DERIVATIVES STRATEGIES IN DAILY LIFE

DERIVATIVES STRATEGIES IN DAILY LIFE

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Institute of Technology and Management

Navi Mumbai

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Pratim Roy

How derivatives help investor to earn huge profit and hedge risk for a position. One of the parts of this instrument is options.

I was born in NSE on 4th June 2001. Do you know me?

DERIVATIVES STRATEGIES IN DAILY LIFE 2014

Summer Internship Project

By

Pratim Roy

Batch –F1

PGDM-1838

Project Title-Derivatives Strategies In Daily Life

Company Guide-Sonashree Goswami

Faculty Guide-Uma Ghosh

Institute For Technology & Management Page 1


ACKNOWLEDGEMENT

First I would like to thank Reliance Money and Ms. Sonashree Goswami (Regional Coordinator

The Leap-Learning and Employability Advancement Program) for giving me an opportunity to

do an internship with the esteemed organization.

For me it was quite a unique experience which will help me in all my future endeavors in the

financial sector. As it was my first step in the corporate world I was unaware of the work place

environment, this five months provided me with a huge opportunity to explore and learn the

ways of adapting myself in this previously unknown territory. I think there is very few who got

this kind of opportunity. Although I learnt finance related subjects in my course the practical

applications was virtually unknown. This organization helped me get the original essence of

those subjects throughout my internship.

I also would like to thank Institute for Technology & Management for helping me to get this

opportunity otherwise I would never have had a taste of the corporate structure before actually

jumping into the corporate bandwagon.

At last I would like to thank my faculty guide Mrs. Uma Ghosh and company guide Ms.

Sonashree Goswami to guide me throughout the journey in a systematic way and help me to

reach my prime objective and give me the proper visionary to do the assigned job properly.



CERTIFICATE FROM COMPANY GUIDE

This is to certify that the project titled “DERIVATIVES STRATEGIES IN DAILY LIFE” is a bonafide research work carried out by Mr. PRATIM ROY (PGDM 1838) under our guidance. This dissertation has not formed the basis for the award previously of any Degree/Diploma, or any other similar titles of any Institution/University.


Sonashree GoswamiRegional CoordinatorThe Leap-Learning and Employability Advancement ProgramReliance Money LimitedRIM: 09333610024web site: www.theleapprogram.in

http://www.theleapprogram.in/



CERTIFICATE OF COMPLETION

This is to certify that Pratim Roy pursuing his MBA in Finance from ITM Business School has successfully completed 5 months of Internship from 7 th April 2014 to 31st August 2014 in Reliance Securities under the guidance of Ms. Sonashree Goswami. During this period his conduct was found to be good and he was diligent and resourceful.

Through this period of 5 months, he was under the project titled “Derivatives strategies in daily life” during which he was able to develop strategies and find out apt areas where we can improve product line in financial market. He has gained practical exposure in the above areas while working under the project.

We wish him the best of luck in all his future endeavors.


COMPANY SEALSonashree GoswamiRegional CoordinatorThe Leap-Learning and Employability Advancement ProgramReliance Money LimitedRIM: 09333610024web site: www.theleapprogram.in



Executive Summary

Summer Internship Project (SIP) is a very crucial aspect of MBA/PGDM course. It opens up a whole new door of opportunities for a management graduate who in future will manage the workings of an organization. Duration of this SIP vary from college to college, in our college the duration of the SIP is five months. Most of the colleges introduce SIP only for two months which I think which is very little span to understand corporate business, I am thankful to my college that they assign five months for this SIP which gave us a huge opportunity to understand corporate activity and get familiar with the corporate life.

I have done my SIP from Reliance Securities Ltd (Kolkata). I am proud to be a part of this organization for five months. It is well known stock broking firm & a depository participant under CDSL.

My project title is “Usage of derivatives strategies in daily life”. As we all know that derivatives are important segment of finance. It’s a new age risk management tool. It helps investors to hedge their position from unexpected & huge losses.

I have done this project basically on option trading strategies. I have used different strategies according to the market condition and different economic factors which mostly affects the Indian stock market. There are various strategies available in the market, but one or two strategies are suitable for a particular underlying, my work was to identify that particular strategies.

To apply this strategy I need to select few stocks and find the target price of those stocks by doing equity research of those stocks. I have done three equity researches on three different companies like ITC ltd, Bajaj Auto, Axis Bank, and find the three month down the line target price.

Then I have collected data from the NSE website like different strike prices for CALL and PUT and their corresponding premiums. Then I put this data into different strategies and calculated the payoffs and breakeven for each strategy and selected the strategy which gives the highest payoff considering the risk factors associated with the strategy.

And the final stage was to advise the client on the basis of the research and make them comfortable about their investment. May be that can be USP of this project and help my intern company in their competitive field.

Other functionaries of my internship is as followings

Teach new interns about derivative market it’s just a kind of knowledge sharing session. I am teaching the intern with the help of study materials provided by the company guide and I also prepare some material for them. It’s just like a knowledge sharing session.



I need to collect the MBA colleges details located in Kolkata like address, course offered, contact details etc.

Fixed an appointment with those colleges. Visit those colleges and share the ideas about securities market and trading with college

students, and convince them to open a DMAT account with our company to visit different colleges for the appointments to delivers some idea about capital market and generate client base for the company. Make all the students of the colleges be familiars with securities market and trading activity.

I need to help new interns in their project making, and that gave me lots of new ideas because I got to lots of new things to learn.



ContentChapter 1

1.1 Introduction 81.2 Problem On Hand 81.3 Objective 91.4 Modus Operandi 9-10

Chapter 2Details Of The Organization

2.1 Introduction 112.2 The Organization 122.2.1 Products 122.2.2 Processes 122.2.3 Facilities 122.2.4 Organization Structure 132.3 Organization Growth Through Various parameter 142.4 Other Relevant Information 15

Chapter 3Analysis Of Data Or Tasks Performed

3.1 Equity Research On ITC Ltd and Conclusion3.2 Equity Research On Bajaj Auto And Conclusion3.3 Equity Research On Axis Bank Ltd And Conclusion

Chapter 4Conclusions

4.1 Summery4.2 Advantages4.3 Disadvantages4.4 Limitations4.5 Scope Of The Study

Chapter 5Recommendations

5.1 Technical Suitability5.2 Economic justifications5.3 Suggested Schemes And Implementations

Bibliography

IntroductionInstitute For Technology & Management Page 7


Here I am going to introduce my project my project is on the basis of derivatives. The meaning of derivatives is a security whose prices dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. 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. Most derivatives are characterized by high leverage.

Futures contracts, forward contracts, options and swaps are the most common types of derivative. Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros.

Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options variables. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. A very straight forward strategy might simply be the buying or selling of a single option, however option strategies often refer to a combination of simultaneous buying and or selling of options.

Options strategies allow to profit from movements in the underlying that are bullish, bearish or neutral. In the case of neutral strategies, they can be further classified into those that are bullish on volatility and those that are bearish on volatility. The option positions used can be long and or short positions in calls.

Problem in Hand- After joining the company I tried to understand their working procedure, by doing this I discovered that their main sources of revenue coming from two parts one is brokerages and other is commissions first part brokerage mainly depend on client psychology about the market and their internal research team call’s like intraday trading call and positional trading call which they provide for their client. I found that there is very little exposer on derivatives market. Then one think stuck in my mind that this can be a suitable topic to go further in my SIP. Then I start thinking that how can I implement this derivative strategies to advice their client to generate more revenue, and make their client to understand this derivative market and used various strategies to hedge client position and risk associated with their investment.

