Scope of Option Funds in Indian Market

8/3/2019 Scope of Option Funds in Indian Market

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SUMMER TRAINING REPORT SUBMITTED TOWARDS

THE PARTIAL FULFILLMENT OF POST GRADUATE

DEGREE IN INTERNATIONAL BUSINESS

Scope of Option Funds in Indian

Market

SUBMITTED BY:VIKASH KUMAR

MBA-IB (2007-2009)

Roll No. : A1802007E71

INDUSTRY GUIDE FACULTY GUIDE

Mr. Munish Sabharwal Ms. Deepmala Soni

ISC HEAD

SBIMF- CHANDIGARH

AMITY INTERNATIONAL BUSINESS SCHOOL,

NOIDA

INTERNATIONAL BUSINESS SCHOOL, NOIDAINTERNATIONAL BUSINESS SCHOOL, NOIDA

AMITY UNIVERSITY – UTTAR PRADESHAMITY UNIVERSITY – UTTAR PRADESH



AMITY UNIVERSITY – UTTAR PRADESH

CERTIFICATE OF ORIGIN

This is to certify that Mr.Vikash Kumar, a student of Post GraduateDegree in Amity International Business School, Noida has worked inthe company SBI Mutual Fund Chandigarh, under the able guidanceand supervision of Mr. Munish Sabharwal, designation ISC HEAD,SBI Mutual Fund Chandigarh.

The period for which he was on training was for Eight weeks, startingfrom 1st May 2008 to 30th June 2008. This Summer Internship reporthas the requisite standard for the partial fulfillment the Post GraduateDegree in International Business. To the best of our knowledge nopart of this report has been reproduced from any other report and thecontents are based on original research.

Ms. Deepmala Soni Vikash Kumar





ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr.Munish Sabharwal, ISC HEAD, SBI MUTUAL FUNDChandigarh, for his able guidance, continuous support andcooperation throughout my project, without which thepresent work would not have been possible.

I would also like to thank the entire team of SBI MUTUAL

FUND Chandigarh specially Ms. Prerna Kapoor, for theconstant support and help in the successful completion of my project.

Also, I am also thankful to my faculty guide Ms. DeepmalaSoni of my institute, for her continued guidance andinvaluable encouragement.

Vikash Kumar





Executive Summary

When the markets were booming the trade in the NATIONAL

STOCK EXCHANGE used to be around 100000 crores on daily basis.

Market trade has come down to 15000 crores a day due to this market crash

and low market sentiments. The stock markets have been very volatile and

many of the investors have a crunch that it will continue to happen and that

is the reason they are apprehensive about the investing directly into the stock

market. But still they want to avail the benefits of investing into the stock

market.

Many of the mutual funds are showing negative returns over the last six

months. So in our study we have tried to find out that can it be possible inthis Indian market with very high volatility to launch a fund which can

provide returns even in this volatility.

We as mutual funds are allowed to invest into Options for the purpose of

hedging and are not allowed to use them to earn profits by using them in

other ways. It means we can limit our risk through hedging but are not

allowed to use them for earning which is done in USA.

Over the last one year the Indian market has been into every kind of phases

which are being volatile, bull phase and the bear phase. So on the daily

closing values of NSE we have applied various market strategies of options

and have calculated approximate returns and have found that a good yield

can be achieved by using options. But applying option strategies is not easy

for an investor himself as it requires expertise and hence we have proposed

SBI MUTUAL FUNDS to launch an Equity Fund which will buy and sell

options. The risk factor in such a fund would be limited as options are

hedging instruments by default.





INTRODUCTION

PART





Objective of the Study

There are two objectives of my study.

Primary Objective:The primary objective of the study is to get a deeper

understanding of the Indian stock market and the use of options in the same

by understand the different types of options and various strategies of options

which can be used in different market scenarios.

Secondary Objective:

To find out the possibility of launching an options

income fund in the Indian Mutual Fund Industry and to find out whether it is

possible to get constant returns by using INDEX options in the Indianmarket.





Research Methodology

An effort has been made on my part to make the research in ‘Options

Mutual Fund’ as exhaustive as possible. The research has been done

through the following steps:

Research Design:

The research approach is Quantitative. The research type is descriptive.

It is also an Ad-hoc research at it is done at a particular point of time.

Sample Design:

I have used ordinal scale for the data. And I categorize my data according to

very years and the data is in order of various years. So it is nominal or

ordinal data.

Type of Sample:

I have taken the daily returns of the S&P CNX Nifty for the last 12 months

and according to the market sentiments at that time I have applied variousoption strategies to calculate the returns.

Hypothesis:

Null Hypothesis: It is possible to get constant and less volatile returns by

using options.

Alternate Hypothesis: It is not possible to get constant and less volatile

returns by using options.





Data collection:

I have collected time series data for my research. I collected data from

secondary resources from various sites. The information about market returnhas been collected from NSE website.

