Hard Copy - Final

7/23/2019 Hard Copy - Final

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Presented By:

Names Roll

No.

Bhavesh Bajaj 03

Ashish Jaisinghani 15Mohit Jain 26

Geet Mehta 28

Praveen Motwani 30

Suraj Mundra 31



Table of Contents

Sr. No Particulars

1. Overvie of !utomobile Sector

2. O"tion Terminolo#ies

3. $a%a% !uto

&. 'aruti Su(u)i

5. Tata 'otors

6. *actors !+ectin# Premium Prices ,

Ta-ation

. O"tion Strate#ies

8. /eblio#ra" , $iblio#ra"



enition of erivatives

One of the most signicant events in the securities markets has een the

deve!o"ment and e#"ansion of nancia! derivatives$ %he term &derivatives' isused to refer to nancia! instruments which derive their va!ue from someunder!ying assets$ %he under!ying assets cou!d e e(uities )shares*+ det )onds+ %,i!!s+ andnotes*+ currencies+ and even indices of these various assets+ such as the -ifty ./0nde#$ 1erivatives derive their names from their res"ective under!ying asset$

%hus if a derivative2s under!ying asset is e(uity+ it is ca!!ed e(uity derivative andso on$ 1erivatives can e traded either on a regu!ated e#change+ such as the-S3 or o4 the e#changes+ i$e$+ direct!y etween the di4erent "arties+ which isca!!ed &over,the,counter' )O%5* trading$ )0n 0ndia on!y e#change traded e(uityderivatives are "ermitted under the !aw$* %he asic "ur"ose of derivatives is totransfer the "rice risk )inherent in 6uctuations of the asset "rices* from one "artyto another7 they faci!itate the a!!ocation of risk to those who are wi!!ing to take it$0n so doing+ derivatives he!" mitigate the risk arising from the future uncertaintyof "rices$

Current Scenario of !uto in4ustr

1es"ite "rice cuts and other incentives o4ered y car manufacturers+ car sa!es

continued to witness s!uggish growth in Ju!y$ A second straight year of dec!ining

sa!es is !ooming over in one of the wor!d2s fastest growing auto markets$

5ar sa!es "osted a dou!e digit growth unti! 8 years ago however since then

they have een on a downward trajectory and fe!! y 9$; to <$= mi!!ion units

!ast nancia! year+ the rst dec!ine in over a decade ago$

>yundai Motor 5o+ %oyota Motor cor"$ and Mahindra ? Mahindra were among

com"anies who "osted a dro" in sa!es in Ju!y+ a!though market !eader Maruti

Su@uki managed a margina! increase in sa!es owing to !ower sa!es ase a year

ear!ier$

%hings don2t !ook good going ahead as !ower sa!es were a!so e#"ected in

August$

A shar"!y fa!!ing ru"ee is adding to the woes of 0ndia2s automotive industry y

in6ating "roduction costs at a time when intense com"etition and a s!uggish

market are "reventing automakers from raising "rices$



0ndias auto makers se!! most of their out"ut on the !oca! market+ !eaving them

vu!nera!e to weak domestic demand and higher im"ort costs for "arts as the

ru"ees va!ue s!ides

Banks and other nancia! institutions have a!so turned cautious aout retai!

!ending due to fear of defau!ts$ %hey have ke"t orrowing rates high+ though the

!eve!s have recent!y stai!i@ed$

Ana!ysts say the concerns over fue! costs and e#"ensive orrowing wi!! continue

to weigh on consumer interest for the remainder of this nancia! year+ and !ike!y

outweigh the discounting schemes$

Parts makers are a!so fee!ing the "ain due to an increase in the cost of raw

materia!s such as stee!+ a!uminum and co""er

0ndia atings ? esearch+ "art of Citch atings 0nc$+ recent!y revised its out!ook

for the nation2s auto industry to sta!e to negative+ down from sta!e ecause

of weak demand+ intensifying com"etition among com"anies and a rise in

"roduction ca"acity$ 0t said this was the rst downward revision in its out!ook for

the sector in si# years$

%he s!owing demand has a!so "ut in (uestion the amitious </,year AutoMission P!an )AMP* that was e#"ected to take the 0ndian Auto 0ndustry to D<E.

