DERIVATIVES MARKET OPERATIONS AND HEDGING STRATEGIES

Study on:

Derivatives Market Operations and Hedging Strategies

(Indiabulls Securities Ltd, Hyderabad)

Submitted by

N. Sajana

Registration No:

15010121895

Under the Guidance of : Prof. G. Shiva Prasad

In partial fulfillment of the Course- Industry Internship Programme - IIP

in Semester II of the Master of Business Administration (Batch of 2015-17)

Masterof Business Administration

Industry Internship Programme (IIP)

Declaration

This is to declare that the report titled “……………….......................................................” has been made for the partial fulfillment of the Course: Industry Internship Programme (IIP) in Semester II by me at _______________________________ (organization) under the guidance of _________________ .

I confirm that this report truly represents my work undertaken as a part of my Industry Internship Programme (IIP). This work is not a replication of work done previously by any other person. I also confirm that the contents of the report and the views contained therein have been discussed and deliberated with the faculty guide.

Signature of the Student :

Name of the Student (in Capital Letters) :

Registration No. :

Master of Business Administration

Certificate

This is to certify that Mr. / Ms. ___________________ Regn. No. __________ has completed the report titled ___________________________________________ under my guidance for the partial fulfillment of the Course: Industry Internship Programme (IIP) in Semester II of the Master of Business Administration.

Signature of Faculty Guide:

Name of the Faculty Guide:

Contents1. EXECUTIVE SUMMARY...................................................................................................................4

2 INTRODUCTION.............................................................................................................................5

A. INDUSTRY OVERVIEW................................................................................................................5

GLOBAL SCENARIO:........................................................................................................................5

INDIAN SCENARIO:.........................................................................................................................6

PLAYERS IN THE INDUSTRY ALONG WITH THE MARKET SHARES...................................................7

B. COMPANY OVERVIEW................................................................................................................9

3 PROJECT PROFILE.........................................................................................................................15

OBJECTIVES OF THE STUDY..............................................................................................................15

RESEARCH METHODOLOGY:............................................................................................................15

4 OBSERVATIONS AND ANALYSIS...................................................................................................17

CAPITAL MARKET IN INDIA..............................................................................................................17

MEANING:....................................................................................................................................17

PRIMARY MARKET:......................................................................................................................17

MECHANISM OF PRIMARY MARKET............................................................................................17

SECONDARY MARKET..................................................................................................................19

DERIVATIVES MARKET IN INDIA.......................................................................................................25

MEANING OF DERIVATIVE:..........................................................................................................25

HEDGING STRATEGIES.....................................................................................................................31

BULLISH STRATEGIES...................................................................................................................32

BEARISH STRATEGIS.....................................................................................................................39

MUTUAL FUNDS..............................................................................................................................42

REASONS FOR DECLINE IN CRUDE OIL PRICES IN THE GLOBAL MARKETS:.......................................44

FACTORS INFLUENCING DECLINE IN THE PRICES OF CRUDE OIL..................................................45

5 FINDINGS.....................................................................................................................................47

6. RECOMMENDATIONS..................................................................................................................48

7. CONCLUSION...............................................................................................................................49

LEARNING OUTCOME OF THE STUDY:.............................................................................................49

REFERENCES:...................................................................................................................................50

1. EXECUTIVE SUMMARY

The emergence of the market for derivative product like forward, future, options and swaps can be traced back many years ago, when people want to invest in any company and they want to protect themselves from incurring losses.

Derivatives product (forward, futures, options and swaps) minimize the impact of fluctuations of price of stock of any company resulting in profit or loss to the investor.

Derivative product initially emerged as hedging devices against fluctuations in commodity prices. Financial derivatives came into spotlight in the year 1970 due to growing instability in the financial market.

Derivatives are risk management instruments, which derive their value from an underlying asset. Underlying asset can be share, bonds, commodity, currencies, interest rate etc.

The objective of derivative is to analyse the capital market, to minimize the risk and to study various trends operating in derivative market.

Importance of derivative is to make investor aware of functioning of derivatives; it also acts as a hedging tool for the investors. The study is limited to derivatives with special references to future and options in the Indian context. Each strategy is analysed according to its risk and returns. After analysing each strategy the investor can easily decide that where he should invest his money according to risk and return from that particular strategy.

2 INTRODUCTION

INTRODUCTION TO THE PROJECT

This study is based on how Derivatives market operates in India and what are the different hedging strategies that can be used by an investor to minimize risk and make reasonable returns from an investment.

A detailed study on the capital market structure in India like:

Mechanism of primary and secondary markets Significant details of stock exchanges and Trading mechanism has been made.

Also a brief introduction to Mutual Funds has been made along with a detailed analysis on reasons for decline in crude oil prices in global markets has been made, to understand the bearish trend of global markets in the recent past.

A. INDUSTRY OVERVIEW

Industry: Financial Markets

GLOBAL SCENARIO:

Broadly, global markets have been seeing a downfall in the recent past. There are many reasons for this downfall. Few significant reasons are:

On December 16 2015, US Federal Reserve Bank has increased the interest rates from 0% to 0.25% Base points (BPS). This hike in the interest rates has significantly affected the emerging markets.

Crude oil prices have declined to 13 years low. One of the major reasons for this is USA producing oil using technology.

This has very deeply impacted the global markets. Especially European markets have been affected.

Also, Greek government-debt crisis (Greek depression), making Greece the largest sovereign debt defaulter in history had a strong adverse impact on the European markets.

China devaluing its currency (Yuan) has indicated economic crisis the country is facing. This had a negative impact on the Asian markets.

China followed by India were leading markets in the Asian markets. China devaluing its currency made India a better market to invest in for the global investors.

INDIAN SCENARIO:

Despite of increasing global presence of India, Liberalization of FDI and significant economic reforms to make India a brighter spot to attract investments from all over the world by the NarendraModi led government, Indian stock market has been crashing in the recent past. Following are few reasons for this downfall:

Indian financial market’s performance is dependent upon the global markets. Despite of Global market’sadverse performance impact, Indian stock markets strongly held its ground.

Pharma sector’s stocks have been impacted due to warning letters issued by US FDA (Food and Drug Administration) to few top companies in the industry (like DR Reddy) on non-compliance of certain standards.

Not passing some significant bills like GST (Goods and service tax bill) and Land acquisition bill in the parliament have upset the investor’s sentiments in the recent past which had impacted the stock markets adversely.

Indian rupee has been growing weaker and fell down to approximately RS 68.Non-interefernce of government to standardize the situation also had a negative impact as Indian markets are mostly dependent on imports.

Political situations like Nitesh Kumar winning the elections of Patna where BJP was expected to win also affected sentiments of people.

However IMF has mentioned India a brighter spot for investments even though the global markets were crashing.

Top performing sectors in the previous year (2015) were Pharmaceutical and IT.

PLAYERS IN THE INDUSTRY ALONG WITH THE MARKET SHARES

DISCOUNT BROKERS:A discount broker is a stockbroker who does not provide any investment advice but carries out buy and sell orders at a reduced commission compared to a full-service broker.

PLAYERS:

Zerodha RKSV SAS Online Trade smart online Trade JINI

FULL SERVICE BROKERS:A full-service broker provides research and advice, tax tips, and much more in addition to carrying out buy and sell orders on behalf of the client. Full-service brokerages are much higher than those at discount brokers. Top leading players are as follows:

Angel broking Axis Direct Brokerage SBI HDFC Securities Kotak Securities MotilalOswal ICICI Direct Sharekhan Indiabulls Securities Ltd India Infoline (IIFL) Reliance money Religare Securities SMC India Geojit BNP PARIBAS Anandrathi Edelwiess

TOP PLAYERS BASED ON THEIR MARKET SHARES:

Rank Name Market Cap (Rs. cr.) as on 4/03/2016

1 Bajaj Finserv 26,576.282 Rel Capital 9,198.363 Muthoot Finance 7,013.544 ReligareEnterp 5,100.375 Future Consumer 3,546.936 CPSE ETF 3,300.697 JM Financial 3,104.018 Tata Inv Corp 2,684.529 8K Miles Soft 1,994.4410 JSW Holdings 1,137.0511 Signet Ind 1,085.7612 SE Investments 756.8513 Kalyani Invest 688.7614 Indiabulls Vent 575.4915 VisagarPolytex 517.0216 ILandFS 505.5917 BF Investment 472.1618 PNB Gilts 433.8219 HDFC Gold ETF 420.9720 VikasEcotech 380.09

B. COMPANY OVERVIEW

Origin of the company:

Indiabulls is an Indian Company headquarters in Gurgaon (NCR Delhi), with presence in the real state, infrastructure, financial services, securities, retail, multiplex and power sectors. In middle of 1999, Sameer Gehlaut and his close IIT Delhi friend Rajiv Rattan bought a defunct securities company with NSE membership started offering brokerage services later joined by their friend Saurabh Mittal. In December 1999, company built one of the first online platforms in India for offering internet brokerage services. Indiabulls has been conferred the status of a “Business Superbrand” by the Brand Council, Superbrands India.

Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s OrbisInfotech Private Limited at New Delhi under the Companies Act, 1956. The name of company was changed to M/s. Indiabulls Financial Services Private Limited on March 16, 2001. In the year 2004, Indiabulls came up with its own public issue & became a public limited company on February 27, 2004. The name of company was changed to M/s. Indiabulls Financial Services Limited.

The company was promoted by three engineers from IIT Delhi, and has attracted more than Rs.700 million as investments from venture capital, private equity and institutional investors and has developed significant relationships with large commercial banks such as Citibank, HDFC Bank, Union Bank, ICICI Bank, ABN Amro Bank, Standard Chartered Bank and IL&FS.