Information has been sourced from many other secondary sources also

namely, books, newspapers, trade journals, and white papers, industry

portals, government agencies, trade associations, industry news and

developments etc.

Scope of the Study:

Scope of the study is very wide. It provides an overview about the options,different types of options and focusing upon option strategies. It is a bit

technical as it tried to find out the actual rate of return of the Options Fund

uses model Black Scholes Model of Option Pricing which includes

equation named as ‘Geometric Brownian Motion’ which implies that the

index returns will have lognormal distribution.





Limitations of the Study

Every study conducted is conducted under some boundaries and this study

is no exception to it. The limitations of this project are:

1. Since the time was limited to carry out a study of all the stock trading

into the NSE so I have only been able to conduct the research using

INDEX OPTIONS.

2. As the research is completely based on the data available on net so

minor variations in the data may be possible.

3. Use of Black scholes formula to calculate the premium of the options but in the market it is also affected by the demand and supply

mechanism.

4. As the returns calculated are only on the one year closings of S&P

CNX Nifty so a variation in returns in past may be different from the

same.





Industry Profile





A Review of literature on the industry:

Today mutual fund perhaps represents the most appropriate investment

opportunity for most small investors as well as the institutional investors. As

the financial markets have become more complex, the investors need afinancial intermediary who can provide the required knowledge and the

professional expertise for the purpose of investing successfully. In USA the

banking industry has been well overtaken by the Mutual Fund Industry as

there is more money into the Mutual Fund Industry for management than the

deposits in the bank.

Indian households started investing more of the saving’s into the capital

market after 1980’s. Now the investment flows more into the equity and

debt instruments than the conventional bank deposits. Until 1992 the

investors of the primary market were assured good return because the priceof the new equity issues was controlled and was very low.

Mutual Funds have a merged as professional intermediaries. They not only

provide expertise on successful investing but also allow investing in small

amount and have benefits of having a diversified portfolio with a good

potential for income and growth. In India Unit Trust of India occupied the

place in the capital market as the first intermediaries in 1964 which was the

market monopoly till 1987. UTI was established in 1963 by an act of

Parliament. It was set up by the Reserve Bank of India and later was de-

linked from RBI. The first scheme launched by UTI was US-64 which wasthe first open end scheme in the country. Unit linked Insurance Plan (ULIP)

was launched in 1971 and after that scheme like Children’s Gift Growth

Fund, Master share were launched.

In 1987 SBI Mutual Fund was the first non- UTI other public sector mutual

fund was launched and many other PSU Banks and Financial Institutions

were allowed to established mutual fund. In the year ending 1993 the Assets

under Management were nearly Rs. 47,004 crores nearly 7 times of Rs. 6700

in 1988. Later in 1993 the private sector companies were allowed to

establish mutual funds which have given investors a broader choice of fund

family’s.

In 1995 there were eleven private sector mutual funds existing into the

economy. In 1996 a comprehensive set of regulations for mutual funds in

India was introduced with SEBI regulations.





During the period 1996-1999 both SEBI and AMFI launched Investor

awareness programmes which were designed to educate investors about

mutual funds. These days the industry is facing the spate of mergers and

acquisitions.

The Industry has been facing a problem due to market crash and the six

months returns of almost all the equity schemes have gone negative. And the

philosophy of the Indian Investor is to invest in a period of boom rather than

opting for value investing.

The Industry is only allowed to invest in Options for the purpose of hedging

rather but is not allowed to use them for earning good returns. A Mutual

Fund is allowed only to invest maximum of 20% of their Assets into

Options and futures.





Major Companies

The major players of the Indian Mutual Fund Industry are:

Reliance Mutual Fund

The sponsor of Reliance Mutual Fund is Reliance Capital Limited and

Reliance Capital Trustee Co. Limited is the Trustee. It was registered on

June 30, 1995 as Reliance Capital Mutual Fund which was changed on 11 th

March, 2004. Today reliance is the market leader in the mutual fund

industry. The approach of the AMC is very aggressive. The AUM of

Reliance MF is approximately Rs. 90,813 Crores.

Unit Trust of India Mutual Fund

UTI was the first Indian mutual fund industry and had the market monopoly

for the period of 1963-87. The sponsors of UTI Mutual Fund are Bank of

Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and

Life Insurance Corporation of India (LIC). The Current AUM of UTI MF is

Rs.50770 crores.

HDFC Mutual Fund:

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely

Housing Development Finance Corporation Limited and Standard LifeInvestments Limited. The Current AUM of HDFC MF is Rs.52710 crores.

Prudential ICICI Mutual Fund

Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two

sponsors, Prudential Plc. Who is one of the major players in USA and ICICI

LTD.? This Mutual Fund has an AUM of Rs. 59475 Crores

Birla Sun Life Mutual Fund:

Birla Sun Life Mutual Fund is a Joint Venture between Aditya Birla Group

and Sun Life Financial. This AMC uses conservative long term approach for

investing and has an AUM of Rs. 41075 Crores.