i!!ion y 8/<9$

%he !ack !ustre "erformance may resu!t into a shortfa!! of DFE i!!ion$ S0AM said

that the industry may just reach the D<<<,i!!ion si@e y 8/<9 and not

5armakers have resorted to more a""ea!ing measures to !ure uyers$

Severa! have s!ashed "rices of their cars and s"ort,uti!ity vehic!es+ whi!eo4ering customi@ed nancing schemes and other incentives such as free

ho!idays$

0t is e#"ected that demand may "ick u" during the u"coming festiva! seasons

)Onam in Se"temer fo!!owed y 1iwa!i in -ovemer*$ >indus consider it

aus"icious to "urchase new consumer dura!es during festive "eriods$

A!so good rainfa!! this monsoon season has rightened the out!ook for

motorcyc!e sa!es+ which are driven more y rura! demand$



O"tion Terminolo#ies

S"ot "rice ST7

S"ot "rice of an under!ying asset is the "rice that is (uoted for immediatede!ivery of the asset$ Cor e#am"!e+ at the -S3+ the s"ot "rice of %ata Motors td$

at any given time is the "rice at which %ata Motors td$ shares are eing tradedat that time in the 5ash Market Segment of the -S3$ S"ot "rice is a!so referred toas cash "rice sometimes$

Stri)e "rice 7

%he "rice at which t he uyer of an o"tion can uy the stock )in the case of a ca!!o"tion* or se!! the stock )in the case of a "ut o"tion* on or efore the e#"iry dateof o"tion contracts is ca!!ed strike "rice$ 0t is the "rice at which the stock wi!! eought or so!d when the o"tion is e#ercised$ Strike "rice is used in the case of o"tions on!y7 it is not used for futures or forwards$

9-"iration 4ate T7

0n the case of Cutures+ Corwards+ 0nde# and Stock O"tions+ 3#"iration 1ate is thedate on whichsett!ement takes "!ace$ 0t is a!so ca!!ed the na! sett!ement date$

T"es of o"tions7

O"tions can e divided into two di4erent categories de"ending u"on the "rimarye#ercise sty!es

associated with o"tions$ %hese categories are:



9uro"ean O"tions7 3uro"ean o"tions are o"tions that can e e#ercised on!y onthe e#"irationdate$

!merican o"tions7 American o"tions are o"tions that can e e#ercised on anyday on orefore the e#"iry date$ %hey can e e#ercised y the uyer on any day on orefore the na!sett!ement date or the e#"iry date$

Contract si(e

As futures and o"tions are standardi@ed contracts traded on an e#change+ theyhave a #edcontract si@e$ One contract of a derivatives instrument re"resents a certainnumer of shares of the under!ying asset

Contract :alue

5ontract va!ue is notiona! va!ue of the transaction in case one contract is oughtor so!d$ 0t isthe contract si@e mu!ti"!ied ut the "rice of the futures$ 5ontract va!ue is used toca!cu!atemargins etc$ for contracts$

'oneness7

&Moneyness' of an o"tion indicates whether an o"tion is worth e#ercising or noti$e$ if theo"tion is e#ercised y the uyer of the o"tion whether he wi!! receive money or

not$&Moneyness' of an o"tion at any given time de"ends on where the s"ot "rice of the under!yingis at that "oint of time re!ative to the strike "rice$ %he "remium "aid is not takenintoconsideration whi!e ca!cu!ating moneyness of an O"tion+ since the "remium once"aid is a sunkcost and the "rotai!ity from e#ercising the o"tion does not de"end on the si@eof the"remium$ %herefore+ the decision )of the uyer of the o"tion* whether to e#ercisethe o"tion or

not is not a4ected y the si@e of the "remium$



;ntrinsic value of an o"tion7

0ntrinsic va!ue of an o"tion at a given time is the amount the ho!der of theo"tion wi!! get if he e#ercises the o"tion at that time$ 0n other words+ the intrinsicva!ue of an o"tion is the amount the o"tion is in,the,money )0%M*$ 0f the o"tion is

out,ofthe, money )O%M*+ its intrinsic va!ue is @ero$ Putting it another way+ theintrinsic va!ue of a ca!! is Ma# H/+ )St I *K which means that the intrinsic va!ueof a ca!! is the greater of / or )St I *$ Simi!ar!y+ the intrinsic va!ue of a "ut isMa# H/+ I StK i$e$+ the greater of / or ) I S t* where is the strike "rice and S t is the s"ot "rice$