Objective-

My prime objective is to understand the underlying logic of derivative strategies and their practical applications in the day to day life.



In our Intern company there is a portal called Stock Buster it is mainly use for the client service to give them the suggestion about the trade, but there is no option for derivatives strategies at the same time for a client it is difficult to set a strategy for a particular share so they need a proper guide line from the DP. So I want to give them some idea to implement this option in their portal in near future through my project work, that will help them to generate revenue from this path from their client and it will help them to compete with other competitor in the market.

MODUS OPERANDI:

a. Using real life option from the market. It means taking real time data from NSE’s NFO segments and preparing strategies with the data.

b. In NFO Option is two types one is CALL and another is PUT. For a particular stock or a Index minimum 5-1-5 and maximum 10-1-10 strike price is available for CALL and PUT. It implies there is minimum 5 in-the-money 1 at-the-money and 5 out-the-money and maximum 10 in-the-money 1 at-the-money and 10 out-the-money CALL and PUT strikes price. And we need to pick corresponding premium for the individual strike price.

c. To understand this concept we need to understand the moneyness of the option. When strike price equals to spot price it’s called at the money option for CALL and PUT both. If spot price is higher than strike price is called In the money CALL option and out the money PUT option and if spot price lower than strike price then it’s called out the money CALL option and in the money PUT option.

d. The main important point is that if the option (CALL or PUT) is in the money then only the option will exercise.

e. If a CALL option is in the money then its premium will be high and if it is out the money then premium will be low. Its opposite in the case of PUT option.

The main objective to introduce option instruments in the market one is risk management and another is its very low price rather than any particular stocks. Whenever a person wants to buy or sell a option he/she needs to pay only the premium amount not the price of the underlying.

In India the name of the option is European option which will exercise only the last Thursday, daily settlement done only on the premium of the option.

f. There are various strategies this strategies can be created by this CALL and PUT option.

Each individual strategy has their own identification and used in different condition of the market.



The names of the strategies are as follows:

Covered Call for moderately bullish market

Covered Put for moderately bearish market

Synthetic long call for conservative bullish market

Synthetic long put for conservative bearish market.

Long straddle and strangle for volatile market.

Short straddle and strangle for very significantly volatile market.

Bull spread for moderately bullish market

Bear spread for moderately bearish market

Long combo for bullish market

Collar for conservative bullish market

Long butterfly for bearish on volatile market

Short butterfly for bullish on volatile market

Long condor for low volatile market

Short condor for high volatile market

g. By using this above strategies we can hedge our position according to the market condition. Each strategy used in different market condition. That also depends on the investor perception, market news, and economic condition of our country.

For the purpose of data collection I used primary data which was taken form NSE website. It’s real life data I took a data of a particular day because data is changing daily basis.

Example- Before 16th may market was bullish just because of political issues and general election. On that time market was very volatile too.

By using the data of the option from NSE we analyzed that out of above mentioned strategies Short strangle is best to earn riskless profit and hedge position.

Chapter – 2

OVERVIEW OF I-Connect COMPANY:



RELIANCE SECURITIES LIMITED

HISTORY:

Reliance Securities comes from the house of Reliance Capital, one of India’s leading & prominent financial houses.

Founded in 1986, Reliance Capital has come a long way from being into steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits to diversifying its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of financial products and other activities in financial services.

Reliance Securities Limited is a Reliance Capital company and part of the Reliance Group.

Reliance Securities has a pan India presence at more than 1,700 locations.

Reliance Capital is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking groups, in terms of net worth.

MISSION:-

Create value for all stakeholders Grow through innovation Lead in good governance practices

Use sustainability to drive product development and enhance operational efficiencies Ensure energy security of the nation Foster rural prosperity.

VISION:-

Through sustainable measures, create value for the nation, enhance quality of life across the entire socio-economic spectrum and help spearhead India as a global leader in the domains where we operate.

OBJECTIVES:

Reliance Securities endeavors to change the way investors transact in equities markets and avails services. It provides customers with access to Equity, Derivatives, Mutual Funds & IPOs. It also offers secured online share trading platform and investment activities in secure, cost effective and convenient manner.



PRODUCTS AND SERVICES:

Asset management.

Mutual funds.

Life and general insurance.

Private equity and proprietary investments.

Stock broking.(Equity, derivatives, currency, commodities etc)

Reliance PMS.

Depository services and financial products.

Consumer finance and other activities in financial services

ORGANIZATIONAL STRUCTURE:



PEER COMPARISON:-



Name Market Cap.(Rs. cr.)

SalesTurnover

Net Profit Total Assets

BAJAJ FINSERV

13,241.37 141.47 50.84 2,407.51

BAJAJ HOLDINGS

11,681.37 743.68 663.33 5,186.75

L&T FINANCE 11,032.44 171.98 311.33 5,025.15

REL CAPITAL 8,742.37 3,828.00 662.00 28,104.00

MUTHOOT FINANCE

6,666.67 5,358.90 1,004.24 18,406.06

RELIGARE ENTERPRISES

4,486.75 120.97 -760.95 3,460.47

TURNOVER 3828 cr

PROFIT 662 cr

EPS 26.52

EMPLOYMENT 11500

*As on March 2014

SWOT ANALYSIS OF THE COMPANY:




Threats:-

Ceiling on ULIPs

Increasing volatility in interest

rate movement Intense competition

Weakness:-

Substantial debt

Weak operational performance

Opportunity:-

Growing insurance industry

New product launch

Strategic partnership with

MMF

Strengths-

Broad business portfolio

Capital adequacy ratio

Leading position


Analysis of data and task performed

After doing the equity research I found the 1 year down the line price of ITC ltd that is Rs 431. Here I am attaching small brief of my equity research report.

ITC Ltd Equity Research- I have done this research on the basis of fundamental analysis and financial modeling. Here I am forecasting 2014 expected income on the basis of historical data and market condition of this sector.

2009 2010 2011 2012 2013 2014IncomeSales Turnover 23,247.8

426,399.63

30,633.57

35,247.25

29,901.27

32105.67

Excise Duty 8,262.03 7,832.18 9,512.74 10,157.14

0 0.00

Net Sales 14,985.81

18,567.45

21,120.83

25,090.11

29,901.27

32105.67

Other Income 426.21 545.05 775.76 761.25 938.7 1153.782Stock Adjustments 630.3 -447.54 308.42 149.3 935.83 315.262Total Income 16,042.3

218,664.96

22,205.01

26,000.66

31,775.80

33574.71

ExpenditureRaw Materials 6,864.96 7,140.69 8,601.13 9,933.19 12,531.4

414602.67

Power & Fuel Cost 394.12 387.34 421.68 453.19 550.11 599.6254Employee Cost 903.37 1,014.87 1,178.46 1,265.41 1,387.01 1544.608Other Manufacturing Expenses

402.88 413.79 560.57 634.8 0 402.408

Selling and Admin Expenses

1,684.41 2,093.87 2,408.03 2,691.41 0 1,775.54

Miscellaneous Expenses 516.9 1,008.91 1,120.89 1,339.60 5,741.03 1945.466Preoperative Exp Capitalised

