same price. Other contract details like
delivery date, price and quantity are negotiated bilaterally by the
parties to the contract. The forward contracts are n o r m a l l y
traded outside the exchanges.
BASIC FEATURES OF FORWARD CONTRACT
They are bilateral contracts and hence exposed to counter-partyrisk.
Each contract is custom designed, and hence is unique in
terms of contract size, expiration date and the asset type and
quality.
The contract price is generally not available in public domain.
On the expiration date, the contract has to be settled by delivery
of theasset.
If the party wishes to reverse the contract, it has to compulsorily
go to the same counter-party, which often results in high
prices being charged.
However forward contracts in certain markets have
become very standardized, as in the case of foreign
exchange, thereby reducing transaction costs and increasingtransactions volume. This process of standardization reaches its
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limit in the organized futures market. Forward contracts are often
confused with futures contracts. The confusion is primarily because
both serve essentially the same economic fun cti ons of
allocating risk in the presence of future price uncertainty. However
futures are a significant improvement over the forward contracts
as they eliminate counterparty risk and offer more liquidity.
(ii) FUTURE CONTRACT
In finance, a futures contract is a standardized contract, traded on a
futures exchange, to buy or sell a certain underlying instrument at a
certain date in the future, at a pre-set price. The future date is called
the delivery date or final settlement date. The pre-set price is called the
futures price. The price of the underlying asset on the delivery date is
called the settlement price. The settlement price, normally, converges
towards the futures price on the delivery date.
A futures contract gives the holder the right and the obligation to buy or
sell, which differs from an options contract, which gives the buyer theright, but not the obligation, and the option writer (seller) the obligation,
but not the right. To exit the commitment, the holder of a futures
position has to sell his long position or buy back his short position,
effectively closing out the futures position and its contract obligations.
Futures contracts are exchange traded derivatives. The exchange acts
as counterparty on all contracts, sets margin requirements, etc.
BASIC FEATURES OF FUTURE CONTRACT
1 . S t a n d a r d i z a t i o n :
Futures contracts ensure their liquidity by being highly standardized,
usually by specifying:
The underlying . This can be anything from a barrel of sweet
crude oil to a short term interest rate.
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The type of settlement, either cash settlement or physical
settlement. The amount and units of the underlying asset per contract. This
can be the notional amount of bonds, a fixed number of barrelsof oil, units of foreign currency, the notional amount of the
deposit over which the short term interest rate is traded, etc. The currency in which the futures contract is quoted. The grade of the deliverable. In case of bonds, this specifies
which bonds can be delivered. In case of physical commodities,
this specifies not only the quality of the underlying goods but
also the manner and location of delivery. The delivery month. The last trading date. Other details such as the tick, the minimum permissible price
fluctuation.
2 . M a r g i n : Although the value of a contract at time of trading should be zero, its
price constantly fluctuates. This renders the owner liable to adverse
changes in value, and creates a credit risk to the exchange, who
always acts as counterparty. To minimize this risk, the exchange
demands that contract owners post a form of collateral, commonly
known as Margin requirements are waived or reduced in some cases
for hedgers who have physical ownership of the covered commodity or
spread traders who have offsetting contracts balancing the position.
Initial Margin: is paid by both buyer and seller. It represents the loss
on that contract, as determined by historical price changes, which is
not likely to be exceeded on a usual day's trading. It may be 5% or
10% of total contract price.
Mark to market Margin: Because a series of adverse price changes
may exhaust the initial margin, a further margin, usually called variation
or maintenance margin, is required by the exchange. This is calculated
by the futures contract, i.e. agreeing on a price at the end of each day,
called the "settlement" or mark-to-market price of the contract.
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forward price represents the expected future value of the underlying
discounted at the risk free rate. Thus, for a simple, non-dividend paying
asset, the value of the future/forward, , will be found by
discounting the present value at time to maturity by the rate of
risk-free return .
This relationship may be modified for storage costs, dividends,
dividend yields, and convenience yields. Any deviation from this
equality allows for arbitrage as follows.
In the case where the forward price is higher:
1. The arbitrageur sells the futures contract and buys theunderlying today (on the spot market) with borrowed money.
2. On the delivery date, the arbitrageur hands over the underlying,and receives the agreed forward price.
3. He then repays the lender the borrowed amount plus interest.4. The difference between the two amounts is the arbitrage profit.
In the case where the forward price is lower:
1. The arbitrageur buys the futures contract and sells theunderlying today (on the spot market); he invests the proceeds.
2. On the delivery date, he cashes in the matured investment,which has appreciated at the risk free rate.
3. He then receives the underlying and pays the agreed forwardprice using the matured investment. [If he was short theunderlying, he returns it now.]
4. The difference between the two amounts is the arbitrage profit.
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FUNCTIONS OF DERIVATIVES MARKETS:
The following are various functions that are performed by the
derivatives markets. They are
1) Prices in an organized derivatives market reflect the perception of
market participants about the future and lead the prices of
underlying to the perceived future level.
2) Derivatives market helps to transfer risks from those who have
them but may not like them to those who have appetite for them.
3) Derivatives, due to their inherent nature, are linked to the underlying
cash markets. With the introduction of derivatives, the underlying
market witnesses higher trading volumes because of participation
by more players who would not otherwise participate for lack of an
arrangement to transfer risk.
4) Speculative trades shift to a more controlled environment of
derivatives market.
5) Derivatives trading acts as a catalyst for new entrepreneurial
activity.
6) They often energize others to create new businesses, new products
and new employment opportunities.
7) Derivatives markets help increase savings and investment in the
long run. Transfer of risk enables market participants to expand
their volume of activity. Derivatives thus promote economic
development.
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METHODOLOGY
The following steps are involved in the study
Selection of scrip: Selection of scrip is done on a random basis and
the scrip selected is NIFTY 50. The lot is of 50 size, profitability
position of futures, buyers and sellers & also the option holders and
option writers is studied.
Data Collection: The data of the NIFTY 50 has been collected from
the news paper & internet.
The data consist of one month contract & period of data collection is
from 27 th Feb. 2009 to 28 th may 2009.
Analysis: The analysis consist of the tabulation of the data assessing
the profitability position of the fure buyers & sellers and also the option
holder & the option writer representing the data with graphs and
making interpretation using data.
SCOPE OF THE STUDY
The study is limited to Derivatives with special references to futures
and options in the Indian context & the NIFTY 50 has been taken as a
representative sample for the study. The study cant be said as totally
perfect. Any alteration may occur. The study has only made humble
attempt at evaluating derivatives only in India markets. The study is not
based on the international perspective of derivatives which exists in
DOW JONES and NASDAQ.
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OBJECTIVES OF STUDY
1. To study various trends in derivative market.
2. Comparison of the profits/losses in cash market and derivativemarket.
3. To find out profit/losses position of the option writer and optionholder.
4. To study in detail the role of the forwards, future and options.
5. To study the role of derivatives in Indian financial market.
6. To find out the risk and returns with live trading values.7. To know how to minimize risk by using STRATEGIES.
8. To give some live examples on options.
LIMITATIONS
The following are the limitations of the study
The Scrip chosen for analysis is Nifty50 and the contract taken
in February 2009 is a one month contract ending in March.
The data collected is completely restricted to the NIFTY 50
hence this analysis cannot be taken universally.
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CHAPTER-2REVIEW OF LITERATURE
DEFINITION
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Derivatives is a product whose value is derived from the one or
more basic Variables, called base (underlying asset, index, or value of
reference rate), in a Contractual manner. The underlying asset can be
equity, forex, commodity or any other asset.
In the Indian context the securities contrasts (regulation) act, 1956
(SCR Act)
Defines derivative as
1) A security derived from an instrument, share, loan whether secured
or unsecured, risk instrument or contract for differences or any other
form of security.
