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Acknowledgements

I bow in deep reverence to Almighty God, the


most beneficent and merciful, whose benign
blessings led me to complete this work in its
present form.

It gives me immense pleasure to express my


deep sense of gratitude, obeisance and
esteem to my supervisor, Prof. Valeed Ahmad
Ansari under whose able guidance and
supervision I was able to complete this task.

Thanks are due to Prof. Javaid Akhtar, Dean &


Prof. Khalid Azam, Chairman of FMSR for
providing necessary seminar & internet
facilities.

Helping hands extended by my senior, Mr. Faiz


Mohammed and my friends are acknowledged
with thanks.

Finally, with deep adoration I acknowledge my


father & mother for their unconditional love
and never ending care.
Madhuri Tomar
ABSTRACT

The option trading in India is a new concept. Option trading started in India in July,
2001. Because of its mathematical nature not many investors deal in option
trading. Acc to the NSE 2009 estimate, only 2.02 % investors traded in stock
options. This project tries to investigate the put call parity relation for stock options
in Indian securities market. Using option price data we tried to analyze the put call
parity relation. The call and option prices for different stocks were taken from
National Stock Exchange of India. Corresponding stock prices were also noted
down. After collecting all the relevant data for put call parity relation, different
values were substituted in the inequality relation.
If the inequality was satisfied, it means parity relation holds, else does not. After
analyzing, the entire calculations, it was concluded that put call parity relation
holds for stock options as well. And market is efficient.
In case, where put call parity gets violated, and then arbitrage opportunities arises.
These arbitrageurs try to take advantage of the discrepancy in put call option prices
and thus earn profit over them.
Today, more and people have started dealing in stock options. No doubt, the market
has grown tremendously since its inception but still it will take some time these
stock options traders % to rise.
CONTENTS

ACKNOWLEDGEMENT

CHAPTER 1. INTRODUCTION
1.1 OPTIONS & TYPES OF OPTIONS
1.2 HISTORY OF OPTIONS
1.3 OPTIONS IN INDIA
1.4 PUT- CALL PARITY THEOREM
1.5 HISTORY OF PUT CALL PARITY

CHAPTER 2. OBJECTIVES & METHODOLOGY


2.1 RATIONALE FOR STUDY
2.2 OBJECTIVE OF THE STUDY
2.3 SAMPLE SELECTION
2.4 METHODOLOGY
2.5 COMPANIES SELECTED FOR STUDY

CHAPTER 3. ANALYSIS & INTERPRETATION


3.1 ANALYSIS
3.2 INTRPRETATION
3.3 LIMITATIONS

CHAPTER 4. CONCLUSION
4.1 CONCLUSION

BIBLIOGRAPHY
CHAPTER 1
INTRODUCTION
1.1 OPTIONS & TYPES OF OPTIONS:

Options are financial instruments that convey the right, but not the obligation, to engage in a
future transaction on some underlying asset or security, or in a futures contract. In return for
granting the option, the seller collects a payment called as premium, from the buyer. A call
option gives the buyer the right to buy the underlying asset whereas a put option gives the buyer
of the option the right to sell the underlying asset.

The call options give the owner or the investor the right to purchase 100 shares of stocks at the
strike prices until they expire. The call options provide the owner the same exposure to the stocks
as the owner of the shares, yet there will be downside limits. However, if the stocks fall
suddenly, the owner can lose most in a call option is their premium paid price for that failed
option. Then, the seller (also called writer) of call options has the possible unlimited losses.
If the stock price increases greatly and the option is then exercised, the 100 shares of stocks must
be delivered by the seller in exchange for the price (strike) per share. But if the option seller did
not own the stock already, this is being referred to as simply being naked; she or he must buy
now the stock at the current market price. The stock’s price increase indefinitely, this is why the
maximum loss theoretically of the option seller is also infinite. In general, the call options are
used by investors to be able to control such long position with just less capital, buy it creates a
greater risk of losses for the option seller.
The put option gives the owner or investor the right to put on sale 100 shares of stocks at the
latest strike price until it expires. The put options offer the owner the same exposure to the stocks
just like being short of the shares yet limits its downside. If the stock price increases drastically,
then the owner can lose only the amount that he or she has paid for that option. Some instances
of this option is a person who longs stocks can definitely purchase a put option as their hedge
against the fall or failure in the price of the stocks.

If the option price falls or decreases below the said strike price, these investors will then mitigate
his losses or her losses because a put option can be appreciated as the stocks depreciate.
However, at some point, hedges can be lifted. The investors will then return to being simply long
There are different styles of options as well in which they are executed. But two are most
commonly used.
1). European option: European options are options that can be exercised only on the expiration
date. All index options traded at NSE are European Options. Options contracts like futures are
Cash settled at NSE.
2). American option: - American options are options contracts that can be exercised at any time
up to the expiration date .Options on individual securities available at NSE are American type of
options.

Besides, the above mentioned two option styles, Bermudan, Barrier, Exotic & Vanilla options are
also there but they are not used so frequently.

Options trading is of interest to those investors who wish to :


1) Participate in the market without trading or holding a large quantity of stock.
2) Protect their portfolio by paying small premium amount.

1.2 HISTORY OF OPTIONS:

Contracts similar to options are believed to have been used since ancient times. In the real estate
market, call options have long been used to assemble large parcels of land from separate
owners, e.g. a developer pays for the right to buy several adjacent plots, but is not obligated to
buy these plots and might not unless he can buy all the plots in the entire parcel. Film or
theatrical producers often buy the right — but not the obligation — to dramatize a specific book
or script. Line of credit gives the potential borrower the right — but not the obligation — to
borrow within a specified time period.
In London, puts and "refusals" (calls) first became well-known trading instruments in the 1690s
during the reign of William & Mary.
Privileges were options sold over the counter in nineteenth century America, with both puts and
calls on shares offered by specialized dealers. Their exercise price was fixed at a rounded-off
market price on the day or week that the option was bought, and the expiry date was generally
three months after purchase. They were not traded in secondary markets.