-72.55 -71.88 -60.54 0 0 0

Total Expenses 10,694.09

11,987.59

14,230.22

16,317.60

20,209.59

20870.32

Operating Profit 4,922.02 6,132.32 7,199.03 8,921.81 10,627.51

11550.6

PBDIT 5,348.23 6,677.37 7,974.79 9,683.06 11,566.21

12704.39

Interest 47.65 90.28 78.11 87.02 86.47 86.47PBDT 5,300.58 6,587.09 7,896.68 9,596.04 11,479.7

412617.92

Depreciation 549.41 608.71 655.99 698.51 795.56 873.0004



Other Written Off 0 0 0 0 0 0Profit Before Tax 4,751.17 5,978.38 7,240.69 8,897.53 10,684.1

811744.92

Extra-ordinary items 81.52 48.65 35.21 2.51 0 0PBT (Post Extra-ord Items)

4,832.69 6,027.03 7,275.90 8,900.04 10,684.18

11744.92

Tax 1,565.13 1,965.43 2,287.69 2,737.08 3,265.79 4110.721Reported Net Profit 3,263.59 4,061.00 4,987.61 6,162.37 7,418.39 7634.196Total Value Addition 3,829.13 4,846.90 5,629.09 6,384.41 7,678.15 8499.11Preference Dividend 0 0 0 0 0 0Equity Dividend 1,396.53 3,818.18 3,443.47 3,518.29 4,148.46 4853.954Corporate Dividend Tax 237.34 634.15 558.62 570.75 705.03 825.1722Per share data (annualised)Shares in issue (lakhs) 37,744.0

038,181.77

77,381.44

78,184.24

79,018.33

79,018.33

Earning Per Share (Rs) 8.65 10.64 6.45 7.88 9.39 9.661297Equity Dividend (%) 370 1,000.00 445 450 525 558Book Value (Rs) 36.24 36.69 20.55 23.97 28.21 38.7216

ROE 0.364183RE 0.2251Growth 0.081978Ke 0.094919Rm 0.15Beta 0.44Rf 0.09Div 5.58Target 431.1831

But I need to calculate near month target price to apply appropriate strategy so I had done some calculation to find the range of the stock in the coming month. My method of calculation was logarithm distribution. I used this below formula to calculate the price range.

Ln S1 ~@[lnS0+(r-(S.D)^2/2)*T, S.D*(T) ^1/2]

R=return S.D=volatility T=duration S0=spot price S1=future price

I also calculate annual return of ITC ltd that is 4.536%, and volatility is 17.75% duration one month.

I got the price range (381-311) for the near month contract.


mailto:~@%5BlnS0+(r-(S.D)%5E2/2)*T


Now below I am showing different strategies by putting different strike price and premium which is taken from NSE website.

Strike Price PremiumITC LTD Current Price 345call strike Price ATM 345.00 3.9Call Strike Price OTM 355.00 0.75Call Strike Price OTM 360.00 0.5Call Strike Price OTM 365.00 0.3Call Strike Price OTM 350.00 1.7Put Strike price ATM 345.00 2.8Put Strike price OTM 340.00 1put strike price OTM 335.00 0.8put strike price ITM 350 5call strike price ITM 340.00 7.2CALL strike price ITM 335.00 21.65Put strike price ITM 355.00 11.5

If spot at expiry RS-311 If spot at expiry 381

Strategies PayoffSynthetic Long Call 35.2Synthetic long PUT -20.3Covered Call 20.3


Strategies PayoffSynthetic Long Call -10.8Synthetic long PUT 33.7Covered Call -33.7Covered Put 10.8Short Straddel -31.75Long Straddel 31.75Long Strangle 27.5Short Strangle -27.5Bull spread(call) -6.7Bull Spread(PUT) 6Bear spread(call) 6.7Bear spread(put) 6Long call butterfly -0.15Short Butterfly put 0.15Long Combo -28.3Collar 0.3Long Condor spread 14.25


Covered Put -35.2Short Straddel -13.75Long Straddel 13.75Long Strangle 19.5Short Strangle -19.5Bull spread(call) 13.3Bull Spread(PUT) -4Bear spread(call) -13.3Bear spread(put) -4Long call butterfly -5.15Short Butterfly put 5.15Long Combo 16.7Collar -15.7Long Condor spread 14.25



Stock Price 345 Sell Stock Price 345 Stock Price 345 Sell Stock Price 345On expiiry stock price 311 On expiiry stock price 311 On expiiry stock price 311 On expiiry stock price 311payoff from the stock -34 payoff from the stock 34 payoff from the stock -34 payoff from the stock 34Put premium pay 0.8 Call premium pay 0.3 call premium recv 0.3 Put premium recv 0.8Buy Put strike price 335.00 Call strike price 365.00 Sell Call strike price 365.00 Sell Put strike price 335.00Net pay off from the Put 23.2 Net pay off from the Call -0.3 Net pay off from the call 0.3 Net pay off from the Put -23.2Net payoff -10.8 Net payoff 33.7 Net payoff -33.7 Net payoff 10.8Break Even Point 345.8 Break Even Point 344.7 Break Even Point 344.7 BREAK EVEN POINT 345.8

Nifty Index Current Value 345 Nifty Index Current Value 345 Nifty Index Current Value 345 Nifty Index Current Value 345Sell Call 355.00 BUY Call 355.00 Buy Call 360 Sell Call 360Sell PUT 355.00 BuY PUT 355.00 Buy PUT 340 Sell PUT 340Call Pre recv 0.75 Call Pre pay 0.75 Call Pre Pay 0.5 Call Pre recv 0.5Put Pre Recv 11.5 Put Pre Pay 11.5 Put Pre Pay 1 Put Pre Recv 1Total 12.25 Total 12.25 Total 1.5 Total 1.5Expiry Price 311 Expiry Price 311 Expiry Price 311 Expiry Price 311Call Payoff 0.75 Call Payoff -0.75 Call Payoff -0.5 Call Payoff 0.5Put Payoff -32.5 Put Payoff 32.5 Put Payoff 28 Put Payoff -28Net Payoff -31.75 Net Payoff 31.75 Net Payoff 27.5 Net Payoff -27.5Break Even Point 342.75 BREAK EVEN POINT 342.75 Break Even Point 338.5 Break Even Point 338.5

nifty index 345 nifty index 345 nifty index 345 nifty index 345buy ITM call 340.00 buy ITM put 350 Sell ITM call 340.00 buy ITM put 350sell OTM call 360 sell OTM put 340 Buy OTM call 360 sell OTM put 340call pre recv 0.5 put pre recv 1 call pre recv 7.2 put pre recv 1call pre pay 7.2 put pre pay 5 call pre pay 0.5 put pre pay 5buy call pay off -7.2 buy put pay off 34 buy call pay off -0.5 buy put pay off 34sell call pay off 0.5 sell put pay off -28 sell call pay off 7.2 sell put pay off -28net payoff -6.7 net payoff 6 net payoff 6.7 net payoff 6expiry price 311 expiry price 311 expiry price 311 expiry price 311BREAK EVEN POINT 366.7 BREAK EVEN POINT 334 Break Even Point 346.7 Break Even Point 346