2) A contract, which derives its value from the prices, or index of prices,
or Underlying securities.
Futures contracts, forward contracts, options and swaps are the
most common types of derivatives. Because derivatives are just
contracts, just about based on weather data, such as the amount of
rain or the number of anything can be used as an underlying asset.
There are even derivatives sunny days in a particular region.
Derivatives are generally used to hedge risk, but can also be used
for speculative purposes
EVALUTION OF DERIVATIVES:
Derivatives can be found throughout the history of mankind. In
the Middle Ages, engaging in contracts at predetermined prices for
future delivery of farming products. The new era for the derivative
markets was ushered with the introduction of financial derivatives, and
it continues to last to this day. Although commodity derivatives are stillquite active, particularly oil and precious metals, financial derivatives
dominate trading in the current derivative markets.
Although the derivatives markets slowed down considerably by
the end of the 20th century, that did not mean that there were not a
steady offering of existing, as well as new derivative products.
Derivatives exchanges also went through a period of change; some
consolidated, some merged, some became for-profit institutions.
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Regardless, they all had something in commonthe need for less
regulation.
Aside from structural changes, some derivative exchanges also
changed the way they conducted trading. Old systems of face-to-face
trading on trading floors have been replaced with electronic trading,
and telephone and computer networks. With the advent of Internet,
electronic trading evolved into e-trading. And although trading floors
still dominate derivative markets in the U.S., it is obvious that to stay
competitive, the U.S. will have to eventually embrace electronic trading.
The following factors have contributed to the growth of financial
derivatives
1) Increased volatility in asset prices in financial markets.
2) Increased integration of national financial markets with the
international markets.
3) Marked improvement in communication facilities and sharp
decline in their costs.
4) Development of more sophisticated risk management tools,
providing economic agents a wider choice of risk management
strategies
5) 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 transactions
costs as compared to individual financial assets.
6) Technology facilitates the ability to track the payoffs and riskexposures associated with a portfolio of derivative positions.
7) An important factor in the growth of derivatives market has been
a variety of intellectual advances. The development of economic
models for valuing derivative instruments and assessing their
riskiness and the increasing sophistication of such models have
played a crucial role in the growth of the market.
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PARTICIPANTS:
The following three categories of participants in the derivatives market:1) HEDGERS
2) SPECULATORS
3) ARBITRAGEURS
HEDGERS: Hedgers face risk associated with the price of an asset.
They use futures or options market to reduce or eliminate this risk.
Hedgers are those who protect themselves from the risk associated
with the price of an asset by using derivatives. He keeps a closewatch upon the prices discovered in trading and when the comfortable
price is reflected according to his wants, he sells futures contracts.
Hedgers use futures for protection against adverse future price
movements in the underlying cash commodity. Hedgers are often
businesses, or individuals, who at one point or another deal in the
underlying cash commodity.
SPECULATORS: Speculators are somewhat like a middle man. They
are never interested in actual owing the commodity. They will just buy
from one end and sell it to the other in anticipation of future price
movements. They actually bet on the future movement in the price of
an asset. They are the second major group of futures players. These
participants include independent floor traders and investors. They
handle trades for their personal clients or brokerage firms. Buying a
futures contract in anticipation of price increases is known as going
long. Selling a futures contract in anticipation of a price decrease is
known as going short.
ARBITRAGEIRS: Arbitrators are the person who takes the advantage
of a discrepancy between prices in two different markets. If he finds
future prices of a commodity edging out with the cash price, he will take
offsetting positions in both the markets to lock in a profit. Risk less
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Profit Making is the prime goal of Arbitrageurs. Buying in one market
and selling in another, buying two products in the same market are
common. They could be making money even without putting there own
money in and such opportunities often come up in the market but last
for very short timeframes. This is because as soon as the situation
arises arbitrageurs take advantage and demand-supply forces drive the
markets back to normal.
TYPES OF DERIVATIVES:
The most commonly used derivatives contracts are forwards, futures
and options. Here are various derivatives contacts that have come to
be used given briefly: FORWARDS FUTURES OPTIONS WARRANTS LEAPS
SWAPS SWAPTIONS
FORWARDS: 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 tobuy 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
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Calls option gives 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.
Put option give the buyer the right, but not the obligation to sell a
given quantity of the underlying asset at a given price on or before a
given date.
Warrants: Options generally have lives of up to one year, the majority
of options traded on options exchanges having a maximum maturity of
nine months. Longer-dated options are called warrants and are
generally traded over-the-counter.
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. The two
commonly used swaps are
Interest rate swaps : These entail swapping only the interest
related cash flows between the parties in the same currency.
Currency swaps : These entail swapping both principal and
interest between the parties, with the cash flows in one direction being
in a different currency than those in the opposite direction
LEAPS: The acronym LEAPS means Long-Term Equity Anticipation
Securities. These are options having a maturity of up to three years.
Swaptions: Swaptions are options to buy or sell a swap that will
become operative at the expiry of the options. Thus a swaption is an
option on a forward swap. Rather than have calls and puts, the
swaptions market has receiver swaptions and payer swaptions. A
receiver swaption is an option to receive fixed and pay floating. A payer
swaption is an option to pay fixed and receive floating.
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FUTURES
DEFINITION:
A future is a contract between two parties whereby the one party
(the buyer) agrees to buy an underlying asset from the other party tothe contract on a specific future date, and at a price determined at the
close of the contract. A future is a derivative that is used to transfer the
price risk of the underlying instrument from one party to another.
The underlying asset can be a financial asset such as a bond, a
currency such as US dollars, a commodity, etc.
A future is normally classified according to the underlying
instrument. Where, for instance, two parties agree to buy and sell a
specific quantity of rice (of a certain quality) at a certain price on a
future date, the contract will be a commodity futures contract .
Where two parties agree to buy and sell bonds, this will be known as a
financial futures contract , and where two parties agree to buy and
sell a certain amount of foreign currency, this is a currency futures
contract.
FEATURES OF FUTURES:
Futures are highly standardized. The contracting parties need not pay any down payments. Hedging of price risks. They have secondary markets to.
A futures contract is thus
an agreement between two parties to buy and sell a standardized type and quantity of a specified underlying asset with a certain quality at a price determined at the closing of the contract
on a specified date
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Through a central exchange.
TYPES OF FUTURES:
On the basis of the underlying asset they derive, the futures are
divided in to two types:1) Stock futures:
The stock futures are the futures that have the underlying asset as the
individual securities. The settlement of the stock futures is of cash
settlement and the settlement price of the future is the closing price of
the underlying security.
2) Index futures:Index futures are the futures, which have the underlying
asset as an index. The index futures are also cash settled. The
settlement price of the index futures shall be the closing value of the
underlying index on the expiry date of the contract.
PARTIES IN FUTURES CONTRACT:
There are two parties in a future contract, the buyer and seller. The
buyer of the futures contract is one who LONG on the futures contract
and the seller of the futures contract is who is SHORT on the futures
contract.
In a futures contract, both parties have an obligation, one to buy the underlying instrument The other to sell the underlying instrument.
Both the buyer and the seller can make a profit or suffer a loss, due to
the fact that the contract price (at which the underlying instrument is
bought and sold) is determined at closing of the contract. If the market
price at the delivery date is lower than the futures contract price, the
buyer suffers a loss because he could have bought the instrument in
the market at a lower price. He is now obliged, according to the
contract, to buy the underlying instrument at the higher price specified
in the contract. The opposite applies when the market value of the
underlying instrument is above the futures contract price. The buyer
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can now buy the underlying instrument at the lower contract price, and
sell the instrument immediately at the higher market price, thus making
an immediate profit.