State Bank of India Mutual Fund

SBI Mutual Funds is India's largest bank sponsored mutual fund which is

sponsored by the biggest bank of India (State Bank of India) with aninvestor base of over 3 million. SBI MF is a joint venture of State Bank of

India & Societe Generale of France and is currently managing domestic

assets of nearly 31000 crores.

AUM (Rs. Crores)

0100002000030000400005000060000700008000090000

100000

R e l i a n c e M F

P r u d e

n t i a l I C I C I M

F

H D

F C M F

U T I

M F

B I R L A

S U N L

I F E M F

S B I M

F

Company AUM (Rs. Crores)

Reliance MF 90813

Prudential ICICI MF 59475

HDFC MF 52710

UTI MF 50770

BIRLA SUNLIFE MF 41075

SBI MF 31000





The Growth of the Indian Mutual Fund industry

Assets Under Management

0

100000

200000

300000

400000

500000

600000

700000

31-3-1993 31-3-1999 31-3-2001 31-3-2004 31-3-2006 31-3-2007 31-3-20

Indian households started investing more of the saving’s into the capital

market after 1980’s. Until 1992 the investors of the primary market were

assured good return because the price of the new equity issues was

controlled and was very low. In the year ending 1993 the Assets under

Management were nearly Rs. 47,004 crores nearly 7 times of Rs. 6700 in

1988.

In 1995 there were eleven private sector mutual funds existing into the

economy. During the period 1996-1999 both SEBI and AMFI launched

Investor awareness programmes which were designed to educate investors

about mutual funds which made a positive effect on the Industry and since

then it has grown very fast as we can see in the above mentioned chart.





Company Profile





A Review of literature of SBI Mutual Funds:

SBI Mutual Funds is India's largest bank sponsored mutual fund

which is sponsored by the biggest bank of India (State Bank of India) with

an investor base of over 3 million. SBI MUTUAL FUNDS was establishedin 1987 to provide Asset Management Services to the retail and institutional

investors. Today SBI MF is a joint venture of State Bank of India & Societe

Generale of France and is currently managing domestic assets of nearly

31000 crores.

SBI entered into a memorandum of understanding with Societe Generale

Asset Management (SGAM), which offers retail investors, corporate

clients and institutional investors a wide range of products.SGAM is a

dominant player in Global Mutual Fund arena with presence in over 20

countries spanning Europe, United States and Asia, Managing over 500

Billion euros in assets.

SBI MUTUAL FUND is the first Fund which is sponsored by a bank to

launch an OFFSHORE FUND – RESURGENT INDIA OPPORTUNITIES FUND.

The schemes of SBIMF have constantly outperformed their benchmarks.

Growth through innovation and stable investment policies is the SBI MF

credo.





ABOUT OPTIONS

An option gives the holder of the option the right to buy or sell an

underlying asset at a pre-decided price at or before a specified date. The

holder does not have to exercise his right to get this right he has to makesome payment which is called premium of the options. The writer of the

option gets the premium from the buyer and writes an obligation to buy or

sell the underlying asset on the will of the holder.

TERMINOLOGY OF OPTIONS

1. Index Options: These options have the index as the underlying asset.

Some options are European while others are American. Option

Contracts are cash settled.

2. Stock Option: Stock options are options on individual stocks. Thestock option contract gives the holder the right to buy or sell shares at

the specified price.

3. Buyer of an Option: The buyer of an option is the one who buy

paying the option premium gets the rights but not the obligation to

buy or sell the particular underlying asset.

4. Writer of An Option: The writer of an option is the one who receives

option premium and is obliged to sell or buy the underlying asset if

the buyer asks him to do so.

5. Types of the options : There are two basic types of options

A. 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.

B. Put Option: A put option gives the holder the right but not the

obligation to sell an asset but a certain date of a certain price.

6. Option Price: Option price is the price which is paid by the buyer of

the option to the seller of the option it is also referred option

premium.

7. Expiration Date: The date specified in the option contract is know as

expiration date, the exercise date, the date of the maturity or the strike

date.





8. American Options: The American Options are the options which can

be exercised at any time up to the expiration date. Most of the

Exchange traded options in India are American.

9. European Options: European options are the options which can beexercised only on the expiration date. European Options are easier to

analyze then the American Options.

10.In-the-money option: In the money option is the one which would

lead to a positive cash flow to the holder if it were exercised

immediately. A call option on the index would be in the money if the

current index price is higher then the strike price of the option and

vice-versa.

11.At-the-money option: At the money option is the one which wouldlead to zero cash flow to the holder if it were exercised immediately.

An option on the index is at the money will the current index price is

equal to the strike price of the options.

