Jainam shares pvt ltd

Jainam Shares Consultant PVT LTD

Jainam Shares Consultant PVT LTD

DECLARATION

I hereby declare that the work entitled back testing on CNX NIFTY submitted to "Mrs Priya Mam" is a record of an original work done by us under the guidance of "Mrs Priya Mam" of Metas Adventist College" and Mr Nirav kansariwala head of Research department of Jainam Shares Pvt Ltd. This project work is submitted in the partial fulfilment of the requirement for award of post graduate diploma in management and communication. The result embodied in this project has not been submitted to any other institute for the award of any diploma.

...........................................................(Signature)

Mr Ashish Kedia Date: Place:

ACKNOWLEDGEMENT

It gives me a great pleasure to present my project on back testing of CNX NIFTY. I am very thankful of our co-coordinator Mrs. Priya mam and Mr. Nirav kansariwala., who always helped me to complete my project. Without her support and motivation this project would not have seen the light of the day, her review, comments, suggestions, have enormously enriched my project.

I am highly obliged to the North Eastern Hill University, Shillong for arranging the programme of practical training in Masters of Business Administration in such a manner.

I express my intense gratitude to my parents whose blessings has helped me translate my efforts into fruitful achievement

And lastly I will also thank my friends, who helped me in completing my project.Before conducting this project I was having limited knowledge about CNX Nifty Options but this project helped me to expand my knowledge related to it.

INDUSTRY PROFILE

1. Industry profile

1.1 History of Stock Exchange The only stock exchanges operating in the 19th century were those of Mumbai setup in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit-making associations of brokers to regulate and protect their interests. Before the control on securities under the constitution in 1950, it was a state subject and the Bombay securities contracts (control) act of 1925used to regulate trading in securities. Under this act, the Mumbai stock exchange was recognized in 1927 and Ahmadabad in 1937. During the war boom, number of stock exchanges was organized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D.Gorwala went into the bill for securities regulation. On the basis of the basis of the committees recommendations and public discussion, the securities contract (regulation) act became law in 1956.

1.2 Stock exchanges in IndiaThe Indian Equity market is divided in to two parts Primary market - where the share is first issued in the form of IPO (Initial Public Offering) and after issuing the share it is listed on exchange and share is traded on exchange where shares can be bought and sold this is secondary market.

In India mainly there are two exchanges -NSE (National Stock Exchange) BSE-Bombay Stock Exchange. The BSE is the oldest exchange in India(started in 1875).NSE started operation on 1994.Before 2000 shares was held in Physical form But the main difficulty with Physical shares is method of transaction which is open out , Physical shares were prone to duplication and fraud. So in 2000 NSE introduced the electronic screen based trading system of Dematerialization (Conversion of physical share in to electronic form) and depository (where the electronic form of share is kept) revolutionized the Indian Stock market. Currently there are mainly two Depository (DP) - NSDL and CDSL and these DP are like bank of share. Individual/Firm can deal through Broker (who is registered and having membership in Exchanges and Depository) for buying and selling securities. Today NSE outpaced BSE in volume of trade.

Then what is the purpose of stock market? Stock market serves the company by providing company the finance for long term needs and for investor an opportunity to park their savings in corporate world and in turn give their hand in Nation's development so stock exchange have a very vital role in country's economic development.

1.3 How share market function?To buy the shares investor has to open a trading and demat account. So investor has to approach a broker/sub broker who has member ship in Exchange (mainly NSE and BSE) and depository [mainly CDSL and NSDL).Then Investor has to give necessary identity proof, Address proof, Bank proof and fill the KYC form after reading it carefully, broker will ask for power of attorney for smooth transaction but this is not mandatory and if POA is not given investor had to fill the delivery instruction slip after selling the share. After opening the account the investor can do trading/investing Directly, Through Phone Internet form broking office and he will contract note(similar to bill that we got when we purchase something and contract note include all minute detail of transaction including brokerage[commission of broking house] STT and Other taxes) for the transaction done by him within 24 hr of transaction and he has to give cheque to Broker in the name of broking office(no cash transaction is permitted) and current settlement is rolling settlement (The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is 3 working days after the trading day. So transaction entered into on Day 1 has to be settled on the Day 1 + 3 working days, when funds pay in or securities pay out takes place. If investor is selling the security he will get money in 3 working days. If investor failed to deliver the security within time his share will get auctioned and investor has to borne the penalty. If the investor has old physical share he can fill the dematerialization form and send it for converting it to demit form. The reverse can also be done.

SENSEX consist of 30 share and NIFTY 50 share (of top most companies) what is the purpose of INDEX? Index is the barometer of stock exchange for ex in NSE there are about 1350 listed companies listed and we cannot say in general form market was up or down without fully looking all companies. INDEX serve this purpose. INDEX is constructed by taking top companies across different sector in different weight age and INDEX movement will reflect the overall movement of market. So if NIFTY or SENSEX is up we can generally assume market was up(does not mean all shares was up) and vice versa. Now there are index in some sectors which can catch the movement of that sector like CNXIT-IT sector, BANKNIFTY-Banking sector etc. General purpose of Stock Market is for Investment but bulk of activities done in market is day trading. Day trading means BUYING/SELLING of shares and offsetting the position on same day(intra-day trading).Day traders serves the purpose of bringing the liquidity to market and they help the market movement and more than 80% of the volume from market is coming from day trading. Introduction of derivative market had made the day trading to grow more and introduction of advanced day trading technique. The main tool for Stock market investment/trading are Fundamental analysis -which studies about the fundamental of companies and economy and Technical Analysis-which studies the market by analyzing the past movement of share and market.