The pay off for the buyer and the seller of the futures of the contracts
are as follows:
PAY-OFF FOR A BUYER OF FUTURES
F- FUTURES PRICEE1, E2 SETTLEMENT PRICE
CASE 1:- The buyer bought the futures contract at (F); if the futuresprice goes to E1 then the buyer gets the profit of (FP).
CASE 2:- The buyer gets loss when the future price goes less then (F),if the future price goes to E2 then the buyer gets the loss of
(FL).
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F
LOSS
PROFIT
E2P
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PAY- OFF FOR A SELLER OF FUTURES
F- FUTURES PRICE
E1, E2 SETTLEMENT PRICECASE 1:- The seller sold the future contract at (f); if the future goes to
E1 then the seller gets the profit of (FP).
CASE 2: - The seller gets loss when the future price goes greater than
(F), if the future price goes to E2 then the seller gets the loss of (FL).
FUTURES TERMINOLOGY
Spot price:It is the price at which an asset is traded in the current market.
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E2
PROFIT
LOSS
E1
P
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Futures price:It is the price at which the futures contract trades in the futures
market.
Contract cycle:It is the period over which the contract trades. The index futures
contracts on the NSE have one-month; two-month and three monthexpiry cycle which expire on the last Thursday of the month. Thus aJanuary expiration contract expires on the last Thursday of Januaryand February expiration contract ceases trading on the last Thursdayof February. On the Friday following the last Thursday, a new contracthaving a three- month expiry is introduced for trading.
Expiry date:
It is the date specifies in the futures contract. This is the lastday 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 50
nifties.
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 contract. In a normal market, basis will be
positive. This reflects that futures prices normally exceed spot prices.
Cost carry:
The relationship between futures prices and spot prices can be
summarized in terms of what is known as the cost of carry. Thismeasures the storage cost plus the interest that is paid to finance the
asset less income earned on the asset.
Open Interest:
Total outstanding long or short position in the market at any
specific time. As total long positions in the market would be equal to
short position, for calculation of open interest, only one side of the
contract is counter.
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OPTIONS
DEFINITION:Option is a type of contract between two persons where one
grants the other the right to buy a specific asset at a specific price
within a specific time period. Alternatively the contract may grant the
other person the right to sell a specific asset at a specific price within a
specific time period. In order to have this right, the option buyer has to
pay the seller or the option premium.
The assets on which option can be derived are stocks,commodities, indexes etc. If the underlying asset is the financial asset,
then the option are financial option like stock options, currency options,
index options etc, and if options like commodity option.
Options contracts are instruments that give the holder of the
instrument the right to buy or sell the underlying asset at a
predetermined price.
PROPERTIES OF OPTIONS:
Options have several unique properties that set them apart from other
securities. The following are the properties of options: Limited Loss High Leverage Potential Limited Life
PARTIES IN AN OPTION CONTRACT:
1. Buyer of the Option:
The buyer of an option is one who by paying option premium buys the
right but not the obligation to exercise his option on seller/writer.
2. Writer/Seller of the Option:
The writer of a call/put options is the one who receives the option
premium and is there by obligated to sell/buy the asset if the buyer
exercises the option on him.
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TYPES OF OPTIONS:
The options are classified into various types on the basis of various
variables. The following are the various types of options:
I). On the basis of the Underlying asset:On the basis of the underlying asset the options are divided into two
types:
INDEX OPTIONS: The Index options have the underlying asset
as the index.
STOCK OPTIONS: A stock option gives the buyer of the option
the right to buy/sell stock at a specified price. Stock options are
options on the individual stocks, there are currently more than
50 stocks are trading in this segment.
II). On the basis of the market movement:
On the basis of the market movement the options are divided into two
types.
CALL OPTION:
A call options is bought by an investor when he seems that the stock
price moves upwards. A call option gives the holder of the option the
right but not the obligation to buy an asset by a certain date for a
certain price.
PUT OPTION:
A put option is bought by an investor when he seems that the
stock price moves downwards. A put option gives the holder of the
option right but not the obligation to sell an asset by a certain date for a
certain price.
III). On the basis of exercise of option:
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On the basis of the exercising of the option, the options are classified
into two categories.
AMERICAN OPTION:American options are options that can be exercised at any
time up to the expiration date; most exchange-traded options are
American. EUROPEAN OPTION:
European options are options that can be exercised only
on the expiration date itself. European options are easier to analyze
than American option.
Call option
The following example would clarify the basics on Call Options.
Illustration 1:
An investor buys one European Call option on one share of Reliance
Petroleum at a premium of Rs. 2 per share on 31 July. The strike price
is Rs.60 and the contract matures on 30 September. The payoffs for
the investor on the basis of fluctuating spot prices at any time are
shown by the payoff table (Table 1). It may be clear form the graph that
even in the worst case scenario, the investor would only lose a
maximum of Rs.2 per share which he/she had paid for the premium.
The upside to it has an unlimited profits opportunity.
On the other hand the seller of the call option has a payoff chart
completely reverse of the call options buyer. The maximum loss that he
can have is unlimited though a profit of Rs.2 per share would be made
on the premium payment by the buyer.
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A European call option gives the following payoff to the investor:
Max (S - Xt, 0).
The seller gets a payoff of: -max (S - Xt, 0) or min (Xt - S, 0).
Notes:
S - Stock Price
Xt - Exercise Price at time 't 1
C - European Call Option PremiumPayoff - Max (S - Xt, O)
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Net Profit - Payoff minus 'c'
Exercising the Call Option and what are its implications for the
Buyer and the Seller?
The Call option gives the buyer a right to buy the requisite shares on a
specific date at a specific price. This puts the seller under the obligation
to sell the shares on that specific date and specific price. The CallBuyer exercises his option only when he/ she feel it is profitable. This
Process is called "Exercising the Option". This leads us to the fact that
if the spot price is lower than the strike price then it might be profitable
for the investor to buy the share in the open market and forgo the
premium paid. The implications for a buyer are that it is his/her decision
whether to exercise the option or not. In case the investor expects
prices to rise far above the strike price in the future then he/she would
surely be interested in buying call options. On the other hand, if the
seller feels that his shares are not giving the desired returns and they
are not going to perform any better in the future, a premium can be
charged and returns from selling the call option can be used to make
up for the desired returns. At the end of the options contract there is an
exchange of the underlying asset. In the real world, most of the deals
are closed with another counter or reverse deal. There is no
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requirement to exchange the underlying assets then as the investor
gets out of the contract just before its expiry.
Put Options :
The European Put Option is the reverse of the call option deal. Here,
there is a contract to sell a particular number of underlying assets on a
particular date at a specific price. An example would help understand
the situation a little better:
Illustration 2:
An investor buys one European Put Option on one share of Reliance
Petroleum at a premium of Rs. 2 per share on 31 July. The strike price
is Rs.60 and the contract matures on 30 September. The payoff table
shows the fluctuations of net profit with a change in the spot price.
The payoff for the put buyer is: max (Xt - S, 0)The payoff for a put writer is: -max (Xt - S, 0) or min(S - Xt, 0)
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These are the two basic options that form the whole gamut of
transactions in the options trading. These in combination with other
derivatives create a whole world of instruments to choose form
depending on the kind of requirement and the kind of marketexpectations.
Exotic Options are often mistaken to be another kind of option. They
are nothing but non-standard derivatives and are not a third type of
option.
Options Classifications: Options are often classified as
In the money - These result in a positive cash flow towards the
investor
At the money - These result in a zero-cash flow to the investor
Out of money - These result in a negative cash flow for the
investor
Example:
Calls
Reliance 350 Stock Series
Naked Options: These are options which are not combined with an
offsetting contract to cover the existing positions.
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Covered Options: These are option contracts in which the shares are
already owned by an investor (in case of covered call options) and in
case the option is exercised then the offsetting of the deal can be done
by selling these shares held.
OPTIONS PRICING
Prices of options are commonly depending upon six factors.