Time value of an o"tion7

0n addition to the intrinsic va!ue+ the se!!er charges a Ltime va!ue2 from theuyers of the o"tion$ %his is ecause the more time there is for the contract toe#"ire+ the greater the chance that the e#ercise of the contract wi!! ecome more"rota!e for the uyer$ %his is a risk for the se!!er and he seeks com"ensationfor it y demanding a Ltime va!ue2$ %he time va!ue of an o"tion can e otainedy taking the di4erence etween its "remium and its intrinsic va!ue$ Both ca!!sand "uts have time va!ue$ An o"tion that is Out,of,the,money )O%M* or At,the,money )A%M* has on!y time va!ue and no intrinsic va!ue$ sua!!y+ the ma#imumtime va!ue e#ists when the o"tion is A%M$ %he !onger the time to e#"iration+ thegreater is an o"tion2s time va!ue+ a!! e!se eing e(ua!$ At e#"iration+ an o"tionhas no time va!ue$



*actors im"actin# o"tion "rices

%he su""!y and demand of o"tions and hence their "rices are in6uenced y thefo!!owing factors:

%he under!ying "rice+

%he strike "rice+

%he time to e#"iration+

%he under!ying asset2s vo!ati!ity+ and

isk free rate

3ach of the ve "arameters has a di4erent im"act on the o"tion "ricing of a 5a!!and a Put$

Te un4erlin# "rice7

5a!! and Put o"tions react di4erent!y to the movement in the under!ying "rice$ Asthe under!ying "rice increases+ intrinsic va!ue of a ca!! increases and intrinsicva!ue of a "ut decreases$ %hus+ in the case of a 5a!! o"tion+ the higher the "riceof the under!ying asset from strike "rice+ the higher is the va!ue )"remium* of theca!! o"tion$ On the other hand+ in case of a "ut o"tion+ the higher the "rice of theunder!ying asset+ the !ower is the va!ue of the "ut o"tion$

Te stri)e "rice7

%he strike "rice is s"ecied in the o"tion contract and does not change over

time$ %he higher the strike "rice+ the sma!!er is the intrinsic va!ue of a ca!! o"tionand the greater is the intrinsic va!ue of a "ut o"tion$ 3verything e!se remainingconstant+ as the strike "rice increases+ the va!ue of a ca!! o"tion decreases andthe va!ue of a "ut o"tion increases$ Simi!ar!y+ as the strike "rice decreases+ the"rice of the ca!! o"tion increases whi!e that of a "ut o"tion decreases$

Time to e-"iration7

%ime to e#"iration is the time remaining for the o"tion to e#"ire$ Ovious!y+ thetime remaining in an o"tion2s !ife moves constant!y towards @ero$ 3ven if theunder!ying "rice is constant+ the o"tion "rice wi!! sti!! change since time reducesconstant!y and the time for which the risk is remaining is reducing$ %he timeva!ue of oth ca!! as we!! as "ut o"tion decreases to @ero )and hence+ the "rice of the o"tion fa!!s to its intrinsic va!ue* as the time to e#"iration a""roaches @ero$As time "asses and a ca!! o"tion a""roaches maturity+ its va!ue dec!ines+ a!!other "arameters remaining constant$ Simi!ar!y+ the va!ue of a "ut o"tiona!so decreases as we a""roach maturity$ %his is ca!!ed &time,decay'$

:olatilit7

No!ati!ity is an im"ortant factor in the "rice of an o"tion$ No!ati!ity is dened asthe uncertainty of returns$ %he more vo!ati!e the under!ying higher is the "rice of the o"tion on the under!ying$ hether we are discussing a ca!! or a "ut+ this

re!ationshi" remains the same$



Ris) free rate7

isk free rate of return is the theoretica! rate of return of an investment whichhas no risk )@ero risk*$ Government securities are considered to e risk free sincetheir return is assured y the Government$ isk free rate is the amount of returnwhich an investor isGuaranteed to get over the !ife time of an o"tion without taking any risk$ As weincrease the risk free rate the "rice of the ca!! o"tion increases margina!!ywhereas the "rice of the "ut o"tion decreases margina!!y$ 0t may however enoted that o"tion "rices do not change much with changes in the risk free rate$