The investment scenario in India is now is at par with global Market. The introduction of Derivative, Currency ,Commodity market now helped the Indian Investor to Invest in almost anything like Share, Commodity ,Currency ,Bonds and complex thing like Interest rate future, Weather Derivative, Volatility Index and more and Stock market are giving various product to invest in with various amount of risk like bonds ,Gold ETF, Equity and Preference Share, Commodities(metal and Agriculture) Currency to high risk Derivative product.

1.4 Major players in stock exchange broker

Share khan:-

Share khan was founded in 1922, but entered into real broking in 1985. Share khan was incorporated in February 2000, share khan is Indias 2nd largest stock broker providing brokerage services through its online trading websites. Sharekhan.com and 1950 Share shops which includes branches and franchises in more than 575 cities across India. Share khan has seen incredible growth over last 10 + years though its very successful online trading platform and the chain of franchises located in almost every part of India. Share khan has over 10 lakh retail and institutional customers.

Sharekhan.com is the finest investment portal for India stock market. services offered by share khan includes trading in equity, F&O and commodity and investment in IPOs, mutual Funds, Insurance, Bonds and NCDs . Company also provides Share khan Demat Account and registered as a depository participant with NSD and CDS.

Angel broking:-

Angel broking has emerged as one of the top 3 retail broking houses in India. Incorporated in 1987, it has memberships on BSE, NSE and the two leading commodity exchanges in India ie NCDEX & MCX. Angel is also registered as a DP with CDSL.

Angel broking provides retail related services encompassing EBroking, Investment advisory, Portfolio Management Services, Wealth Management Services and Commodities Trading. It is a BSE and NSE. it is also a registered depository participant with CDSL. It has employee friendly HR policies which gives security and fair promotions.

Motilal oswal:-

Motilal Oswal was incorporated in 1987, Motilal Oswal Securities Ltd is a well-diversified financial services firm offering a range of financial products and services such as Wealth Management Service, Broking and Distribution, Commodity Broking, Portfolio Management Services, Institutional Equities, Private Equity, Investment Banking Services and Principal Strategies.Company have a diversified client base that retail customers (including High Net worth Individuals), mutual funds, foreign institutional investors, financial institutions and corporate clients. They are headquartering in Mumbai. Motilal Oswal Investments Private Limited was renamed as Passionate Investment Management Private Limited (PIMPL), and received a fresh certificate of incorporation on February 23, 2006.Motilal Oswal Financial Services was awarded the Best Use of Public Relations in the Financial Services Sector Award at the India PR & Corporate Communication Awards 2012 held in New Delhi on March 22, 2012. Organized by Exchange4media, these are the biggest awards of its kind in India

Indiabulls:-

Indiabulls Securities Limited was originally incorporated in India on June 9, 1995, under the Companies Act as a private limited company as GPF Securities Private Limited under certificate of incorporation bearing number 55-69631. The name of the Company was changed to Orbis Securities Private Limited on December 15, 1995. The Company was subsequently converted into a public limited company and its name was further changed to Orbis Securities Limited. On January 5, 2004.The name of the Company was again changed to Indiabulls Securities Limited on February 16, 2004. Indiabulls Securities is one of India's leading capital markets companies providing securities broking and advisory services. Indiabulls Securities also provides depository services, equity research services and IPO distribution to its clients and offer commodities trading through a separate company. These services are provided both through on-line and off-line distribution channels.Indiabulls Securities is a pioneer of on-line securities trading in India. Indiabulls Securities in-house trading platform is one of the fastest and most efficient trading platforms in the country Indiabulls Securities has been assigned the highest rating BQ-1

COMPANY PROFILE

2. Company Profile

2.1 Introduction of company

Jainam Share Consultants Pvt. Ltd. was incorporated on November 10, 2003 & is mainly carrying on the broking business in the equity market. The company has acquired memberships of the two major stock exchanges of India viz. National Stock Exchange of India Ltd. (NSE) & Bombay Stock Exchange Ltd. (BSE). The company is also registered as a Depository Participant (DP) with Central Depository Services (I) Ltd. (CDSL). The companys registered office is situated at M-5/6, Malhar Complex, Dumas Road, Ichchanath, Surat 395007.

The company commenced its BSE operations from October 4, 2004 & its NSE operations from 17th March 2005. Since incorporation the company has been consistently growing with the present client base of around 34000+ clients in Know Your Client (KYC) and 21000+ clients in Depository Participants (DP). The company has approximately 250 outlets to cater to the needs of the investors for their equity trading in the stock exchanges.

Jainam Share Consultants Pvt. Ltd. has also started trading in Currency Derivative Segment with memberships in MCX Stock Exchange Ltd (MCX-SX) , National Stock Exchange of India (NSE) and Bombay Stock Exchange Limited (BSE) in the year 2008.