Option's prices are far more complex. These are the two basic options
that form the whole gamut of transactions in the options trading. These
in combination with other derivatives create a whole world of
instruments to choose form depending on the kind of requirement andthe kind of market expectations. Exotic Options are often mistaken to
be another kind of option. They are nothing but non-standard
derivatives and are not a third type of option.
Options undertakings:
Stocks
Foreign Currencies
Stock Indices
Commodities
Others - Futures Options, are options on the futures contracts or
Underlying assets are futures contracts. The futures contract generally
matures shortly after the options expiration.
OPTIONS PRICING
Prices of options are commonly depending upon six factors. Option's
prices are far more complex. The table below helps understand the
affect of each of these factors and gives a broad picture of option
pricing keeping all other factors constant. The table presents the case
of European as well as American Options.
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EFFECT OF INCREASE IN THE RELEVANT PARAMETRE ON
OPTION PRICES
SPOT PRICES: In case of a call option the payoff for the buyer ismax(S -Xt, 0) therefore, more the Spot Price more is the payoff and it is
favorable for the buyer. It is the other ways round for the seller, more
the Spot Price higher are the chances of his going into a loss.
In case of a put Option, the payoff for the buyer is max (Xt - S, 0)
therefore, more the Spot Price more are the chances of going into a
loss. It is the reverse for Put Writing.
STRIKE PRICE: In case of a call option the payoff for the buyer is
shown above. As per this relationship a higher strike price would
reduce the profits for the holder of the call option.
TIME TO EXPIRATION: More the time to Expiration more favorable is
the option. This can only exist in case of American option as in case of
European Options the Options Contract matures only on the Date of
Maturity.
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VOLATILITY: More the volatility, higher is the probability of the option
generating higher returns to the buyer. The downside in both the cases
of Call and put is fixed but the gains can be unlimited. If the price falls
heavily in case of a call buyer then the maximum that he loses is the
premium paid and nothing more than that. More so he/ she can buy the
same shares form the spot market at a lower price.
Similar is the case of the put option buyer. The table shows all effects
on the buyer side of the contract.
RISK FREE RATE OF INTEREST: In reality the r and the stock market
is inversely related. But theoretically speaking, when all other variables
are fixed and interest rate increases this leads to a double effect:
Increase in expected growth rate of stock prices discounting factor
increases making the price fall.
In case of the put option both these factors increase and lead to a
decline in the put value. A higher expected growth leads to a higher
price taking the buyer to the position of loss in the payoff chart. The
discounting factor increases and the future value become lesser.
In case of a call option these effects work in the opposite direction/The
first effect is positive as at a higher value in the future the call option
would be exercised and would give a profit. The second affect is
negative as is that of discounting. The first effect is far more dominant
than the second one, and he overall effect is favorable on the call
option.
DIVIDENDS: When dividends are announced then the stock prices on
ex-dividend are reduced. This is favorable for the put option and
unfavorable for the call option.
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CALL OPTION:
C = SN (dl)-Xe" rtN(d2)
PUT OPTION:
p = xe^NC-oa-SNC-oa)
Where
C - VALUE OF CALL OPTION
S - SPOT PRICE OF STOCK
X - STRIKE PRICE
r - ANNUAL RISK FREE RETURN
t - CONTRACT CYCLE
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CHAPTER-3COMPANY PROFILE
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Incorporated in 1993, Net worth Stock Broking Limited (NSBL) has
been a listed company at Bombay Stock Exchange (BSE), Mumbai since 1995.
A Member, at the National Stock Exchange of India (NSE) and Bombay Stock
Exchange, Mumbai (BSE) on the Capital Market and Derivatives (Futures &
Options) segment, NSBL has been traditionally servicing Institutional clients
and in the recent past has forayed into retail broking, establishing branches
across the country. Presence is being marked in the Middle East, Europe and the
United States too, as part of our attempts to cater to global markets. We are a
Depository participant at Central Depository Services India (CDSL) with plans
to become one at National Securities Depository (NSDL) by the end of this
quarter. We have our customers participating in the booming commodities
markets with our membership at the Multi Commodity Exchange of India
(MCX) and National Commodity & Derivatives Exchange (NCDEX), through
Networth Stock.Com Ltd. With its strong support and business units of
research, distribution & advisory, NSBL aims to become a one-stop solution to
the broking and investment needs of its clients, globally.
Strong team of professionals experienced and qualified pool of human
resources drawn from top financial service & broking houses form the backbone
of our sizeable infrastructure. Highly technology oriented, the companys
scalability of operations and the highest level of service standards has ensured
rapid growth in the number of locations & the clients serviced in a very short
span of time. Networthians, as each one of our 400 plus and ever growing
team members are addressed, is a dedicated team motivated to continuously
progress by imbibing the best of global practices, Indian sing
such practices, and to constantly evolve a comprehensive suite of products &
services trying to meet every financial / investment need of the clients.
NSE CM and Derivatives Segment SEBI Regn. 1NB230638639 &
1NF230638639
BSE CM and Derivatives Segment SEBI Regn. 1NB010638634 &
PMS SEBI Regn. 1NP000001371 CDSL DP SEBI Regn. IN-DP-CDSL 251-
2004
Commodities Trading : MCX -10585 and NCDEX - 00011 (through Networth
Stock.ComHyderabad (Somajiguda)
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401, Dega Towers, 4th Floor, Raj Bhavan Road, Somajiguda Hyderabad - 500
082
Andhra Pradesh. Phone Nos.: 040-55560708, 55562256, and 30994985
Mumbai (MF Division)
49, Au Chambers, 4th Floor, Tamarind Lane, Fort Mumbai - 400 001
Maharashtra.
Phone Nos.: 022- 22650253
Mumbai (Registered Office)
5, Church gate House, 2nd Floor, 32/ 34 Veer Nariman Road, Fort
Mumbai - 400 001
Products and services portfolio
With greater choices comes greater value. Networth offers you more choices by
providing a wide array of products and personalized services, so you can take
charge of your financial future with confidence. So whether you are a new
investor or a seasoned one, we have the resources and advice you would need to
make smart, well-researched investments and help you grow your Networth.
1 Retail and institutional broking
2 Research for institutional and retail clients
3 Distribution of financial products
* Mutual funds
* Insurance
* NBFC Loans
4 PMS
5 Corporate finance
6 Net trading7 Depository services
8 Commodities Broking
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Infrastructure1 A corporate office and 3 divisional offices in CBD of Mumbai which
houses state-of-the-art dealing room, research wing & management and
back offices.
2 All of 107 branches and franchisees are fully wired and connected to
hub at corporate office at Mumbai. Add on branches also will be wired
and connected to central hub
3 Web enabled connectivity and software in place for net trading.
4 60 operative IDs for dealing room
5 In house technology back up team to ensure un-interrupted connectivity.
1993: Networth Started with 300 Sq.ft. of office space & 10 employees
2006: Spread over 42 cities (around 70,000 Sq.ft of office space) with over 107
branches & employee strength over 400
Market & research
Focusing on your needs
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Every investor has different needs, different preferences, and different
viewpoints. Whether investor prefer to make own investment decisions or desire
more in-depth assistance, company committed to providing the advice and
research to help you succeed.
Networth providing following services to their customers,
Daily Morning Notes Market Musing Company
Reports
Theme Based Reports Weekly Notes IPOs
Sector Reports Stock Stance Pre-guarter/Updates
Bullion Tracker F&O Tracker.
Key Personnel:Mr. S P Jain CMD Networth Stock Broking Ltd.
