Ventura Project Anant[1]

7/31/2019 Ventura Project Anant[1]

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CHAPTER - I

INTRODUCTION

1


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AN INTRODUCTION OF SHARE MARKET

Introduction:

A stock market is a market for the trading of company

stock, and derivatives of same; both of these are securities listed

on a stock exchange as well as those only traded private. The

term 'the stock market' is a concept for the mechanism that

enables the trading of company stocks (collective shares), other

securities, and derivatives. Bonds are still traditionally traded in

an informal, over-the-counter market known as the bond market.

Commodities are traded in commodities markets, and derivatives

are traded in a variety of markets. The stocks are listed and

traded on stock exchanges which are entities (a corporation or

mutual organization) specialized in the business of bringing

buyers and sellers of stocks and securities together. The stockmarket in the India includes the trading of all securities listed on

the BSE and NSE, as well as on the many regional exchanges.

Market Phases

OPENING 8:45 a.m. to 9:54 am (includes Opening Session &Login Session)

OPEN PHASE- 9:55 a.m. to 3:30 pm (Trading Takes Place alsocalled as continues secession)

MARKET CLOSE 3:30 p.m. to 4:00 (includes Closing & PostClosing Session)


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SURCON-Surveillance & Control 4:00. to 6:00 p.m. (alsocalled as Member Query Session)

Importance of stock market

Functions and Purpose:

The stock market is one of the most important sources

for companies to raise money.

This allows businesses to go public, or raise additional

capital for expansion.

The liquidity that an exchange provides affords

investors the ability to quickly and easily sell securities.

This is an attractive feature of investing in stocks,

compared to other less liquid investments such as real

estate, gold, etc.

Exchanges also act as the clearing house for each

transaction, meaning that they collect and deliver the

shares, and guarantee payment to the seller of a

security. This eliminates the risk to an individual buyer

or seller that the counterparty could default on the

transaction.


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The smooth functioning of all these activities facilitates

economic growth in that lower costs and enterprise

risks promote the production of goods and services as

well as employment. In this way the financial system

contributes to increased prosperity.

Market Segments:

1. Primary Market

2. Secondary Market

3. Derivative Market

1. Primary Market

The primary is that part of the capital markets that deals

with the issuance of new securities. Companies,

governments or public sector institutions can obtain funding

through the sale of a new stock or bond issue.

Features of Primary Market are:-

1. This is the market for new long term capital. The primary

market is the market where the securities are sold for the

first time. Therefore it is also called New Issue Market (NIM).


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2. In a primary issue, the securities are issued by the company

directly to investors.

3 The company receives the money and issue new security

certificates to the investors.4 Primary issues are used by companies for the purpose of

setting up new business or for expanding or modernizing the

existing business.

5 The primary market performs the crucial function of

facilitating capital formation in the economy.

6 The new issue market does not include certain other sources

of new long term external finance, such as loans fromfinancial institutions. Borrowers in the new issue market may

be raising capital for converting private capital into public

capital; this is known as going public.


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Methods of issuing securities in the Primary Market

1. Initial Public Offer2. Rights Issue (For existing Companies)3. Preferential Issue.

2. Secondary Market

The secondary market is the financial market for trading of

securities that have already been issued in an initial private or

public offering. The market that exists in a new security just after

the new issue is often referred to as the aftermarket. Once a

newly issued stock is listed on a stock exchange, investors and

speculators can easily trade on the exchange, as market makers

provide bids and offers in the new stock

Features of Secondary Market:-

1. Securities are sold by and transferred from one investor or

speculator to another.

2. The secondary market be highly liquid and transparent.

3. Secondary market is vital to an efficient and modern capital

market.

4. Secondary markets mesh the investor's preference for liquid

with the capital

5. Users preference to be able to use the capital for anextended period of time.

Derivatives Markets


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The derivatives markets are the financial markets for derivatives.

The market can be divided into two that for exchange traded

derivatives and that for over-the-counter derivatives. Derivative

trading in India takes can place either on a separate and

independent Derivative Exchange or on a separate segment of an

existing Stock Exchange. Derivative Exchange/Segment function

as a Self-Regulatory Organization (SRO) and SEBI acts as the

oversight regulator. The clearing & settlement of all trades on the

Derivative Exchange/Segment would have to be through a

Clearing Corporation/House, which is independent in governanceand membership from the Derivative Exchange/Segment

Stock Brokers:

A Stock broker sells or buys stock on behalf of them selves.