Jainam Commodities Pvt. Ltd. was incorporated on 1st June 2005 & is mainly carrying on the broking business in the commodity market with a client base of around 600 clients. The company has acquired memberships of the two major commodity exchanges of India viz. National Commodity & Derivatives Exchange Ltd. (NCDEX) & Multi-Commodity Exchange of India Ltd. (MCX) The companys registered office is situated at M-11, Malhar Complex, Dumas Road, Ichchanath, Surat 395007.

2.2 JAINAM SHARE CONSULTANTS PVT. LTD.

Jainam Share Consultants Pvt. Ltd. was incorporated in 2003 with the vision to be the most preferred organization providing all financial services across the country. The foundation is on "Value" Systems - "Value" addition to Corporate, Retails and HNI Individuals through superior Wealth Creation Practices.

Jainam Share Consultants Pvt. Ltd. was incorporated on November 10, 2003 & is mainly carrying on the broking business in the equity market. The company has acquired memberships of the major stock exchanges of India viz. National Stock Exchange of India Ltd. (NSE), Bombay Stock Exchange Ltd. (BSE) & MCX Stock Exchange Ltd. (MCX-SX). The company is also registered as a Depository Participant (DP) with Central Depository Services (I) Ltd. (CDSL). The companys registered and corporate office is situated at M-5/6, Malhar Complex, Dumas Road, Ichchanath, Surat 395007.

Since incorporation the company has been consistently growing with the present client base of around 52000+ clients in Know Your Client (KYC) and 40500+ clients in Depository Participants (DP). The company has 450+ outlets to cater to the needs of the investors for their equity trading in the stock exchanges.

Jainam Share Consultants Pvt. Ltd. provides all types of services like Equity Trading, Derivatives Trading, Currency Trading, Depository Services, Online Trading, Jobbing Arbitrage, Mutual Fund, Insurance, FD, IPO.

2.3 JAINAM COMMODITIES PVT. LTD.

Jainam Commodities Pvt. Ltd. was incorporated in 2005 with the vision to be the most preferred organization providing all financial services across the country. The foundation is on "Value" Systems - "Value" addition to Corporate, Retails and HNI Individuals through superior Wealth Creation Practices.Jainam Commodities Pvt. Ltd. was incorporated on 1st June 2005 & is mainly carrying on the broking business in the commodity market with a client base of around 600 clients. The company has acquired memberships of the two major commodity exchanges of India viz. National Commodity & Derivatives Exchange Ltd. (NCDEX) & Multi-Commodity Exchange of India Ltd. (MCX) The companys registered office is situated at M-11, Malhar Complex, Dumas Road, Ichchanath, Surat 395007.

NAME OF JAINAM

JAINAM the name blends three families together; J stands for Dr. Jitendra Shah & family, N stands for Mr. Nipun Shah & family. M stands for Mr. Milan Parikh & family. Using these initials the word JAINAM emerged.Besides Jainam is also the name of Milan Parikhs younger son.

2.4 MEMBERSHIP OF JAINAM

Bombay Stock Exchange Ltd.National Stock Exchange of India Ltd. Central Depository Services (India) Ltd.MCX SX Stock Exchange LimitedNational Commodity & Derivatives Exchange of India Ltd.Multi commodities exchangeNational Spot Exchange

BOARD OF DIRECTORSDr. Jitendra Shah Mr. Milan Parikh Mr. Nipun ShahMr. Chirag Shah

Present Strength of JAINAM51762 + Clients508 + Channel Partners20 Branches18 Departments200 + Employees

PRODUCTS OF JAINAMFlat BrokeragePrepaid BrokerageMargin Funding0 BrokerageArbitrage PlanJobbing, Arbitrage & deltaIPO FundingAdvise based Broking (Equities & Derivatives)Commodities, CurrencyMutual Funds, FD, Insurance

JAINAM LOCATIONS AT SURATNanpura - Kailash Nagar (BM Mr Dhaval Kansara)Gopipura - Chandanbaug (BM Mr Sunil Modi)Rander - Paradize Plaza (BM Mr Hasim Suthar)Varachha - Dimond World (BM Mr Krunal Patel) Adajan- Mavani Point (BM Mr Taral Tailor)Sargam- Malhar Complex (BM Mr Kamlesh Barot)Mahidharpura - Suparshwa (BM Mr Samkit Shah) Krishna (BM Mr Dharmesh Modi) Gopinath (BM Mr Rujal Shah)Ring Road- Empire (BM Mr Vikrant Mehta) Super Tex (BM Mr Navin Shah) ITC (BM Mr Shajid Memon)Bhatar- Sakar 1 (BM Mrs Hetal Jariwala)

JAINAM LOCATIONS AT OUT OF SURAT Mumbai- Platinum Arcade, Gurguam (BM Mr Tushar Doshi)Bhavnagar- Tanay Apartment, Atabai Road (BM Mr R D Mehta)Rajkot- Star Chambers, Harihar Chawk (BM Jignesh Kothari)Baroda- Mary Land Complex, Old Padra Road (BM Mr Kaushik Pandya) Silvasa- Gokul Vihar, Tokarkhada (Mr Hiral Panchal)Bharuch- Kasak (BM Mr Dhaval Pithadia)Navasari- Shantadevi Road (BM Mr Rajbahadur Patel)AHMEDABAD - C G Road (BM Mr Kaushik Pandya))

2.5 Milestones

Jainam Share Consultants Pvt. Ltd.