Supposedly the first option buyer in the world was the ancient Greek mathematician and
philosopher Thales. On a certain occasion, predicted that the season's olive harvest would be
larger than usual and during the off-season he acquired the right to use a number of olive presses
the following spring. When spring came and the olive harvest was larger than expected he
exercised his options and then rented the presses out at much higher price than he paid for his
'option'.

1.3 OPTIONS IN INDIA:


The options form an important part of derivative market. Derivatives are financial contracts
which derive their value from a spot price, which is called as the “underlying asset” The most
important contract types are futures and options, and the most important underlying markets are
equity, treasury bills, commodities, foreign exchange, real estate etc.
In India, these single stock option are traded on National Stock Exchange. Trading of options
started from July2, 2001. Since, its inception the option trading along with futures has grown
tremendously over a period of time. The graph shown below depicts the growing futures &
option market .

NSE introduces option strikes on a daily basis based on the price of the underlying asset. With
regard to options on stocks the Exchange provides a minimum of seven strike prices for every
option type (i.e Call & Put) during the trading month.

Some of the benefits of trading in Options are :


1) Able to transfer the risk to the person who is willing to accept them
2) Incentive to make profits with minimal amount of risk capital
3) Lower transaction costs
4) Provides liquidity, enables price discovery in underlying market
5) Derivatives market are lead economic indicators.

1.3 PUT-CALL PARITY THEOREM:

Put/call parity was developed by Stoll (1969) to establish a relationship between the prices of put
and call options. To begin understanding how the put-call parity is established, let's first take a
look at two portfolios, A and B. Portfolio A consists of a European call option and cash equal to
the number of shares covered by the call option multiplied by the call's striking price. Portfolio B
consists of a European put option and the underlying asset. Note that equity options are used in
this example.

Portfolio A = Call + Cash, where Cash = Call Strike Price


Portfolio B = Put + Underlying Asset
It can be observed from the diagrams above that the expiration values of the two portfolios are
the same.
i.e. Call + Cash = Put + Underlying Asset

If the two portfolios have the same expiration value, then they must have the same present value.
Otherwise, an arbitrage trader can go long on the undervalued portfolio and short the overvalued
portfolio to make a risk free profit on expiration day. Hence, taking into account the need to
calculate the present value of the cash component using a suitable risk-free interest rate, we have
the following price equality:

p + S = c + X exp(-rt)

where,

p= put price of the European option


c= price of the European call option
X= strike price of the option
S=stock price of the option.
r= risk free interest rate.
t= maturity period.

This relation holds for European options. However, the above equation does not hold for
American options.
In case of American options, the theorem modifies as,

S-X = C-P = S-X exp(-rt)


Where,
C= call price of American option.
P= put price of the American option.
Other symbols being the same.

Here, the difference of the call and put option value must lie within the difference of stock value
and present price and difference of stock value and present value of strike price.

As far as European & American options are concerned an American option is worth at least as
much as the corresponding European option.
i.e.
C≥ c
P≥ p

An American option can be exercised before expiration as well, however it is never optimal to
exercise early if a share stock pays no dividend. Thus two strategies may be followed,
1). Exercise the option early and thus profit on the option is equal to the difference of stock price
and strike price i.e. S-X.
2). The other can be to sell the option whereby the profit will be difference of stock and present
value of strike price with the time value i.e. S-X exp(-rt) + Time value.

It is only optimal to exercise an American call


(A) At maturity, or
(B) Just before a dividend payment.

But It is never optimal to exercise an American put just before a dividend payment.
An American option (a call, for instance) may have a positive payoff even when the
corresponding European call has zero payoff.

American options expire the third Saturday of every month. They are closed for trading the
Friday prior.
There are no general formulae for pricing American options, but choices of models to
approximate the price are available eg. Binomial pricing formula,Whaley & others.
USES OF PUT-CALL PARITY THEOREM:
1). In Islamic Finance:
The put-call parity is also used to avoid usury restrictions. Today, some Islamic scholars are
using put-call parity to avoid Islam’s prohibition on paying interest.
2). To synthesize ownership interests.
3). To transfer depreciation deductions.

1.4 HISTORY OF PUT CALL PARITY THEOREM


This theorem is not a recent one it has been observed that it was Neilson an option arbitrage
trader in New York, who published a book: "The ABC of Option Arbitrage" in 1904 that
describes the put-call parity in detail. Henry Deutsch describes the put-call parity in 1910 in his
book "Arbitrage in Bullion, Coins, Bills, Stocks, Shares and Options, 2nd Edition". London:
Engham Wilson but in less detail than Nelson (1904). Mathematics professor Bronzin also
derives the put-call parity in 1908 and uses it as part of his arbitrage argument to develop a series
of mathematical option models under a series of different distributions. The work of professor
Bronzin was just recently rediscovered by professor Wolfgang Hafner and professor Heinz
Zimmermann. The original work of Bronzin is a book written in German and is now translated
and published in English in an edited work by Hafner and Zimmermann (Vinzenz Bronzin's
option pricing models,
Michael Knoll, in The Ancient Roots of Modern Financial Innovation: The Early History of
Regulatory Arbitrage, describes the important role that put-call parity played in developing the
equity of redemption, the defining characteristic of a modern mortgage, in Medieval England
Russel Sage used put-call parity to create synthetic loans, which had higher interest rates than
the usury laws of the time would have normally allowed.
In India, option market is not too much old. Not much work has been done. Option trading was
introduced in July 2001, but since its inception the option market has grown tremendously and it
is on verge of continuous growth.
CHAPTER 2

METHODOLOGY
2.1 RATIONALE FOR STUDY

The put call parity basically exists for European options, however it was modified for American
options and hence bringing out the inequality signs in equation. This theorem is one of the
important and most used equations in finance. But as,

“THINGS ARE SELDOM WHAT THEY SEEM


SKIM MILK MASQUERADES AS CREAM”

This is what William Gilbert said. Actually, it implies things are not always the same as they
appear, perception is always different from reality. Same is the case with the put-call parity
equation. So we tried to investigate this theorem for stocks in India.