The stock broker works as an agent matching up stock buyers and

sellers. A transaction on a stock exchange must be made between

two members of the exchange a typical person may not walk

into the National Stock Exchange (for example), and ask to trade

stock. Such an exchange must be done through a broker. In

addition to actually trading stocks for their clients, stock brokers

may also offer advice to their clients on which stocks, mutual

funds, etc. to buy.

Some people prefer to use and pay for the services of a

broker because they feel more comfortable making decisions

about their finances with the interactive guidance of a licensed


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professional. A stock broker usually offers both commission and

fee-based services depending on the clients best interests.

According to Rule 2 (e) of SEBI Rules, 1992, a stockbroker

means a member of recognized stock exchange.

Sub-Brokers

A sub- Broker is a person who intermediates between

investors and stockbrokers. He acts on behalf of a stock-brokers

as an agent or otherwise for assisting the investors as an agent or

otherwise for assisting the investors for buying selling or dealingin securities through such stock brokers. No stock broker is

allowed to buy, sell deal in securities, unless he or she holds a

certificate of registration granted by SEBI.


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body. The validity of the bond will provide you interest payments.Mostly, bonds have a permanent rate of interest.

Putting money in saving account will also offer options investing.

You will interest for your money, but the money will not score

high. For options investing, you can go for mutual funds because

it is being empowered in the stock market.

Mutual funds offers low level of risk and handsome results. These

are some of the most unique options investing, but there are also

other procedures. If you want to know more then you can simply

browse the Internet. The Internet will provide you right method on
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options investing and all about stock market. Remember, though,

that if you want to break the investment & get all your money

back, you may need to pay some amount back to your bank.

Bonds are reliable choice for accruing interest and bonds are akind of CDs, except that you give money to government, or other

entity, which is giving bonds for sale. Also, you put the money in

entity, as well as get I.O.U., and bond, in return. Thus it is very

important for you to know everything about the bonds and other

option.

How should you invest your money?

How should you invest your money? There is not fast way to

answer this neither question, nor shortage of advice when it

comes to make money in the stock market. Most of the time,

however, such opinions and advice are based on a selective

presentation of the facts by investment firms and derived by

secondary gains from the adviser which is affected by the day to

day news and analysis. You will encounter in your stock trading

career one trader telling you to invest your money in stocks.

Another will insist that mutual funds give you the most for your

money. A third will tell you to bet on bonds. Others will go for

ETFs, options, or futures.

Growing your money and investing it is not just a theoretical

exercise. You have, or will have, money that you want to invest.

As a matter of fact, you need to invest the money that you have

earned, saved, and/or inherited so that you can meet with your

retirement goals, buying a new home, paying for college, etc.

Before you start investing your money you need to understand as

much as possible about how the stock market works, how to do

proper stock market research and analysis. So, how should you

invest your money? Before you answer that question, you need to

understand and have a clear picture of what constitute an
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investment and what investment choices you have available in

the stock market today.

Stock

Welcome to the holy grail of the stock market. Investing your

money in stocks is different from investing your money in good

stocks. So, What is a good stock? Some stock brokers will say

larger companies. At Best Growth Stock LLC, we argue that the

best stocks to invest your money are fast growing companies,

Growth Stocks.

Mutual Funds

Wall Street pundits will argue that mutual funds offer great value

to the average investor. When you invest your money in a mutual

fund, the mutual fund company is investing it in stock, bonds and

other investment vehicles to growth its value. The bad about

investing in mutual funds is that instead of YOU being your own

portfolio manager and investor, you relay on other people to

growth your own money and sometimes it comes back with highmanagement fees.

Bonds

During the bear market of 2001 investing in bonds became very

famous. Keeping part of your money in bonds is a good way todiversify a stock portfolio. Another advantage of bond investment

are the tax advantages of bonds, especially municipal bonds. But

keep in consideration that bonds do not offer a good return

relative to stocks and that they have their own risk, including
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default risk, sensitivity to interest rates, currency exchange rates,

and the business cycle.

Options

Investing in options remain one of the less well understood

trading to new investors and we encourage new investors to stay

out of options until they can understand the level of speculation

that it carries. Most options are short-term investments and must

be monitored closely. Options carry the big potential for

spectacular returns through financial leverage, though sometimes

they are marketed as a way of insuring your portfolio against a

market downturn. The cost of trading options is frequently veryhigh for individual investors and that most individuals who use

options to speculate lose money.