12.Out-of-the-money option: Out of the money option is the one which

would lead to a negative cash flow to the holder if it were exercised

immediately. A call option on the index would be Out of the money if

the current index price is lesser then the strike price of the option and

vice-versa.

13.Intrinsic value of an option: It is the difference between the strike

price and the spot price. The intrinsic value of a call option is the

amount the option is in the money if it is ITM. The intrinsic value

would be zero if the call is out of the money.

14.Time value of an option: The time value of an option is the difference

between the premium and it is intrinsic value. Both calls and puts

have time value. An option that is OTM or ATM has only time value.

So it is clear that the longer the time to expiration the greater is theoption’s time value or else it is equal. At the time of expiration an

option should not have any time value.





Pricing Options

1. Pricing index options:

As per Black–Scholes options pricing model, index options should be

valued in the same way as ordinary options on common stock. It assumes

that investors can cost lessly purchase the underlying stocks in the exact

amount necessary to replicate the Index.

Before using the Black–Scholes formula for index options, we must

however make adjustments for the dividend payments received on the index

stocks.

If the dividend payment is sufficiently smooth, this merely involves

replacing the current index value S in the model with where q is the annualdividend yield and T is the time to expiration in years.

I in this project have used the same theory to calculate the premium on

options.

2. Pricing stock options:

Much of the things which apply on index options do also apply on stock

options. But before having a look at the methodology we should first see the

factors affecting the price of a stick option.

a) The stock price

b) The strike price

c) The expiration time

d) Market volatility

e) The risk free interest rate

f) Dividends





Method of Calculation of the Premiums and

Greeks

OPTION CALCULATORINPUT VALUE OUTPUT VALUE OPTION VALUE VALUE GREEKS VALUE

Standarddeviation 35.00% (d1) 0.0734 Call Premium 4.51

Delta -Call 0.5293

Variance 0.1225 (d2) -0.0373 Put Premium 4.39Delta -Put -0.4707

Maturity inyears 0.1 N(d1) 0.5293 Premium 0.0451 Gamma 0.0359

Risk-freerate(Annual) 2.00% N(d2) 0.4851 Leverage Theta -Call -22.9819

Share price 100 N(-d1) 0.4707ITM/OTM/ATM -CALL ATM

Theta -Put

-20.9859

Exerciseprice 100 N(-d2) 0.5149

ITM/OTM/ATM -PUT ATM Vega 12.5792

Dividends N`(d1) 0.3978Rho -Call 4.8417

Rho -Put -5.1384





CALCULATION OF ANNUAL RETURNS

year Month Strategy

Premiums

Paid (Rs.)

Return

Generated (RS.)

2007 JuneAnticipating

Volatility 234 -28.75

Bullish 131 -109.75

Bearish 103 81

JULYAnticipating

Volatility 236 71

Bullish 132 175

Bearish 104 -104

AUGUSTAnticipating

Volatility 237 150.2

Bullish 133 -16.75

Bearish 104 166.95

SEPTEMBERAnticipating


Bullish 137 409.6

Bearish 108 -108

OCTOBERAnticipating


Bullish 155 681.95

Bearish 122 -122

NOVEMBERAnticipating


Bullish 180 -108.55

Bearish 141 206.1

DECEMBER AnticipatingVolatility 321 96

Bullish 180 114.3

Bearish 141 -18.3





year Month StrategyPremiumsPaid (Rs.)

Return Generated(RS.)

2008 JANUARYAnticipating


Bullish 188 -188

Bearish 148 1097.05

FEBRUARYAnticipating


Bullish 163 3.65

Bearish 128 351

MARCHAnticipating


Bullish 151 -151

Bearish 119 330.9

APRILAnticipating


Bullish 145 310.95

Bearish 114 -114

MAYAnticipating


Bullish 160 -160

Bearish 126 266.9

TOTAL 6526 5990

So the percentage returns would be:

(Total Returns / Total Investments)* 100

Return % = (5990/6526)* 100 = 91.8%





JUNE 2007

Date NIFTY Date NIFTY

1-Jun-07 4297.05 15-Jun-07 4171.45

4-Jun-07 4267.05 18-Jun-07 4147.15-Jun-07 4284.65 19-Jun-07 4214.3

6-Jun-07 4198.25 20-Jun-07 4248.65

7-Jun-07 4179.5 21-Jun-07 4267.4

8-Jun-07 4145 22-Jun-07 4252.05

11-Jun-07 4145.6 25-Jun-07 4259.4

12-Jun-07 4155.2 26-Jun-07 4285.7

13-Jun-07 4113.05 27-Jun-07 4263.95

14-Jun-07 4170 28-Jun-07 428229-Jun-07 4318.3

NIFTY

4000

4050

4100

4150

4200

4250

4300

4350



- 25 -



Calculation of Profits

1. Anticipating Volatility :

OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2

BUY CALL BUY PUT 131 103

STRIKE PRICE

4297.05 4297.05

PROFIT

21.25 184

Net Profit -28.75

If I am anticipating the market to make big movements then I would

purchase one call and one put option .When the market goes up then I

exercise the call option and when it is down I exercise the put option and I

will sell and purchase the underlying at market prices at the time of exercise

itself.

