S C R A -S EC U R ITIES C O N TR A C T R EG U LATIO N A C T 1956

(S EC 2(H ))

S EB I-S EC U R ITIES EX C H A N G E B O A R D O F IN D IA
1.P R O TEC TIN G IN V ES TO R S
2.P R O M O TIN G TR A D IN G O F S EC
3.R EG U LATIN G FU N C TIO N

N ATIO N ALISED STO CK

EXCH AN G ES

BSE

NSE

Index-SENSEX
30 companys stock

Index-NIFTY
50 Companys stock
Tick size- 5 paise

Tick size- 2 paise

Equity M arket

Equity can be traded in

two ways
1. Cash
2. derivative

Cash can be traded in three

w ays

Intra day(brokerage

charge 1 paise)
BTST(10 paise)
Delivery(10 paise)

Cash con..
Settlement-T+2 day Basis
Margin :- 5-10 Times

D erivative M arket
Defn.-refer to financial instruments

which derive their value from some

underlying assets. The underlying
assets could be equities (shares),
debt (bonds, T-bills, and notes),
currencies, and even indices of these
various assets, such as the Nifty 50
Index.

Types of D erivative Forward

Future
Option

Forw ard
is a contract between two parties to

buy or sell an asset at a certain

future date for a certain price that is
pre-decided on the date of the
contract.
Traded in OTC market
Is private agreement two parties

FU TU RE
is an agreement between two parties

in which the buyer agrees to buy an

underlying asset from the seller, at a
future date at a price that is agreed
upon today
Traded in standard Stock Exchange

Future con..
Lot or Contract size-As specified by the

exchange (minimum value of Rs. 2 lakh)

Trading cycle-of three month (near ,next
& far
month)
Expiry Date-last Thursday of every month
or previous day if it is holiday
Settlement basis-MtoM and final
settlement is cash settled on T+1 basis

O ption contract
Defn..-contract between a buyer and

a seller, where one party (say

FirstParty) gives to the other (say
Second Party) the right, but not the
obligation, to buy from (orsell to) the
First Party the underlying asset on or
before a specific day at an agreedupon price.
Call option-holder has right to buy
Put option-holder has right to sell

M oneyness of an O ption
Money ness
In the money

Call option
Spot
price>strike
price
Out the
Spot
money
price<strike
price
At the money Spot
price=strike
price

Put Option
Spot price
<strike price
Spot
price>strike
price
Spot
price=strike
price

Prem ium ofthe option

Premium=time value + intrinsic

value
Intrinsic value in case in the money
=diff between strike and
spot price
Intrinsic value in case of out of the
money and at the money=
0(premium=time value)
Time value of money=premiumintrinsic value

Pricing ofoption
Strike
price of
Underlying option

1250
1250
1250
1250
1250

Call
Premium
(Rs.)

Put
Premium
(Rs.)

1200 80.1 18.15

1225 63.65 26.5
1250 49.45
37
1275 37.5 49.5
1300 27.5 64.8

Profi
tability in the option
Option
type

strate
gy

Profit or loss

Movement
of price

Call
option

buy

spp-stp-pre(unlimited
profit)
Loss = premium

Up
down

Call
option

sell

Profit=premium
Lo=spp-stppre(unlimited loss)

Down
up

Put
option

buy

Stp-spp-pre(unlimited
profit)
Loss=premium

Down
up

Put
option

sell

Profit=premium
Lo=stp-spppre(unlimited loss)

Up
Loss

CU RREN CY
D ERIVATIVE
Currency derivatives can be described
as contracts betw een the sellers and
buyers w hose values are derived from
the underlying Exchange Rate

CU RREN CY FUTURE D ERIVATIVE

IN STRUM EN T
Underlying: US Dollar Indian

Rupee (USD-INR) exchange rate

Trading Hours: The trading on
currency futures is available from 9
a.m. to 5 p.m. from Monday to Friday
Lot size: USD1000
Quotation: In Rupee terms.
Tenor of the contract: Maximum
maturity of 12 months.

CU RREN CY FU TU RE CO N .
Available contracts : All monthly

maturities from 1 to 12 months are

available.
Settlement mechanism : Settled
in cash in Indian Rupee.
Settlement price: The settlement
price is the Reserve Bank of India
Reference Rate on the last trading
day.

CU RREN CY FU TU RE CO N .
Final settlement day: 2 days

before the last working day of the

month before 12 noon.
Tick Size: 0.25 paise or INR 0.0025

PLAYERS O F CU RREN CY
FU TU RE

Hedger
Speculator
Arbitrager

Com parison ofbank forw ard and future

Size:- large minimum 1million

- comparatively small 1000 USD minimum

Transaction cost: High unregulated depends upon
volume and credit worthiness.
-Low regulated
Transparency:-absent
-complete transparency
Purpose:-hedging only
-hedging, speculation, arbitrage
Participant:-Inter bank market
retail market all can participate except
NRI & FII

CO M PARISIO N AG REEM EN T
Cancellation:-costly before expiration

-can settle any time

Default risk:-There is no settlement guarantee
-Settlement is guarantee
the
clearing house as it becomes
counter party.
Regulator oversight:-Relatively less regulated
-regulated by exchange
Mark to market:- absent
present
t

SW AP
private agreem ents betw een tw o
parties to exchange cash fl
ow s in the
future according to a prearranged
form ula.
Interest rate swap
Currency swap

Com m on Term s in D erivative

Roll over
American style of exercise
European Style of exercise
Time Value(Value not part of Intrinsic)
Margin Money
Lot
Bid offer spread
Clearing House
Short position
Long position

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