The company headquarters are co-located in Mumbai and Delhi, allowing it to access the two most important regions for Indian financial markets, The marketing and sales efforts are headquartered out of Mumbai, with a regional headquarter in Delhi. Back office, risk management, internal finances etc. are headquartered out of Delhi/NCR allowing the company to scale these processes efficiently for the nationwide network.

Company is listed on:

National Stock Exchange

Bombay Stock Exchange

Luxemburg Stock Exchange

Six companies have been listed in the Indian stock exchanges. Which are:1. India Bulls Ventures (Securities) Ltd2. India Bulls Housing Finance Ltd3. India Bulls Real Estate Ltd4. India Bulls Power (Rattan Power)5. India Bulls Retail6. India Bulls Infra and Power

Objectives of the company:

To hold investment in various step-down subsidiaries for investing, acquiring, holding, purchasing, procuring equity shares, debenture, bond, mortgages, obligations, securities of any kind issued or guaranteed by the company.

To provide financial consultancy services, to provide advisory services on the internet or otherwise, provide financial consultancy in the area of personal and corporate services.

To conduct business of sale, purchase, distribution and transfer of shares, debts instruments and hybrid financial instrument and to perform all related, incidental, ancillary and allied services.

To conduct depository participant services, to conduct de-materialization and re-materialization of shares, set up depository participant centers at various regions in India and to perform all related, incidental, ancillary and allied services.

To receive funds, deposits and investments from the public, government agencies, financial institution and corporate bodies, grand advances and loans, conduct advisory services related to banking services activities, project financing, funding of mergers and acquisition activities and fund management and activities related to money market operations.

To carry on the business of portfolio management services, investment advisory services, custodial services, asset management services, leasing and hire services, mutual fund services and to act as brokers of real estate and financial instruments.

To carry on the business of financing, provide lease and hire services, to provide consultancy in the area of lease and hire purchase financing.

To operate mutual funds, receive funds from investors, equity or debt instrument research activity instrument indebt and/or equity instruments.

Mission of the company:

Rapidly increase the number of clients relationship by providing a broad array of product offerings to emerge as a clear market leader.

Vision of the company:

To be largest and most profitable financial services organization in Indian retail market and become one stop shop for all non-banking financial products and services for the retail.

Division of the company:

Indiabulls Group has five separately listed companies with subsidiaries which contributed in enhancing scope and profile of the business.

Indiabulls Financial Services.

Indiabulls Securities Limited.

Indiabulls Retail Limited.

Indiabulls Real Estate Limited.

Indiabulls Power Limited.

Main Products:

Consumer Finance.

Housing Finance.

Commercial Loans.

Life Insurance.

Asset Management.

Advisory Services.

Project of Indiabulls:

Indiabulls is currently evaluating many large-scale projects worth several hundred million dollars.

One Indiabulls Centre.

Indiabulls Central Park.

Central Park Mumbai.

Central Park Hyderabad.

Castlewood.

Indiabulls Finance Centre.

High Street Vadodara.

Central Park Vadodara.

Indiabulls Greens.

Centrum Park.

Indiabulls Riverside.

Gurgoan Housing.

Sonepat Township.

Chennai Township.

Indiabulls Greens Panvel.

Mumbai Township.

Nashik SEZ.

Raigarh SEZ.

Goa Luxury Resort.

Top Strategies:

Indiabulls Financial Services Limited (IBFSL) completed the de-merger of its real estate business into a separate publicly traded company, (IBREL) unlocked over Rs. 10000 crore of shareholder wealth.

De-merger: De-merger of Indiabulls Securities Limited from Indiabulls Financial Services Limited. Each shareholder of Indiabulls Financial Services Limited received a share of Indiabulls Securities Limited.

SARFAESI Act Notification: Indiabulls Housing Finance Limited, a wholly owned subsidiary of Indiabulls Financial Services Limited has been notified as a ‘Financial Institution’ for the purpose of SARFAESI Act, 2002. This notification is being effectively used by the company to yield positive results in speedy recoveries of delinquent mortgage loans.

Awards and recognition received by India Bulls:

India Bulls was awarded with the status of, a Business Super brand by The Brand Council, Super brands India, in 2008.

India Bulls Real Estate commercial project, One India Bulls Centre, was awarded as the Best Commercial Property at the Awaaz CRISIL CREDAI Real Estate Awards in 2009

India Bulls Housing Finance has been awarded the Presidential Award for ‘The Fastest Growing Company' by NAREDCO in 2014

IBHFL (India Bulls Housing Finance Ltd) was awarded "Best Employer Brand", June 2012 for its human resource practice by The Institute of Public Enterprises.

India Bulls Housing was awarded the Best HFC of the year, 2013 at ASSOCHAM Real Estate Excellence Awards.

India Bulls Real Estate project, India Bulls Greens, Chennai won the Construction Industry Award’ 2014 for excellence in Gated Community Projects.

India BullsReal Estate project, India BullsGolf City, Mumbai was awarded by International Property Awards as the Best Golf Development in India for Asia Pacific 2015.

Milestones Achieved

Developed one of the first internet trading platforms in India

Amongst the first to develop in-house real-time CTCL (computer to computer link) with NSE

Introduction of integrated accounts with automatic gateways to client bank accounts

Development of products such as Power Indiabulls for high volume traders

Indiabulls Signature Account for self-directed investors

Indiabulls Group Professional Network for information and trading service

ORGANISATIONAL STRUCTURE OF THE COMPANY:

SWOT ANALYSIS FOR INDIABULLS SECURITIES LTD:

STRENGHTS

Market reach is high Increase in the number of

involved in people in trading activities

WEAKNESSES

High Government Regulation Inability to tap NRI customers Lack of knowledge about stock

markets in certain segments.

OPPURTUNITIES

Educate and tap the segment which does not have knowledge on the stock markets.

Favourable economic conditions in India

THREATS

Inflation Political instability Uncertainty in the global markets Competition from peers offering zero

brokerage commission.

3 PROJECT PROFILE

OBJECTIVES OF THE STUDY

To analyze the capital market and derivative market in India.

To study the risk and return characteristics and derivative performance against profit and policies of company.

To analyze the hedgers position to reduce or eliminate the risk.

To study in detail the role of futures and options contracts.

To study the various trends operating in derivative market.

Scope of the study:

The study is limited to “Derivatives” with special reference to futures and options in the Indian context.

The study is not based on the international perspective of derivative markets.

The study is limited to the analysis made for types of instruments of derivatives.

Each strategy is analyzed according to its risk and return characteristics and derivative performance against the profit and policies of the company.

RESEARCH METHODOLOGY:

The proposed research process includes collections of data, analysis of data, interpretations of data, and deriving conclusions. This data was collected after a considerable search and study on the internet on relevant topics of derivatives. The information for the study has been gathered from secondary data.

Secondary Data:

The secondary information is mostly collected through websites, annual reports of the company given in magazines.

Data Collection Method:

The theoretical part is obtained from the various reference books in the College Library as well as India Bulls Library. Some other information is obtained through Internet from NSE (www.nseindia.com) & (www.moneycontrol.com). The Numerical–Practical part has been collected from India Bulls Stock Broking, Hyderabad, by Way of personal observation.

Tools and Techniques of Analysis:

The data has been analyzed by using Hedging Strategies. Tables and diagrams have also been presented, wherever necessary.

Sample Size:

The sample size of the study is 4. These 4 companies have been selected to apply the hedging strategies. The companies are: DR Reddys, Infosys, Yes bank, and NSE LTd. Based on these the strategies have been apply.

Time Frame:

The time frame has been taken of 15days.

Limitation of the study:

The study is restricted only to the various future strategies available to manage the risk.

The subject of derivate is vast it requires extensive study and research to understand the depth of the various instruments operating in the market only a recent one.

The data related to last few trading months was only considered and interpreted.

The derivative market is a dynamic one, premiums, contract rates, strike price fluctuate on demand and supply basis.

There are various other factors also which define the risk and return preferences of an investor, however, the study was only confined towards the risk minimization and Profit maximization objective of the investor.

The study is mainly dependent on secondary data.

http://www.moneycontrol.com/

http://www.nseindia.com/

4 OBSERVATIONS AND ANALYSIS

CAPITAL MARKET IN INDIA

MEANING:

Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities.

Capital market acts as a channel through which capital (funds) can be raised by the organizations either in the form of debt or equity from the public or institutions which are capable and willing to invest.

Investors can be retail investors and institutional investors, and users of capital can be businesses, government and individuals.

Capital markets are defined as markets in which money is provided for periods longer than a year.

Financial regulators, such as the Securities Exchange Board of India (SEBI) in India oversee and control the capital markets in their jurisdictions to protect investors against fraud, among other duties.

Capital market is further categorized into two markets: Primary and secondary markets.

PRIMARY MARKET:

In primary market new stock and bond issues are sold to investors. The main entities seeking to raise long-term funds on the primary capital

markets are 1. Governments (which may be municipal, local or national) through issue of

bonds and2. Business enterprises (companies) by issue of bonds and shares

MECHANISM OF PRIMARY MARKET

A company or an entity which decides to raise funds from the capital market will go for an Initial Public Offering (IPO), in the capital market, by issue of shares to the public.

A share is a part (a fraction or division) of the company’s capital. To raise capital in the primary market, the company has to:

1. Take approval from SEBI2. Issue a Red Herring Prospectus3. Appoint a merchant banker (like KARVY) to carry out the IPO process.