2008October 13 Acquired Membership of National Stock Exchange of India

2008 September 29Acquired Membership of MCX Stock Exchange Limited

2008 September 18Acquired Membership of Bombay Stock Exchange Limited

2005December 15Acquired Membership of Central Depository Services (India) Ltd.

2004December 23Acquired Membership of National Stock Exchange of India Ltd. (Cash Seg.)

2004December 17Acquired Membership of National Stock Exchange of India Ltd. (F & O Seg.)

2004September 30Acquired Membership of Bombay Stock Exchange Ltd. (Cash Seg.)

2003November 10Company Registered Jainam Commodities Pvt. Ltd.

2011May 30 Acquired Membership of National Spot Exchange Ltd.

2006February 06Acquired Membership of National Commodity & Derivatives Exchange of India Ltd.

2005December 08Acquired Membership of Multi Commodity Exchange of India Ltd.

2005June 01Company Registered

2.6 Jainams mission and vision statement

MISSIONProsperity with security

BHAG 2037Becoming the most preferred institution, globally known for wealth creation for Everyone connectedCORE VALUES

Integrity Transparency & Fair Practices Continual Improvement with focus on Radical Changes Give much more than what we are paid for Respecting & Encouraging everyone around us Speed

PHILOSOPHY OF JAINAM Build long term relationship with customers by winning their trust. Give dedicated service to all customers by protecting their investments in volatile circumstances and adding value to their wealth. Integrate the best in technology, research and analysis into the business model thus ensuring growth not only in business but also in customer relationship. Keep changing to adopt new things in the world.

STRENGTHS Every customer is provided one-step solution for trading in the equities market, Currency Market, Commodities market & Other Financial Services also. Provision of free, state of art research to all clients. Dedicated & Experienced Team. Inspiring & Powerful Leadership. If the Directors are the soul of Jainam, then the employees are its heart. They put in long Work hours to achieve great results. Employees can directly approach to the management for any major issues and can share their new ideas and thoughts.

2.7JAINAM STRUCTURE

2.8 JAINAM DEPARTMENTS Sales & Marketing Client Account Surveillance Commodities & currency Delta, Jobbing Arbitrage Security Franchisee Development Business Development Account & Audit KYC - DP IT Software Compliance HR WMS Research Customer Care Admin

2.9. HR department

Manpower Planning

An effective manpower planning is to be done by HR Manager in consultation with all HODs before it is put up for approval by Directors. Man-power Planning is essential. For the following reasons:

a) Excess man-power may be reducedb) Develop multi-skillsc) Right people for right jobd) Succession planning

Whenever the vacancy occurred in any department than HOD will give the intimation to HR Department and fill the Manpower Requisition Form (format) for giving details of requirement and submit to the HR Department with the approval of top management.

Recruitment /Selection procedure

Two type of recruitment is there. i.e. Internal and External. First preference will be given to internal selection and internal transfer. In case of internal transfer we can promote him/her with providing extra responsibility and rewards. So that we can reduce our recruitment cost and can motivate our internal staff by giving new opportunities and challange.

(A) External Recruitment systemIn external recruitment system Jainam has tie up with different recruitment consultancy like Mafoi consultancy, Unique world, Smart and Ascend etc.

(B) Internal Recruitment System Directly candidates come through our staffs reference like their relatives, friends etc... If we have any vacancy for that particular post, then we take his/her Interview with the concern HOD.

Induction

Induction is very important function of HR Department. Major important objectives of Induction are:

1. To familiar with the JAINAM culture. To feel his/her as a family member of the company. 2. To aware with the Company profile, Company Policy, Rules and Regulation.3. To aware with the company Vision, Mission and Values.4. To aware with the general disciplinary policy and other activities of Jainam.5. To give Basic knowledge of departmental activities.

HR Manager will take the Induction training of all new join employees within a month of date of joining. Induction training will include:

Organizational Structure and Department Structure Jainam History Overview of Share Market Statuary Compliance Welfare activities with photos Departmental work process General Disciplinary Policy

Time Keeping

Time keeping is a major function of HR Department. Main function of time keeping is to maintain Attendance and Leave data of all employees. Attendance data is maintained by two ways i.e. Physical Data and Online Data. According to this data we can know that:-

How many employees are not entering their attendance regularly? How many are not on time? Who is going early? Who are coming late in office? How many are on leave?

Salary Administration

Salary administration is a very important and sensitive area of HR. On basis of attendance data we are processing salary every month.

We are entering absent days data of employee in excel sheet & Software as per there leave in particular month We are doing salary in 2 way 1. We are uploading file directly in HDFC / AXIS Bank in salary account. 2. If any employees has no salary account than we are giving cheque to them

Training (People Development)

People Development is a core value of our Organization. For that Training is a very important tool. People Development means to give training to Internal (Employees) & External Customer (Client, Sub Broker, Students) for Organization Development as well as Self Development. Every year we are planning & Providing In-house & Out-door training to all.