2.2 OBJECTIVE OF THE STUDY:


The basic objectives of our study are:
1). To investigate the put-call parity for individual stocks in India.
2). To find out the deviations from put call parity.

2.3 SAMPLE SELECTION:


National stock exchange of India consists of 190 companies that deal in option trading. These
190 stocks form the universe of our study. But for the period ranging from June 2009 to August
2009, we could find data for only 20 companies. Thus the sample size is 20 and sample element
being these 20 companies.

SOURCE OF DATA:
The entire study is based on secondary source. All the call and put option prices along with stock
prices were collected from NSE website. Besides, journals available and some books were used
to collect the data.

RESEARCH DESIGN: Conclusive research design.

.
2.4 METHODOLOGY:

We started our study by collecting option prices first of all from NSE site. The strike price was
fixed as 700 for the sake of convenience, after that all the companies for which the American call
option prices were available were noted. Corresponding put & underlying asset value were also
noted down.
The risk free rate of interest was again taken from NSE website. As it was for 91 day treasury
bill, it was annualized by multiplying by 4 & dividing by100.
For annualizing time period, first of all no. of days were found out between day on which the
option was issued & day on which it expired. The difference was divided by 365.

Finally, the respective values were put in the formula,

S-X = C-P = S-X exp (-rt)

As evident from the equation, the value of C-P must lie within S-X & S-X exp (-rt) for parity to
be there.
So we used logical formula in MS excel and denoted result as
“parity” where it denotes the value was lying in between and hence the theorem was valid in this
case and
“no parity” where it denotes the value didn’t lie in between and theorem is not valid in this
particular case.

2.6 COMPANIES SELECTED:

1. ABAN
2. ABB
3. ABIR
4. ACC
5. AUROPHARMA
6. AXIS BANK
7. BEML
8. BHUSAN STEEL
9. COLPAL
10. DR. REDDY
11. HIND ZINC
12. ICICI
13. MAHINDRA & MAHINDRA
14. PUNJAB NATIONAL BANK
15. RELIANCE CAPITAL
16. STER
17. TATA TEA
18. TECH MAHINDRA
19. TULIP
20. ULTRA CEMENT
CHAPTER 3