Nifty Index 345 Nifty Index 345 present price 345 Stock price 345Sell two ATM call 345 Buy two ATM call 345 buy call strike price 365.00 sell call strike 365Pre recv 7.8 Pre pay 7.8 Sell put strike price 340.00 Buy Put strike 340Buy ITM call 340.00 sell ITM call 340.00 call premium pays` 0.3 call pe recv 0.3Pre pay 7.2 Pre recv 7.2 put primium recv 1.00 put pre paid 1Buy OTM call 355.00 Sell OTM call 355.00 expiry price 311 stock pay off -34Pre Pay 0.75 Pre recv 0.75 call payoff -0.3 put payoff 28Price on expiry 311 Price on expiry 311 put payoff -28 call payoff 0.3Sell two ATM call payoff 7.8 Buy two ATM call payoff -7.8 net pauoff -28.3 expiry price 311Buy ITM call payoff -7.2 Sell ITM call payoff 7.2 Break Even Point 339.30 Net payoff -5.7buy oTM call payoff -0.75 Sell OTM call payoff 0.75Net Payoff -0.15 Net Payoff 0.15Break Even point 354.85 Break Even point 354.85

Collar

Bear spread(put)

Short Strangle

Covered Put

Bull spread(call) Bull Spread(PUT) Bear spread(call)

Long call butterfly Short Butterfly put Long Combo

Synthetic Long Call Synthetic long PUT Covered Call

Short Straddel Long Straddel Long Strangle



Stock Price 345 Sell Stock Price 345 Stock Price 345 Sell Stock Price 345 On expiiry stock price 381 On expiiry stock price 381 On expiiry stock price 381 On expiiry stock price 381payoff from the stock 36 payoff from the stock -36 payoff from the stock 36 payoff from the stock -36Put premium pay 0.8 Call premium pay 0.3 call premium recv 0.3 Put premium recv 0.8Buy Put strike price 335.00 Call strike price 365.00 Sell Call strike price 365.00 Sell Put strike price 335.00Net pay off from the Put -0.8 Net pay off from the Call 15.7 Net pay off from the call -15.7 Net pay off from the Put 0.8Net payoff 35.2 Net payoff -20.3 Net payoff 20.3 Net payoff -35.2Break Even Point 345.8 Break Even Point 344.7 Break Even Point 344.7 BREAK EVEN POINT 345.8

Nifty Index Current Value 345 Nifty Index Current Value 345 Nifty Index Current Value 345 Nifty Index Current Value 345Sell Call 355.00 BUY Call 355.00 Buy Call 360 Sell Call 360Sell PUT 355.00 BuY PUT 355.00 Buy PUT 340 Sell PUT 340Call Pre recv 0.75 Call Pre pay 0.75 Call Pre Pay 0.5 Call Pre recv 0.5Put Pre Recv 11.5 Put Pre Pay 11.5 Put Pre Pay 1 Put Pre Recv 1Total 12.25 Total 12.25 Total 1.5 Total 1.5Expiry Price 381 Expiry Price 381 Expiry Price 381 Expiry Price 381Call Payoff -25.25 Call Payoff 25.25 Call Payoff 20.5 Call Payoff -20.5Put Payoff 11.5 Put Payoff -11.5 Put Payoff -1 Put Payoff 1Net Payoff -13.75 Net Payoff 13.75 Net Payoff 19.5 Net Payoff -19.5Break Even Point 367.25 BREAK EVEN POINT 367.25 Break Even Point 361.5 Break Even Point 361.5

nifty index 345 nifty index 345 nifty index 345 nifty index 345buy ITM call 340.00 buy ITM put 350 Sell ITM call 340.00 buy ITM put 350sell OTM call 360 sell OTM put 340 Buy OTM call 360 sell OTM put 340call pre recv 0.5 put pre recv 1 call pre recv 7.2 put pre recv 1call pre pay 7.2 put pre pay 5 call pre pay 0.5 put pre pay 5buy call pay off 33.8 buy put pay off -5 buy call pay off 20.5 buy put pay off -5sell call pay off -20.5 sell put pay off 1 sell call pay off -33.8 sell put pay off 1net payoff 13.3 net payoff -4 net payoff -13.3 net payoff -4expiry price 381 expiry price 381 expiry price 381 expiry price 381BREAK EVEN POINT 346.7 BREAK EVEN POINT 344 Break Even Point 346.7 Break Even Point 346

Nifty Index 345 Nifty Index 345 present price 345 Stock price 345Sell two ATM call 345 Buy two ATM call 345 buy call strike price 365.00 sell call strike 365Pre recv 7.8 Pre pay 7.8 Sell put strike price 340.00 Buy Put strike 340Buy ITM call 340.00 sell ITM call 340.00 call premium pays` 0.3 call pe recv 0.3Pre pay 7.2 Pre recv 7.2 put primium recv 1.00 put pre paid 1Buy OTM call 355.00 Sell OTM call 355.00 expiry price 381 stock pay off 36Pre Pay 0.75 Pre recv 0.75 call payoff 15.7 put payoff -1Price on expiry 381 Price on expiry 381 put payoff 1 call payoff -15.7Sell two ATM call payoff -64.2 Buy two ATM call payoff 64.2 net pauoff 16.7 expiry price 381Buy ITM call payoff 33.8 Sell ITM call payoff -33.8 Break Even Point 339.30 Net payoff 19.3buy oTM call payoff 25.25 Sell OTM call payoff -25.25Net Payoff -5.15 Net Payoff 5.15Break Even point 349.85 Break Even point 349.85

Nifty Index 345Buy ITM call 340.00Pre Pay 7.2Sell ITM call 335.00Pre recv 21.65SEll OTM call 365Pre recv 0.3Buy OTM call 360Pre pay 0.5BUY ITM call payoff 33.8Sell ITM call payoff -24.35Sell OTM call payoff -15.7Buy OTM call payoff 20.5Nifty Index on expiry 381Net payoff 14.25Break Even Point 374.25

Collar

Bear spread(put)

Short Strangle

Covered Put

Long Condor spread




Short Straddel Long Straddel Long Strangle



From the above tables we can conclude that when price will hit RS 381 at expiry then synthetic call and when price will hit Rs311 at expiry then synthetic put will be best strategy, if investors apply this two strategies at a time then investor will earn RS (22.9-14.9).

Bajaj Auto Equity Research - I have done this research on the basis of fundamental analysis and financial modeling. Here I am forecasting 2014-2016 expected income on the basis of historical data and market condition of this sector.

Mar '09

Mar '10 Mar '11 Mar '12 Mar '13 Mar'14 Mar'15 Mar'16

IncomeSales Turnover 9,310.

2412,420.95

17,386.51

20,475.74

19,997.25

20497.18

21727.01

23030.63

Excise Duty 610.07 607.7 934.71 959.09 0 0 0 0Net Sales 8,700.

1711,813.25

16,451.80

19,516.65

19,997.25

20497.18

21727.01

23030.63

Other Income 490.68 553.49 576.51 608.04 795.49 902.0857

1037.399

1213.756

Stock Adjustments -24.49 47.6 82.79 94.15 -24 -24 -24 -24Total Income 9,166.

3612,414.34

17,111.10

20,218.84

20,768.74

21375.27

22740.41

24220.39

ExpenditureRaw Materials 6,502.

108,187.11

11,965.30

14,580.24

14,761.83

14318.98

15034.92

15786.67

Power & Fuel Cost 60.89 70.35 86.61 101.85 121.33 143.1694

171.8033

209.6

Employee Cost 366.67 411.76 494.33 541.04 639.48 722.6124

831.0043

963.9649

Other Manufacturing Expenses

57.08 57.54 61.77 73.76 0 0 0 0

Selling and Admin Expenses

381.73 407.61 517.27 364.06 0 0 0 0

Miscellaneous Expenses 225.56 221.94 168.53 263.37 815.36 831.6672

856.6172

899.4481

Preoperative Exp Capitalised

-14.42 -15.67 -16.66 -49.43 0 0 0 0


9,340.64

13,277.15

15,874.89

16,338.00

16016.42

16894.35

17859.68

Operating Profit 1,586.75

3,073.70

3,833.95

4,343.95

4,430.74

5358.843

5846.062

6360.706

PBDIT 1,586.75

3,073.70

3,833.95

4,343.95

4,430.74

5358.843

5846.062

6360.706

Interest 21.01 5.98 1.69 22.24 0.54 0 0 0PBDT 1,068.