IPO process is carried out in the following manner, by the merchant banker on behalf of the company:

1. PRICING:A Share can be priced by the company, either by fixed pricing ( Eg: RS 99.90) or by Book Building Process (Eg: Rs 80 To Rs 100, where Rs 80 is called the floor

price and Rs 100 is called the upper band limit)2. PRINTING OF IPO FORM/ ONLINE ISSUE OF IPO FORM3. DISTRIBUTION4. ADVERTISEMENTS5. Collection6. Bidding/ allotment of shares: Shares are allotted on the basis of the following

break-up as per SEBI guidelines:

INVESTOR EXAMPLE PERCENTAGE OF ALLOTEMENT

Qualified Institutional Bidder (QIB) Foreign Institutional Investors( FII’S)

Domestic Institutional Investors (DII’S)

Mutual Funds (MF’S)

Banks Companies

75%

Non Residential Indian (NRI) 15%Retail Investors 10%

7. REFUND: after the allotment of shares as per the required slab rates, amount received due to over-subscription of shares has to be refunded in the respective party’s bank account.

8. Underwriting: Incase of under-subscription of shares, the merchant banker and the

company can enter into an underwriting agreement through which the

merchant banker buys the unsubscribed shares (which have not been bought by the public)

However, to carry out this process, 90% of the shares issued have to be subscribed by the public through IPO as per SEBI guidelines.

9. Listing: After the shares are fully subscribed, the company gets listed in the stock exchange of the country.

Note: The entire procedure of refund, underwriting and listing has to be completed within 21days. In case of any delay in refunding the amount, company is liable to pay interest to the parties.

SECONDARY MARKET

The secondary market (aftermarket), is a financial market in which previously issued financial instruments such as stock, bonds, options, and futures are traded.

Trading is done through “STOCK EXCHANGE” In India, there are two stock exchanges: 1. Bombay Stock Exchange (BSE), established in year 18752. National Stock Exchange (NSE), established in year 1992 and trading activity

started in year 1994. These stock exchanges are located in Dalal Street, Mumbai, India. The regulatory authority which controls and monitors all the trading activities

through the stock exchanges in India is Securities and Exchange Board of India (SEBI).

Both the stock exchanges follow same rules & mechanisms and both list India’s major firms.

Trading takes place between 9:15 A.M to 3:30 P.M through an online platform, where both seller and buyer are anonymous. All orders take place through stock brokers.

STOCK EXCHANGES IN INDIA :

BOMBAY STOCK EXCHANGE (BSE)

BSE was established in the year 1875. There are about 8600 + companies listed in BSE from 22 industries

SENSEX is the market index, which includes 30 companies listed under BSE and represents 45% of the companies free flow market capitalization listed under BSE.

SENSEX is a performance based index which indicates the performance of the top 30 companies from various industries. This index can be used to assess the aggregate performance of different industries in India.

If the index goes up, it means that the aggregate performance of several industries has increased and vice versa.

NATIONAL STOCK EXCHANGE (NSE)

NSE was established in the year 1992 and trading activity started in the year 1994.

Over 5600 + companies have been listed under NSE so far. The NIFTY 50 index is National Stock Exchange of India's benchmark stock

market index for Indian equity market.

NSE offers trading in the following segments:

Equities

Equities Indices Mutual Funds Exchange Traded Funds Initial Public Offerings Security Lending and Borrowing SchemeDerivatives

Equity Derivatives (including Global Indices like CNX 500, Dow Jones and FTSE ) Currency Derivatives Interest Rate FuturesDebt

Corporate Bonds

HOURS OF OPERATION FOR BSE AND NSE

Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the equities segment are:

SESSION BSE TIMING NSE TIMINGPre-open Trading Session 09:00 – 09:15 09:00-09:08Trading Session 09:15 – 15:30 09:15 – 15:30

MARKET CAPITALIZATION

Stock exchanges in India come up with the top most companies list based on the company’s market capitalization.

Free Float Market Capitalization = Total number of outstanding shares * Market price of the share

Where, outstanding shares = (Total number of shares held) - (shares held by the promoters)

MECHANISM OF TRADING

Trading of shares, derivatives etc. takes place through an online platform Stock exchanges provide software which match buyers and sellers as per their

respective requirements for any transaction to take place Therefore buyers and sellers remain anonymous to each other. A trader requires DEMAT A/C and Trading A/C to carry out any trading activity

as per SEBI guidelines.

MEANING OF DEMATERIALIZED (DEMAT) ACCOUNT AND TRADING ACCOUNT

These accounts are opened by the investor while registering with an investment broker (or sub-broker)

DEMAT A/C: Account where shares are kept safe in an electronic format Trading A/C: Account through which trading (buying and selling of shares) can

be done. Requirement of DEMAT AND TRADING A/Cs in different cases:

REQUIREMENT IPO (Initial public

offering)

BUY SELL HOLD

Only DEMAT A/C Yes No No YesOnly Trading A/C No Yes* Yes* NoBoth Yes Yes Yes Yes

*A trader can have Only Trading A/C (without DEMAT A/C) in case of Intra-day or derivatives trading

TYPES OF RISKS ASSOCIATED WITH TRADING

1. LIQUITY RISK

This risk rises from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.

2. SETTLEMENT RISK

This is the risk which both the seller and buyer have to bare. There is risk of default of payment by the buyer and the seller might fail to transfer the promised stock after receiving payment.

In such case, the depository goes for an auction and settles the transaction.

3. VOLATALITY RISK

It is a statistical measure of the dispersion of returns for a given stock or market index.

Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index.

Generally, higher the volatility greater is the risk for the security. PARTIES INVOLVED IN TRADING ACTIVITIES

DEPOSITIORY:

It is as an institution where the investors can keep their financial assets such as equities, bonds, mutual fund units etc. in the dematerialised form and transactions could be effected on it. In India, there are two depositories namely, the

National Securities Depository Limited(NSDL) promoted primarily by IDBI, The Unit Trust of India and the National Stock Exchange and

Central Depository Services Limited (CDSL) promoted by the Stock Exchange, Mumbai.

Apart from providing custodial facilities and dematerialisation, depositories also offer various transactional services to its clients to effect buying, selling, transfer of shares etc.

It acts as an intermediary between buyers and sellers in order to maintain a common platform to transfer and receive shares and payments between buyers and sellers respectively.

DEPOSITORY PARTICIPANTS:

A Depository Participant is the registered agent of the depository concerned (either NSDL or CDSL)

It is through the Depositor Participants (DP) that an investor gets the services of a depository.

E.g.: Brokers, Non-Banking Financial Corporations (NBFC), Banks.

DEPOSITORYDEPOSITORY PARTICIPANTS

BENEFICIARY OWNERS

BENEFICIARY OWNERS (B0):

Beneficiary Owner is a person who enjoys the benefits of ownership even though legal title of the property belongs to another person. E.g.: Investors.

TIME TAKEN TO COMPLETE A TRADING TRANSACTION

Generally, the time taken to process and complete a trading transaction (I.e. to transfer shares from the seller to buyer and transfer money to seller from buyer) is “T + 2 DAYS” (Transaction day + two days).

EXAMPLE: SETTLEMENT OF SHARES

BUYING OF SHARESBought on Transfer of shares to DEMAT

A/CMonday` WednesdayFriday Tuesday (Because Saturday and

Sunday are non-trading days)SELLING OF SHARES

Sold on Money is credited onMonday WednesdayFriday Tuesday (Because Saturday and

Sunday are non-trading days)

However there are chances that either of the parties can default or delay the transfer or payment.

In such a case the depository takes the responsibility of conducting an AUCTION SALE and complete the transaction

Auction Settlement takes “T+5 DAYS” (Trading day + five days).

T+2 Days to make an auction notice

T+3 Days to complete the auction

T+5 Days to the make final settlement

TYPES OF TRADING

INTRA DAY: Buying and selling of shares or securities on the same day DELIVERY: Buying of shares and holding them for a period more than one

day.

TYPES OF POSITIONS TAKEN BY THE TRADER

LONG POSITION: Buy first and Sell later SHORT POSTION: Sell first and buy later

DERIVATIVES MARKET IN INDIA

MEANING OF DERIVATIVE:

Derivative is the term used to refer a financial instruments which derive their value from an under lying asset.

The under-lying asset could be

Stocks/ shares Gold or commodity Currency Interest rates

Thus derivatives derive their name from their respective under-lying asset. A derivative whose under-lying asset is equity is called equity derivative and so on.

Derivatives facilitate transfer of risk to those who are willing to take it.

E.g.: As on 1st January 2016, a fruit vendor wishes to sell his fruits on 1st February 2016. The present day rates for his fruits are RS.10 per Kg. He is uncertain about the future price fluctuations (it can either increase or decrease). He wishes to reduce the risk by entering into a contract with the buyer at the current day rate (spot price).This is type of derivatives contract. The seller may gain if the prices have fell down and lose if prices have gone up on 1st of Feb. Either way risk is being transferred to the buyer who is willing to take it.

TYPES OF DERIVATIVES:

1. Forwards2. Futures3. Options4. Swaps

FORWARDS

A forward is a contract/ agreement between two parties to buy/sell an underlying asset in pre-decided future date at a fixed rate.

It is a customized and non-standardised contract. The above mentioned example is a Forward.

FUTURES

It is a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity (like crude oil, Gold, Spices etc.) or a financial instrument (like shares), at a predetermined future date and price.

In reality, no physical delivery of such commodities or financial instruments takes place.

Investor gains if the price of the stock or commodity goes up and losses if it goes down.

LOT SIZE: Stocks, Gold, Commodity, Currency traded through futures are required to be traded only in certain specified quantities or lot size ( say 1000 shares of Infosys, 150 shares of SBI)

CONTRACT CYCLE: Each contract is available for 3 months for trading. Investor can enter into a contract cycle of maximum 3 months to invest into any futures contract.It can also be for a period of 1 or 2 months. However, the contract comes to expiry after 3 months.

Example: 3 month contract in February:

EXPIRY DATE POSITION OF THE CONTRACT

25TH FEB Present31ST MARCH Near28TH APRIL Far

EXPIRY DATE: The expiry date for a futures contract is last Thursday of each month.