ANALYSIS
&
INTERPRETATIO
N
TABLE 1 DATA SHEET FOR ABAN

DATE EXP DATE CALL(C )PUT (P) STRIKE (X


9-Jul-09 27-Aug-09 118.05 112.2 70
10-Jul-09 27-Aug-09 100.1 120.1 70
13-Jul-09 27-Aug-09 81.2 127.4 70
14-Jul-09 27-Aug-09 191.45 100.45 70
15-Jul-09 27-Aug-09 212.7 85.95 70
16-Jul-09 27-Aug-09 223.55 75.4 70
17-Jul-09 27-Aug-09 227.8 67.45 70
20-Jul-09 27-Aug-09 280.45 49.5 70
21-Jul-09 27-Aug-09 265.5 47.55 70
22-Jul-09 27-Aug-09 244.45 47.6 70
23-Jul-09 27-Aug-09 304.45 35 70
24-Jul-09 27-Aug-09 327.9 27.6 70
27-Jul-09 27-Aug-09 313.75 23.35 70
28-Jul-09 27-Aug-09 291.4 23.2 70
29-Jul-09 27-Aug-09 334.2 16.25 70
30-Jul-09 27-Aug-09 311.1 16.1 70
31-Jul-09 27-Aug-09 351.65 10.85 70
3-Aug-09 27-Aug-09 449.3 5.3 70
4-Aug-09 27-Aug-09 463.6 3.65 70
5-Aug-09 27-Aug-09 494.55 2.2 70
TABLE 2 DATA SHEET FOR ABB
DATE EXPIRY DATE CALL( C) PUT (P) STRIK
1-Jun-09 27-Aug-09 100.70 125.40
2-Jun-09 27-Aug-09 109.85 113.80
3-Jun-09 27-Aug-09 99.20 116.15
4-Jun-09 27-Aug-09 123.00 101.60
5-Jun-09 27-Aug-09 116.25 99.50
8-Jun-09 27-Aug-09 106.60 98.00
9-Jun-09 27-Aug-09 127.65 85.15
10-Jun-09 27-Aug-09 148.25 73.65
11-Jun-09 27-Aug-09 138.25 73.45
12-Jun-09 27-Aug-09 136.00 69.20
15-Jun-09 27-Aug-09 124.20 68.70
16-Jun-09 27-Aug-09 136.85 59.80
17-Jun-09 27-Aug-09 121.05 64.70
18-Jun-09 27-Aug-09 98.45 81.90
19-Jun-09 27-Aug-09 117.35 70.10
22-Jun-09 27-Aug-09 110.35 66.95
23-Jun-09 27-Aug-09 98.35 70.35
24-Jun-09 27-Aug-09 119.65 59.00
25-Jun-09 27-Aug-09 125.20 52.45
26-Jun-09 27-Aug-09 139.35 44.45
29-Jun-09 27-Aug-09 150.05 36.70
30-Jun-09 27-Aug-09 127.85 44.20
TABLE 1-Jul-09
3 27-Aug-09
DATA SHEET FOR ABIR 126.25 41.00
2-Jul-09 27-Aug-09 115.45 42.25
3-Jul-09 27-Aug-09 125.40 35.85
6-Jul-09 27-Aug-09 98.45 49.25
7-Jul-09 27-Aug-09 101.25 44.05
DATE EXP DATE CALL (C ) PUT (P) STOCK (S
8-Jul-09 27-Aug-09 151.45 53.35 793.6
9-Jul-09 27-Aug-09 154.05 47.80 801.8
10-Jul-09 27-Aug-09 133.45 53.40 775.5
13-Jul-09 27-Aug-09 119.35 53.15 762.1
14-Jul-09 27-Aug-09 165.65 40.50 821.0
15-Jul-09 27-Aug-09 181.85 33.05 844.9
16-Jul-09 27-Aug-09 165.40 34.45 827.2
17-Jul-09 27-Aug-09 184.25 27.40 853.2
20-Jul-09 27-Aug-09 183.70 22.60 857.8
21-Jul-09 27-Aug-09 185.45 19.50 862.8
22-Jul-09 27-Aug-09 161.25 23.15 834.9
23-Jul-09 27-Aug-09 161.10 20.30 837.7
24-Jul-09 27-Aug-09 186.10 14.75 868.4
27-Jul-09 27-Aug-09 181.80 11.90 867.1
28-Jul-09 27-Aug-09 200.00 8.55 889.3
29-Jul-09 27-Aug-09 168.45 12.10 854.3
30-Jul-09 27-Aug-09 164.10 10.85 851.2
31-Jul-09 27-Aug-09 184.05 7.40 874.7
3-Aug-09 27-Aug-09 194.75 4.50 888.5
4-Aug-09 27-Aug-09 198.45 3.35 893.4
5-Aug-09 27-Aug-09 269.40 1.85 965.9
6-Aug-09 27-Aug-09 210.95 5.10 904.3
7-Aug-09 27-Aug-09 195.80 5.10 889.3
10-Aug-09
TABLE 4 27-Aug-09 178.30
DATA SHEET FOR ACC 4.25 872.8
11-Aug-09 27-Aug-09 177.20 3.25 872.8
12-Aug-09 27-Aug-09 164.40 3.20 860.1
13-Aug-09 27-Aug-09 216.40 1.25 914.1
DATE EXP DATE CALL(C ) PUT (P) STOCK(S)
1-Jun-09 27-Aug-09 192.10 54.20 829.80
2-Jun-09 27-Aug-09 160.45 70.85 781.25
3-Jun-09 27-Aug-09 188.55 60.75 819.85
4-Jun-09 27-Aug-09 197.15 53.90 835.35
5-Jun-09 27-Aug-09 213.95 46.40 859.80
8-Jun-09 27-Aug-09 179.45 58.55 813.45
9-Jun-09 27-Aug-09 206.85 49.50 850.00
10-Jun-09 27-Aug-09 247.70 41.15 899.25
11-Jun-09 27-Aug-09 217.90 47.85 863.00
12-Jun-09 27-Aug-09 201.75 48.90 845.45
15-Jun-09 27-Aug-09 204.15 42.70 854.80
16-Jun-09 27-Aug-09 200.70 39.65 854.50
17-Jun-09 27-Aug-09 179.35 43.85 829.05
18-Jun-09 27-Aug-09 138.45 75.60 756.35
19-Jun-09 27-Aug-09 130.00 74.60 749.10
22-Jun-09 27-Aug-09 119.80 72.75 740.95
23-Jun-09 27-Aug-09 119.35 67.80 745.75
24-Jun-09 27-Aug-09 132.65 58.45 768.40
25-Jun-09 27-Aug-09 140.35 51.35 783.20
26-Jun-09 27-Aug-09 149.30 44.65 799.10
29-Jun-09 27-Aug-09 140.45 42.35 792.90
30-Jun-09 27-Aug-09 120.40 49.45 765.75
TABLE1-Jul-09
5 DATA 27-Aug-09
115.70
SHEET FOR AURO PHARMA
47.40 763.15
2-Jul-09 27-Aug-09 112.40 44.85 762.55
3-Jul-09 27-Aug-09 114.05 40.50 768.70
6-Jul-09 27-Aug-09 86.90 58.45 723.85
DATE EXP DATE CALL (C ) PUT (P) STOCK (S
4-Aug-09 27-Aug-09 27.55 87.30 638.5
5-Aug-09 27-Aug-09 19.05 101.40 616.0
6-Aug-09 27-Aug-09 14.15 108.45 604.2
7-Aug-09 27-Aug-09 12.80 105.30 606.0
10-Aug-09 27-Aug-09 12.65 92.35 619.1
11-Aug-09 27-Aug-09 10.15 93.35 615.6
12-Aug-09 27-Aug-09 12.20 80.75 630.3
13-Aug-09 27-Aug-09 26.00 54.70 670.3
14-Aug-09 27-Aug-09 21.10 56.35 663.8
17-Aug-09 27-Aug-09 11.50 63.50 647.3
18-Aug-09 27-Aug-09 9.55 61.55 647.3
19-Aug-09 27-Aug-09 8.65 56.85 651.2
20-Aug-09 27-Aug-09 16.50 36.35 679.6
21-Aug-09 27-Aug-09 21.75 24.85 696.4
24-Aug-09 27-Aug-09 23.65 10.70 712.7
25-Aug-09 27-Aug-09 16.90 9.65 707.1
26-Aug-09 27-Aug-09 18.55 3.35 715.1
27-Aug-09 27-Aug-09 0.00 0.00 708.7