862,536.73

4,431.75

4,127.33

4,430.20

5358.843

5846.062

6360.706

Depreciation 129.79 136.45 122.84 145.62 163.97 174.62 186.85 203.66



81 2 87Other Written Off 0 0 2.14 2.14 0 0 0 0Profit Before Tax 939.07 2,400.2

84,306.77

3,979.57

4,266.23

5184.215

5659.21

6157.037

Extra-ordinary items 18.72 26.87 46.77 46.6 0 0 0 0PBT (Post Extra-ord Items)

957.79 2,427.15

4,353.54

4,026.17

4,266.23

5184.215

5659.21

6157.037

Tax 301.61 710.12 1,011.02

1,022.12

1,222.66

1555.264

1697.763

1847.111

Reported Net Profit 656.18 1,717.03

3,342.52

3,004.05

3,043.57

3628.95

3961.447

4309.926

Equity Dividend 318.3 578.73 1,157.47

1,302.15

1,302.15

1432.365

1575.602

1733.162

Shares in issue 144.68 144.68 289.37 289.37 289.37 289.37 289.37 289.37Earning Per Share (Rs) 45.37 117.69 115.42 103.81 105.18 125.40

87136.899

148.9417

Book Value (Rs) 129.23 202.4 169.69 208.77 273.08 354.6285

437.0782

526.1256

retained earnings 337.88 1,138.30

2,185.05

1,701.90

1,741.42

2,196.59

2,385.85

2,576.76

Retained earnings ratio 0.51492

0.662947

0.653713

0.566535

0.572164

0.605295

0.602266

0.597867

ROE 0.19382

0.180911

0.087442

0.066462

0.054497

1.254087

1.36899

1.489417

SGR 0.594056

0.116626

0.069283

6.93%

YEARLY SHARE PRICE 234 656 1321 1562 1930 2416.245

2907.987

3321.985

DPS 23.35361

78.67708

75.51059

58.81398

60.1797

75.90923

82.44965

89.0474

P/E RATIO 5.157593

5.573966

11.44516

15.04672

18.3495

19.26697

20.23032

21.24184

COST OF EQUITYU(Ke) 19.39%

17.94% 8.74% 6.65% 5.45%


Ln S1 ~@[lnS0+(r-(S.D)^2/2)*T, S.D*(T) ^1/2] R=return S.D=volatility T=duration S0=spot price S1=future price I also calculate annual return of Bajaj Auto that is 23.95%, and volatility is 1.201% duration is one month.






Bajaj auto LTD Current Price

2250

Strike Price Premiumcall strike Price ATM 2,250.00 36.2Call Strike Price OTM 2,300.00 15Call Stike Price OTM 2,350.00 7Call Strike Price OTM 2,400.00 8Call Strike Price OTM 2,500.00 2.25Put Strike price ATM 2,250.00 19.05Put Strike price OTM 2,200.00 3.9put strike price OTM 2,150.00 0.9put strike price ITM 2300 48.15call strike price ITM 2,200.00 68.1CALL strike price ITM 2,150.00 112put ITM 2,350.00 88

If spot at expiry is 2291 then payoff If spot at expiry 2322 then payoff


Strategies PayoffSynthetic Long Call 40.1Synthetic long PUT -49Covered Call 49Covered Put -40.1Short Straddel 44Long Straddel -44Long Strangle -10.9Short Strangle 10.9Bull spread(call) 29.9Bull Spread(PUT) -35.25Bear spread(call) -29.9Bear spread(put) -35.25Long call butterfly -1.7Short Butterfly put 1.7Long Combo -4.1Collar 8Long Condor spread -5.1

Strategies PayoffSynthetic Long Call 71.1Synthetic long PUT -80Covered Call 80Covered Put -71.1Short Straddel 53Long Straddel -53Long Strangle -10.9Short Strangle 10.9Bull spread(call) 60.9Bull Spread(PUT) -44.25Bear spread(call) -60.9Bear spread(put) -44.25Long call butterfly -10.7Short Butterfly put 10.7Long Combo -4.1Collar 8Long Condor spread -5.1


Stock Price 2250 Sell Stock Price 2250 Stock Price 2250 Sell Stock Price 2250On expiiry stock price 2291 On expiiry stock price 2291 On expiiry stock price 2291 On expiiry stock price 2291payoff from the stock 41 payoff from the stock -41 payoff from the stock 41 payoff from the stock -41Put premium pay 0.9 Call premium pay 8 call premium recv 8 Put premium recv 0.9Buy Put strike price 2,150.00 Call strike price 2,400.00 Sell Call strike price 2,400.00 Sell Put strike price 2,150.00Net pay off from the Put -0.9 Net pay off from the Call -8 Net pay off from the call 8 Net pay off from the Put 0.9Net payoff 40.1 Net payoff -49 Net payoff 49 Net payoff -40.1Break Even Point 2250.9 Break Even Point 2242 Break Even Point 2242 BREAK EVEN POINT 2250.9

Nifty Index Current Value 2250 Nifty Index Current Value 2250 Nifty Index Current Value 2250 Nifty Index Current Value 2250Sell Call 2,300.00 BUY Call 2,300.00 Buy Call 2350 Sell Call 2350Sell PUT 2,350.00 BuY PUT 2,350.00 Buy PUT 2200 Sell PUT 2200Call Pre recv 15 Call Pre pay 15 Call Pre Pay 7 Call Pre recv 7Put Pre Recv 88 Put Pre Pay 88 Put Pre Pay 3.9 Put Pre Recv 3.9Total 103 Total 103 Total 10.9 Total 10.9Expiry Price 2291 Expiry Price 2291 Expiry Price 2291 Expiry Price 2291Call Payoff 15 Call Payoff -15 Call Payoff -7 Call Payoff 7Put Payoff 29 Put Payoff -29 Put Payoff -3.9 Put Payoff 3.9Net Payoff 44 Net Payoff -44 Net Payoff -10.9 Net Payoff 10.9Break Even Point 2247 BREAK EVEN POINT 2247 Break Even Point 2189.1 Break Even Point 2189.1

nifty index 2250 nifty index 2250 nifty index 2250 nifty index 2250buy ITM call 2,200.00 buy ITM put 2300 Sell ITM call 2,200.00 buy ITM put 2300sell OTM call 2350 sell OTM put 2200 Buy OTM call 2350 sell OTM put 2200call pre recv 7 put pre recv 3.9 call pre recv 68.1 put pre recv 3.9call pre pay 68.1 put pre pay 48.15 call pre pay 7 put pre pay 48.15buy call pay off 22.9 buy put pay off -39.15 buy call pay off -7 buy put pay off -39.15sell call pay off 7 sell put pay off 3.9 sell call pay off -22.9 sell put pay off 3.9net payoff 29.9 net payoff -35.25 net payoff -29.9 net payoff -35.25expiry price 2291 expiry price 2291 expiry price 2291 expiry price 2291BREAK EVEN POINT 2320.1 BREAK EVEN POINT 2235.25 Break Even Point 2261.1 Break Even Point 2164.75