MARGIN MONEY: Unlike in case of shares, an investor need not pay the entire amount when he wishes to buy shares of a particular company. Only a certain

percentage of the total amount known as margin amount is need to be paid in this case.

LOT SIZE SHARE PRICE

TOTAL AMOUNT AMOUNT REQUIRED FOR CASH MARKET

AMOUNT REQUIRED FOR

DERIVATIVE MARKET

4000 100 4000*100=400000 400000 Margin=20%400000*20%=80000

This is the major advantage of futures. Investors who wish to invest but lack

sufficient funds can invest through futures and take the benefit. However, as the investor is not buying the shares of a company he does not

become a shareholder. By investing into futures an investor benefits from the price fluctuations of the

stock or commodity. SPOT PRICE: It is the present price in capital market (say share market) FUTURE PRICE: It is the present price in derivative market. PREMIUM:An investor pays premium if future price is greater than spot price

(Premium=Future price-Spot price). DISCOUNT:An investor gets a discount if spot price is greater that future price

(Discount=Spot price-Future price). MARK TO MARKET (M TO M): This is the mechanism of futures. Any profit

from derivatives contract will be added or credited to the investor’s ledger account and any loss made will be deducted or debited to the investors ledger account on a “daily basis”.

There can be situations where the market price has been continuously declining due to which the investor is making a continuous loss. As the amount is debited from the investor’s ledger account on a daily basis, he needs to pump in more cash if there is no sufficient balance to debit. Hence in case of futures, there can be both unlimited profits as well as unlimited losses.

E.g.: Mr A took a long position in Tata Steel Ltd. price per share is Rs 1000.one lot size is 500 shares. Margin amount is 20%. Mr A bought 1 lot @ Rs 1000 per share and paid a margin amount of Rs 100000.He had an initial balance of Rs 100000 in his account. Mark to Market is calculated as follows (for a period of five days).

DAYS BUY HOLD SELL CLOSE (MARKET CLOSING

MARK TO MARKET OPENING

LEDGER

CLOSING LEDGER BALANC

RATE)BALANC

E E1 1000 1000 NIL 1010 (1010-1000)*500=5000 NIL 50002 NIL 1010 NIL 1020 (1020-1010)*500=5000 5000 10000

3 NIL 1020 NIL 1000(1000-

1020)*500=(10000) 10000 NIL4 NIL 1000 NIL 990 (990-1000)*500=(5000) NIL (5000)5 NIL 990 1030 1030 (1030-990)*500=20000 (5000) 15000

TOTAL PROFIT MADE= 15000

E.g.: Mr A took short position in Axis bank, January month futures @ Rs 800. Lot size is 500 shares. Margin amount is 20%. He bought one lot @ Rs 500 per share and paid a margin amount of Rs 80000 ((800*500=400000)*20%).

DAYS SELL HOLD BUY

CLOSE (MARKET CLOSING

RATE) MARK TO MARKET

OPENING

LEDGERBALANC

E

CLOSING LEDGERBALANC

E1 800 800 NIL 810 (800-810)*500= (5000) NIL (5000)2 NIL 810 NIL 820 (5000) (5000) (10000)3 NIL 820 NIL 810 5000 (10000) (5000)4 NIL 810 NIL 800 5000 (5000) 05 NIL NIL 780 780 10000 10000 10000

TOTAL PROFIT MADE= 10000

OPTIONS

It is a financial derivative that represents a contract sold by one party (option writer) to another party (option holder).

The contract offers the buyer the right, but not the obligation. That means he has the right and to exercise the right or not is up to the buyer.

There are two options: CALL AND PUT Call is right to buy. It gives the investor or buyer right to buy but not obligation

to sell. Call options give the option to buy at certain price, so the buyer would want

the stock to go up. In real terms, an investor invests into call if he expects the price of the stock or

currency to go up. He sells it once the price has gone up to the expected rate and makes a profit. This is done when the markets are trending to be bullish.

Eg: Mr A expects stock price of Infosys to go up from 1000 to 1300. He calls Infosys option at 1000. The market was bullish and the price went up to 1300. He makes a profit of 300. If the price fails to increase and instead it fell down to 900, he makes a loss of 100.

Put is right to sell. It gives the investor/buyer, right to sell but not obligation to buy.

Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

In real terms, investors invest into PUT option if they expect the price of the commodity or stock to fall down.

E.g.: Mr B expects the price of Aurobindo Pharmaceuticals to fall down to 800 from 1000. He invests into put option at 800. If the stock actually performed less and the price fell down to 800 he makes a profit of 200. If the stocks performed well he makes a loss.

To buy (call) or sell (put) a security or other financial asset a price is agreed-upon known as the strike price.

Lot size is same as the lot size specified in futures. There is no concept of Mark to Market. Hence in case of options there can be

unlimited profit but only limited losses. In this case also there is no actual physical delivery of stock or currency and

the investor takes benefit from the fluctuations in the market and the investor need not pay entire amount. Only a marginal amount (usually less than futures) is charged.

Expiry date for the options is also last Thursday of every month. In case of national holidays it will be the preceding day to the expiry day.

E.g.: Following is the list of prices for NIFTY OPT IDX (option Index) in the month of January 2016:

PARTICULARS 08-01-2016 20-01-2016 21-01-2016 28-01-2016 (EXPIRY DATE)SPOT PRICE (CASH MKT INDEX: NSE)

7600 7260 7325 7441

FUTURES PRICE (DERIVATIVE MKT INDEX: NSE)

7605 7255 7335 7435

CALL: STRIKE PRICE Prices7400 255 26 45 377500 180 10 118 1.157600 120 4 6 0.057700 70 2 2 0.17800 40 1.5 2 0.057900 20 1.5 1.5 0.05

PUT: STRIKE PRICE Prices7800 230 545 470 360.37700 170 450 370 261.257600 110 350 275 161.37500 80 250 190 627400 50 170 115 5.357300 35 105 65 0.2

It can be observed that the call have reduced tremendously near and on the expiry date when compared to Put option.

Markets as on 20th and 21st have been bearish due to decrease in the crude oil prices and down fall of the Chinese markets. This led to adverse market sentiments in the Asian markets. Hence put options prices have increased as the markets were bearish.

SWAPS

Swap is yet another exciting trading instrument. It is a combination of forwards by two counterparties. It is arranged to reap the benefits arising from the fluctuations in the market- either currency market or interest rate market or other market for that market.

Features of swap:

Basically a forward. Double coincidence of wants. Necessity of an intermediary. Settlement. Long-term agreements.

Kinds of swap:

A swap can be arranged for the exchange of currencies, interest rates etc. A swap in which two currencies are exchanged is called cross-currency swap. A swap in which a fixed rate of interest is exchanged for a floating rate is called interest rate swap. This interest rate swap can also be arranged in multi-currencies. A swap with one stream of floating interest rate is called ‘Basis Swap’. Thus, swap can be arranged according to the requirements of the parties concerned and many innovative swap instruments can be evolved like this. Some of swaps are as follows:

Interest rate swaps. Currency swaps. Commodity swaps. Equity swaps. Credit default swaps.

HEDGING STRATEGIES

Hedging means minimizing risks.

A hedge is an investment made to reduce the risk of adverse price movements in an asset.

In a stock market there are traders (who are addicted to trading) speculators (who trade on a short term basis. Say less than 7 days), Arbitragers (who take advantage of difference in prices of two different markets), Hedgers (who minimise their risk).

An investor investing in financial markets can invest in either:

CAPITAL MARKET BUY SELLFUTURES LONG POSITION SHORT POSITIONOPTIONS CALL PUT

Therefore investor can make a combination of the above investments in order to offset or reduce the probable losses from any investment. This is called hedging.

Following are the hedging strategies:

BULLISH STRATEGIES:

1. LONG CALL: Buy now, Sell later.2. SHORT PUT: sell now, buy later.3. PUT HEDGE: Buy future, buy put option.4. BULL CALL SPREAD STRATEGY: Sell put option, buy put option.5. BULL PUT SPREAD STRATEGY: Sell put option, buy put option.6. SYNTHETIC LONG CALL: Long stock, long put7. COVERED WRITE: Buy stock/Index, Sell call option.8. COVERED CALL STRATEGY: Buy future, sell call option.9. COLLAR STRATEGY: Buy call, sell put.10. RATIO CALL SPREAD STRATEGY: Buy stock/Index, Buy call option, Sell call

option.

BEARISH STRATEGIES:

1. SHORT CALL: Sell call option2. LONG PUT: Buy put option.3. CALL HEDGE: Sell futures, buy call options4. BEAR CALL SPREAD STRATEGY: Sell call, buy call5. BEAR PUT STRATEGY: Sell put, Buy put.

BULLISH STRATEGIES

1. LONG CALLS: Buy now, sell later.

Long calls are a bullish position. They can be a limited-risk, leveraged way to profit from rising prices in the

underlying asset. They are significantly affected by implied volatility and the time value. I.e.

if the stock does not move up, then the option will lose all of its value by expiration. Since they are expiring assets, they have time value that diminishes over time.

However, regardless of how far the stock falls, risk is limited to the cost of the call (cost of the call=premium paid).

Therefore, the maximum risk is limited, while the maximum gain is theoretically unlimited.

Exiting Long Calls

When a call has been purchased, the position can be closed in one of three ways:

Selling the call: Once an option is bought it can be sold at any time, and this is the most common way of exiting a long position.

Letting it expire:If a call gets all the way to expiration, it will expire, worthless if it is out of the money (when the strike price is above the stock price). Long calls are almost always sold before expiring, as at that point they will have lost all time value.