TABLE 6 DATA SHEET FOR AXIS


DATE EXP. DATE CALL ( C ) PUT (P) STOCK (S)
2-Jun-09 27-Aug-09 144.75 116.50 719.90
3-Jun-09 27-Aug-09 138.20 113.25 717.00
4-Jun-09 27-Aug-09 145.90 103.15 734.85
5-Jun-09 27-Aug-09 143.85 97.60 738.50
8-Jun-09 27-Aug-09 118.35 112.70 698.20
9-Jun-09 27-Aug-09 133.50 100.10 726.05
10-Jun-09 27-Aug-09 148.35 88.55 752.50
11-Jun-09 27-Aug-09 129.45 95.80 726.60
12-Jun-09 27-Aug-09 113.20 102.45 703.75
15-Jun-09 27-Aug-09 117.20 92.15 718.40
16-Jun-09 27-Aug-09 144.80 78.55 759.65
17-Jun-09 27-Aug-09 120.65 92.60 721.60
18-Jun-09 27-Aug-09 124.25 84.75 733.00
19-Jun-09 27-Aug-09 136.90 74.45 756.15
22-Jun-09 27-Aug-09 138.45 66.55 765.80
23-Jun-09 27-Aug-09 124.55 69.40 749.35
24-Jun-09 27-Aug-09 135.25 60.60 768.85
25-Jun-09 27-Aug-09 138.90 54.55 778.85
26-Jun-09 27-Aug-09 168.30 44.70 818.05
29-Jun-09 27-Aug-09 207.45 34.70 867.55
30-Jun-09 27-Aug-09 179.05 41.55 832.55
1-Jul-09
TABLE 7
27-Aug-09
FOR BEML
207.95 33.40 869.40
2-Jul-09 27-Aug-09 192.75 34.05 853.70
3-Jul-09 27-Aug-09 206.50 28.30 873.35
6-Jul-09 27-Aug-09 152.90 53.95 794.40
DATE EXP DATE CALL (C) PUT (P) STOCK (S
1-Jun-09 27-Aug-09 184.00 96.20 779.7
2-Jun-09 27-Aug-09 159.90 105.55 746.0
3-Jun-09 27-Aug-09 162.80 97.70 757.1
4-Jun-09 27-Aug-09 194.00 84.55 801.5
5-Jun-09 27-Aug-09 293.35 76.05 909.5
8-Jun-09 27-Aug-09 300.70 66.50 926.7
9-Jun-09 27-Aug-09 306.30 59.70 939.2
10-Jun-09 27-Aug-09 285.85 59.90 918.6
11-Jun-09 27-Aug-09 270.40 58.80 904.5
12-Jun-09 27-Aug-09 250.85 59.60 884.2
15-Jun-09 27-Aug-09 214.70 68.10 839.9
16-Jun-09 27-Aug-09 227.10 59.75 860.8
17-Jun-09 27-Aug-09 212.85 59.35 847.0
18-Jun-09 27-Aug-09 211.15 54.80 849.9
19-Jun-09 27-Aug-09 207.75 51.05 850.4
22-Jun-09 27-Aug-09 253.95 40.40 907.4
23-Jun-09 27-Aug-09 244.75 38.50 900.5
24-Jun-09 27-Aug-09 241.80 35.25 900.7
25-Jun-09 27-Aug-09 235.70 32.85 897.0
26-Jun-09 27-Aug-09 239.45 28.80 905.1
29-Jun-09 27-Aug-09 398.25 30.55 1062.5
30-Jun-09 27-Aug-09 401.35 26.50 1069.6
1-Jul-09 27-Aug-09 424.60 21.35 1098.1
2-Jul-09 27-Aug-09 408.90 20.05 1083.8
3-Jul-09 27-Aug-09 360.40 24.55 1031.0
6-Jul-09 27-Aug-09 310.00 29.55 975.8
TABLE 8 FOR BHUSAN STEEL