Performance Management System

Performance Management System is a very important task in any Organization. We have Performance Management System for managers & Asst Managers.

Objective: To provide supervisors with a guide for communicating performance expectations, appraising and rewarding performance, or assisting in improving deficient performance. To evaluate the performance of Sr Level Employees. To focus on Key areas of Department for improvement of Department. To give more challenging work to Sr. Level.

Performance Appraisal

Performance appraisal is also a one of the performance evaluating process for analyses the work performance of the team/Department. Basically this system is for only Executive level employees. Procedure for PA Initially HR Manager will meet with the all Departmental head / Manager. They will decide goals for their particular department. This goals / Responsibility will be distribute and allocate to the Employees. Performance Appraisal is a yearly process. At the end of the year Appraises will fill the Performance appraisal form (Copy Attached) and submit it to HR Departmental. After this process HOD / Manager will fill the same form for the same employee. HR will collect all form from Managers and analyze it and discuss with Management. In final review Appraiser and Appraise will sit together and analyze the performance. On the basis of evaluation, Management will decide in which area employee require training & Motivation for his / her development. On the bases of evaluation Management will decide Increment & Promotion also.

Promotion, Incentive, Bonus & Transfer

All these process are done by HR with the help of Managers & Management every year. In the beginning of every year company will decide criteria for Incentive, Bonus, KRA Promotion for all employees & Managers.Promotion: On the basis of PMS and PA evaluation data Management will decide that to whom we can promote or whom not. Director will discuss with HOD/Manager and finalize the new designation. HR department will issue Promotion letter (Copy attached) to all promoted employees after approval from top management.Transfer: Internal department and Internal Branch transfer is there for fill the vacancy occurred in company. Management and HOD will take the decision for Internal transfer. Compensation:It includes Bonus, Incentive and other monetary benefits provide to employees.

Grievance Handling

Grievance Handling is a very complicated area. It should be very Justified & Specific. Most of grievances are handled by concern HOD. If HOD will not able to manage the grievance than its forwarded to Top Management. Grievance related to salary, Compensation, Performance and Attitudinal matter will be handled by HR Department. Business & Operations related grievance will be handled by concern HOD.

Exit Interview

If any employee is going to resign from his/her post, He/She has to give 1 month notice period after confirmation, Notice period will be one months on either side. If employee leave the organization before the stipulated notice period, he/she will be required to reimburse the organization one months gross salary as 'notice pay' in lieu thereof. Employee will submit resign letter to HR Department with the approval of HOD. In Resign Letter employee will mentioned Reason for leaving the job, Last date of Relieving etc. (Copy Attached) HR will take exit interview of that employee within 7 days after resigning.(Format Attached) At the day of relieving HR will give Full & Final form (Format Attached) to that employee. In this form employee have to take sign from all concern department for Relieving.

TOPIC

3. DERIVATIVES

3.1 Introduction

Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices 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.

The International Monetary Fund defines derivatives as financial instruments that are linked to a specific financial instrument or indicator or commodity and through which specific financial risks can be traded in financial markets in their own right. The value of a financial derivative derives from the price of an underlying item, such as an asset or index. Unlike debt securities, no principal is advanced to be repaid and no investment income accrues.

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, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by lockingin asset prices. As instruments of risk management, these generally do not influence the fluctuations 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 investors.

Derivative products initially emerged as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products. In recent years, the market for financial derivatives has grown tremendously both in terms of variety of instruments available, their complexity and also turnover. The factors generally attributed as the major driving force behind growth of financial derivatives are (a) increased volatility in asset prices in financial markets, (b) increased integration of national financial markets with the international markets, (c) marked improvement in communication facilities and sharp decline in their costs, (d) development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies, and (e) 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 transaction costs as compared to individual financial assets. In the class of equity derivatives, futures and options on stock indices have gained more popularity than on individual stocks, especially among institutional investors, who are major users of index-linked derivatives. Even small investors find these useful due to high correlation of the popular indices with various portfolios and ease of use. The lower costs associated with index derivatives vis-a-vis derivative products based on individual securities is another reason for their growing use.

Products, participants and functions

Derivative contracts have several variants. The most common variants are forwards, futures, options and swaps. The following three broad categories of participants hedgers, speculators, and arbitrageurs trade in the derivatives market.

Hedgers face risk associated with the price of an asset. They use futures or options markets to reduce or eliminate this risk.

Speculators wish to bet on future movements in the price of an asset. Futures andoptions contracts can give them an extra leverage; that is, they can increase both the potential gains and potential losses in a speculative venture.

Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.