Nifty Index 2250 Nifty Index 2250 present price 2250 Stock price 2250Sell two ATM call 2250 Buy two ATM call 2250 buy call strike price 2,400.00 sell call strike 2400Pre recv 72.4 Pre pay 72.4 Sell put strike price 2,200.00 Buy Put strike 2200Buy ITM call 2,200.00 sell ITM call 2,200.00 call premium pays` 8 call pe recv 8Pre pay 68.1 Pre recv 68.1 put primium recv 3.90 put pre paid 3.9Buy OTM call 2,300.00 Sell OTM call 2,300.00 expiry price 2291 stock pay off 41Pre Pay 15 Pre recv 15 call payoff -8 put payoff -3.9Price on expiry 2291 Price on expiry 2291 put payoff 3.9 call payoff 8Sell two ATM call payoff -9.6 Buy two ATM call payoff 9.6 net pauoff -4.1 expiry price 2291Buy ITM call payoff 22.9 Sell ITM call payoff -22.9 Break Even Point 2,204.10 Net payoff 45.1buy oTM call payoff -15 Sell OTM call payoff 15Net Payoff -1.7 Net Payoff 1.7Break Even point 2298.3 Break Even point 2298.3

Nifty Index 2250Buy ITM call 2,200.00Pre Pay 68.1Sell ITM call 2,150.00Pre recv 112SEll OTM call 2400Pre recv 8Buy OTM call 2350Pre pay 7BUY ITM call payoff 22.9Sell ITM call payoff -29Sell OTM call payoff 8Buy OTM call payoff -7Nifty Index on expiry 2291Net payoff -5.1Break Even Point 2344.9

Long Strangle

Collar

Bear spread(put)

Short Strangle

Covered Put

Long Condor spread




Short Straddel Long Straddel



From the above table we can conclude that if an investor applied covered call strategy then the investor will earn in the range of Rs (80-49).

Axis Bank Equity Research Report- I have done this research on the basis of fundamental analysis and financial modeling. Here I am forecasting 2014-2015 expected income on the basis of historical data and market condition of this sector.

Mar '09

Mar '10

Mar '11

Mar '12

Mar '13

Mar'14

Mar'15

IncomeInterest Earned 10,835.

485611,638.022

15,154.805

21,994.646

27,183.574

30,735.960

36,479.824

Interest/discount on advance and bills

7,465.8603

7,986.604

10,403.111

15,379.353

19,166.236

22,022.520

25766.3484

Income on investment 3,051.5035

3,428.308

4,438.683

6,394.267

7,746.981

8,361.070

10321.7409

Interest on balance in RBI and others

210.1900

120.005

182.620

98.427 112.262

168.070

179.347497

Others 107.9318

103.104

130.391

122.600

158.096

184.300

212.38732

Other Income 2,896.8800

3,945.78

4,632.13

5,420.22

6,551.11

6832.8

8141.2812

Total Income 13,732.37

15,583.80

19,786.93

27,414.87

33,734.68

37,568.760

44,621.11

ExpenditureInterest expended 7,149.2

76,633.53

8,591.82

13,976.90

17,516.31

18702.97

23081.3353

Depreciation 188.67 234.32 289.59 342.24 351.73 400.0577

455.185653

Miscellaneous Expenses 2,008.57

2,502.55

5,903.14

6,773.35

8,309.22

9863.0441

11706.4471

Preoperative Exp Capitalised 0 0 0 0 0 0Operating Expenses 3,590.4

2005,066.76

4,779.43

6,007.10

6,914.23

8209.52

9385.82144

I. Payments to and provisions for employees

997.6625

1,255.82

1,613.90

2,080.17

2,376.98

2973.05

3419.0075

II. Rent, taxes and lighting 370.3014

496.09 679.85 656.42 750.60 903.72782

1088.08829

III. Printing and stationery 75.2332

83.10 109.60 93.50 100.39 109.17848

118.731592

IV. Advertisement and publicity 46.3177

47.27 79.02 88.15 119.65 154.48988

199.477339

V. Depreciation on bank's property (incl. impairment provision)

188.6663

234.32 289.99 342.24 351.73 412.16225

483.000579



VI. Directors' fees, allowance and expenses

0.7210 0.51 0.58 0.84 1.54 1.96782

2.52185975

VII. Auditor's fees and expenses 0.8338 1.05 0.75 0.93 1.11 1.2216758

1.34604244

VIII. Law charges 10.7230

14.74 13.38 18.27 17.90 20.712498

19.6768734

IX. Postage, telegrams, telephones etc.

150.2375

175.66 198.49 258.70 279.13 326.68942

382.357299

X. Repairs and maintenance 223.5630

302.33 383.93 529.48 585.89 728.26152

905.229068

XI. Insurance 113.6793

141.43 184.95 231.30 262.22 323.57874

399.296165

XII. Other expenditure 680.3010

957.40 1,225.41

1,707.12

2,067.09

2254.3703

2367.08883

Provisions & Contingencies 1,177.31

1,368.98

3,027.20

3,188.66

4,123.70

4329.885

4762.8735


13,069.27

16,398.45

23,172.66

28,554.24

31242.375

37230.0302

Net Profit for the Year 1,815.36

2,514.53

3,388.49

4,242.21

5,179.43

6,326.385

7,391.08

Profit brought forward 1,553.87

2,348.09

3,427.43

4,969.77

7,329.45

10627.703

15410.1686

Total 3,369.23

4,862.62

6,815.92

9,211.98

12,508.88

16,954.088

22,801.24

TAX 5,086.226

6,840.37

PAT 11,867.861

15,960.87

Equity Dividend 420.52 567.45 573 658.24 843.86 1202.0132

1404.30427

Number of share @ rs 10 face value

35.901 40.517 41.055 41.32 46.795 46.795

46.795

Earning Per Share (Rs) 50.5657224

62.0611102

82.5353794

102.667231

110.683406

135.19361

157.94583

price per share 1072 1367 1236 1486 1460 1589.8769

1816.37704

Book Value (Rs) 284.5268934

395.996989

462.765315

551.99758

707.508494

817.01532

944.951441

P/B RATIO 3.767657908

3.45204645

2.67090026

2.69204079

2.06357946

1.9459572

1.92219088

P/E RATIO 21.20013221

22.0266766

14.9753961

14.4739464

13.1907758

11.76 11.5

AVG PRICE OF THE SHARE 683.64 1254.0 1070.2 1079.6 1252.2 1467 1768



0346 7EV/EBITDA 13.519

8374220.2070185

12.9665606

10.5155266

11.313349

10.851105

11.1937112

DPS 11.71332275

14.0052324

13.9568871

15.9303001

18.0331232

25.686786

30.0097077

DIVI YEILD 23.16%

22.57%

16.91%

15.52%

16.29%

19.00%

19.00%

RETAINS EARNINGS 76.84%

77.43%

83.09%

84.48%

83.71%

81.00%

81.00%

ROE 7.40% 4.95% 7.71% 9.51% 8.84% 9.22% 8.93%ROA 1.23% 1.39% 1.40% 1.49% 1.52% 1.65% 1.63%SAVINGS A/C 25822.

116333861.7974

40,850.31

51667.9577

63778 77776 97008.5436

CURRENT A/C 23490.0487

30811.2937

35,486.58

37655.9884

48322 48686 56625.0162

CASA RATIO 0.909687201

0.90991312

0.86869799

0.72880737

0.75765938

0.6259772

0.58371164


Ln S1 ~@[lnS0+(r-(S.D)^2/2)*T, S.D*(T) ^1/2] R=return S.D=volatility T=duration S0=spot price S1=future price I also calculate annual return of Axis Bank that is 76.23%, and volatility is 2.019% duration is one month.