Mr. Deepak Mehta Head PMS
Mr. Viral Doshi Equity Strategist
1 Mr. Vinesh Jain Asst. Fund Manager
OUR GROUP COMPANIES
Networth Stock Broking Ltd. [NSBL]
NSBL is a member of the National Stock Exchange of India Ltd (NSE) and the
Bombay Stock Exchange Ltd (BSE) in the Capital Market and Derivatives
(Futures & Options) segment. NSBL has also acquired membership of the
currency derivatives segment with NSE, BSE & MCX-SX. It is Depository
participants with Central Depository Services India (CDSL) and National
Securities Depository (India) Limited (NSDL). With a client base of over 1L
loyal customers, NSBL is spread across the country though its over 300+
branches. NSBL is listed on the BSE since 1994.
Net worth Wealth Solutions Ltd. [NWSL]
Net worth Commodities & Investments Limited [NCIL]
Net worth Soft Tech Ltd. [NSL]
Ravisha Financial Services Pvt. Ltd. [RFSL]
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Principles & Values
At Net worth Stock Broking Ltd. success is built on teamwork, partnership and
the diversity of the people.
At the heart of our values lie diversity and inclusion. They are a fundamental part of our culture, and constitute a long-term priority in our aim to become the
world's best international bank.
Values
Responsive
Trustworthy
Creative Courageous
Approach
Participation:- Focusing on attractive, growing markets where we can
leverage our relationships and expertise
Competitive positioning:- Combining global capability, deep local
knowledge and creativity to outperform our competitors Management Discipline:- Continuously improving the way we work,
balancing the pursuit of growth with firm control of costs and risks
Commitment to stakeholders
Customers:- Passionate about our customers' success, delighting them
with the quality of our service
Our People:- Helping our people to grow, enabling individuals to make
a difference and teams to win
Communities:- Trusted and caring, dedicated to making a difference
Investors:- A distinctive investment delivering outstanding performance
and superior returns
Regulators: - Exemplary governance and ethics wherever we are.
MARKET PROFILE
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NATIONAL STOCK EXCHANGE
The National Stock Exchange of India (NSE) situated in Mumbai
- is the largest and most advanced exchange with 1016 companies
listed and 726 trading members. Capital market reforms in India and
the launch of the Securities and Exchange Board of India (SEBI)
accelerated the incorporation of the second Indian stock exchange
called the National Stock Exchange (NSE) in 1992. After a few years of
operations, the NSE has become the largest stock exchange in India.
Three segments of the NSE trading platform were established one after
another. The Wholesale Debt Market (WDM) commenced operations in
June 1994 and the Capital Market (CM) segment was opened at the
end of 1994. Finally, the Futures and Options segment began
operating in 2000. Today the NSE takes the 14th position in the top 40
futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNXNifty and CNX Junior Indices that make up 100 most liquid stocks in
India. CNX Nifty is a diversified index of 50 stocks from 25 different
economy sectors. The Indices are owned and managed by India Index
Services and Products Ltd (IISL) that has a consulting and licensing
agreement with Standard & Poor's.
In 1998, the National Stock Exchange of India launched its web-site
and was the first exchange in India that started trading stock on theInternet in 2000. The NSE has also proved its leadership in the Indian
financial market by gaining many awards such as 'Best IT Usage
Award' by Computer Society in India (in 1996 and 1997) and CHIP
Web Award by CHIP magazine (1999).
The NSE is owned by the group of leading financial institutions such as
Indian Bank or Life Insurance Corporation of India. However, in the
totally de-mutualized Exchange, the ownership as well as the
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management does not have a right to trade on the Exchange. Only
qualified traders can be involved in the securities trading.
The NSE is one of the few exchanges in the world trading all types of
securities on a single platform, which is divided into three segments:
Wholesale Debt Market (WDM), Capital Market (CM), and Futures &
Options (F&O) Market.
Each segment has experienced a significant growth throughout a few
years of their launch. While the WDM segment has accumulated the
annual growth of over 36% since its opening in 1994, the CM segment
has increased by even 61% during the same period. The National
Stock Exchange of India has stringent requirements and criteria for the
companies listed on the Exchange. Minimum capital requirements,
project appraisal, and company's track record are just a few of the
criteria. In addition, listed companies pay variable listing fees based on
their corporate capital size.
The National Stock Exchange of India Ltd. provides its clients with a
single, fully electronic trading platform that is operated through a VSAT
network. Unlike most world exchanges, the NSE uses the satellite
communication system that connects traders from 345 Indian cities.
The advanced technologies enable up to 6 million trades to be
operated daily on the NSE trading platform.
NSE Nifty:
The S&P CNX Nifty (nicknamed Nifty 50 or simply Nifty), is the leading
index for large companies on the National Stock Exchange of India.
S&P CNX Nifty is a well diversified 50 stock index accounting for 22
sectors of the economy. It is used for a variety of purposes such asbenchmarking fund portfolios, index based derivatives and index funds.
Nifty was developed by the economists Ajay Shah and Susan Thomas,
then at IGIDR. Later on, it came to be owned and managed by India
Index Services and Products Ltd. (IISL), which is a joint venture
between NSE and CRISIL. IISL is India's first specialized company
focused upon the index as a core product. IISL have a consulting and
licensing agreement with Standard & Poor's (S&P), who are worldleaders in index services.
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CNX stands for CRISIL NSE Indices. CNX ensures common branding
of indices, to reflect the identities of both the promoters, i.e. NSE and
CRISIL. Thus, 'C' stands for CRISIL, 'N' stands for NSE and X stands
for Exchange or Index. The S&P prefix belongs to the US-based
Standard & Poor's Financial Information Services.
NSE other indices:
S&P CNX Nifty
CNX Nifty Junior
CNX 100
S&P CNX 500
CNX MidcapS&P CNX Defty
CNX Midcap 200
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BOMBAY STOCK EXCHANGE:
The Bombay Stock Exchange Limited (formerly, The Stock Exchange,
Mumbai; popularly called The Bombay Stock Exchange, or BSE) is the
oldest stock exchange in Asia . It is located at Dalal Street, Mumbai ,
India .
Bombay Stock Exchange was established in 1875 . There are around
5,600 Indian companies listed with the stock exchange, and has a
significant trading volume. As of October 2006 , the market capitalization
of the BSE was about Rs. 33.4 trillion (US $ 730 billion). The BSE
SENSEX (Sensitive index), also called the BSE 30, is a widely used
market index in India and Asia . As of 2005, it is among the 5 biggest
stock exchanges in the world in terms of transactions volume.
History:
An informal group of 22 stockbrokers began trading under a banyan
tree opposite the Town Hall of Bombay from the mid- 1850s, 1875 , was
formally organized as the Bombay Stock Exchange (BSE).In January
1899 , the stock exchange moved into the Brokers Hall after it was
inaugurated by James M MacLean. After the First World War , the BSE
was shifted to an old building near the Town Hall. In 1956 , the
Government of India recognized the Bombay Stock Exchange as the
first stock exchange in the country under the Securities Contracts
(Regulation) Act .1995, when it was replaced by an electronic
(e.trading ) system named BOLT, or the BSE Online Trading system. In
2005 , the status of the exchange changed from an Association of
Persons (AoP) to a fully fledged corporation under the BSE
(Corporatization and Demutualization) Scheme , 2005 (and its namewas changed to The Bombay Stock Exchange Limited).
BSE Sensex:
The BSE SENSEX (also known as the BSE 30) is a value-weighted
index composed of 30 scrips, with the base April 1979 = 100. The set
of companies which make up the index has been changed only a few
times in the last 20 years. These companies account for around one-
fifth of the market capitalization of the BSE.