Futures

The last investment vehicles we will discuss are futures. Like the

options, futures trading have many of the same uses as options.

The degree of return compare to its leverage is very high for theindividual investor but with added risk of margin calls. New

investor should stay away from futures at all cost since you have

How to diversification your stock:

Investing is a threatening venture whether you're an experienced

professional or a rank beginner. If this is your first turn round the

dance floor you need to realize firstly that all investing is a

likelihood of some type. There's not any such thing as hassle-free

investing though categorical sorts of investments really involve

more risks than others. This is the actual reason that it is so

critical to have a stock portfolio that is diversified enough to offer

some insulation from devastation due to one stock, bond, or fund
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performing poorly while also making a conspicuous difference

when one performs strangely well. Put simply, dilating your

portfolio tempers the dangers you are taking by investing to some

level. You've heard the old chestnut "never put your eggs in one

basket".

Dilating your portfolio moves your eggs around so that your nest-

egg has more than one layer or protection from the evils of the

planet and the variable minds of men and the NY Stock Exchange.

You want to diversify your portfolio so that one sector or one

stock does not have the power to sink your financial future in one

slipped swoop.

Mutual Funds & Penny Stocks

You want to feel safe that your investments are secure to some

level without reference to the many risks you will face. In fact you

need that sense of security to keep on investing and building your

financial future.

You can find that it is nearly impossible to work on a financialfuture you do not believe in. If that isn't acceptable however you

need to diversify so you've got the opportunity to spread the

wealth a bit too. You would like to have some opportunities to

take the hazards which make the real cash in the market game.

You can not actually do this if all your money are tied up in

ventures that are built to take no probabilities and run the

marathon. It's nice, often to feel the wind in your hair as you run

towards your cash goals rather than going at the snails pace forsecurity. To paraphrase, variety brings a sense of balance to your

portfolio too. There are all kinds of investments. You will find

many alternative firms, many varied sectors, differing types of

stocks, bonds, funds, and all demeanor of investment

opportunities that each bring to the table a different kind of risk


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and a different kind of security on which you can feast while

organizing your stock portfolio in a meal that should is intended to

last a whole life and keep your family fed, dressed, and content

for a couple of years to come. To do all of these things your

finance situation must be as well-rounded as you are as a personand your stock portfolio wishes that liberal humanities education

that incorporates a hardly any of everything.

If you can do this with your portfolio then your economic outlook

should be much brighter and bolder than it may be if you left your

efforts in one basket and dined on one plate for the rest of your

life.

Make more of an effort to check out your finance holdings and if

you don't have a little bit of variety on your plate it's time to add

a little sprinkling of risk or conservation accordingly.

THE FIVE BASIC METHODS OF MARKET RESEARCH

While there are many ways to perform market research, most

businesses use one or more of five basic methods: surveys, focus

groups, personal interviews, observation, and field trials. The type

of data you need and how much money youre willing to spend

will determine which techniques you:

1. Surveys. With concise and straightforward questionnaires, you

can analyze a sample group that represents your target market.

The larger the sample, the more reliable your results will be.

In-person surveys are one-on-one interviews typically

conducted in high-traffic locations such as shopping malls.

They allow you to present people with samples of products,

packaging, or advertising and gather immediate feedback. In-
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person surveys can generate response rates of more than 90

percent, but they are costly. With the time and labor involved,

the tab for an in-person survey can run as high as $100 per

interview.

Telephone surveys are less expensive than in-person surveys,

but costlier than mail. However, due to consumer resistance to

relentless telemarketing, convincing people to participate in

phone surveys has grown increasingly difficult. Telephone

surveys generally yield response rates of 50 to 60 percent.

Mail surveys are a relatively inexpensive way to reach a broad

audience. They're much cheaper than in-person and phone

surveys, but they only generate response rates of 3 percent to15 percent. Despite the low return, mail surveys remain a cost-

effective choice for small businesses.

Online surveys usually generate unpredictable response rates

and unreliable data, because you have no control over the

pool of respondents. But an online survey is a simple,

inexpensive way to collect anecdotal evidence and gather

customer opinions and preferences.