Strike Price PremiumBajaj auto LTD Current Price 400call strike Price ATM 400.00 5.7Call Strike Price OTM 404.00 4.1Call Stike Price OTM 408.00 2.85Call Strike Price OTM 410.00 2.05Call Strike Price OTM 412.00 2Put Strike price ATM 400.00 4.1Put Strike price OTM 396.00 2.95put strike price OTM 392.00 1.7put strike price ITM 404 6.2call strike price ITM 396.00 8CALL strike price ITM 392.00 12




put ITM 408.00 9.45

If spot at expiry is 424 then payoff will be If spot at expiry is 434 then payoff will be

We can easily conclude that synthetic long call will be the best strategy for the Axis bank in near term.


Strategies Payoff

Synthetic Long Call 22.3

Synthetic long PUT -12 .05

Covered Call 12.05

Covered Put -22.3

Short Straddel -6.45

Long Straddel 6.45

Long Strangle 10.2

Short Strangle -10.2

Bull spread(call) 6.85

Bull Spread(PUT) -3.25

Bear spread(call) -6.85

Bear spread(put) -3.25

Long call butterfly -0.7

Short Butterfly put 0.7

Long Combo 14.9

Collar -11.95

Long Condor spread 1.2

Strategies Payoff

Synthetic Long Call 32.3

Synthetic long PUT -12.05

Covered Call 12.05

Covered Put -32.3

Short Straddel -16.45

Long Straddel 16.45

Long Strangle 20.2

Short Strangle -20.2

Bull spread(call) 6.85

Bull Spread(PUT) -3.25

Bear spread(call) -6.85

Bear spread(put) -3.25

Long call butterfly -0.7

Short Butterfly put 0.7

Long Combo 24.9

Collar -21.95

Long Condor spread 1.2


Stock Price 400 Sell Stock Price 400 Stock Price 400 Sell Stock Price 400On expiiry stock price 434 On expiiry stock price 434 On expiiry stock price 434 On expiiry stock price 434payoff from the stock 34 payoff from the stock -34 payoff from the stock 34 payoff from the stock -34Put premium pay 1.7 Call premium pay 2.05 call premium recv 2.05 Put premium recv 1.7Buy Put strike price 392.00 Call strike price 410.00 Sell Call strike price 410.00 Sell Put strike price 392.00Net pay off from the Put -1.7 Net pay off from the Call 21.95 Net pay off from the call -21.95 Net pay off from the Put 1.7Net payoff 32.3 Net payoff -12.05 Net payoff 12.05 Net payoff -32.3Break Even Point 401.7 Break Even Point 397.95 Break Even Point 397.95 BREAK EVEN POINT 401.7

Nifty Index Current Value 400 Nifty Index Current Value 400 Nifty Index Current Value 400 Nifty Index Current Value 400Sell Call 404.00 BUY Call 404.00 Buy Call 408 Sell Call 408Sell PUT 408.00 BuY PUT 408.00 Buy PUT 396 Sell PUT 396Call Pre recv 4.1 Call Pre pay 4.1 Call Pre Pay 2.85 Call Pre recv 2.85Put Pre Recv 9.45 Put Pre Pay 9.45 Put Pre Pay 2.95 Put Pre Recv 2.95Total 13.55 Total 13.55 Total 5.8 Total 5.8Expiry Price 434 Expiry Price 434 Expiry Price 434 Expiry Price 434Call Payoff -25.9 Call Payoff 25.9 Call Payoff 23.15 Call Payoff -23.15Put Payoff 9.45 Put Payoff -9.45 Put Payoff -2.95 Put Payoff 2.95Net Payoff -16.45 Net Payoff 16.45 Net Payoff 20.2 Net Payoff -20.2Break Even Point 417.55 BREAK EVEN POINT 417.55 Break Even Point 413.8 Break Even Point 413.8

nifty index 400 nifty index 400 nifty index 400 nifty index 400buy ITM call 396.00 buy ITM put 404 Sell ITM call 396.00 buy ITM put 404sell OTM call 408 sell OTM put 396 Buy OTM call 408 sell OTM put 396call pre recv 2.85 put pre recv 2.95 call pre recv 8 put pre recv 2.95call pre pay 8 put pre pay 6.2 call pre pay 2.85 put pre pay 6.2buy call pay off 30 buy put pay off -6.2 buy call pay off 23.15 buy put pay off -6.2sell call pay off -23.15 sell put pay off 2.95 sell call pay off -30 sell put pay off 2.95net payoff 6.85 net payoff -3.25 net payoff -6.85 net payoff -3.25expiry price 434 expiry price 434 expiry price 434 expiry price 434BREAK EVEN POINT 401.15 BREAK EVEN POINT 399.25 Break Even Point 401.15 Break Even Point 400.75

Nifty Index 400 Nifty Index 400 present price 400 Stock price 400Sell two ATM call 400 Buy two ATM call 400 buy call strike price 410.00 sell call strike 410Pre recv 11.4 Pre pay 11.4 Sell put strike price 396.00 Buy Put strike 396Buy ITM call 396.00 sell ITM call 396.00 call premium pays` 2.05 call pe recv 2.05Pre pay 8 Pre recv 8 put primium recv 2.95 put pre paid 2.95Buy OTM call 404.00 Sell OTM call 404.00 expiry price 434 stock pay off 34Pre Pay 4.1 Pre recv 4.1 call payoff 21.95 put payoff -2.95Price on expiry 434 Price on expiry 434 put payoff 2.95 call payoff -21.95Sell two ATM call payoff -56.6 Buy two ATM call payoff 56.6 net pauoff 24.9 expiry price 434Buy ITM call payoff 30 Sell ITM call payoff -30 Break Even Point 395.10 Net payoff 9.1buy oTM call payoff 25.9 Sell OTM call payoff -25.9Net Payoff -0.7 Net Payoff 0.7Break Even point 403.3 Break Even point 403.3

Nifty Index 400Buy ITM call 396.00Pre Pay 8Sell ITM call 392.00Pre recv 12SEll OTM call 410Pre recv 2.05Buy OTM call 408Pre pay 2.85BUY ITM call payoff 30Sell ITM call payoff -30Sell OTM call payoff -21.95Buy OTM call payoff 23.15Nifty Index on expiry 434Net payoff 1.2Break Even Point 409.2

Long Strangle

Collar

Bear spread(put)

Short Strangle

Covered Put

Long Condor spread







Stock Price 400 Sell Stock Price 400 Stock Price 400 Sell Stock Price 400On expiiry stock price 424 On expiiry stock price 424 On expiiry stock price 424 On expiiry stock price 424payoff from the stock 24 payoff from the stock -24 payoff from the stock 24 payoff from the stock -24Put premium pay 1.7 Call premium pay 2.05 call premium recv 2.05 Put premium recv 1.7Buy Put strike price 392.00 Call strike price 410.00 Sell Call strike price 410.00 Sell Put strike price 392.00Net pay off from the Put -1.7 Net pay off from the Call 11.95 Net pay off from the call -11.95 Net pay off from the Put 1.7Net payoff 22.3 Net payoff -12.05 Net payoff 12.05 Net payoff -22.3Break Even Point 401.7 Break Even Point 397.95 Break Even Point 397.95 BREAK EVEN POINT 401.7