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http://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/1875http://en.wikipedia.org/wiki/2006http://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Indian_Rupeehttp://en.wikipedia.org/wiki/Trillionhttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Stockbrokerhttp://en.wikipedia.org/wiki/Banyanhttp://en.wikipedia.org/wiki/Town_Hall_(Bombay)http://en.wikipedia.org/wiki/1850http://en.wikipedia.org/wiki/1875http://en.wikipedia.org/wiki/1899http://en.wikipedia.org/w/index.php?title=James_M_Maclean&action=edithttp://en.wikipedia.org/wiki/First_World_Warhttp://en.wikipedia.org/wiki/1956http://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/w/index.php?title=Securities_Contracts_(Regulation)_Act&action=edithttp://en.wikipedia.org/w/index.php?title=Securities_Contracts_(Regulation)_Act&action=edithttp://en.wikipedia.org/wiki/1995http://en.wikipedia.org/wiki/ETradinghttp://en.wikipedia.org/w/index.php?title=BOLT&action=edithttp://en.wikipedia.org/w/index.php?title=BSE_OnLine_Trading&action=edithttp://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/w/index.php?title=BSE_(Corporatization_and_Demutualization)_Scheme&action=edithttp://en.wikipedia.org/w/index.php?title=BSE_(Corporatization_and_Demutualization)_Scheme&action=edithttp://en.wikipedia.org/wiki/1979http://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/1875http://en.wikipedia.org/wiki/2006http://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Indian_Rupeehttp://en.wikipedia.org/wiki/Trillionhttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Stockbrokerhttp://en.wikipedia.org/wiki/Banyanhttp://en.wikipedia.org/wiki/Town_Hall_(Bombay)http://en.wikipedia.org/wiki/1850http://en.wikipedia.org/wiki/1875http://en.wikipedia.org/wiki/1899http://en.wikipedia.org/w/index.php?title=James_M_Maclean&action=edithttp://en.wikipedia.org/wiki/First_World_Warhttp://en.wikipedia.org/wiki/1956http://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/w/index.php?title=Securities_Contracts_(Regulation)_Act&action=edithttp://en.wikipedia.org/w/index.php?title=Securities_Contracts_(Regulation)_Act&action=edithttp://en.wikipedia.org/wiki/1995http://en.wikipedia.org/wiki/ETradinghttp://en.wikipedia.org/w/index.php?title=BOLT&action=edithttp://en.wikipedia.org/w/index.php?title=BSE_OnLine_Trading&action=edithttp://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/w/index.php?title=BSE_(Corporatization_and_Demutualization)_Scheme&action=edithttp://en.wikipedia.org/w/index.php?title=BSE_(Corporatization_and_Demutualization)_Scheme&action=edithttp://en.wikipedia.org/wiki/19798/2/2019 Derivtives Nifty
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SENSEX , first compiled in 1986 was calculated on a "Market
Capitalization-Weighted" methodology of 30 component stocks
representing a sample of large, well-established and financially sound
companies. The base year of SENSEX is 1978-79. The index is widely
reported in both domestic and international markets through print as
well as electronic media. SENSEX is not only scientifically designed
but also based on globally accepted construction and review
methodology. From September 2003, the SENSEX is calculated on a
free-float market capitalization methodology. The "free-float Market
Capitalization-Weighted" methodology is a widely followed index
construction methodology on which majority of global equity
benchmarks are based.
The growth of equity markets in India has been phenomenal in the
decade gone by. Right from early nineties the stock market witnessed
heightened activity in terms of various bull and bear runs. More
recently, the bourses in India witnessed a similar frenzy in the 'TMT'
sectors. The SENSEX captured all these happenings in the most
judicial manner. One can identify the booms and bust of the Indian
equity market through SENSEX.
The values of all BSE indices are updated every 15 seconds during the
market hours and displayed through the BOLT system, BSE website
and news wire agencies.
SENSEX calculation: SENSEX is calculated using a "Market
Capitalization-Weighted" methodology. As per this methodology, the
level of index at any point of time reflects the total market value of 30component stocks relative to a base period. (The market capitalization
of a company is determined by multiplying the price of its stock by the
number of shares issued by the company). An index of a set of
combined variables (such as price and number of shares) is commonly
referred as a 'Composite Index' by statisticians. A single indexed
number is used to represent the results of this calculation in order to
make the value easier to work with and track over time. It is mucheasier to graph a chart based on indexed values than one based on
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actual values.
The base period of SENSEX is 1978-79. The actual total
market value of the stocks in the Index during the base period has
been set equal to an indexed value of 100. This is often indicated by
the notation 1978-79=100. The formula used to calculate the Index is
fairly straightforward. However, the calculation of the adjustments to
the Index (commonly called Index maintenance) is more complex.
The calculation of SENSEX involves dividing the total market
capitalization of 30 companies in the Index by a number called the
Index Divisor. The Divisor is the only link to the original base period
value of the SENSEX. It keeps the Index comparable over time and is
the adjustment point for all Index maintenance adjustments. During
market hours, prices of the index scrips, at which latest trades are
executed, are used by the trading system to calculate SENSEX every
15 seconds and disseminated in real time. During market hours, prices
of the index scrips, at which trades are executed, are automatically
used by the trading computer to calculate the SENSEX every 15
seconds and continuously updated on all trading workstations
connected to the BSE trading computer in real time.
BSE - other Indices:
Apart from BSE SENSEX, which is the most popular stock index in
India, BSE uses other stock indices as well:
BSE 500
BSE PSU
BSE MIDCAP
BSE SMLCAP
BSE BANKEX
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BSE SENSEX 2009 is calculated based on the 30scrips. Those thirty
scrips are as
Follows:
Code Name Sector
500410 ACC Ltd. Housing Related
500103 Bharat Heavy Electricals Ltd. Capital Goods
Code Name Sector
532454 Bharti Airtel Ltd. Telecom
532868 DLF Ltd. Housing Related
500300 Grasim Industries Ltd. Diversified
500010 HDFC Finance
500180 HDFC Bank Ltd. Finance
500440 Hindalco Industries Ltd. Metal,Metal Products &
Mining
500696 Hindustan Unilever Ltd. FMCG
532174 ICICI Bank Ltd. Finance
500209 Infosys Technologies Ltd. Information Technology
500875 ITC Ltd. FMCG
532532 Jaiprakash Associates Ltd. Housing Related
500510 Larsen & Toubro Limited Capital Goods
500520 Mahindra & Mahindra Ltd. Transport Equipments
532500 Maruti Suzuki India Ltd. Transport Equipments
532555 NTPC Ltd. Power
500312 ONGC Ltd. Oil & Gas
500359 Ranbaxy Laboratories Ltd. Healthcare
532712 Reliance Communications Limited Telecom
500325 Reliance Industries Ltd. Oil & Gas
500390 Reliance Infrastructure Ltd. Power
500376 Satyam Computer Services Ltd. Information Technology
500112 State Bank of India Finance
500900 Sterlite Industries (India) Ltd. Metal,Metal Products & Mining532540 Tata Consultancy Services Limited Information Technology
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500570 Tata Motors Ltd. Transport Equipments
500400 Tata Power Company Ltd. Power
500470 Tata Steel Ltd. Metal,Metal Products &
Mining
507685 Wipro Ltd. Information Technology
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CHAPTER -4
DATA ANALASYS
AND INTERPRETATION
ANALYSIS AND INTERPRETATION
July 2011 NIFTY FUURE CONTRACTSymbo Date Expiry Open High Low Close
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lNIFTY 1-Jul-11 28-Jul-
115700.
25702 5616.
255638.
4NIFTY 4-Jul-11 28-Jul-
115659.
95690 5642.
35665.
85
NIFTY 5-Jul-11 28-Jul-11 5668 5670 5628. 25 5651.1NIFTY 6-Jul-11 28-Jul-
115642.
65667.
55617.
55636.
65NIFTY 7-Jul-11 28-Jul-
115649.
85751.
65641 5744.
6NIFTY 8-Jul-11 28-Jul-
115760 5760 5661 5672.
3NIFTY 11-Jul-
1128-Jul-
115652.
155659 5605.
15617.