2. Bullish Index:


BUY CALL 131STRIKE PRICE

4297

PROFIT

21.25

NET PROFIT -109.75

If I am bullish about the index I will buy a call option and exercise at the

point when the market is at its peak. But here the market has shown a

downfall .So I will not exercise the call option and bear the loss of the premium on it.



- 26 -



3. Bearish Index:


BUY PUT 103STRIKE PRICE

4297

PROFIT

184

NET PROFIT 81

And if I am bearish about the market I will buy a put option and will waitfor the market to go down and will exercise it. I will purchase the underlying

from the market and sell it at the option price.



- 27 -



JULY 2007


2-Jul-07 4313.75 17-Jul-07 4496.75

3-Jul-07 4357.55 18-Jul-07 4499.55

4-Jul-07 4359.3 19-Jul-07 4562.1

5-Jul-07 4353.95 20-Jul-07 4566.05

6-Jul-07 4384.85 23-Jul-07 4619.35

9-Jul-07 4419.4 24-Jul-07 4620.75

10-Jul-07 4406.05 25-Jul-07 4588.711-Jul-07 4387.15 26-Jul-07 4619.8

12-Jul-07 4446.15 27-Jul-07 4445.2

13-Jul-07 4504.55 30-Jul-07 4440.05

16-Jul-07 4512.15 31-Jul-07 4528.85



- 28 -



N I F T

4 1 5 0

4 2 0 0

4 2 5 0

4 3 0 0

4 3 5 0

4 4 0 0

4 4 5 0

4 5 0 0

4 5 5 0

4 6 0 04 6 5 0

1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1


1) Anticipating Volatility:



STRIKE STRIKE

4313.75 4313.75

PROFIT

307 Not exercised

Net Profit 71







- 29 -



itself. But the market did not show any downfall so I should only exercise

the call option and bear the loss of premium on the Put Option.

2) Bullish Index:


BUY CALL 132

STRIKE PRICE

4313.75

PROFIT

307

NET PROFIT 175

If I am bullish about the Index I would buy a call option and when the index

is at a high level I will exercise the option and sell the underlying at the

market price which is higher than the exercise price.

3) Bearish Index:


BUY PUT 104

STRIKE

4313.75

PROFIT

Not exercised

Net Profit -104

Here I was bearish about the Index but it has shown a growth. Now I should

not exercise the option and have to bear the loss of the Premium.



- 30 -



August 2007


1-Aug-07 4345.85 17-Aug-07 4108.05

2-Aug-07 4356.35 20-Aug-07 4209.05

3-Aug-07 4401.55 21-Aug-07 4074.9

6-Aug-07 4339.5 22-Aug-07 4153.15

7-Aug-07 4356.35 23-Aug-07 4114.95

8-Aug-07 4462.1 24-Aug-07 4190.15

9-Aug-07 4403.2 27-Aug-07 4302.6

10-Aug-07 4333.35 28-Aug-07 4320.713-Aug-07 4373.65 29-Aug-07 4359.3

14-Aug-07 4370.2 30-Aug-07 4412.3

16-Aug-07 4178.6 31-Aug-07 4464



- 31 -



NIFTY

3800

3900

4000

4100

4200

4300

4400

4500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21


1. Anticipating Volatility:



STRIKE PRICE

4345 4345

PROFIT

116.25 270.95NET PROFIT 150.2






- 32 -




itself.

2. Bullish Index:


BUY CALL 133

STRIKE PRICE

4345

PROFIT

116.25

NET PROFIT -16.75

If I am bullish about the Index I would buy a call option and when the indexis at a high level I will exercise the option and sell the underlying at the

market price which is higher than the exercise price. But here the index has

only shown a downfall so I should not exercise the option but bear the loss

of premium.

3. Bearish Index:


BUY PUT 104

STRIKE PRICE

4345

PROFIT

270.95

NET PROFIT 166.95

And if I am bearish about the market I will buy a put option and will waitfor the market to go down and will exercise it. I will purchase the underlying




- 33 -



September 2007


3-Sep-07 4474.75 17-Sep-07 4494.65

4-Sep-07 4479.25 18-Sep-07 4546.2

5-Sep-07 4475.85 19-Sep-07 4732.35

6-Sep-07 4518.6 20-Sep-07 4747.55

7-Sep-07 4509.5 21-Sep-07 4837.55

10-Sep-07 4507.85 24-Sep-07 4932.2

11-Sep-07 4497.05 25-Sep-07 4938.85

12-Sep-07 4496.85 26-Sep-07 4940.5

13-Sep-07 4528.95 27-Sep-07 5000.55

14-Sep-07 4518 28-Sep-07 5021.35



- 34 -



N IF T Y S E P T E M

4 2 0 0

4 3 0 0

4 4 0 0

4 5 0 0

4 6 0 0

4 7 0 0

4 8 0 0

4 9 0 0

5 0 0 0

5 1 0 0

1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9


I. Anticipating Volatility:



STRIKE PRICE

4474.75 4474.75

PROFIT

546.6 0

NET PROFIT 301.6



- 35 -







itself. But the market did not show any downfall so I should only exercisethe call option and bear the loss of premium on the Put Option.