Exercising the call: Utilizing the "right to buy" that is inherent in the call contract is known as exercising the option. This delivers shares of the stock to you at the strike price. However, options are rarely bought with the intention of exercising the underlying right.Example: Refer Annexure no: 1 for the spread sheet.

Symbol DateOption

TypeStrike Price LTP Settle PriceBuy Price Buy Qty

Buy Value

Market Value

Position Taken

Profit or Loss

madeDRREDDY 04-Feb-16 CE 3000 104.35 100.55 85 2000 170000 208700 BUY 38700DRREDDY 05-Feb-16 CE 3000 159 168.65 85 2000 170000 318000 HOLD/SELL 148000DRREDDY 08-Feb-16 CE 3000 156.75 148.2 85 2000 170000 313500 HOLD/SELL 143500DRREDDY 09-Feb-16 CE 3000 68 74.75 85 2000 170000 136000 HOLD/SELL -34000DRREDDY 10-Feb-16 CE 3000 41.6 39.65 85 2000 170000 83200 HOLD/SELL -86800DRREDDY 11-Feb-16 CE 3000 45.5 44.1 85 2000 170000 91000 HOLD/SELL -79000DRREDDY 12-Feb-16 CE 3000 30.55 31.95 85 2000 170000 61100 HOLD/SELL -108900DRREDDY 15-Feb-16 CE 3000 32.5 31.8 85 2000 170000 65000 HOLD/SELL -105000DRREDDY 16-Feb-16 CE 3000 36 34.55 85 2000 170000 72000 HOLD/SELL -98000DRREDDY 17-Feb-16 CE 3000 69.9 59.45 85 2000 170000 139800 HOLD/SELL -30200DRREDDY 18-Feb-16 CE 3000 118 123.2 85 2000 170000 236000 SELL 66000

2. SHORT PUT: Sell now, buy later.

Usually, short puts are implemented when the markets are neutral. The risk is the same as owning the stock, minus the credit for selling the put. They can be a good way to acquire stock. They are equivalent to covered calls, but may offer some advantages. The value of a short put position will profit from the stock moving up, as the

put loses value. The position will lose as the stock price moves down. This is because implied volatility is a significant part of the premium paid for

an option, if implied volatility goes down, the short put will profit and if implied volatility goes up, it will lose.

However, this is only the case before expiration, because at expiration profit and loss is fixed.

Example: ReferAnnexure no: 2 for spread sheet.

Symbol Date ExpiryOption

TypeStrike Price LTP

Settle Price Sell Price Sell Qty

Sale Value

Market Value

Position Taken

Profit or Loss

madeDRREDDY 04-Feb-16 25-Feb-16 PE 3000 90 92.55 92 2000 184000 180000 SELL 4000DRREDDY 05-Feb-16 25-Feb-16 PE 3000 50 48.05 92 2000 184000 100000 HOLD/BUY 84000DRREDDY 08-Feb-16 25-Feb-16 PE 3000 78.75 72.4 92 2000 184000 157500 HOLD/BUY 26500DRREDDY 09-Feb-16 25-Feb-16 PE 3000 104 98.85 92 2000 184000 208000 HOLD/BUY -24000DRREDDY 10-Feb-16 25-Feb-16 PE 3000 123 123 92 2000 184000 246000 HOLD/BUY -62000DRREDDY 11-Feb-16 25-Feb-16 PE 3000 151.2 151.45 92 2000 184000 302400 HOLD/BUY -118400DRREDDY 12-Feb-16 25-Feb-16 PE 3000 174.2 174.2 92 2000 184000 348400 HOLD/BUY -164400DRREDDY 15-Feb-16 25-Feb-16 PE 3000 172.7 172.7 92 2000 184000 345400 HOLD/BUY -161400DRREDDY 16-Feb-16 25-Feb-16 PE 3000 159.5 159.5 92 2000 184000 319000 HOLD/BUY -135000DRREDDY 17-Feb-16 25-Feb-16 PE 3000 78 81.15 92 2000 184000 156000 HOLD/BUY 28000DRREDDY 18-Feb-16 25-Feb-16 PE 3000 26.4 24.25 92 2000 184000 52800 BUY 131200

3. PUT HEDGE: Buy future, buy put option.

Example: Refer Annexure no: 3 for spread sheet.

Symbol Date LTPSettle Price Buy Price Buy Qty

Buy Value

Market Value

Position Taken

Profit or Loss

madeDRREDDY 04-Feb-16 3015 3007 3005 2000 6010000 6030000 BUY 20000DRREDDY 05-Feb-16 3114 3123.4 3005 2000 6010000 6228000 HOLD/SELL 218000DRREDDY 08-Feb-16 3075 3076.95 3005 2000 6010000 6150000 HOLD/SELL 140000DRREDDY 09-Feb-16 2962 2973.65 3005 2000 6010000 5924000 HOLD/SELL -86000DRREDDY 10-Feb-16 2907 2899.85 3005 2000 6010000 5814000 HOLD/SELL -196000DRREDDY 11-Feb-16 2896.9 2893.15 3005 2000 6010000 5793800 HOLD/SELL -216200DRREDDY 12-Feb-16 2847.1 2850.8 3005 2000 6010000 5694200 HOLD/SELL -315800DRREDDY 15-Feb-16 2866 2863.2 3005 2000 6010000 5732000 HOLD/SELL -278000DRREDDY 16-Feb-16 2875 2864.55 3005 2000 6010000 5750000 HOLD/SELL -260000DRREDDY 17-Feb-16 2989.3 2970.5 3005 2000 6010000 5978600 HOLD/SELL -31400DRREDDY 18-Feb-16 3098 3103 3005 2000 6010000 6196000 SELL 186000

BUY FUTURE

Symbol DateOption


Settle Price Buy Price Buy Qty

Buy Value

Market Value

Position Taken

Profit or Loss made

DRREDDY 04-Feb-16 PE 3,000.00 90 92.55 91 2,000.00 182000 1,80,000 BUY -2,000.00DRREDDY 05-Feb-16 PE 3,000.00 50 48.05 91 2,000.00 182000 1,00,000 HOLD/SELL -82,000.00DRREDDY 08-Feb-16 PE 3,000.00 78.75 72.4 91 2,000.00 182000 1,57,500 HOLD/SELL -24,500.00DRREDDY 09-Feb-16 PE 3,000.00 104 98.85 91 2,000.00 182000 2,08,000 HOLD/SELL 26,000.00DRREDDY 10-Feb-16 PE 3,000.00 123 123 91 2,000.00 182000 2,46,000 HOLD/SELL 64,000.00DRREDDY 11-Feb-16 PE 3,000.00 151.2 151.45 91 2,000.00 182000 3,02,400 HOLD/SELL 1,20,400.00DRREDDY 12-Feb-16 PE 3,000.00 174.2 174.2 91 2,000.00 182000 3,48,400 HOLD/SELL 1,66,400.00DRREDDY 15-Feb-16 PE 3,000.00 172.7 172.7 91 2,000.00 182000 3,45,400 HOLD/SELL 1,63,400.00DRREDDY 16-Feb-16 PE 3,000.00 159.5 159.5 91 2,000.00 182000 3,19,000 HOLD/SELL 1,37,000.00DRREDDY 17-Feb-16 PE 3,000.00 78 81.15 91 2,000.00 182000 1,56,000 HOLD/SELL -26,000.00DRREDDY 18-Feb-16 PE 3,000.00 26.4 24.25 91 2,000.00 182000 52,800 SELL -1,29,200.00

BUY PUT OPTION

Symbol Date Expiry

P/L made from buying future

P/L made from buying put option

Total Profit or

Loss from hedging

DRREDDY 04-Feb-16 25-Feb-16 20000 -2000 18000DRREDDY 05-Feb-16 25-Feb-16 218000 -82000 136000DRREDDY 08-Feb-16 25-Feb-16 140000 -24500 115500DRREDDY 09-Feb-16 25-Feb-16 -86000 26000 -60000DRREDDY 10-Feb-16 25-Feb-16 -196000 64000 -132000DRREDDY 11-Feb-16 25-Feb-16 -216200 120400 -95800DRREDDY 12-Feb-16 25-Feb-16 -315800 166400 -149400DRREDDY 15-Feb-16 25-Feb-16 -278000 163400 -114600DRREDDY 16-Feb-16 25-Feb-16 -260000 137000 -123000DRREDDY 17-Feb-16 25-Feb-16 -31400 -26000 -57400DRREDDY 18-Feb-16 25-Feb-16 186000 -129200 56800

4. BULL CALL SPREAD STRATEGY: buy call options, sell call options.

A bull call spread is an options strategy that involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset at expiration date but at a higher strike.

Example: Buy 1 call, sell 1 call at higher strike price A bull call spread is used when a moderate rise in the price of the underlying

asset is expected. The maximum profit in this strategy is the difference between the strike

prices of the long and short options, less the net cost of options. Most often, bull call spreads are vertical spreads. Increase in Volatility: Helps or hurts depending on strikes chosen. Time Erosion: Helps or hurts depending on strikes chosen. BEP (Breakeven point): Long call strike plus net premium paid.

5. BULL PUT STRATEGY: Sell put options, buy put options.

This strategy is used when the investor expects a moderate rise in the price of the underlying asset and when the market is either neutral or bullish.

This is done by purchasing one put option while simultaneously selling another put option with a higher strike price.

Under this strategy profit is made when the price of the underlying stays above the higher strike price.

Example: Sell 1 put, buy 1 put at lower strike with same expiry. Increase in volatility: Typically hurts position slightly. Time Erosion: Helps position

BEP: Short put strike minus credit received.

6. SYNTHETIC LONG CALL: Long stock, long put.

A synthetic long call is created when long stock position is combined with a long put of the same stock/Index/Series.