2. Focus groups. In focus groups, a moderator uses a scripted

series of questions or topics to

Focus groups. In focus groups, a moderator uses a scripted

series of questions or topics to lead a discussion among a group

of people. These sessions take place at neutral locations, usually

at facilities with videotaping equipment and an observation room

with one-way mirrors. A focus group usually lasts one to two

hours, and it takes at least three groups to get balanced results.

3. Personal interviews. Like focus groups, personal interviews

include unstructured, open-ended questions. They usually last for

about an hour and are typically recorded.


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Focus groups and personal interviews provide more subjective

data than surveys. The results are not statistically reliable, which

means that they usually don't represent a large enough segment

of the population. Nevertheless, focus groups and interviews yield

valuable insights into customer attitudes and are excellent ways

to uncover issues related to new products or service

development.

4. Observation. Individual responses to surveys and focus

groups are sometimes at odds with people's actual behavior.

When you observe consumers in action by videotaping them in

stores, at work, or at home, you can observe how they buy or use

a product. This gives you a more accurate picture of customers'usage habits and shopping patterns.

5. Field trials. Placing a new product in selected stores to test

customer response under real-life selling conditions can help you

make product modifications, adjust prices, or improve packaging.

Small business owners should try to establish rapport with local

store owners and Web sites that can help them test their

products.

6. Telephone surveys. Hire summer students or part-time

people for a few days every six months to do telephone surveys.


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CHAPTER IV

DATA COLLECTIONAND

DATA ANALYSIS


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DATA COLLECTION AND INTERPRETATION

1. Participated Gender in stock market investment accordingmy survey.

Particulars No. of Respondents PercentageMale 24 80%

Female 06 20%Total 30 100%

Interpretation:

MALE

80%

FEMALE

20%

MALE

FEMALE


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Above Data reveals that most of the respondents were male

whereas female have participated only 20% of the total number

of the respondents due to male oriented organizational

framework.

2. In which securities would you like to Invest?

Particulars No. of Respondents PercentageShare 19 64%

Mutual Fund 4 13%Commodity 1 3%

Others 6 20%Total 30 100%

Interpretation:


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Above data reveals that most of the respondents from share

investment. Most of people would like to invest in share and those

people dont want to take risk they are invested in mutual fund

and other securities. Only three per cent people they want to take

risk for getting more money.


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1. Are you satisfied in Ventura Securities Limited?

Particulars No. of Respondents Percentage

Yes 23 77%No 07 23%Total 30 100%

Yes

77%

No

23%

Yes

No

Interpretation:

Above table and Graphs is the evident for investment satisfaction

into the organization and I came to know that 77% investors are

satisfied with service and rests are unsatisfied with service

i.e.23%.


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2. Which of these factors do you keep in mind while purchasingstock?


Dividend policy 7 13%Company message 18 64%Brand name 4 3%Broker hints 1 20%

Total 30 100%

Interpretation:

13% of the respondents were having dividend policy and most of

the respondents were having company massage. The other

people are depend on broker hints and brand name of company.


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3. In which trading would you like to invest?


Online trading 21 70%Offline trading 09 30%Total 30 100%

Interpretation:

The more number of people are invested in online on there own

opinion or knowledge. 30% people are depend on broker hints

because lack of knowledge in securities.


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4. What do you think about the broking charged in a Ventura

Securities?

Particulars No. of Respondents PercentageReasonable 24 80%

Unreasonable 06 20%Total 30 100%

Interpretation:

Ventura Securities broking charges are affordable to the

middle level and higher level investor. But lower level

investors are not affordable broking charges.


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5. Do you prefer to buy share on cash basis or credit basis?


cash 24 80%Credit 06 20%Total 30 100%

Yes

80%

No

20%

Yes

No

Interpretation:

People are interested buying securities on cash basis for

reducing transaction charges. The few people would like to

buying securities on credit basis. Because getting more risk and

getting more profit .

COMPANY ANALYSIS


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With a shortlist of companies, an investor might analyze the

resources and capabilities within each company to identify

those companies that are capable of creating and

maintaining a competitive advantage. The analysis could

focus on selecting companies with a sensible business plan,

solid management and sound financials.

I) Business Plan

The business plan, model or concept forms the bedrock upon

which all else is built for a new business, the questions may be

these:

Does its business make sense? Is it feasible? Is there a market?