II. Bullish Index:


BUY CALL 137

STRIKE PRICE

4474.75

PROFIT546.6

NET PROFIT 409.6




III. Bearish Index:


BUY PUT 108

STRIKE PRICE

4474.75 4474.75

PROFIT

0

NET PROFIT -108

Here I was bearish about the Index but it has shown a growth. Now I should

not exercise the option and have to bear the loss of the Premium.



- 36 -



October 2007


1-Oct-07 5068.95 17-Oct-07 5559.3

3-Oct-07 5210.8 18-Oct-07 5351

4-Oct-07 5208.65 19-Oct-07 5215.35-Oct-07 5185.85 22-Oct-07 5184

8-Oct-07 5085.1 23-Oct-07 5473.7

9-Oct-07 5327.25 24-Oct-07 5496.15

10-Oct-07 5441.45 25-Oct-07 5568.95



- 37 -



11-Oct-07 5524.85 26-Oct-07 5702.3

12-Oct-07 5428.25 29-Oct-07 5905.9

15-Oct-07 5670.4 30-Oct-07 5868.75

16-Oct-07 5668.05 31-Oct-07 5900.65

NIFT

4 6 0 0

4 8 0 0

5 0 0 0

5 2 0 0

5 4 0 0

5 6 0 0

5 8 0 0

6 0 0 0

1 2 3 4 5 6 7 8 9 10 1 1 12 13 1 4 1 5 1 6 17 1 8 19 2 0 2 1





STRIKE PRICE

5068.95 5068.95

PROFIT



- 38 -



836.95 0

NET PROFIT 559.95


purchase one call and one put option .When the market goes up then Iexercise the call option and when it is down I exercise the put option and I


itself. But the market did not show any downfall so I should only exercise

the call option and bear the loss of premium on the Put Option.

2. Bullish Index:

OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2BUY CALL 155

STRIKE PRICE

5068.95

PROFIT

836.95

NET PROFIT 681.95

If I am bullish about the Index I would buy a call option and when the indexis at a high level I will exercise the option and sell the underlying at the


3. Bearish Index:


BUY PUT 122

STRIKE PRICE5068.95

PROFIT

0

NET PROFIT -122



- 39 -



Here I was bearish about the Index but it has shown a growth. But the

market has grown so now I should not exercise the option and have to bear

the loss of the Premium.

November 2007

Date NIFTY Date NIFTY1-Nov-07 5866.45 16-Nov-07 5906.85

2-Nov-07 5932.4 19-Nov-07 5907.65

5-Nov-07 5847.3 20-Nov-07 5780.9

6-Nov-07 5786.5 21-Nov-07 5561.05



- 40 -



7-Nov-07 5782.35 22-Nov-07 5519.35

8-Nov-07 5698.75 23-Nov-07 5608.6

9-Nov-07 5663.25 26-Nov-07 5731.7

12-Nov-07 5617.1 27-Nov-07 5698.15

13-Nov-07 5695.4 28-Nov-07 5617.5514-Nov-07 5937.9 29-Nov-07 5634.6

15-Nov-07 5912.1 30-Nov-07 5762.75

NIFTY November

5300

5400

5500

5600

5700

5800

5900

6000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21


A. Anticipating Volatility:





- 41 -



STRIKE PRICE

5866.45 5866.45

PROFIT

71.45 347.1

NET PROFIT 97.55





itself.

B. Bullish Index:


BUY CALL 180

STRIKE PRICE

5866.45

PROFIT

71.45

NET PROFIT -108.55




C. Bearish Index:


BUY PUT 141

STRIKE PRICE



- 42 -



5866.45

PROFIT

347.1

NET PROFIT 206.1

And if I am bearish about the market I will buy a put option and will wait

for the market to go down and will exercise it. I will purchase the underlying


December 2007


3-Dec-07 5865 17-Dec-07 5777



- 43 -



4-Dec-07 5858.35 18-Dec-07 5742.3

5-Dec-07 5940 19-Dec-07 5751.15

6-Dec-07 5954.7 20-Dec-07 5766.5

7-Dec-07 5974.3 24-Dec-07 5985.1

10-Dec-07 5960.6 26-Dec-07 6070.7511-Dec-07 6097.25 27-Dec-07 6081.5

12-Dec-07 6159.3 28-Dec-07 6079.7

13-Dec-07 6058.1 31-Dec-07 6138.6

14-Dec-07 6047.7

NIFTY Decem

5500

5600

5700

5800

5900

6000

6100

6200

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18





- 44 -





STRIKE PRICE

5865 5865

PROFIT294.3 122.7

NET PROFIT 96





itself.