Nifty Index Current Value 400 Nifty Index Current Value 400 Nifty Index Current Value 400 Nifty Index Current Value 400Sell Call 404.00 BUY Call 404.00 Buy Call 408 Sell Call 408Sell PUT 408.00 BuY PUT 408.00 Buy PUT 396 Sell PUT 396Call Pre recv 4.1 Call Pre pay 4.1 Call Pre Pay 2.85 Call Pre recv 2.85Put Pre Recv 9.45 Put Pre Pay 9.45 Put Pre Pay 2.95 Put Pre Recv 2.95Total 13.55 Total 13.55 Total 5.8 Total 5.8Expiry Price 424 Expiry Price 424 Expiry Price 424 Expiry Price 424Call Payoff -15.9 Call Payoff 15.9 Call Payoff 13.15 Call Payoff -13.15Put Payoff 9.45 Put Payoff -9.45 Put Payoff -2.95 Put Payoff 2.95Net Payoff -6.45 Net Payoff 6.45 Net Payoff 10.2 Net Payoff -10.2Break Even Point 417.55 BREAK EVEN POINT 417.55 Break Even Point 413.8 Break Even Point 413.8

nifty index 400 nifty index 400 nifty index 400 nifty index 400buy ITM call 396.00 buy ITM put 404 Sell ITM call 396.00 buy ITM put 404sell OTM call 408 sell OTM put 396 Buy OTM call 408 sell OTM put 396call pre recv 2.85 put pre recv 2.95 call pre recv 8 put pre recv 2.95call pre pay 8 put pre pay 6.2 call pre pay 2.85 put pre pay 6.2buy call pay off 20 buy put pay off -6.2 buy call pay off 13.15 buy put pay off -6.2sell call pay off -13.15 sell put pay off 2.95 sell call pay off -20 sell put pay off 2.95net payoff 6.85 net payoff -3.25 net payoff -6.85 net payoff -3.25expiry price 424 expiry price 424 expiry price 424 expiry price 424BREAK EVEN POINT 401.15 BREAK EVEN POINT 399.25 Break Even Point 401.15 Break Even Point 400.75

Nifty Index 400 Nifty Index 400 present price 400 Stock price 400Sell two ATM call 400 Buy two ATM call 400 buy call strike price 410.00 sell call strike 410Pre recv 11.4 Pre pay 11.4 Sell put strike price 396.00 Buy Put strike 396Buy ITM call 396.00 sell ITM call 396.00 call premium pays` 2.05 call pe recv 2.05Pre pay 8 Pre recv 8 put primium recv 2.95 put pre paid 2.95Buy OTM call 404.00 Sell OTM call 404.00 expiry price 424 stock pay off 24Pre Pay 4.1 Pre recv 4.1 call payoff 11.95 put payoff -2.95Price on expiry 424 Price on expiry 424 put payoff 2.95 call payoff -11.95Sell two ATM call payoff -36.6 Buy two ATM call payoff 36.6 net pauoff 14.9 expiry price 424Buy ITM call payoff 20 Sell ITM call payoff -20 Break Even Point 395.10 Net payoff 9.1buy oTM call payoff 15.9 Sell OTM call payoff -15.9Net Payoff -0.7 Net Payoff 0.7Break Even point 403.3 Break Even point 403.3

Nifty Index 400Buy ITM call 396.00Pre Pay 8Sell ITM call 392.00Pre recv 12SEll OTM call 410Pre recv 2.05Buy OTM call 408Pre pay 2.85BUY ITM call payoff 20Sell ITM call payoff -20Sell OTM call payoff -11.95Buy OTM call payoff 13.15Nifty Index on expiry 424Net payoff 1.2Break Even Point 409.2

Long Strangle

Collar

Bear spread(put)

Short Strangle

Covered Put

Long Condor spread







ConclusionsSummery- After doing this project I got a clear idea about derivatives and options strategies. In the above three underlying I had implemented strategies which is most suitable for them. For ITC ltd synthetic long call and synthetic long put will be the best strategy, for Bajaj Auto covered call will be the best strategy, and for Axis Bank synthetic long call will be the best strategy according to my research.

After doing all this research work we can conclude that it’s not a very easy task to set strategy for a particular stock, and one more thing that is we cannot be sure about the target price of a particular stock because it’s all about assumption from the historical movement of stock price and economic effects which impacted the most of the company fundamentals. I found so many barriers in the derivatives segment those are as follows.

Lack of understandings about this particular instrument. Complexity in the instruments A wrong step into this market creates huge losses for the investors. May be in this segment return is very high due to the leverage facility at the same time risk is also

high. Higher number of bankruptcies Raise volatility Increase the need of regulations.

Advantages of this instrument are as follows

Huge leverages for the clients. Using this instrument an investors can hedge their risk. Its create liquidity in the market that reduce the impact cost for the investors. Completion of market. Lower transaction cost. This instrument enable price discovery.

Overall it’s a very prosperous journey with derivatives. I hope in future it will help me in my work field. I got lots my interest in derivatives in future I would like to work on this particular field.

Other conclusions about the project:



After teaching the intern I got my drawback and fault. I got lots of new ideas a thoughts from the interns. It’s just like revision session for me. It’s really helping me lot.

New interns project topic that I helped new interns those were “calculation of indices” and “how Indian market effected by global market”. It was a two way learning process because this is an opportunity for me to work with different project instead of one. It’s all about knowledge sharing with other people that help me to understand think better. Simultaneously I got an idea how global market related to Indian market.

Now I got an idea how to deal with corporate, and how to convince them. After giving all this presentation I got an idea that maximum people don’t have any idea about security market, trading and DMAT account. They asked me lots of questions regarding those topics. Again I realized that teaching is the best way of learning. I enjoyed a lot throughout the presentation.

Recommendations



In my project object I declared that I want to apply derivative option strategies in daily trading because I found that in my organization there is a gap on that particular matter. As an intern I don’t know how much I have done for them and at the same time they are more experienced and knowledgeable to understand and take decisions on that particular matter. So how they interpret my idea and thoughts that entirely depend on them, still I think in future this approach might help them to generate revenue.

Throughout my project work I tried to show how derivatives strategies can be implemented into the daily life to hedge risk and take high leverage on this market. May be its bit complicated but still I think for upcoming generation it could be great opportunity to earn money and this is our prime responsibility to build this path for them.

Few points I want to share with them that may help them in this field, those are as follows

Research team is the heart of a broking firm so I think they are the only one who can help a company like Reliance Securities on this particular matter.

They need to hire peoples those people are the professional on this particular segment. Only they help their client to understand this kind of investment pathway.

They need to arrange classes by market professionals for the naïve investors those are relay interested about this market.

There is formality that every morning before opening the market the used to send mail or sms to their clients about the market and calls like intraday and positional calls I would like to suggest that please give some derivatives call along with that.

Derivative market dealer should help their client to trade on derivative market with the sanity and prosperity.

They should maintain SEBI guide line for this particular market and protect their investor from unfair means and fraudulent practices.

BIBLIOGRAPHY Option trading strategy and advance option trading strategy (NCFM module)



www.nseindia.com m.moneycontrol.com www.dsij.in/ www.rcap.org/ www.bseindia.com/


http://www.bseindia.com/

http://www.rcap.org/

http://www.dsij.in/

http://www.moneycontrol.com/

http://www.nseindia.com/

Documents

DERIVATIVES STRATEGIES IN DAILY LIFE