DATE EXP DATE CALL (C ) PUT (P) STRIKE (X


1-Jun-09 27-Aug-09 155.80 180.20 7
2-Jun-09 27-Aug-09 169.05 165.15 7
3-Jun-09 27-Aug-09 186.50 149.90 7
4-Jun-09 27-Aug-09 201.40 136.05 7
5-Jun-09 27-Aug-09 264.75 118.35 7
8-Jun-09 27-Aug-09 216.80 137.60 7
9-Jun-09 27-Aug-09 263.05 119.85 7
10-Jun-09 27-Aug-09 245.60 118.55 7
11-Jun-09 27-Aug-09 235.45 114.35 7
12-Jun-09 27-Aug-09 221.20 112.45 7
15-Jun-09 27-Aug-09 194.85 115.65 7
16-Jun-09 27-Aug-09 200.95 105.75 7
17-Jun-09 27-Aug-09 160.65 131.75 7
18-Jun-09 27-Aug-09 128.50 156.25 7
19-Jun-09 27-Aug-09 117.30 156.30 7
22-Jun-09 27-Aug-09 107.80 151.90 7
23-Jun-09 27-Aug-09 96.45 153.95 7
24-Jun-09 27-Aug-09 97.80 144.65 7
25-Jun-09 27-Aug-09 104.05 132.65 7
26-Jun-09 27-Aug-09 103.75 125.20 7
29-Jun-09 27-Aug-09 106.20 113.40 7
30-Jun-09 27-Aug-09 87.80 125.70 7
TABLE 9 DATA SHEET FOR COLPAL
1-Jul-09 27-Aug-09 83.20 122.25 7
2-Jul-09 27-Aug-09 86.30 112.85 7
3-Jul-09 27-Aug-09 74.90 117.75 7
DATE EXP DATECALL ( C) PUT ( P) STRIKE (X
9-Jul-09 27-Aug-09 23.35 64.75 70
10-Jul-09 27-Aug-09 31.25 54.15 70
13-Jul-09 27-Aug-09 21.55 77.50 70
14-Jul-09 27-Aug-09 19.95 75.95 70
15-Jul-09 27-Aug-09 18.45 74.40 70
16-Jul-09 27-Aug-09 14.40 81.55 70
17-Jul-09 27-Aug-09 18.45 70.70 70
20-Jul-09 27-Aug-09 20.25 62.00 70
21-Jul-09 27-Aug-09 15.70 68.85 70
22-Jul-09 27-Aug-09 12.75 72.50 70
23-Jul-09 27-Aug-09 17.85 60.65 70
24-Jul-09 27-Aug-09 15.05 62.75 70
27-Jul-09 27-Aug-09 22.35 48.70 70
28-Jul-09 27-Aug-09 19.45 49.60 70
29-Jul-09 27-Aug-09 17.00 50.20 70
30-Jul-09 27-Aug-09 16.85 46.85 70
31-Jul-09 27-Aug-09 15.25 46.20 70
3-Aug-09 27-Aug-09 10.70 50.30 70
4-Aug-09 27-Aug-09 11.40 45.35 70
5-Aug-09 27-Aug-09 12.00 40.90 70
6-Aug-09 27-Aug-09 6.70 59.35 70
7-Aug-09 27-Aug-09 3.90 71.55 70
10-Aug-09 27-Aug-09 1.80 120.35 70
11-Aug-09 27-Aug-09 1.95 111.50 70
TABLE 10 FOR DR. REDDY
DATE EXP DATE CALL (C )PUT (P) STRIKE (X
1-Jun-09 27-Aug-09 49.45 105.20 700
2-Jun-09 27-Aug-09 41.10 116.70 700
3-Jun-09 27-Aug-09 41.10 111.15 700
4-Jun-09 27-Aug-09 51.75 98.55 700
5-Jun-09 27-Aug-09 78.60 84.50 700
8-Jun-09 27-Aug-09 74.25 81.05 700
9-Jun-09 27-Aug-09 89.45 70.30 700
10-Jun-09 27-Aug-09 118.35 59.40 700
11-Jun-09 27-Aug-09 108.70 60.60 700
12-Jun-09 27-Aug-09 89.05 76.90 700
15-Jun-09 27-Aug-09 85.05 72.80 700
16-Jun-09 27-Aug-09 86.65 67.20 700
17-Jun-09 27-Aug-09 85.20 63.50 700
18-Jun-09 27-Aug-09 91.30 56.40 700
19-Jun-09 27-Aug-09 92.70 51.70 700
22-Jun-09 27-Aug-09 89.20 48.25 700
23-Jun-09 27-Aug-09 93.40 42.95 700
24-Jun-09 27-Aug-09 90.40 40.95 700
25-Jun-09 27-Aug-09 97.95 35.20 700
26-Jun-09 27-Aug-09 105.80 30.05 700
29-Jun-09 27-Aug-09 112.75 24.70 700
TABLE 11 FOR HIND ZINC
30-Jun-09 27-Aug-09 108.65 23.60 700
1-Jul-09 27-Aug-09 112.70 20.35 700
2-Jul-09 27-Aug-09 111.05 18.70 700
DATE EXP DATE CALL (C ) PUT (P) STRIKE (X
3-Jun-09 27-Aug-09 88.10 130.45 700
4-Jun-09 27-Aug-09 77.05 136.00 700
5-Jun-09 27-Aug-09 77.45 128.75 700
8-Jun-09 27-Aug-09 62.30 144.20 700
9-Jun-09 27-Aug-09 63.60 136.00 700
10-Jun-09 27-Aug-09 61.40 131.40 700
11-Jun-09 27-Aug-09 56.30 130.95 700
12-Jun-09 27-Aug-09 84.70 112.50 700
15-Jun-09 27-Aug-09 67.65 128.45 700
16-Jun-09 27-Aug-09 79.30 114.55 700
17-Jun-09 27-Aug-09 64.30 131.00 700
18-Jun-09 27-Aug-09 49.85 159.10 700
19-Jun-09 27-Aug-09 56.95 145.10 700
22-Jun-09 27-Aug-09 52.40 140.70 700
23-Jun-09 27-Aug-09 40.45 164.15 700
24-Jun-09 27-Aug-09 57.05 143.20 700
25-Jun-09 27-Aug-09 46.50 154.95 700
26-Jun-09 27-Aug-09 51.60 142.25 700
29-Jun-09 27-Aug-09 49.85 134.35 700
30-Jun-09 27-Aug-09 43.95 136.25 700
1-Jul-09 27-Aug-09 40.20 135.05 700
2-Jul-09 27-Aug-09 41.25 126.90 700
TABLE 12 FOR ICICI
3-Jul-09 27-Aug-09 36.25 128.65 700
6-Jul-09 27-Aug-09 25.45 157.50 700
7-Jul-09 27-Aug-09 25.30 150.55 700