2. Bullish Index:


BUY CALL 180

STRIKE PRICE

5865

PROFIT

294.3

NET PROFIT 114.3





of premium.

3. Bearish Index:


141INTERNATIONAL BUSINESS SCHOOL, NOIDAINTERNATIONAL BUSINESS SCHOOL, NOIDA


- 45 -



STRIKE PRICE

5865

PROFIT

122.7

NET PROFIT -18.3




January 2008




- 46 -



1-Jan-08 6144.35 16-Jan-08 5935.75

2-Jan-08 6179.4 17-Jan-08 5913.2

3-Jan-08 6178.55 18-Jan-08 5705.3

4-Jan-08 6274.3 21-Jan-08 5208.8

7-Jan-08 6279.1 22-Jan-08 4899.38-Jan-08 6287.85 23-Jan-08 5203.4

9-Jan-08 6272 24-Jan-08 5033.45

10-Jan-08 6156.95 25-Jan-08 5383.35

11-Jan-08 6200.1 28-Jan-08 5274.1

14-Jan-08 6206.8 29-Jan-08 5280.8

15-Jan-08 6074.25 30-Jan-08 5167.6

31-Jan-08 5137.45

2321191715131197531

V a l u e J A N U A R Y

6400

6200

6000

5800

5600

5400

5200

5000

4800




- 47 -






STRIKE PRICE6144.35 6144.35

PROFIT

0 1245.05

NET PROFIT 909.05




will sell and purchase the underlying at market prices at the time of exerciseitself. Here I would not exercise the call option as the marker has

substantially come down and bear the loss of premium on it.

2. Bullish Index:


BUY CALL 188

STRIKE PRICE

6144.35PROFIT

0

NET PROFIT -188



downfall .So I will not exercise the call option and bear the loss of the

premium on it.

3. Bearish Index:



- 48 -




BUY PUT 148

STRIKE PRICE

6144.35

PROFIT1245.05

NET PROFIT 1097.05



from the market and sell it at the option price. As we can see here that the,

market has came down a lot which has made the buyer of the option have a

huge profit out of it.



- 49 -



February 2008


1-Feb-08 5317.25 18-Feb-08 5276.94-Feb-08 5463.5 19-Feb-08 5280.8

5-Feb-08 5483.9 20-Feb-08 5154.45

6-Feb-08 5322.55 21-Feb-08 5191.8

7-Feb-08 5133.25 22-Feb-08 5110.75

8-Feb-08 5120.35 25-Feb-08 5200.7

11-Feb-08 4857 26-Feb-08 5270.05

12-Feb-08 4838.25 27-Feb-08 5268.4

13-Feb-08 4929.45 28-Feb-08 5285.1

14-Feb-08 5202 29-Feb-08 5223.5

15-Feb-08 5302.9

NIFTY FEBRUAR

4400

4600

4800

5000

5200

5400

5600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20



- 50 -




A. Anticipating Volatility:



STRIKE PRICE

5317.25 5317.25

PROFIT

166.65 479

NET PROFIT 354.65

If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I



itself.

B. Bullish Index:


BUY CALL 163STRIKE PRICE

5317.25

PROFIT

363.75

NET PROFIT 200.75


is at a high level I will exercise the option and sell the underlying at themarket price which is higher than the exercise price. But here the index has


of premium.



- 51 -



C. Bearish Index:


BUY PUT 128

STRIKE PRICE

5317.25

PROFIT

479

NET PROFIT 351






- 52 -



March 2008


3-Mar-08 4953 17-Mar-08 4503.1

4-Mar-08 4864.25 18-Mar-08 4533

5-Mar-08 4921.4 19-Mar-08 4573.95

7-Mar-08 4771.6 24-Mar-08 4609.85

10-Mar-08 4800.4 25-Mar-08 4877.5

11-Mar-08 4865.9 26-Mar-08 4828.85

12-Mar-08 4872 27-Mar-08 4830.2513-Mar-08 4623.6 28-Mar-08 4942

14-Mar-08 4745.8 31-Mar-08 4734.5



- 53 -



N IF T Y M a r

4 2 0 0

4 3 0 0

4 4 0 0

4 5 0 0

4 6 0 0

4 7 0 0

4 8 0 0

4 9 0 0

5 0 0 0

1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7





STRIKE PRICE

4953 4953

PROFIT

0 449.9

NET PROFIT 179.9





- 54 -





itself. Here I would not exercise the call option as the marker has


2. Bullish Index:


BUY CALL 151

STRIKE PRICE

4953

PROFIT

0

NET PROFIT -151




premium on it.