05NIFTY 12-Jul-
1128-Jul-
115587.
35593.
455502.
155539.
95NIFTY 13-Jul-
1128-Jul-
115551 5609.
95550 5599.
75NIFTY 14-Jul-
1128-Jul-
115574.
45667.
055546.
15600.
25NIFTY 15-Jul-
1128-Jul-
115606 5640 5563.
55586.
95NIFTY 18-Jul-
1128-Jul-
115590 5609 5560.
055572.
75NIFTY 19-Jul-
1128-Jul-
115662.
15662.
15561.
655624.
3NIFTY 20-Jul-
1128-Jul-
115651.
25658.
95554.
055569.
55NIFTY 21-Jul-
1128-Jul-
115559.
85586 5532.
55544.
2NIFTY 22-Jul-
1128-Jul-
115590.
15652.
85573.
255645.
55NIFTY 25-Jul-
1128-Jul-
115630 5709.
85616.
15690.
65NIFTY 26-Jul-
1128-Jul-
115700 5708.
95555.
555574.
35NIFTY 27-Jul-
1128-Jul-
115588.
85588.
85518.
255547.
9
NIFTY 28-Jul-11 28-Jul-11 5500 5517.05 5473 5492. 7
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5800 CALL OPTION FOR JULY 2011
Symbol
Date Expiry StrikePrice
Open High Low Close
NIFTY 1-Jul-11 28-Jul-11 580
0
60 60 34.3 39.25
NIFTY 4-Jul-11 28-Jul-11 5800
51.85 52.5 37.75 41
NIFTY 5-Jul-11 28-Jul-11 5800
41.6 42 31.05 35.9
NIFTY 6-Jul-11 28-Jul-11 5800
32.95 39.8 27 30.2
NIFTY 7-Jul-11 28-Jul-11 5800
31.05 69.95 30.15 66.45
NIFTY 8-Jul-11 28-Jul-11 5800
72 72.6 34.35 38.3
NIFTY 11-Jul-11 28-Jul-11 580 0 34.65 35.95 22 24.45NIFTY 12-Jul-
1128-Jul-11 580
016.1 18.7 11.1 14.65
NIFTY 13-Jul-11
28-Jul-11 5800
25 25 14.1 18.65
NIFTY 14-Jul-11
28-Jul-11 5800
16.5 27.3 12.15 16.75
NIFTY 15-Jul-11
28-Jul-11 5800
16.85 20.65 10.85 12.35
NIFTY 18-Jul-11
28-Jul-11 5800
10.95 13.35 7.2 7.65
NIFTY 19-Jul-11
28-Jul-11 5800
6.55 14.5 6.05 11.75
NIFTY 20-Jul-11
28-Jul-11 5800
13.25 14.2 4.6 5.3
NIFTY 21-Jul-11
28-Jul-11 5800
4.05 5.5 2.8 3.2
NIFTY 22-Jul-11
28-Jul-11 5800
4.2 8.5 3.6 7.1
NIFTY 25-Jul-11
28-Jul-11 5800
4.7 14.2 4.05 9.65
NIFTY 26-Jul-
11
28-Jul-11 580
0
11 11.5 1.2 1.4
NIFTY 27-Jul- 28-Jul-11 580 1 1.2 0.3 0.35
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11 0NIFTY 28-Jul-
1128-Jul-11 580
00.15 0.15 0.05 0.05
5800 PUT OPTION FOR JULY 2011Symbol
Date Expiry StrikePrice
Open High Low Close
NIFTY 1-Jul-11
28-Jul-11
5800 162.75
215.9 158 198.25
NIFTY 4-Jul-11
28-Jul-11
5800 166 192.35
159.7 173.2
NIFTY 5-Jul-11
28-Jul-11
5800 170 199.85
170 181.8
NIFTY 6-Jul-11
28-Jul-11
5800 189.4 205 171.1 190.25
NIFTY 7-Jul-11
28-Jul-11
5800 182 185.1 114.8 118.95
NIFTY 8-Jul-11
28-Jul-11
5800 111.75
170.35
111.7 162.8
NIFTY 11-Jul-11
28-Jul-11
5800 178.85
213.8 169.55
206.65
NIFTY 12-Jul-11
28-Jul-11
5800 256 305.8 222 268.5
NIFTY 13-Jul-11
28-Jul-11
5800 254.1 256.65
207.15
217.2
NIFTY 14-Jul-11
28-Jul-11
5800 239 262.65
156.65
217.45
NIFTY 15-Jul-11
28-Jul-11
5800 200.1 244 177.4 222.6
NIFTY 18-Jul-11
28-Jul-11
5800 225 243.5 201.45
230.9
NIFTY 19-Jul-11
28-Jul-11
5800 230 239.55
169.9 183.2
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NIFTY 20-Jul-11
28-Jul-11
5800 165.3 246 156 231.85
NIFTY 21-Jul-11
28-Jul-11
5800 242 265.7 216.9 254.9
NIFTY 22-Jul-
11
28-Jul-
11
5800 215 229.9 151.5 158.3
NIFTY 25-Jul-11
28-Jul-11
5800 178.8 183.6 100.5 113.95
NIFTY 26-Jul-11
28-Jul-11
5800 105 241 99 224.85
NIFTY 27-Jul-11
28-Jul-11
5800 217 278.75
215.8 247.9
NIFTY 28-Jul-11
28-Jul-11
5800 289.65
322 282 306.1
INTERPRETATION: In the above graph I calculated BEP.BREAKEVEN POINT (BEP) = HIGH VALUE+LOW VALUE/2
=5760+5473/2= 11233/2= 5616.5
In the above table I observed fluctuations in the period of (01-07-
2011 to 28-07- 2011) in this graph I found as BEP was 5616.5 sharevalues.
Here I observed as a value share is high rate so Nifty-50 value was
(5616.5 - 5760.00=143.5) so here share value is decreased so in this
period of so here investors gets more losses, when goes for more
longs .if investor enter for longs on 7 th of May, with in short span of time
investor get good profits. So this is good signal of the investors. So
here I again observed nifty-50 losses of the period so here Nifty-50share value is (5616.5-5473=143.5) so share value is increased so
here investor gets more profits, when attempts for more shorts. So this
is unexpected changes in market and politics and lack of experts of
investors.
When an investor goes for shorts in 3 levels, when compare to BEP
Explaining the actual position of investor (1)Margin of Safety (M.o.S) =opening share value BEP
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. =5700-5616.5
=-83.5
So here margin of safety is less than to the BEP share value. So here
investor gets some profits in shorts.
(2) Margin of Safety (M.o.S) =high share value BEP
=5760.00-5616.5
= 143.5
So here margin of safety is more than to the BEP share value. So here
investor gets more profits and shorts at high price.
(3) Margin of Safety (M.o.S) =low share value BEP
= 5473 5616.5
= 143.5
So, in the above situation , after low recorded price 5473, on expiry
date nifty maximum reached only 20 points more, so the max loss in
the current contract is only 20 points here margin of safety is less than
to the BEP so here investor gets more losses when investor goes for
more shorts.
What is called as Margin?
Margin amount is security to the Broking firms in derivatives markettrading happens on basis of margin amount, here Margin amount isinvestment of customers, sometimes margin may becomes zero,sometimes it may go negative values.
Ex: if a Nifty contract worth is 2 lakhs, broking companies will not taketotal amount, normally they used to collect 15% on actual worth it
means they collect only 30k. if nifty looses 600 points , margin amountbecomes zero, if nifty looses more than 600 points, it comes innegative
Is hedging gives the security to Margin Amount? A: Absolutely Yes
When coming to may contract, there is lot of positive fluctuations(Never happen in stock market). Because of Old Govt. formation on16 th May 2009.