Can a profit be made? For an established business, the questions

may be: Is the company's direction clearly defined? Is the

company a leader in the market? Can the company maintain

leadership?

II) Management

In order to execute a business plan, a company requires top-

quality management. Investors might look at management to

assess their capabilities, strengths and weaknesses. Some of the

questions to ask might include: How talented is the management

team? Do they have a track record? How long have they worked

together? Can management deliver on its promises? If

management is a problem, it is sometimes best to move on.

III) Financial Analysis

The final step to this analysis process would be to take apart

the financial statements and come up with a means of


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valuation. Below is a list of potential inputs into a financial

analysis.

DERIVATIVES STRATEGIES

What are Strategies?

Strategies are specific game plans created by you based on your

idea of how the market will move. Strategies are generally

combinations of various products futures, calls and puts and

enable you to realize unlimited profits, limited profits, unlimited

losses or limited losses depending on your profit appetite and risk

appetite.

How are Strategies formulated?

The simplest starting point of a Strategy could be having a clear

view about the market or a script. There could be strategies of an

advanced nature that are independent of views, but it would be

correct to say that most investors create strategies based onviews.

What views could be handled through Strategies?

There could be four simple views: bullish view, bearish view,

volatile view and neutral view. Bullish and bearish views are

simple enough to comprehend. Volatile view is where you believe

that the market or scrip could move rapidly, but you are not clear

of the direction (whether up or down). You are however sure thatthe movement will be significant in one direction or the other.

Neutral view is the reverse of the Volatile view where you believe

that the market or scrip in question will not move much in any

direction.

1. Bullish Strategies


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2. Bearish Strategies

1. Various bullish strategies possible

Buy a Future

Buy a Call Option

Sell a Put Option

Create a Bull Spread using Calls

Create a Bull Spread using Puts

Let us discuss each of these using some examples.

Buy a Futures Contract

If you buy a Futures Contract, you will need to invest a small

margin (generally 15 to 30% of the Contract value). If the

underlying index or scrip moves up, the associated Futures willalso move up. You can then gain the entire upward movement at

the investment of a small margin. For example, if you buy Nifty

Futures at a price of Rs 1,100 that moves up to 1,150 in say 10

days time you gain 50 points. Now if you have invested only 20%,

i.e. 220, your gain is over 22% in 10 days time, which works out

an annualized return of over 700%.

The danger of the Futures value falling is very important. You

should have a clear stop loss strategy and if youre Nifty Futures

in the above example were to fall from 1,100 to say 1,080; you

should sell out and book your losses before they mount.

The graph of a Buy Futures Strategy appears below:


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Buy a Call Option

If you buy a Call Option, your Option Premium is your cost which

you will pay on the day of entering into the transaction. This is

also the maximum loss that you can ever incur. If you buy a Cipla

May 260 Call Option for Rs 21, the maximum loss is Rs 21. If Cipla

closes above Rs 260 on the expiry day, you will be paid the

difference between the closing price and the strike price of Rs

260. For example, if Cipla closes at Rs 300, you will get Rs 40.

After setting off the cost of Rs 21, your net profit is Rs 19.

The Call buyer has a limited loss, unlimited profit profile. No

margins are applicable on the buyer. The premium will be paid in


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cash upfront. If the scrip moves nowhere, the buyer is adversely

impacted. As time passes, the value of the Option will fall. Thus if

Cipla is currently at around Rs 260 and remains around that price

till the end of May, the value of the Option which is currently Rs

21 would have fallen to nearly zero by that time. Thus time

affects the Call buyer adversely.

The graph of a Buy Call position appears below:

Sell a Put Option:

Another bullish strategy is to sell a Put Option. As a Put Seller,

you will receive Premium. For example, if you sell a Reliance May

300 Put Option for Rs 18, you will earn an Income of Rs 18 on the

day of the transaction. You will however face a risk that you might

have to pay the difference between 300 and the closing price of

Reliance scrip on the last Thursday of May. For example, if

Reliance were to close on that day at Rs 275, you will be asked topay Rs 25. After setting of the Premium received of Rs 18, the net

loss will be Rs 7. If on the other hand, Reliance closes above Rs

300 (as per your bullish view), the entire income of Rs 18 would

belong to you.