Ta-ation of 4erivative instruments

Prior to the year 8//.+ the 0ncome %a# Act did not have any s"ecic"rovision regarding ta#ai!ity of derivatives$ %he on!y ta# "rovisions whichhad indirect earing on derivatives transactions were sections F)<* andEF).*$ nder these sections+ trade in derivatives was considered&s"ecu!ative transactions' for the "ur"ose of determining ta# !iai!ity$ A!!"rots and !osses were ta#ed under the s"ecu!ative income category$ %herefore+ !oss on derivatives transactions cou!d e set o4 on!y against

other s"ecu!ative income and the same cou!d not e set o4 against anyother income$ %his resu!ted in high ta# !iai!ity$

Cinance Act+ 8//. has amended section EF).* so as to e#c!udetransactions in derivatives carried out in a &recogni@ed stock e#change'from Ls"ecu!ative transaction2$ %his im"!ies that derivatives transactionsthat take "!ace in a &recogni@ed stock e#change' are not ta#ed ass"ecu!ative income or !oss$ %hey are treated under the usiness incomehead of the 0ncome ta# Act$ Any !osses on these activities can e set o4 against any usiness income in the year and the !osses can e carriedforward and set o4 against any other usiness income for the ne#t eight

years$



O"tion Strate#ies

<$ Bu!! 5a!! S"read

0n a u!! ca!! s"read strategy+ an investor wi!! simu!taneous!y uy ca!!

o"tions at a s"ecic strike "rice and se!! the same numer of ca!!s at a

higher strike "rice$ Both ca!! o"tions wi!! have the same e#"iration month

and under!ying asset$ %his ty"e of vertica! s"read strategy is often used

when an investor is u!!ish and e#"ects a moderate rise in the "rice of the

under!ying asset$

2.$ear "ut s"rea4

%he ear "ut s"read strategy is another form of vertica! s"read$ 0n this

strategy+ the investor wi!! simu!taneous!y "urchase "ut o"tions as a

s"ecic strike "rice and se!! the same numer of "uts at a !ower strike

"rice$ Both o"tions wou!d e for the same under!ying asset and have thesame e#"iration date$ %his method is used when the trader is earish and

e#"ects the under!ying assets "rice to dec!ine$ 0t o4ers oth !imited gains

and !osses$

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http://www.investopedia.com/terms/b/bearputspread.asp

http://www.investopedia.com/terms/b/bullcallspread.asp



F$ ong Stradd!e

A !ong stradd!e o"tions strategy is when an investor "urchases oth a ca!!

and "ut o"tion with the same strike "rice+ under!ying asset and e#"iration

date simu!taneous!y$ An investor wi!! often use this strategy when he or

she e!ieves the "rice of the under!ying asset wi!! move sigicant!y+ ut is

unsure of which direction the move wi!! take$ %his strategy a!!ows the

investor to maintain un!imited gains+ whi!e the !oss is !imited to the cost of

oth o"tions contracts$

&. <on# Stran#le

0n a !ong strang!e o"tions strategy+ the investor "urchases a ca!! and "ut

o"tion with the same maturity and under!ying asset+ ut with di4erentstrike "rices$ %he "ut strike "rice wi!! ty"ica!!y e e!ow the strike "rice of

http://www.investopedia.com/terms/s/straddle.asp

http://www.investopedia.com/terms/s/strangle.asp

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the ca!! o"tion+ and oth o"tions wi!! e out of the money$ An investor who

uses this strategy e!ieves the under!ying assets "rice wi!! e#"erience a

!arge movement+ ut is unsure of which direction the move wi!! take$

osses are !imited to the costs of oth o"tions7 strang!es wi!! ty"ica!!y e

!ess e#"ensive than stradd!es ecause the o"tions are "urchased out of

the money$

/eblio#ra" ,

$iblio#ra"

Searc 9n#ine 7 .#oo#le.com

/ebsites 7

.nsein4ia.com

.investo"e4ia.com

.nancial4ictionar.com

http://www.google.com/

http://www.wikifance.com/

http://www.investopedia.com/

http://www.financialdictionary.com/

http://www.google.com/

http://www.wikifance.com/

http://www.investopedia.com/

http://www.financialdictionary.com/



.i)i"e4ia.com

$oo)s 7 erivatives 'ar)et = $e#inners 'o4ule > NC*'

%hank ou

http://www.wikipedia.com/

http://www.wikipedia.com/

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