It has the same profit potential as a long call. Breakeven Point = Purchase Price of Underlying + Premium Paid Profit is achieved when the price of the underlying asset is greater than the

Purchase Price paid for the Underlying asset plus the premium paid. Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid Maximum loss Occurs when Price of Underlying asset is less than or equal to

the Strike Price of Long Put Max Loss = Premium Paid + Commissions Paid.

7. COVERED WRITE: Buy stock/Index, sell call option. This strategy is a combination of buying stock/index and sells the call option of

the same stock/index. Example: buy stock; sell calls on a share for share basis. Market Outlook: Neutral to slightly bullish Risk: limited, but substantial (risk is from fall in stock price) Reward: limited Increase in volatility: hurts position. Time Erosion: helps position. BEP: starting stock price minus premium received Using this strategy investor gets to earn a premium writing calls while at the

same time appreciate all benefits of underlying stock ownership, such as dividends and voting rights.

8. COVERED CALL STRATEGY: Buy future, sell call option.

It is an options strategy where an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset.

This strategy is used when an investor has a short-term neutral view on the asset and for this reason holds the asset long and simultaneously has a short position via the option to generate income from the option premium.


Symbol Date LTPSettle Price Buy Price Buy Qty

Buy Value

Market Value

Position Taken

Profit or Loss

madeYESBANK 04-Feb-16 765 763.1 760 2100 1596000 1606500 BUY 10500YESBANK 05-Feb-16 780.25 780.3 760 2100 1596000 1638525 HOLD/SELL 42525YESBANK 08-Feb-16 769 769.7 760 2100 1596000 1614900 HOLD/SELL 18900YESBANK 09-Feb-16 753 750.45 760 2100 1596000 1581300 HOLD/SELL -14700YESBANK 10-Feb-16 743.05 739.85 760 2100 1596000 1560405 HOLD/SELL -35595YESBANK 11-Feb-16 716.5 716.85 760 2100 1596000 1504650 HOLD/SELL -91350YESBANK 12-Feb-16 727.2 729.35 760 2100 1596000 1527120 HOLD/SELL -68880YESBANK 15-Feb-16 753 752.65 760 2100 1596000 1581300 HOLD/SELL -14700YESBANK 16-Feb-16 732.75 734.2 760 2100 1596000 1538775 HOLD/SELL -57225YESBANK 17-Feb-16 723.5 722.95 760 2100 1596000 1519350 HOLD/SELL -76650YESBANK 18-Feb-16 714.5 716.4 760 2100 1596000 1500450 SELL -95550

BUY FUTURE

Symbol Date Expiry

P/L made from Buying future

P/L made from Selling Call option

Total Profit or

Loss from hedging

YESBANK 04-Feb-16 25-Feb-16 10500 4200 14700YESBANK 05-Feb-16 25-Feb-16 42525 -2205 40320YESBANK 08-Feb-16 25-Feb-16 18900 6300 25200YESBANK 09-Feb-16 25-Feb-16 -14700 16170 1470YESBANK 10-Feb-16 25-Feb-16 -35595 20475 -15120YESBANK 11-Feb-16 25-Feb-16 -91350 25305 -66045YESBANK 12-Feb-16 25-Feb-16 -68880 25200 -43680YESBANK 15-Feb-16 25-Feb-16 -14700 22365 7665YESBANK 16-Feb-16 25-Feb-16 -57225 27615 -29610YESBANK 17-Feb-16 25-Feb-16 -76650 27405 -49245YESBANK 18-Feb-16 25-Feb-16 -95550 29715 -65835

9. COLLAR STRATEGY: Buy call, sell put. Example: Refer Annexure no: 5 for spread sheet.




Buy Value

Market Value

Position Taken

Profit or Loss made

INFY 04-Feb-16 25-Feb-16 CE 1,180.00 26.5 26.85 26 1,000.00 26000 26,500 BUY 500.00INFY 05-Feb-16 25-Feb-16 CE 1,180.00 25.5 26 26 1,000.00 26000 25,500 HOLD/SELL -500.00INFY 08-Feb-16 25-Feb-16 CE 1,180.00 13.5 14.1 26 1,000.00 26000 13,500 HOLD/SELL -12,500.00INFY 09-Feb-16 25-Feb-16 CE 1,180.00 5.65 5.45 26 1,000.00 26000 5,650 HOLD/SELL -20,350.00INFY 10-Feb-16 25-Feb-16 CE 1,180.00 5.85 5.7 26 1,000.00 26000 5,850 HOLD/SELL -20,150.00INFY 11-Feb-16 25-Feb-16 CE 1,180.00 3.3 3.35 26 1,000.00 26000 3,300 HOLD/SELL -22,700.00INFY 12-Feb-16 25-Feb-16 CE 1,180.00 1.9 1.9 26 1,000.00 26000 1,900 HOLD/SELL -24,100.00INFY 15-Feb-16 25-Feb-16 CE 1,180.00 2.15 2.2 26 1,000.00 26000 2,150 HOLD/SELL -23,850.00INFY 16-Feb-16 25-Feb-16 CE 1,180.00 1.2 1.2 26 1,000.00 26000 1,200 HOLD/SELL -24,800.00INFY 17-Feb-16 25-Feb-16 CE 1,180.00 1.3 1.35 26 1,000.00 26000 1,300 HOLD/SELL -24,700.00INFY 18-Feb-16 25-Feb-16 CE 1,180.00 1.7 1.65 26 1,000.00 26000 1,700 SELL -24,300.00

BUY CALL OPTION




Sale Value

Market Value

Position Taken

Profit or Loss made

INFY 05-Feb-16 25-Feb-16 PE 1,100.00 5.6 5.75 6 1,000.00 6000 5,600 SELL 400.00INFY 08-Feb-16 25-Feb-16 PE 1,100.00 9 8.85 6 1,000.00 6000 9,000 HOLD/BUY -3,000.00INFY 09-Feb-16 25-Feb-16 PE 1,100.00 18.4 18.75 6 1,000.00 6000 18,400 HOLD/BUY -12,400.00INFY 10-Feb-16 25-Feb-16 PE 1,100.00 18.3 18.65 6 1,000.00 6000 18,300 HOLD/BUY -12,300.00INFY 11-Feb-16 25-Feb-16 PE 1,100.00 36.75 34.15 6 1,000.00 6000 36,750 HOLD/BUY -30,750.00INFY 12-Feb-16 25-Feb-16 PE 1,100.00 25.45 26.45 6 1,000.00 6000 25,450 HOLD/BUY -19,450.00INFY 15-Feb-16 25-Feb-16 PE 1,100.00 25.5 23.2 6 1,000.00 6000 25,500 HOLD/BUY -19,500.00INFY 16-Feb-16 25-Feb-16 PE 1,100.00 25.55 28.1 6 1,000.00 6000 25,550 HOLD/BUY -19,550.00INFY 17-Feb-16 25-Feb-16 PE 1,100.00 19.55 17.15 6 1,000.00 6000 19,550 HOLD/BUY -13,550.00INFY 18-Feb-16 25-Feb-16 PE 1,100.00 6.4 6.4 6 1,000.00 6000 6,400 HOLD/BUY -400.00INFY 19-Feb-16 25-Feb-16 PE 1,100.00 3.9 3.45 6 1,000.00 6000 3,900 BUY 2,100.00

SELL PUT OPTION

Symbol Date Expiry

P/L made from buying future

P/L made from buying put option

Total Profit or

Loss from hedging

INFY 05-Feb-16 25-Feb-16 500 400 900INFY 08-Feb-16 25-Feb-16 -500 -3000 -3500INFY 09-Feb-16 25-Feb-16 -12500 -12400 -24900INFY 10-Feb-16 25-Feb-16 -20350 -12300 -32650INFY 11-Feb-16 25-Feb-16 -20150 -30750 -50900INFY 12-Feb-16 25-Feb-16 -22700 -19450 -42150INFY 15-Feb-16 25-Feb-16 -24100 -19500 -43600INFY 16-Feb-16 25-Feb-16 -23850 -19550 -43400INFY 17-Feb-16 25-Feb-16 -24800 -13550 -38350INFY 18-Feb-16 25-Feb-16 -24700 -400 -25100INFY 19-Feb-16 25-Feb-16 -24300 2100 -22200

NOTE: Markets were actually bearish during this period. Hence the losses.

10. RATIO CALL SPREAD STRATEGY: Buy stock/Index, buy call option, sell call option.

This is a neutral strategy in options trading that involves buying a number of options and selling more options of the same underlying stock and expiration date at a different strike price.

It is a limited profit, unlimited risk options trading strategy. This strategy is taken when the options trader thinks that the underlying

stock will experience little volatility in the near term. Example: A ratio spread would be achieved by purchasing one call option with

a strike price of Rs 95 and writing two call options with a strike price of Rs 100.This would allow the investor to capture a gain on a small upward

move in the underlying stock's price. However, any move past the higher strike price (Rs 100) of the written

options will cause this position to lose value. Theoretically, an extremely large increase in the underlying stock's

price can cause an unlimited loss to the investor due to the extra short call.

BEARISH STRATEGIS

1. SHORT CALL: Sell call option. It is a bearish options strategy that involves short selling or "writing" call

options. This is a simple bearish strategy which is used when the stocks/Index are

expected to fall. Therefore a call option is sold (before the market starts to fall) at a higher

price and is later bought (when the markets fall) at a lower price thus making profit.