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As a Put Seller, you are required to put up Margins. These margins

are calculated by the exchange using a software program called

Span. The margins are likely to be between 20 to 35% of the

Contract Value. As a Put Seller, you have a limited profit,

unlimited loss profile which is a high risk strategy. If time passesand Reliance remains wherever it is (say Rs 300), you will be very

happy. Passage of time helps the Sellers as value of the Option

declines over time.

The profile of the Put Seller would appear as under:

Bull Spreads:

First of all, Spreads are strategies, which combine two or more

Calls (or alternatively two or more Puts). Another series of

Strategies goes by the name Combinations where Calls and Puts

are combined.

Bull Spreads are those class of strategies that enable you benefit

from a bullish phase on the index or scrip in question. Bull


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spreads allow you to create a limited profit limited loss model of

payoff, which you might be very comfortable with.

Bull Spread using Calls/ Puts:

Bull spreads can be created using Calls or using Puts. You need to

buy one Call with a lower strike price and sell another Call with a

higher strike price and a spread position is created. Interestingly,

you can also buy a Put with a lower strike price and sell another

with a higher strike price to achieve a similar payoff profile.

2. Bearish Strategies

2. Various bearish strategies possible

Sell Scrip Futures

Sell Index Futures

Buy Put Option

Sell Call Option

Bear Spreads

Combinations of Options and Futures

Let us discuss each one of them now.


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Sell Scrip Future or Index Futures:

In the current Indian system, when you sell Scrip Futures, you are

not required to deliver the underlying scrip. You will be required

to deposit a certain margin with the exchange on sale of Scrip

Futures. If the Scrip actually falls (as per your belief), you can buy

back the Futures and make a profit. For example, Cipla Futures

are quoting at Rs 250 and you sell them today as you are bearish.

You could buy them back after 10 days at say Rs 230 (if they fall

as per your expectations), generating a profit of Rs 20. Question

of delivering Cipla does not arise in the present set up.You will be required to place a margin with the exchange which

could be around 25% (an illustrative percentage). If you

accordingly place a margin of Rs 62.50, a return of Rs 20 in 10

days time works out to a wonderful 30% plus return.

Obviously, if Cipla Futures move up (instead of down) you face an

unlimited risk of losses. You should therefore operate with a stop

loss strategy and buy back Futures if they move in reverse gear.

You could adopt the same strategy with Index Futures if you are

bearish on the market as a whole. Similar returns and risks are

attached to this strategy.


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Buy Put Option

The Put Option will rise in value as the scrip (or index) drops. If

you buy a Put Option and the scrip falls (as you believe), you can

sell it at a later date. The advantage of a Put Option (as against

Futures) is that your losses are limited to the Premium you pay on

purchase of the Put Option.

For example, a Cipla 260 Put may quote at Rs 21 when Cipla is

quoting at Rs 264. If Satyam falls to Rs 244 in 8 days, the Put will

move up to say Rs 31. You can make a profit of Rs 10 in the

process.No margins are applicable on you when you buy the Put. You

need to pay the Premium in cash at the time of purchase.

Sell Call Option

If you are moderately bearish (or neutral or bearish), you can

consider selling a Call. You will receive a Premium when you sell a

Call. If the underlying Scrip (or Index) falls as you expect, the Call

value will also fall at which point you should buy it back.

For example, if Cipla is quoting at Rs 264 and the Cipla 260 Call is

quoting at Rs 18, you might well find that in 8 days when Cipla

falls to Rs 244, the Call might be quoting at Rs 7. When you buy it

back at Rs 7, you will make a profit of Rs 11.

However, if Cipla moves up instead of down, the Call will move up

in value. You might be required to buy it back at a loss. You are

exposed to an unlimited loss, but your profits are limited to the

Premium you collect on sale of the Call. You will receive the


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Premium on the date of sale of the Option. You will however be

required to keep a margin with the exchange. This margin can

change on a day to day basis depending on various factors,

predominantly the price of the scrip itself.

You should be very careful while selling a Call as you are exposed

to unlimited losses.

Bear Spreads

In a bear spread, you buy a Call with a high strike price and sell a

Call with a lower strike price. For example, you could buy a Cipla300 Call at say Rs 5 and sell a Cipla 260 Call at Rs 26. You will

receive a Premium of Rs 26 and pay a Premium of Rs 5, thus

earning a Net Premium of Rs 21.

If Cipla falls to Rs 260 or lower, you will keep the entire Premium

of Rs 21. On the other hand if Cipla rises to Rs 300 (or above) you

will have to pay Rs 40. After set off of the Income of Rs 21, your

maximum loss will be Rs 19.