DATE EXP DATE CALL(C ) PUT(P)STRIKE(X) S
1-Jun-09 27-Aug-09 174.65 144 700 72
2-Jun-09 27-Aug-09 175.7 135.1 700 73
3-Jun-09 27-Aug-09 162.35 134.9 700 71
4-Jun-09 27-Aug-09 166.55 125.1 700 73
5-Jun-09 27-Aug-09 176.35 113.9 700 75
8-Jun-09 27-Aug-09 152.4 120.3 700 72
9-Jun-09 27-Aug-09 156.35 111.2 700 73
10-Jun-09 27-Aug-09 158.2 103.3 700 74
11-Jun-09 27-Aug-09 155.7 98.35 700 75
12-Jun-09 27-Aug-09 146.3 96.85 700 74
15-Jun-09 27-Aug-09 135.55 94.15 700 73
16-Jun-09 27-Aug-09 131.15 90.2 700 73
17-Jun-09 27-Aug-09 120.1 91.2 700 72
18-Jun-09 27-Aug-09 105.85 96.15 700 70
19-Jun-09 27-Aug-09 108.85 88.5 700 71
22-Jun-09 27-Aug-09 115 77.9 700 73
23-Jun-09 27-Aug-09 94.75 91.75 700 69
24-Jun-09 27-Aug-09 87.05 91.85 700 68
25-Jun-09 27-Aug-09 90 84.25 700 70
26-Jun-09 27-Aug-09 131 69.25 700 75
29-Jun-09 27-Aug-09 121 67.05 700 74
TABLE 13 FOR PNB
30-Jun-09 27-Aug-09 102.85 75.4 700 72
1-Jul-09 27-Aug-09 104.3 69.3 700 72
2-Jul-09 27-Aug-09 103.3 64.8 700 73
DATE EXP DATE CALL(C ) PUT(P) STRIKE(X)
1-Jun-09 27-Aug-09 84.00 112.40 700
2-Jun-09 27-Aug-09 73.20 118.60 700
3-Jun-09 27-Aug-09 75.75 110.55 700
4-Jun-09 27-Aug-09 77.55 107.95 700
5-Jun-09 27-Aug-09 70.75 108.70 700
8-Jun-09 27-Aug-09 54.95 141.05 700
9-Jun-09 27-Aug-09 53.75 135.60 700
10-Jun-09 27-Aug-09 62.30 122.50 700
11-Jun-09 27-Aug-09 52.20 132.45 700
12-Jun-09 27-Aug-09 43.20 143.20 700
15-Jun-09 27-Aug-09 48.05 129.95 700
16-Jun-09 27-Aug-09 55.05 117.60 700
17-Jun-09 27-Aug-09 46.50 125.20 700
18-Jun-09 27-Aug-09 44.75 121.05 700
19-Jun-09 27-Aug-09 55.35 107.00 700
22-Jun-09 27-Aug-09 54.60 99.80 700
23-Jun-09 27-Aug-09 44.05 113.10 700
24-Jun-09 27-Aug-09 40.90 111.40 700
25-Jun-09 27-Aug-09 41.80 104.55 700
26-Jun-09 27-Aug-09 52.05 91.30 700
29-Jun-09 27-Aug-09 62.95 77.65 700
30-Jun-09
TABLE 14 27-Aug-09 59.10
FOR RELAINCE CAPITAL 76.10 700
1-Jul-09 27-Aug-09 59.80 70.75 700
2-Jul-09 27-Aug-09 50.30 77.55 700
3-Jul-09 27-Aug-09 64.45 65.15 700
DATE EXP DATE CALL( C) PUT(P) STRIKE(
9-Jul-09 27-Aug-09 148.45 78.15 70
10-Jul-09 27-Aug-09 130.05 82.85 70
13-Jul-09 27-Aug-09 113.80 83.45 70
14-Jul-09 27-Aug-09 158.05 65.55 70
15-Jul-09 27-Aug-09 178.70 54.20 70
16-Jul-09 27-Aug-09 168.20 52.90 70
17-Jul-09 27-Aug-09 212.65 40.40 70
20-Jul-09 27-Aug-09 219.15 32.50 70
21-Jul-09 27-Aug-09 204.85 32.05 70
22-Jul-09 27-Aug-09 199.40 29.50 70
23-Jul-09 27-Aug-09 212.55 23.80 70
24-Jul-09 27-Aug-09 222.60 19.25 70
27-Jul-09 27-Aug-09 219.65 15.35 70
28-Jul-09 27-Aug-09 206.45 15.00 70
29-Jul-09 27-Aug-09 187.40 15.95 70
30-Jul-09 27-Aug-09 178.10 10.00 70
31-Jul-09 27-Aug-09 198.10 10.75 70
3-Aug-09 27-Aug-09 210.70 6.70 70
4-Aug-09 27-Aug-09 219.15 4.85 70
5-Aug-09
TABLE 15
27-Aug-09
FOR STER
218.85 3.80 70
6-Aug-09 27-Aug-09 196.00 4.45 70
7-Aug-09 27-Aug-09 157.60 7.50 70
10-Aug-09 27-Aug-09 132.50 6.95 70
DATE EXP DATE CALL( C) PUT(P)STRIKE(X)
2-Jun-09 27-Aug-09 150.25 150.80 700
3-Jun-09 27-Aug-09 152.00 141.65 700
4-Jun-09 27-Aug-09 126.20 159.60 700
5-Jun-09 27-Aug-09 129.50 149.35 700
8-Jun-09 27-Aug-09 112.25 153.50 700
9-Jun-09 27-Aug-09 108.65 147.95 700
10-Jun-09 27-Aug-09 110.00 139.20 700
11-Jun-09 27-Aug-09 132.70 122.75 700
12-Jun-09 27-Aug-09 139.30 112.30 700
15-Jun-09 27-Aug-09 109.00 138.30 700
16-Jun-09 27-Aug-09 91.35 150.45 700
17-Jun-09 27-Aug-09 75.10 165.05 700
18-Jun-09 27-Aug-09 65.25 169.85 700
19-Jun-09 27-Aug-09 70.20 157.45 700
22-Jun-09 27-Aug-09 60.15 159.55 700
23-Jun-09 27-Aug-09 50.45 167.85 700
24-Jun-09 27-Aug-09 45.25 168.10 700
25-Jun-09 27-Aug-09 44.10 161.90 700
26-Jun-09 27-Aug-09 60.65 141.35 700
29-Jun-09 27-Aug-09 73.65 122.75 700
30-Jun-09 27-Aug-09 57.00 144.80 700
1-Jul-09 27-Aug-09 55.55 139.00 700
2-Jul-09 27-Aug-09 64.15 124.50 700
3-Jul-09 27-Aug-09 58.80 123.55 700
TABLE 16 FOR ULTRA CEMENT