The derivatives market performs a number of economic functions. First, 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. The prices of derivatives converge with the prices of the underlying at the expiration of the derivative contract. Thus, derivatives help in discovery of future as well as current prices. Second, the derivatives market helps to transfer risks from those who have them but may not like them to those who have an appetite for them. Third, 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. Fourth, speculative trades shift to a more controlled environment of derivatives market. In the absence of an organised derivatives market, speculators trade in the underlying cash markets. Margining, monitoring and surveillance of the activities of various participants become extremely difficult in these kinds of mixed markets. Fifth, an important incidental benefit that flows from derivatives trading is that it acts as a catalyst for new entrepreneurial activity. The derivatives have a history of attracting many bright, creative, well-educated people with an entrepreneurial attitude. They often energise others to create new businesses, new products and new employment opportunities, the benefit of which are immense. Finally, derivatives markets help increase savings and investment in the long run. Transfer of risk enables market participants to expand their volume of activity.

Types of Derivatives

The most commonly used derivatives contracts are forwards, futures and options which we shall discuss in detail later. Here we take a brief look at various derivatives contracts that have come to be used.

Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price.

Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts.

Options: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter.

LEAPS: The acronym LEAPS means Long Term Equity Anticipation Securities. These are options having a maturity of upto three years.

Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options.

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 flowsbetween the parties in the same currency

Currency Swaps: These entail swapping both principal and interest between theparties, with the cash flows in one direction being in a different currency than those in the opposite direction.

Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus, swaptions 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.

Options

Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right.

In contrast, in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract, the purchase of an option requires an upfront payment.

Options terminology

Index options: These options have the index as the underlying. Like index futures contracts, index options contracts are also cash settled.

Stock options: Stock options are options on individual stocks. Options currentlytrade on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price.

Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer.

Writer of an option: The writer of a call/put option is the one who receives theoption premium and is thereby obliged to sell/buy the asset if the buyer wishes toexercise his option.

There are two basic types of options, call options and put options.

Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price.

Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price.

Option price: Option price is the price which the option buyer pays to the optionseller. It is also referred to as the option premium.

Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.

Strike price: The price specified in the options contract is known as the strike price or the exercise price.

American options: American options are options that can be exercised at any time upto the expiration date.

European options: European options are options that can be exercised only onthe expiration date itself. European options are easier to analyse than Americanoptions, and properties of an American option are frequently deduced from those of its European counterpart.

In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be in-the-money when the current value of index stands at a level higher than the strike price (i.e. spot price > strike price). If the value of index is much higher than the strike price, the call is said to be deep ITM. On the other hand, a put option on index is said to be ITM if the value of index is below the strike price.

At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cash flow if it were exercised immediately. An option on the index is at-the-money when the value of current index equals the strike price (i.e. spot price = strike price).

Out-of-the-money option: An out-of-the-money (OTM) option is an option thatwould lead to a negative cash flow it was exercised immediately. A call option on the index is said to be out-of-the-money when the value of current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. On the other hand, a put option on index is OTM if the value of index is above the strike price.

Intrinsic value of an option: The option premium can be broken down into twocomponentsintrinsic value and time value. Intrinsic value of an option is the difference between the market value of the underlying security/index in a traded option and the strike price. The intrinsic value of a call is the amount when the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero.

Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an options time value, all else equal. At expiration, an option should have no time value. While intrinsic value is easy to calculate, time value is more difficult to calculate. Historically, this made it difficult to value options prior to their expiration. Various option pricing methodologies were proposed, but the problem wasnt solved until the emergence of Black-Scholes theory in 1973.

3.2 OPTIONS PAYOFFSThe optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited, however the profits are potentially unlimited. For a writer (seller), the payoff is exactly the opposite. His profits are limited to the option premium, however his losses are potentially unlimited. These nonlinear payoffs are fascinating as they lend themselves to be used to generate various payoffs by using combinations of options and the underlying. We look here at the six basic payoffs (pay close attention to these pay-offs, since all the strategies in the book are derived out of these basic payoffs).

3.2.1 Payoff profile of buyer of asset: Long assetIn this basic position, an investor buys the underlying asset, ABC Ltd. shares for instance, for Rs. 2220, and sells it at a future date at an unknown price, St. Once it is purchased, the investor is said to be "long" the asset. Figure 1.1 shows the payoff for a long position on ABC Ltd.

Figure 1. Payoff for investor who went Long ABC Ltd. at Rs. 2220The figure shows the profits/losses from a long position on ABC Ltd.. The investor bought ABC Ltd. at Rs. 2220. If the share price goes up, he profits. If the share price falls he loses.

3.2.2 Payoff profile for seller of asset: Short assetIn this basic position, an investor shorts the underlying asset, ABC Ltd. shares for instance, for Rs. 2220, and buys it back at a future date at an unknown price, St. Once it is sold, the investor is said to be "short" the asset. Figure 1.2 shows the payoff for a short position on ABC Ltd..

Figure 2 Payoff for investor who went Short ABC Ltd. at Rs. 2220

The figure shows the profits/losses from a short position on ABC Ltd.. The investor sold ABC Ltd.at Rs. 2220. If the share price falls, he profits. If the share price rises, he loses.

3.2.3 Payoff profile for buyer of call options: Long callA call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price, more is the profit he makes. If the spot price of the underlying is less than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option. Figure 1.3 gives the payoff for the buyer of a three month call option (often referred to as long call) with a strike of 2250 bought at a premium of 86.60.

