SUBMITTED BY: Ajay pandey

roll no 23081

A STUDY OF DERIVATIVES &

ITS VARIOUS STRATEGIES

SUBMITTED TO: Dr. Divya Jindal

Smart Equity Brokers Pvt. Ltd. Pvt. Ltd. Brokers Pvt. Ltd. & Smart Commodity Brokers Pvt. Ltd. was established on 1st May 2006.

A young Chartered Accountant, Mr. Arun Khera having a rich experience & exposure to capital, derivative & commodity market started it. The Company acquired the membership of:

Bombay Stock Exchange (BSE) in 2006 National Stock Exchange [NSE] in 2006 National Commodity & Derivative Exchange

[NCDEX] in 2003 Multi Commodity Exchange [MCX] in 2006

About the company

To track some shares, based on our analysis check verify the results whether a share will go up or down.

 P/E Ratio P/B Ratio and Dividend Yield Ratio of nifty companies

To do the telecalling and take appointments To collect the data of the doctors, CA’S, Property dealers. To convince the clients for the attending the seminar

related to stock markets. To tell the client about the company and its products. To tell the client about the advantages of opening a demat

account with Smart Equity. To calculate the pivot point, support and resistance level of

a particular stock. To explain him the terms and conditions of the product. To fill up the KYC form for the customer. To make the client trade.

TASK ASSIGNED

PE Ratio, PB Ratio, Dividend Yield to predict market ie buy sell position of shares.

Pivot Points( Support and Resistance) Derivatives and Some Option strategies How to do tele-marketing as well as door to

door marketing

LEARNINGS

MEANING

A derivative is a security with a price that is derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset to assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes

INTRODUCTION

To properly hedge the investment using derivative

tools. To study in detail the role of the future and

options To study the role of derivatives in Indian

financial market To study how to invest in stock market.

OBJECTIVE

Forwards

Futures

Options

Swaps

TYPES OF DERIATIVES

A forward contract is a customized contract between two entities, where settlement takes place as a specific date in the future at Predetermined price Forwards are also known as Private Contracts Normally traded outside exchange for ex:

Forward contract

A STUDY OF DERIVATIVES

&ITS VARIOUS STRATEGIES

FarmerI agree to

sell 500kgs wheat at Rs.40/kg after 3

months.

Bread Maker

Farmer500kgs wheat

Bread Maker

Rs.20,000

3 months Later

A futures contract is similar to a forward, except that the deal is made through an organized and regulated exchange rather than being negotiated directly between two parties.

the prices of futures contracts are marked to the market on a daily basis.

FUTURE

An Option is a contract that gives the right, but not an obligation, to buy or sell the underlying on or before a stated date and at a stated price.

While buyer of option pays the premium and buys the right, writer/seller of option receives the premium with obligation to sell/ buy the underlying asset, if the buyer exercises his right.

Two types of options contract Call option Put option

OPTION

Call optionCall Option – a right to buy an asset at a predeterminedprice (strike price) on or Before a specific date If asset price is higher than the strike price - Option is in the moneyIf asset price is exactly at the strike price - Option is at the moneyIf asset price is below the strike price - Option is out of the money

Obviously would not exercise an option that is out of the money

Premium = Rs.25/share

Amt to buy Call option = Rs.2500

Suppose after a month, Market price is Rs.400, then the option is exercised i.e. the shares are bought.Net gain = 40,000-30,000- 2500 = Rs.7500

Call Option ExampleRight to buy 100 Reliance shares at a

price of Rs.300 per share after

3 months. Suppose after a month, market price is Rs.200, then the option is not exercised.Net Loss = Premium amt = Rs.2500

Current Price = Rs.250

Strike Price

Expiry date

CALL OPTION

Put Option – a right to sell and asset at a predetermined Price on or before a specific date If spot price is lower than the strike price - Option is in the money If spot price is exactly at the strike price - Option is at the money If spot price is higher than the strike price

- Option is out of the money

PUT OPTION

Swaps are arrangements between two counterparts to exchange cash flows over time two basic types are Interest-rate swap Currency swaps.Interest rate swaps :These entail swapping only the interest related cash flows between the parties in the same currency

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

SWAPS

There are broadly three types of participants in the derivatives market Hedgers- Hedgers face risk associated with the prices of

underlying assets and use derivatives to reduce their risk. Corporations, investing institutions and banks all use derivative products to hedge or reduce their exposures to market variables such as interest rates, share values, bond prices, currency exchange rates and commodity prices

Speculators/Traders - Speculators/Traders predict the future movements in prices of underlying assets and based on the view, take positions in derivative contracts. Derivatives are preferred over underlying asset for trading purpose, as they offer leverage, are less expensive (cost of transaction is generally lower than that of the underlying) and are faster to execute in size (high volumes market).

participants in the derivatives market

Arbitrageurs - Arbitrageurs Arbitrage is a deal that produces profit by exploiting a price difference in a product in two different markets. Arbitrage originates when a trader purchases an asset cheaply in one location and simultaneously arranges to sell it at a higher price in another location. Such opportunities are unlikely to persist for very long, since arbitrageurs would rush in to these transactions, thus closing the price gap at different locations

P/E ,P/B and Dividend yield ratio of nifty fifty companies as on March 30

RESARCH METHODOLOGY

YEAR P/E P/B YIELD RATIO2006 20.35 5.17 1.32

2007 18.4 4.87 1.25

2008 20.63 5.09 1.06

2009 14.08 2.46 1.88

2010 22.39 3.71 0.94

2011 21.97 3.67 1.08

2012 18.71 3.01 1.5

2013 17.57 3.01 1.46

2014 18.86 3.23 1.37

2015 22.7 3.65 1.28

TOTAL 195.66 37.87 13.14AVERAGE 19.566 3.787 1.314

P/E ,P/B and Dividend yield ratio of nifty fifty companies as on JULY 30

YEAR P/E P/B YIELD RATIO

2006 17.64 4.29 1.58

2007 20.49 5.31 1.07

2008 18.22 3.99 1.28

2009 20.68 3.73 1.11

2010 22.31 3.78 1.02

2011 19.76 3.4 1.29

2012 17.09 2.96 1.54

2013 17.05 2.84 1.47

2014 20.56 3.48 1.3

2015 23.53 3.5 1.41TOTAL 197.33 37.28 13.07AVERAGE 19.733 3.728 1.307

P/E ,P/B and Dividend yield ratio of nifty fifty companies as on November 30

YEAR P/E P/B YIELD RATIO

2006 21.18 5.08 1.22

2007 25.21 6.05 0.93

2008 12.08 2.32 2.05

2009 22.37 3.56 0.98

2010 23.39 3.69 1.06

2011 17.49 2.89 1.56

2012 18.59 3.12 1.4

2013 18.38 2.93 1.51

2014 21.94 3.63 1.23

2015 21.45 3.19 1.43

TOTAL 202.08 36.46 13.37

AVERAGE 20.208 3.646 1.337

PE RATIO

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

5

10

15

20

25

30

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PB RATIO

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

1

2

3

4

5

6

7

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november

YIELD RATIO

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

0.5

1

1.5

2

2.5

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