Sale Value

Market Value

Position Taken

Profit or Loss

madeNIFTY 05-Feb-16 25-Feb-16 CE 7,600.00 77.6 71.95 78 100.00 7800 7,760 SELL 40.00NIFTY 08-Feb-16 25-Feb-16 CE 7,600.00 35.35 39.35 78 100.00 7800 3,535 HOLD/BUY 4,265.00NIFTY 09-Feb-16 25-Feb-16 CE 7,600.00 25 25 78 100.00 7800 2,500 HOLD/BUY 5,300.00NIFTY 10-Feb-16 25-Feb-16 CE 7,600.00 16.5 15.65 78 100.00 7800 1,650 HOLD/BUY 6,150.00NIFTY 11-Feb-16 25-Feb-16 CE 7,600.00 5.05 5.5 78 100.00 7800 505 HOLD/BUY 7,295.00NIFTY 12-Feb-16 25-Feb-16 CE 7,600.00 3.5 3.8 78 100.00 7800 350 HOLD/BUY 7,450.00NIFTY 15-Feb-16 25-Feb-16 CE 7,600.00 3.05 3.1 78 100.00 7800 305 HOLD/BUY 7,495.00NIFTY 16-Feb-16 25-Feb-16 CE 7,600.00 1.6 1.65 78 100.00 7800 160 HOLD/BUY 7,640.00NIFTY 17-Feb-16 25-Feb-16 CE 7,600.00 1.95 1.85 78 100.00 7800 195 HOLD/BUY 7,605.00NIFTY 18-Feb-16 25-Feb-16 CE 7,600.00 1.4 1.65 78 100.00 7800 140 HOLD/BUY 7,660.00NIFTY 19-Feb-16 25-Feb-16 CE 7,600.00 1.05 1.15 78 100.00 7800 105 BUY 7,695.00

SELL CALL OPTION

2. LONG PUT: Buy put option. In a long put trade, a put option is purchased with an expectation that the

underlying asset falls in price, thereby increasing the value of the options. Market Outlook: bearish. Risk: limited Reward: limited, but substantial Increase in volatility: helps position Time Erosion: hurts position BEP: strike price minus premium paid. Example: Refer Annexure no: 7 for spread sheet.




Buy Value

Market Value

Position Taken

Profit or Loss

madeNIFTY 05-Feb-16 25-Feb-16 PE 7,600.00 148.15 153.3 150 100.00 15000 14,815 BUY -185.00NIFTY 08-Feb-16 25-Feb-16 PE 7,600.00 251.5 240.15 150 100.00 15000 25,150 HOLD/SELL 10,150.00NIFTY 09-Feb-16 25-Feb-16 PE 7,600.00 291 298.2 150 100.00 15000 29,100 HOLD/SELL 14,100.00NIFTY 10-Feb-16 25-Feb-16 PE 7,600.00 364.85 366.95 150 100.00 15000 36,485 HOLD/SELL 21,485.00NIFTY 11-Feb-16 25-Feb-16 PE 7,600.00 620 612.5 150 100.00 15000 62,000 HOLD/SELL 47,000.00NIFTY 12-Feb-16 25-Feb-16 PE 7,600.00 616.65 611.1 150 100.00 15000 61,665 HOLD/SELL 46,665.00NIFTY 15-Feb-16 25-Feb-16 PE 7,600.00 447.55 444.45 150 100.00 15000 44,755 HOLD/SELL 29,755.00NIFTY 16-Feb-16 25-Feb-16 PE 7,600.00 554.65 548.05 150 100.00 15000 55,465 HOLD/SELL 40,465.00NIFTY 17-Feb-16 25-Feb-16 PE 7,600.00 468 478.75 150 100.00 15000 46,800 HOLD/SELL 31,800.00NIFTY 18-Feb-16 25-Feb-16 PE 7,600.00 421 409.1 150 100.00 15000 42,100 HOLD/SELL 27,100.00NIFTY 19-Feb-16 25-Feb-16 PE 7,600.00 397.25 387.1 150 100.00 15000 39,725 SELL 24,725.00

BUY PUT OPTION

3. CALL HEDGE: Sell futures, buy call options. Example: Refer Annexure no: 8 for spread sheet.

Symbol Date Expiry LTPSettle Price Sell Price Sell Qty

Sale Value

Market Value

Position Taken

Profit or Loss

madeNIFTY 05-Feb-16 25-Feb-16 7527 7519.2 7500 100 750000 752700 SELL -2700NIFTY 08-Feb-16 25-Feb-16 7380.85 7393.45 7500 100 750000 738085 HOLD/BUY 11915NIFTY 09-Feb-16 25-Feb-16 7330 7325.05 7500 100 750000 733000 HOLD/BUY 17000NIFTY 10-Feb-16 25-Feb-16 7252 7246.55 7500 100 750000 725200 HOLD/BUY 24800NIFTY 11-Feb-16 25-Feb-16 6982.05 6993.45 7500 100 750000 698205 HOLD/BUY 51795NIFTY 12-Feb-16 25-Feb-16 6981.2 6990 7500 100 750000 698120 HOLD/BUY 51880NIFTY 15-Feb-16 25-Feb-16 7158 7161.45 7500 100 750000 715800 HOLD/BUY 34200NIFTY 16-Feb-16 25-Feb-16 7050 7054.1 7500 100 750000 705000 HOLD/BUY 45000NIFTY 17-Feb-16 25-Feb-16 7132.3 7120.9 7500 100 750000 713230 HOLD/BUY 36770NIFTY 18-Feb-16 25-Feb-16 7182.95 7190.85 7500 100 750000 718295 HOLD/BUY 31705NIFTY 19-Feb-16 25-Feb-16 7205 7212.45 7500 100 750000 720500 BUY 29500

SELL FUTURE




Buy Value

Market Value

Position Taken

Profit or Loss

madeNIFTY 05-Feb-16 25-Feb-16 CE 7,900.00 9.95 9.1 5 100.00 500 995 BUY 495.00NIFTY 08-Feb-16 25-Feb-16 CE 7,900.00 4 4.55 5 100.00 500 400 HOLD/SELL -100.00NIFTY 09-Feb-16 25-Feb-16 CE 7,900.00 3.25 3.15 5 100.00 500 325 HOLD/SELL -175.00NIFTY 10-Feb-16 25-Feb-16 CE 7,900.00 2.65 2.6 5 100.00 500 265 HOLD/SELL -235.00NIFTY 11-Feb-16 25-Feb-16 CE 7,900.00 2.05 1.85 5 100.00 500 205 HOLD/SELL -295.00NIFTY 12-Feb-16 25-Feb-16 CE 7,900.00 1.9 2.15 5 100.00 500 190 HOLD/SELL -310.00NIFTY 15-Feb-16 25-Feb-16 CE 7,900.00 1.15 1.15 5 100.00 500 115 HOLD/SELL -385.00NIFTY 16-Feb-16 25-Feb-16 CE 7,900.00 0.9 0.95 5 100.00 500 90 HOLD/SELL -410.00NIFTY 17-Feb-16 25-Feb-16 CE 7,900.00 0.9 0.85 5 100.00 500 90 HOLD/SELL -410.00NIFTY 18-Feb-16 25-Feb-16 CE 7,900.00 0.85 0.85 5 100.00 500 85 HOLD/SELL -415.00NIFTY 19-Feb-16 25-Feb-16 CE 7,900.00 0.6 0.7 5 100.00 500 60 SELL -440.00

BUY CALL OPTION

Symbol Date Expiry

P/L made from selling future

P/L made from buying call option

Total Profit or

Loss from hedging

NIFTY 05-Feb-16 25-Feb-16 -2700 495 -2205NIFTY 08-Feb-16 25-Feb-16 11915 -100 11815NIFTY 09-Feb-16 25-Feb-16 17000 -175 16825NIFTY 10-Feb-16 25-Feb-16 24800 -235 24565NIFTY 11-Feb-16 25-Feb-16 51795 -295 51500NIFTY 12-Feb-16 25-Feb-16 51880 -310 51570NIFTY 15-Feb-16 25-Feb-16 34200 -385 33815NIFTY 16-Feb-16 25-Feb-16 45000 -410 44590NIFTY 17-Feb-16 25-Feb-16 36770 -410 36360NIFTY 18-Feb-16 25-Feb-16 31705 -415 31290NIFTY 19-Feb-16 25-Feb-16 29500 -440 29060

4. BEAR CALL SPREAD STRATEGY: Sell call, buy call. It is a trading strategy which is employed when the options trader expects that

the price of the underlying asset will go down moderately in the near future. This is done by selling call options at a specific strike price while also buying

the same number of calls, but at a higher strike price. The maximum profit that can be gained is equal to the difference between the

price paid for the long option and the amount collected on the short option. Example: sell 1 call, buy 1 call at higher strike price Market Outlook: neutral to bearish Risk: limited Reward: limited Increase in volatility: typically hurts slightly position BEP: short call strike plus credit received.5. BEAR PUT SPREAD STRATEGY: Sell put, buy put.

This strategy is used when an option trader expects a decline in the price of the underlying asset.

This is done by purchasing put options at a specific strike price while also selling the same number of puts at a lower strike price.

The maximum profit is equal to the difference between the two strike prices, minus the net cost of the options.

Example: let's assume that a stock is trading at Rs 30. An option trader can use this strategy by purchasing one put option contract with a strike price of Rs 35 for a cost of Rs 475 (Rs 4.75 * 100 shares/contract) and selling one put option contract with a strike price of Rs 30 for Rs 175 (Rs 1.75 * 100 shares/contract).

In this case, the investor will need to pay a total of Rs 300 to set up this strategy (Rs475 - Rs175). If the price of the underlying asset closes below Rs30 upon expiration, then the investor will realize a total profit of Rs 200 ((Rs 35 – Rs 30 * 100 shares/contract) - (Rs 475 – Rs 175)).

Example: sell 1 put, buy 1 put at higher strike price Market Outlook: bearish. Risk: limited Reward: limited Increase in volatility: helps or hurts depending on strikes chosen Time Erosion: helps or hurts depending on strikes chosen BEP: long put strike minus net premium paid.