Here , in a situation, a investor expects correction on may 13 th
and he had short sell nifty future on same day @ 3700 ( keep in mind
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elections results on 16 th) and Paid margin amount of 30k. and heknows that if Nifty crosses 4250 his margin becomes Zero.
In above situation, to give the security to his margin amount, Iam suggesting 3900 call option .on 15 th may 2009 for the investment of 3500
Calculations as on 19 th May 2009
Nifty future hits 4600 it means he was in loss of 900 points900*50 = 45000
Margin amount = 30000It means on 19 th may his margin amount gone into negative of 15000
Nifty option hits 680 it means is he was in gain of 600 points600*50 = 30000
It means after deducting the margin amount he has still 15000 positivebalance with the company.Here Rs 3500 worth call option given the 30k worth security
On 19 th may if he sold the call option he gains 610 points and hehold the position short sell of 3700.
On 22 nd may he covers the nifty (3700 short) @4200, here theloss was 500 points.
On 2 positions he got 110 points gain. It means here hedging
given security and returns also.
25-AUGUST-2011 FUTURES INDEX NIFTY-50
Symbol Date Expiry Open High Low Close
NIFTY 29-Jul-11 25-Aug-11
5479.9
5531.45
5456.1
5488.05
NIFTY 1-Aug-11 25-Aug-11
5544.45
5557.1
5488 5532.95
NIFTY 2-Aug-11 25-Aug-11
5498.7
5498.7
5433.15
5466.5
NIFTY 3-Aug-11 25-Aug-11
5418 5436.6
5386.5
5424.4
NIFTY 4-Aug-11 25-Aug-11
5424.5
5440 5325.25
5337.2
NIFTY 5-Aug-11 25-Aug-11
5191 5233.7
5114.7
5211.35
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NIFTY 8-Aug-11 25-Aug-11
5120.2
5208 5057.3
5126.2
NIFTY 9-Aug-11 25-Aug-11
4964 5172 4951 5083.4
NIFTY 10-Aug-
11
25-Aug-
11
5223 5223 5118.
1
5158.
65NIFTY 11-Aug-11
25-Aug-11
5130 5186.8
5122 5137.25
NIFTY 12-Aug-11
25-Aug-11
5175 5181 5052 5079.85
NIFTY 16-Aug-11
25-Aug-11
5125 5139.85
5006.4
5027.7
NIFTY 17-Aug-11
25-Aug-11
5039.6
5125.7
5014 5066.75
NIFTY 18-Aug-11
25-Aug-11
5055.65
5075.65
4926.4
4938.05
NIFTY 19-Aug-11
25-Aug-11
4870 4903.3
4801.1
4850.85
NIFTY 22-Aug-11
25-Aug-11
4850 4921.75
4816.1
4910.45
NIFTY 23-Aug-11
25-Aug-11
4927 4973.2
4865.1
4947.4
NIFTY 24-Aug-11
25-Aug-11
4930 4961.95
4867.3
4883.85
NIFTY 25-Aug-11
25-Aug-11
4901.05
4912 4831.1
4841.75
NIFTY5600 CALL OPTION TABLE FOR 25-AUGUST-
2011
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Symbol
Date Expiry StrikePrice
Open High Low Close
NIFTY 29-Jul-11 25-Aug-
11
560
0
56 72.05 49 62.15
NIFTY 1-Aug-11 25-Aug-11
5600
76 82.15 55.65 67
NIFTY 2-Aug-11 25-Aug-11
5600
55 57 36.7 44.4
NIFTY 3-Aug-11 25-Aug-11
5600
5 38 5 33.6
NIFTY 4-Aug-11 25-Aug-11
5600
32.8 35.35 16.55 18.4
NIFTY 5-Aug-11 25-Aug-11
5600
10 13 7.1 12.1
NIFTY 8-Aug-11 25-Aug-11
5600
6 10.65 5.7 7.45
NIFTY 9-Aug-11 25-Aug-11
5600
3 10.4 2.5 9.5
NIFTY 10-Aug-11
25-Aug-11
5600
13 13.6 6.4 7.25
NIFTY 11-Aug-11
25-Aug-11
5600
6.6 7.15 4.95 5.3
NIFTY 12-Aug-11
25-Aug-11
5600
5.75 6.5 2.85 3.15
NIFTY 16-Aug-11
25-Aug-11
5600
3.85 3.9 1.5 1.6
NIFTY 17-Aug-11 25-Aug-11 5600 1.8 1.85 1.2 1.45
NIFTY 18-Aug-11
25-Aug-11
5600
1.7 1.7 1.05 1.15
NIFTY 19-Aug-11
25-Aug-11
5600
1 1.2 0.8 1.1
NIFTY 22-Aug-11
25-Aug-11
5600
0.7 1 0.65 0.75
NIFTY 23-Aug-11
25-Aug-11
5600
0.55 0.7 0.45 0.55
NIFTY 24-Aug-11
25-Aug-11
5600
0.25 0.4 0.25 0.3
NIFTY 25-Aug-11
25-Aug-11
5600
0.1 0.1 0.05 0.05
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NIFTY 5600 PUT OPTION TABLE FOR 25-AUGUST-2011
Symbol
Date Expiry StrikePric
e
Open High Low Close
NIFTY 29-Jul-11 25-Aug-11
5600
176.3 192 141.45
172.3
NIFTY 1-Aug-11 25-Aug-11
5600
150 162 111.45
133.05
NIFTY 2-Aug-11 25-Aug-11
5600
140.5 202.45
140.5 176.45
NIFTY 3-Aug-11 25-Aug-11
5600
206.6 235.55
197.4 205.3
NIFTY 4-Aug-11 25-Aug-11
5600
210.6 288.95
193 279.3
NIFTY 5-Aug-11 25-Aug- 11 5600 399.95 492.25 380 398.3NIFTY 8-Aug-11 25-Aug-
11560
0499.9 544 400 479.5
5NIFTY 9-Aug-11 25-Aug-
11560
0642.6 702 437 521.7
NIFTY 10-Aug-11
25-Aug-11
5600
440 482.7 416.1 445.55
NIFTY 11-Aug-11
25-Aug-11
5600
463.1 476.75
418.85
461.75
NIFTY 12-Aug-11
25-Aug-11
5600
440.5 545.45
440.5 520.1
NIFTY 16-Aug-11
25-Aug-11
5600
480 589.3 472.45
560.3
NIFTY 17-Aug-11
25-Aug-11
5600
549.15
581.9 475 532.35
NIFTY 18-Aug-11
25-Aug-11
5600
534.3 669.95
534.3 659.85
NIFTY 19-Aug-11
25-Aug-11
5600
722.05
794 700 745.85
NIFTY 22-Aug-11
25-Aug-11
5600
760.7 782 677.3 685.95
NIFTY 23-Aug-
11
25-Aug-
11
560
0
683.4
5
731.1 628 649
NIFTY 24-Aug- 25-Aug- 560 680.8 728.1 638 715.5
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11 11 0 5 5NIFTY 25-Aug-
1125-Aug-
11560
0713.6
5770.7
5688.0
5762.2
5
NIFTY 5400 PUT OPTION TABLE FOR 25-AUGUST-2011
Symbol
Date Expiry StrikePrice
Open High Low Close
NIFTY 29-Jul-11 25-Aug-11
5400
109 109 58 75.7
NIFTY 1-Aug-11 25-Aug-11
5400
63.8 66.25 47.25 49.95
NIFTY 2-Aug-11 25-Aug-11
5400
58.6 85.9 58.6 71.2
NIFTY 3-Aug-11 25-Aug-11
5400
94 105.75
81.65 86.85
NIFTY 4-Aug-11 25-Aug-11
5400
89 140.3 78.5 132.7
NIFTY 5-Aug-11 25-Aug-11
5400
200 313 200 230.3
NIFTY 8-Aug-11 25-Aug-11
5400