Cipla

Closing

Price

Profit on

260 Strike

Call (Gross)

Profit on

300 Strike

Call (Gross)

Premium

Received

on Day One

Net Profit

250 0 0 21 21255 0 0 21 21260 0 0 21 21270 -10 0 21 11281 -21 0 21 0290 -30 0 21 -9300 -40 0 21 -19310 -50 10 21 -19


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The pay off profile appears as under:

In a bear spread, your profits and losses are both limited. Thus,you are safe from an unexpected rise in Cipla as compared to a

clean Option sale.

Combination of Futures and Options

If you sell Futures in a bearish framework, you run the risk of

unlimited losses in case the scrip (or index) rises. You can protect

this unlimited loss position by buying a Call. This combination will

result effectively in a payoff similar to that of buying a Put.

You can decide the strike price of the Call depending on your

comfort level. For example, Cipla is quoting at Rs 264 currently

and you are bearish. You sell Cipla Futures at say Rs 265. If Cipla

moves up, you will make losses. However, you do not want

unlimited loss. You could buy a Cipla 300 Call by paying a small

Premium of Rs 5. This will arrest your maximum loss to Rs 35.

If Cipla moves up beyond the Rs 300 level, you will receive

compensation from the Call, which will offset your loss on Futures.

For example, if Cipla moves to Rs 312, you will make a loss of Rs


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37 on Futures (312 265) but make a profit of Rs 12 on the Call

(312 300). For this comfort, you shell out a small Premium of Rs

5 which is a cost.

5. Covered Call

A Covered Call is a strategy that could also incidentally fit into a

bearish orientation.

A Covered Call is a strategy where you have sold a Call. As a

seller, you are exposed to unlimited losses. However, you hold the

underlying security as a result of which, if the situation arises, you

can always deliver the underlying and thus avoid such unlimited

losses.

For instance, you are holding Cipla, which is currently quoting at

Rs 230. You are bearish on Cipla and you believe it might touch

Rs 200 in the next 30 days. You therefore sell a Call with Strike

Price 220 for Rs 15. You have earned this Income of Rs 25 as a

Seller.

Now if Cipla were to move up (rather than down as per your

expectation) you will face losses. For example, if Cipla moves to

Rs 270, you will, as a seller, pay Rs 50 (difference between the

Cipla price and the strike price).

However, you are not affected by this loss because, as a holder of

Cipla itself, your holding has appreciated from the current level of

Rs 230 to Rs 270 which has generated a profit of Rs 40.


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Thus, the loss on the Call has been offset with the rise in the price

of the underlying security. Your overall profit is Rs 15 computed

as follows:

Rs 25 as Income from Sale of the Call

Rs 40 as appreciation in Cipla shares

Less Rs 50 payout on the exercise of the Call.

There are several situations, which might make this product

interesting. The classic one is where you hold a share which you

like and would like to hold it in the medium to long term. You

have no inclinations of selling it. However, you do believe that in

the short term, there is no great potential for appreciation.

In fact you believe that the share will either stay where it is

(neutral view) or it might even fall in price.

In this situation, you wonder how you can make money even

when holding on to the share itself. For example, you hold Infosyswhich is currently quoting at Rs 3,400. You love Infosys and would

like to keep it forever. However, in the short run, you believe

Infosys will either fall or stay around the Rs 3,400 mark.

Infosys 3,400 strike one month calls are currently quoting at Rs

150. If you sell these calls, you can generate an equivalent

income. If your view is correct, you get to retain the entire Rs 150

with no costs.

2 Volatile Strategies

Straddle


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A Straddle is a strategy where you buy a Call Option as well as a

Put Option on the same underlying scrip (or index) for the same

expiry date for the same strike price. For example, if you buy a

Cipla July Call Strike Price 240 and also buy a Cipla July Put Strike

Price 240, you have bought a Straddle.

As a buyer of both Call and Put, you will pay a Premium on both

the transactions. If the Call costs Rs 12 and the Put Rs 9, your

total cost will be Rs 21. You will buy a Straddle if you believe that

Cipla will become volatile. Its current price is say Rs 240, but youthink it will either rise or fall significantly. For example, you could

believe that Cipla could rise right up to Rs 300 or fall up to Rs 200

in the next fortnight or so.