Figure 3 Payoff for buyer of call optionThe figure shows the profits/losses for the buyer of a three-month Nifty 2250 call option. As can be seen, as the spot Nifty rises, the call option is in-the-money. If upon expiration, Nifty closes above the strike of 2250, the buyer would exercise his option and profit to the extent of the difference between the Nifty-close and the strike price. The profits possible on this option are potentially unlimited. However if Nifty falls below the strike of 2250, he lets the option expire. His losses are limited to the extent of the premium he paid for buying the option.

3.2.4 Payoff profile for writer (seller) of call options: Short callA call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium.The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price exceeds the strike price, the buyer will exercise the option on the writer. Hence as the spot price increases the writer of the option starts making losses. Higher the spot price, more is the loss he makes. If upon expiration the spot price of the underlying is less than the strike price, the buyer lets his option expire un-exercised and the writer gets to keep the premium. Figure 1.4 gives the payoff for the writer of a three month call option (often referred to as short call) with a strike of 2250 sold at a premium of 86.60.

Figure 4 Payoff for writer of call option

The figure shows the profits/losses for the seller of a three-month Nifty 2250 call option. As the spot Nifty rises, the call option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes above the strike of 2250, the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the Nifty-close and the strike price. The loss that can be incurred by the writer of the option is potentially unlimited, whereas the maximum profit is limited to the extent of the up-front option premium of Rs.86.60 charged by him.

3.2.5 Payoff profile for buyer of put options: Long put

A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price, more is the profit he makes. If the spot price of the underlying is higher than the strike price, he lets his option expire un-exercised. His loss in this case is the premium he paid for buying the option. Figure 1.5 gives the payoff for the buyer of a three month put option (often referred to as long put) with a strike of 2250 bought at a premium of 61.70.

Figure 5 Payoff for buyer of put option

The figure shows the profits/losses for the buyer of a three-month Nifty 2250 put option. As can be seen, as the spot Nifty falls, the put option is in-the-money. If upon expiration, Nifty closes below the strike of 2250, the buyer would exercise his option and profit to the extent of the difference between the strike price and Nifty-close. The profits possible on this option can be as high as the strike price. However if Nifty rises above the strike of 2250, he lets the option expire. His losses are limited to the extent of the premium he paid for buying the option.

3.2.6 Payoff profile for writer (seller) of put options: Short put

A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price happens to be below the strike price, the buyer will exercise the option on the writer. If upon expiration the spot price of the underlying is more than the strike price, the buyer lets his option un-exercised and the writer gets to keep the premium. Figure 1.6 gives the payoff for the writer of a three month put option (often referred to as short put) with a strike of 2250 sold at a premium of 61.70.

Figure 6 Payoff for writer of put option

The figure shows the profits/losses for the seller of a three-month Nifty 2250 put option. As the spot Nifty falls, the put option is in-the-money and the writer starts making losses. If upon expiration, Nifty closes below the strike of 2250, the buyer would exercise his option on the writer who would suffer a loss to the extent of the difference between the strike price and Nifty close. The loss that can be incurred by the writer of the option is a maximum extent of the strike price (Since the worst that can happen is that the asset price can fall to zero) whereas the maximum profit is limited to the extent of the up-front option premium of Rs.61.70 charged by him.

3.3 Option strategy As per the experts there are 22 strategy for option which can be used by the investor, but for our report concerned we will go in detail for the two strategy ie long straddle, short straddle.

LONG STRADDLEA Straddle is a volatility strategy and is used when the stock price / index is expected to show large movements. This strategy involves buying a call as well as put on the same stock / index for the same maturity and strike price, to take advantage of a movement in either direction, a soaring or plummeting value of the stock / index. If the price of the stock / index increases, the call is exercised while the put expires worthless and if the price of the stock / index decreases, the put is exercised, the call expires worthless. Either way if the stock / index shows volatility to cover the cost of the trade, profits are to be made. With Straddles, the investor is direction neutral. All that he is looking out for is the stock / index to break out exponentially in either direction.

When to Use: The investor thinks that the underlying stock / index will experience significant volatility in the near term. Risk: Limited to the initial premium paid.Reward: Unlimited Breakeven: Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

Suppose Nifty is at 4450 on 27th April. An investor, Mr. A enters a long straddle by buying a May Rs 4500 Nifty Put for Rs. 85 and a May Rs. 4500 Nifty Call for Rs. 122. The net debit taken to enter the trade is Rs 207, which is also his maximum possible loss.

Strategy : Buy Put + Buy Call

Nifty index Current Value 4450

Call and Put Strike Price (Rs.) 4500

Mr. A pays Total Premium (Call + Put) (Rs.) 207

Break Even Point (Rs.) 4707(U)

(Rs.) 4293(L)

On expiry Nifty closes at Net Payoff from Put purchased (Rs.) Net Payoff from Call purchased (Rs.) Net Payoff (Rs.)