3. Bearish Index


BUY PUT 119

STRIKE PRICE

4953

PROFIT

449.9

NET PROFIT 330.9



from the market and sell it at the option price. As we can see here that the,



- 55 -



market has came down a lot which has made the buyer of the option have a


April 2008


1-Apr-08 4739.55 16-Apr-08 4887.3

2-Apr-08 4754.2 17-Apr-08 4958.4

3-Apr-08 4771.6 21-Apr-08 5037

4-Apr-08 4647 22-Apr-08 5049.3

7-Apr-08 4761.2 23-Apr-08 5022.88-Apr-08 4709.65 24-Apr-08 4999.85

9-Apr-08 4747.05 25-Apr-08 5111.7

10-Apr-08 4733 28-Apr-08 5089.65

11-Apr-08 4777.8 29-Apr-08 5195.5



- 56 -



15-Apr-08 4879.65 30-Apr-08 5165.9

N IFTY Apr

4300

4400

4500

4600

4700

4800

4900

5000

5100

5200

5300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19





STRIKE PRICE

4739.55 4739.55

PROFIT

455.95 114

NET PROFIT 310.95



- 57 -







itself.

2. Bullish Index:


BUY CALL 145

STRIKE PRICE

4739.55

PROFIT

402.5

NET PROFIT 257.5





of premium.

3. Bearish Index:


BUY PUT 114

STRIKE PRICE

4739.55

PROFIT

0

NET PROFIT -114



- 58 -





from the market and sell it at the option price. But as we can see that the

market has risen so we should not exercise the put option and have to bear

loss of the premium.

May 2008


2-May-08 5228.2 16-May-08 5157.75-May-08 5192.25 20-May-08 5104.95

6-May-08 5144.65 21-May-08 5117.65

7-May-08 5135.5 22-May-08 5025.45

8-May-08 5081.7 23-May-08 4946.55



- 59 -



9-May-08 4982.6 26-May-08 4875.05

12-May-08 5012.65 27-May-08 4859.8

13-May-08 4957.8 28-May-08 4918.35

14-May-08 5011.75 29-May-08 4835.3

15-May-08 5115.25 30-May-08 4870.1

NIFTY MAY2008

4600

4700

4800

4900

5000

5100

5200

5300





STRIKE PRICE

5228.2 5228.2



- 60 -



PROFIT

0 392.9

NET PROFIT 106.9

If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I



itself. Here I would not exercise the call option as the marker has


2. Bullish Index:

OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2BUY CALL 160

STRIKE PRICE

5228.2

PROFIT

0

NET PROFIT -160

If I am bullish about the index I will buy a call option and exercise at the point when the market is at its peak. But here the market has shown a


premium on it.

3. Bearish Index:


BUY PUT 126

STRIKE PRICE

5228.2

PROFIT

392.9



- 61 -



NET PROFIT 266.9



from the market and sell it at the option price. As we can see here that the,market has came down a lot which has made the buyer of the option have a




- 62 -



SYNOPSIS

SBI

MUTUAL

FUNDS

“Scope of Option Funds inIndian Market”

Student’s Name: Vikash Tayal

Industry Guide: Mr. Munish Sabharwal

Faculty Guide: Ms. Deepmala Soni

Objective of the Study

There are two objectives of my study.

Primary Objective: The primary objective of the study is to

get a deeper understanding of the Indian stock market and the

use of options in the same by understand the different types of options and various strategies of options which can be used in

different market scenarios.

Secondary Objective: o find out the possibility of launching

an options income fund in the Indian Mutual Fund Industry and

to find out whether it is possible to get constant returns by

using INDEX options in the Indian market.

Findings:

We as mutual funds are allowed to invest into Options for the

purpose of hedging and are not allowed to use them to earn

profits by using them in other ways. It means we can limit our

risk through hedging but are not allowed to use them for



- 63 -



earning which is done in USA.

So on the daily closing values of NSE we have applied various

market strategies of options and have calculated approximatereturns and have found that a good yield can be achieved by

using options. But applying option strategies is not easy for an

investor himself as it requires expertise and hence we have

proposed SBI MUTUAL FUNDS to launch an Equity Fund

which will buy and sell options. The risk factor in such a fund

would be limited as options are hedging instruments by default.

Conclusion :

It is possible to get constant returns by using options in the

Indian Market. And there are may new types of funds which

can provide good returns to the investors.

Student perception about Industry Guide:

He is a

person who likes perfection. He is very hard working but was a

bit reserve as well. He was very much available for every query

that I had.

Scope of Option Funds in Indian Market

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Transcript of Scope of Option Funds in Indian Market