There could be various situations, which might warrant heavy

movement. For example, during Budget time, a favourable

proposal might impact the price favorably and if nothing favorable

is proposed, the price could fall significantly. An Indian company

could be considering collaborations with a major foreign

company. If the collaboration were to happen, the price could

rise, and if it were not to happen, the price could fall.

An Indian company might be expecting a huge order from a

foreign company. The market might be awaiting news on this

front. While a positive development might result in a price rise, a

negative development might dampen the prices.

Some companies might face huge lawsuits. The decision could

significantly impact prices any which direction.


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In all these cases, you are sure that the price will either move up

or move down, but you are not clear which way.

Let us continue the above example. You have bought the Call and

the Put and spent Rs 21. The current price and the strike price are

the same Rs 240. Your profile will be determined as under:


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Cipla

Closing

Price

Profit on

CallProfit on Put Initial Cost Net Profit

200 0 40 21 19

210 0 30 21 9

220 0 20 21 -1

230 0 10 21 -11

240 0 0 21 -21

250 10 0 21 -11

260 20 0 21 -1

270 30 0 21 9

280 40 0 21 19

Thus you make maximum profit if the price falls significantly to Rs

200 or rises significantly to Rs 280. You will make a maximum

loss of Rs 21 (your initial cost) if the price remains wherever it

currently is.

As a buyer of the Straddle, you will pay initially for both the Call

and the Put. You need not place any margins as you are a buyer

of both Options. If time passes and the scrip remains at or around

the same price (in this case Rs 240), you will find that the Option

Premier of both the Call and the Put will decline (Time Value of

Options decline with passage of time). Hence, you will suffer

losses.


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Sell a Straddle

You bought a Straddle because you thought the scrip will become

volatile. Conversely, the seller of the Straddle would believe that

the scrip will act neutral. The seller will believe that the price of

Cipla will stay around Rs 240 in the next fortnight or so.

Accordingly, he will sell both the Call and the Put.

If the price indeed remains around Rs 240, he will make a

maximum gain of Rs 21. If the price were to move up or down, he

will make a lower gain as he will have to pay either on the Call (if

it moves up) or on the Put (if it moves down).

As a seller, he will receive the Premier of Rs 21 on day one. He

will have to place margins on both the Options and hence these

requirements could be fairly high. If time passes and the scrip

stays around Rs 240, the seller will be happy as the Option values

will decline and he can buy back these Options at a lower level.

On the other hand, if the scrip moves, he should be careful and

think of closing out early.

You will look up the Delta of the option, which happens to be 0.54.

One contract of Cipla is 1,200 Units. You have a positive Delta

which means that with Cipla going up the price of the Call will

move up (Rs 0.54 for every upward movement of Re 1.00 in Cipla)

and will move down correspondingly.

You do not want to bet on this directional movement. You will

therefore buy Cipla futures to the tune of 1,200 x 0.54 i.e. 648


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Futures. This will neutralize the impact in such a manner that

whether Cipla moves up or down, the changes in Futures price will

offset the changes in the Option price.

For example, if Cipla moves up to Rs 245 tomorrow, you will find

that the Option price has moved up to Rs 14.54. In case you

wonder why, the background is with a Delta of 0.54, the Option

price should go up by Rs 2.70 (0.54 x Rs 5 upward movement in

Cipla ). As one day has passed, the time factor will impact Option

prices downward say by Rs 0.16. Thus, the net Option price will

tend to go up by Rs 14.54 (derived from the Black Scholescalculator). You will have lost Rs 3,048 on the Call. You will find

that you have gained Rs 3,240 on the Futures, thus generating a

net gain of Rs 152.


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CHAPTER - VFINDINGS AND SUGGESIONS

FINDINGS

During the Market Research business class people show

positive attitude in Share Trading


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Those who have Interest in share trading most of them were

aware of Ventura Securities.

Mostly Investors show their first preference for share tradingin Ventura Securities Ltd.

As per the survey results all Ventura Securities brokers and

frenchancy in Pune area show positive attitude in share

Trading

In some areas especially Ventura Securities in Pune,

Mumbai, Chennai, Hyderabad etc. a big part of Investors

were found to be Interested in Commodity Market

In survey few clients expressed full satisfaction for the

products of Ventura Securities Mostly for PVS.

(Power Ventura Securities)

Ventura Project Anant[1]

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