3800615-122493

3900515-122393

4000415-122293

4100315-122193

4200215-12293

4234181-12259

4293122-1220

4300115-122-7

440015-122-107

4500-85-122-207

4600-85-22-107

4700-8578-7

4707-85850

4766-8514459

4800-8517893

4900-85278193

5000-85378293

5100-85478393

5200-85578493

5300-85678593

SHORT STRADDLE A Short Straddle is the opposite of Long Straddle. It is a strategy to be adopted when the investor feels the market will not show much movement. He sells a Call and a Put on the same stock / index for the same maturity and strike price. It creates a net income for the investor. If the stock / index does not move much in either direction, the investor retains the Premium as neither the Call nor the Put will be exercised. However, incase the stock / index moves in either direction, up or down significantly, the investors losses can be significant. So this is a risky strategy and should be carefully adopted and only when the expected volatility in the market is limited. If the stock / index value stays close to the strike price on expiry of the contracts, maximum gain, which is the Premium received is made.

When to Use: The investor thinks that the underlying stock / index will experience very little volatility in the near term. Risk: Unlimited Reward: Limited to the premium received Breakeven: Upper Breakeven Point = Strike Price of Short Call + Net Premium Received

Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

Suppose Nifty is at 4450 on 27th April. An investor, Mr. A, enters into a short straddle by selling a May Rs 4500 Nifty Put for Rs. 85 and a May Rs. 4500 Nifty Call for Rs. 122. The net credit received is Rs. 207, which is also his maximum possible profit.

Strategy : Sell Put + Sell Call

Nifty index Current Value 4450

Call and Put Strike Price (Rs.) 4500

Mr. A receives Total Premium (Call + Put) (Rs.) 207

Break Even Point (Rs.)* 4707(U)

(Rs.)* 4293(L)

On expiry Niftycloses atNet Payoff from Put Sold (Rs.)Net Payoff from Call Sold (Rs.)Net Payoff (Rs.)

3800-615122-493

3900-515122-393

4000-415122-293

4100-315122-193

4200-215122-93

4234-181122-59

4293-1221220

4300-1151227

4400-15122107

450085122207

46008522107

470085-787

470785-850

476685-144-59

480085-178-93

490085-278-193

500085-378-293

The payoff chart (Short Straddle) + = Sell Put Sell Call Short Straddle

RESEARCH METHODOLOGY

Statement of the problem:-

To formulate the various option strategy in order to incur profit from investment in options.

(a) Objective:A. Back testing of various scripts an indices in order to predict further expansion and contraction in the market.B. To find the trends in past and on its basis taking position in the market. C. To formulate new strategy viable in the practical scenario.

(b) Importance of the study: A. The analysis will be useful to investors of stock market for investing in option or the combination of option and other securities at appropriate time with the study of past data which will be sited in the project.B. Study will help investors to make maximum profit with minimum risks.C. It will help government know the investment made by the foreigners in the capital market of indiaD. Study will be helpful to investors in taking long and short position or combination of it in market

(c) Research Methodology:A. Types of research design: Causal research will be used to study the impact past trends (cause) on various factors (effect).B. Collection of data: secondary data.C. Data collection technique: Method- I will use scientific method for data collection Sampling frame- sampling frame includes stock market indices, various scripts listed on NSE.

(d) Limitation: A. Secondary data for analysis and preparation may not be reliable enough B. Past data may not be useful for future forecastC. Due to the uncertainty of the market exact movement in the market could not be predicted(e) Scope:A. Investors in stock market will have useful information regarding their investmentB. The study can be used by investors to study the pattern of past and thereby making future investment.C. The study can be used by foreign investors to get an overview of Indian economy and thereby making future prospects for investment in the economy.

DATA ANALYSIS

3% strategyUnder these strategy investor will take a position both in call as well as put option, before 5 days of expiry. Investor will purchase a call and put at a strike price with the difference of 3 %( being rounded off to zero)Need of these strategy: - As various strategy formulated ahead do not help investor too get maximum profit with minimum risks. According to these strategy investor will be benefited only if index is between the range. If spot price is above or below on the expiry than in in that case investor will make loss up to the difference between spot price and the strike price.

Year profit lossMax Profit

2010174.834.25

201193.7543.6

2012133.632.55

2013158.8529.05

201458.813.05

According to the back testing in this strategy, the maximum profit in last four years are 34.25, 43.6, 32.55, 29.05, 13.05.

long and short straddle

Sr. No.CriterieStrategyProfit/LossMax DDProbability

1Profit book at 20% of investmentLong Straddle-668.471488.6272.34








9Exit at ExpiryLong Straddle-4358525040.43

10Profit book at 20% of investmentShort Straddle1803.7921737.8882.13






16Exit at ExpiryShort Straddle4358230159.57

CONCLUSION AND RECOMMENDATIONS

Conclusion and recommendation

BIBLIOGRAPHY

http://nseindia.com/products/content/derivatives/equities/historical_fo.htmhttp://www.nseindia.com/indices/IdxCalcMt.aspxhttp://www.moneycontrol.com/stocks/marketstats/fii_dii_activity/index.php?sel_month=201112http://www.infodriveindia.com/india-trade-data/default.aspxhttp://www.sebi.gov.in/sebiweb/investment/statistics.jsp?s=fiihttp://economics.about.com/cs/money/l/aa022703b.htmhttp://profit.ndtv.com/market/fii-dii-investmentshttp://www.tradingeconomics.com/analytics/plans.aspx?source=charthttp://en.wikipedia.org/wiki/Institutional_investor

Metas Adventist CollegePage 48

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