MUTUAL FUNDS

A Asset Management Company (like HDFC, ICICI, India bulls etc.) pools funds from investors.

It offers various “schemes/ Funds” which consists of portfolio of investments to be made in different companies under different sectors.

On behalf of the investor Asset Management Company invests into the funds (portfolio) chosen by the investor.

However the investor becomes a shareholder and is eligible to earn dividends and tax benefits arising out of an investment.

Each Fund/ Scheme will have a fund manager. He/she is responsible for the safe and higher returns from a portfolio.

TYPES OF SCHEMES/ FUNDS:

OPEN ENDED SCHEME: Anytime entry/ exit is possible for an investor CLOSE ENDED SCHEME: Entry/exit is restricted. Income earned from such

scheme is tax deductible under section 80C. There will be a lock in period of 3 years.

EQUITY FUND: Investment of total (100%) funds in stock market DEBT FUND: Investment of total funds in to bonds Balance funds: Investing funds into both stock markets and bonds in a certain

proportion (say 60:40).

EXAMPLE OF A SCHEME/ FUND: Mr A has invested Rs 10 in a fund. Rs 10 investment made by him will be further invested into different sectors and different investment options (like shares, Government bonds, Debt free bonds, Gold bonds etc.) by the fund manager.

COMPANY

INVESTMENT MADE (IN RS)

NET ASSET VALUE (NAV) AFTER A PERIOD OF 1 MONTH (IN RS)

ITC 2 2.1INFY 3 2.9TATA MOTORS 1 1.1DR REDDY 1.5 1.6HPCL 2.5 2.5TOTAL 10 10.2

SYSTEMATIC INVESTMENT PLAN (SIP):

SIP works on the principle of regular investments. It is like a recurring deposit where an investor invests a small amount every

month. It allows an investor to invest in a MF by making smaller periodic investments

(monthly or quarterly) in place of a heavy one-time investment Example: SIP allows an investor to pay 10 periodic investments of Rs 500 each

in place of a one-time investment of Rs 5,000 in an MF. Thus, investments can be made in an MF without altering your other financial liabilities.

ADAVTANGES OF INVESTMENT IN SIP:

Investing in a systematic investment plan allows users to maintain a monthly investment scheme instead of paying a lump sum amount which is far easier to maintain in the long run.

SIP is considered to be a safer investment option in a long run since it sets off the losses with the profits made in a long term period when compared with trading in financial markets which is riskier

REASONS FOR DECLINE IN CRUDE OIL PRICES IN THE GLOBAL MARKETS:

Like prices of other commodities the price of crude oil experiences wide price swings in times of shortage or oversupply.

The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply

Over decades there have been fluctuations in the prices of crude oil.

Throughout a timeline of 60 years (1950 to 2010), price of crude oil was highly effected (I.e. fell down to less than half of its previous trading price) due to excess production (1980’s) and during global recession period (2009).

FACTORS INFLUENCING DECLINE IN THE PRICES OF CRUDE OIL

1. Inelastic demand and increased supply 2. Non-interference of OPEC to bring a balance to the fluctuations in the crude

oil prices 3. Global recession

PRICE DROP DUE TO DEMAND AND SUPPLY

There is an increase in production (supply) of the crude oil.This is mainly because; US started producing oil domestically using technological advancements such as ‘FRACKING’.

This led to decline in US’s import of oil from the oil exporting countries like Saudi, Nigeria, Algerian markets.

The producers were now competing for Asian markets and were forced to drop the prices

In addition, Iran which was blocked from importing the latest Western oil field technology and equipment has been lifted from the restrictions which further pumped the production.

However as the demand for products like oil is inelastic in the short run, the developing market’s demand did not match with the excess supply leading to further fall in prices.

NON INTERFERNCE OF OPEC TO TACKLE THE SITUATION

The Organization of Petroleum Exporting Countries (OPEC) is an organization consisting of the world's major oil-exporting countries

It is a cartel that aims to coordinate the petroleum policies, support its members with technical and economic aid and to manage the supply of oil in the global markets.

However that kind of cooperation is much less likely, as oil-producing countries are not even able to work together to raise prices.

The major dominant power among the member countries of OPEC-Saudi Arabia is accused of non-co-operation with the less influential and weaker

producers like Nigeria and Venezuela with regard to lowering the production levels to bring the prices up.

Saudi Arabia as a nation with strong oil reserves can sustain cut in the oil prices for many decades to come.

Though lowering of production levels by OPEC members will lead to increase in the prices, this is not in the best interest of Saudi Arabia

It means losing its market share to its member countries for Saudi Arabia.

In addition to this, Saudi Arabia expects fall in the production levels from US Countries in the near future as these countries are mainly depending on the technological advancements to produce oil.

GLOBAL RECESSION

There was hike the prices of crude oil due to increase in the demand from the developing countries.

Due to the global recession, the emerging economies were deeply affected.

These countries which were initially reason for increase in the prices eventually led to huge cut in the prices.

The global recession led to decrease in the demand of the crude oil by the countries like India, Brazil, and Russia.

Decrease in the demand led to drop in the crude oil prices.

WINNERS AND LOOSERS DUE TO DECLINE IN THE CRUDE OIL PRICES

GAINERS

Developing countries Non-oil producing countries Increase in the purchasing power of all the users of crude oil and its

products.

LOOSERS

OPEC members like Venezuela, Nigeria and Oil producing countries like Russia which did not have strong reserves to sustain drop in the prices

An estimated250, 000 oil workers have lost their jobs, and manufacturing of drilling and production equipment has fallen sharply.

5 FINDINGSMAJOR FINDINGS:

The market is very uncertain due to many reasons one of which could be price fluctuations of shares.

Price of a share is dependent on both company specific (internal) factors such as fundamentals, policies, Board of Directors etc. and on Market specific (external) factors like News, rumours, Inflation, government policies etc.

Investor’s sentiments are very crucial in stock markets. Investment pattern majorly depends up on a person’s risk appetite and it

differs from person on person. Government policies and reforms have a significant impact on the investor’s

sentiments. The main purpose of derivative market is to promote investments from small

and medium level investors and it can also be used to minimize risk. And this can be done using various hedging strategies.

Using hedging strategies might not result in making abnormal profits. However abnormal losses can be avoided using hedging strategies.

An investor makes decent returns when he/she hedges his/her investments.

Hedgers participate in the derivatives market to lock the prices at which they will be able to transact in the future.

Thus, they try to avoid price risk by holding the contract for a longer period.

Futures and options prices start falling down as the expiry date comes nearby.

Intraday trading is riskier.

In general, Mutual funds tend to be more profitable only in long run when compared to investments into mutual funds in a short run.

Declining crude oil prices is having an adverse impact on Indian as well as global markets.

6. RECOMMENDATIONS

RECOMMENDATIONS BASED ON THE STUDY DONE:

Though investors, speculators and advisors make an in-depth analysis using various sources and try to predict the movement of the market, one has to always keep it in mind that market is predictable only up to certain extent.

Investments based on the fundamentals of a company proved to be more profitable in the long run. Hence it is advisable for an investor to look into the fundamentals of a company rather than just blindly laying trust up on news and rumours.

Investment into a diversified mutual fund is preferable for a safer and returns with higher growth rates in the long run.

As market is uncertain, the value of an investment may increase or decrease.To avoid such extreme situations or to avoid the risk one has to make use of hedging strategies

Fluctuations in the markets cause the prices of stock to increase or decrease. In general, when the market is bearish people start selling in huge volumes and when it is bullish people start to buy in large volumes.

One can use these fluctuations to make profit by buying when the market is bearish, hold and sell the stock when the market is bullish which will fetch higher prices for the same stock which were once bought a low price.

RECOMMENDATIONS TO THE COMPANY:

The company has reached a saturation point where only few new customers are coming in. It is mainly dependent on the existing old customers on running its business.

It is also not aggressive in increasing its market share. It can use mass marketing strategies to attract new prospects in order meet its full potential.

7. CONCLUSION

Derivative market in India is an organized financial market regulated by the Securities Exchange Board of India (SEBI).

Norms and guidelines issued by SEBI ensure transparency in the operations and make Indian Derivative market an attractive investment destination for both domestic and international investors.

Trading of derivatives is more beneficial for those investors who wish to make profit from the fluctuations in the market but lack funds required to invest in the cash market, as derivatives require less cash investment. In fact this was the main objective behind promoting derivatives in the Indian context by SEBI.

Performance of stocks in the derivatives market is dependent on the performance of the same stocks in the cash market.

Hedging strategies enable investors to make reasonable yet safer returns from an investment by reducing the risk.

Performance of the stock markets in a country is dependent on various factors like: Various sectors performances, Inflation, GDP, Interest rates, Government policies etc. It also gets affected by any important developments in the global markets.

LEARNING OUTCOME OF THE STUDY:

Financial markets are highly volatile and unpredictable. Derivatives trading Using an appropriate bullish/bearish hedging strategy can reduce the risk

substantially for an investor. It protects the investors from any abnormal fluctuations in the market. Reason for decline the crude oil prices are majorly:1. Inelastic demand and increased supply 2. Non-interference of OPEC to bring a balance to the fluctuations in the crude

oil prices 3. Global recession

REFERENCES:

http://www.moneycontrol.com http://www.nseindia.com http://securities.indiabulls.com https://www.equitymaster.com http://www.indiansharebroker.com http://www.investopedia.com

http://www.investopedia.com/

http://www.indiansharebroker.com/

https://www.equitymaster.com/

http://securities.indiabulls.com/

http://www.nseindia.com/

http://www.moneycontrol.com/

DERIVATIVES MARKET OPERATIONS AND HEDGING STRATEGIES

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