DATE EXP DATE CALL(C ) PUT( P) STRIKE(X


1-Jun-09 27-Aug-09 129.45 68.80 70
2-Jun-09 27-Aug-09 118.50 70.45 70
3-Jun-09 27-Aug-09 107.70 72.70 70
4-Jun-09 27-Aug-09 151.70 62.40 70
5-Jun-09 27-Aug-09 126.90 77.50 70
8-Jun-09 27-Aug-09 109.05 84.10 70
9-Jun-09 27-Aug-09 115.30 76.00 70
10-Jun-09 27-Aug-09 135.40 65.30 70
11-Jun-09 27-Aug-09 115.15 75.95 70
12-Jun-09 27-Aug-09 111.70 72.60 70
15-Jun-09 27-Aug-09 104.85 69.80 70
16-Jun-09 27-Aug-09 92.45 74.50 70
17-Jun-09 27-Aug-09 91.35 70.20 70
18-Jun-09 27-Aug-09 72.85 90.60 70
19-Jun-09 27-Aug-09 67.25 90.30 70
22-Jun-09 27-Aug-09 57.25 94.20 70
23-Jun-09 27-Aug-09 53.65 92.55 70
24-Jun-09 27-Aug-09 73.40 77.95 70
25-Jun-09 27-Aug-09 83.00 68.10 70
26-Jun-09 27-Aug-09 83.20 63.35 70
29-Jun-09
TABLE 17 27-Aug-09
FOR TULIP 75.00 62.90 70
30-Jun-09 27-Aug-09 64.00 69.15 70
1-Jul-09 27-Aug-09 57.65 70.55 70
DATE EXP DATE CALL(C ) PUT(P) STRIKE(X
1-Jun-09 27-Aug-09 168.75 165.75 700
2-Jun-09 27-Aug-09 177.85 152.80 700
3-Jun-09 27-Aug-09 173.95 146.10 700
4-Jun-09 27-Aug-09 172.25 138.40 700
5-Jun-09 27-Aug-09 164.65 134.30 700
8-Jun-09 27-Aug-09 136.25 148.30 700
9-Jun-09 27-Aug-09 141.40 137.50 700
10-Jun-09 27-Aug-09 133.10 134.85 700
11-Jun-09 27-Aug-09 199.85 116.55 700
12-Jun-09 27-Aug-09 166.80 133.10 700
15-Jun-09 27-Aug-09 160.20 125.60 700
16-Jun-09 27-Aug-09 165.15 115.65 700
17-Jun-09 27-Aug-09 145.80 121.05 700
18-Jun-09 27-Aug-09 138.15 118.00 700
19-Jun-09 27-Aug-09 134.60 112.65 700
22-Jun-09 27-Aug-09 128.30 106.45 700
23-Jun-09 27-Aug-09 125.15 101.45 700
24-Jun-09 27-Aug-09 120.80 97.30 700
25-Jun-09 27-Aug-09 128.95 87.20 700
26-Jun-09 27-Aug-09 124.50 83.55 700
29-Jun-09
TABLE 18 27-Aug-09
FOR TECH M 157.05 67.70 700
30-Jun-09 27-Aug-09 204.90 54.75 700
1-Jul-09 27-Aug-09 221.90 46.35 700
DATE EXP DATECALL(C ) PUT(P) STRI
4-Jun-09 27-Aug-09 155.2 179.15
5-Jun-09 27-Aug-09 133.75 188.55
8-Jun-09 27-Aug-09 107.3 207.5
9-Jun-09 27-Aug-09 240.55 189.2
10-Jun-09 27-Aug-09 262.15 172.05
11-Jun-09 27-Aug-09 248.55 167.55
12-Jun-09 27-Aug-09 210.1 181.8
15-Jun-09 27-Aug-09 187.3 181.2
16-Jun-09 27-Aug-09 253.7 157.6
17-Jun-09 27-Aug-09 224.8 162.7
18-Jun-09 27-Aug-09 238.55 148.15
19-Jun-09 27-Aug-09 216.85 149.45
22-Jun-09 27-Aug-09 195.1 147.85
23-Jun-09 27-Aug-09 192.85 139.75
24-Jun-09 27-Aug-09 196.1 129.45
25-Jun-09 27-Aug-09 179.5 129.8
26-Jun-09 27-Aug-09 171.25 125.6
29-Jun-09 27-Aug-09 164.7 117.3
30-Jun-09 27-Aug-09 153.2 115.85
1-Jul-09
TABLE 19 27-Aug-09
FOR TATA TEA 158.45 105.75
2-Jul-09 27-Aug-09 169.65 94.1
3-Jul-09 27-Aug-09 153.15 96.2
DATE EXP DATE CALL( C)PUT(P) STRIKE(X)S
1-Jun-09 27-Aug-09 54.55 54.5 700
2-Jun-09 27-Aug-09 76.7 46.2 700
3-Jun-09 27-Aug-09 140.25 44.35 700
4-Jun-09 27-Aug-09 149.45 38.65 700
5-Jun-09 27-Aug-09 140.35 38.7 700
8-Jun-09 27-Aug-09 124.3 42.1 700
9-Jun-09 27-Aug-09 156.25 35.2 700
10-Jun-09 27-Aug-09 154.95 32.4 700
11-Jun-09 27-Aug-09 133.2 40.4 700
12-Jun-09 27-Aug-09 115.6 47.3 700
15-Jun-09 27-Aug-09 112.9 43.4 700
16-Jun-09 27-Aug-09 113.7 39.65 700
17-Jun-09 27-Aug-09 98.45 45.95 700
18-Jun-09 27-Aug-09 86.05 51.05 700
19-Jun-09 27-Aug-09 81.75 49.85 700
22-Jun-09 27-Aug-09 80.55 45.45 700
23-Jun-09 27-Aug-09 76.4 44.4 700
24-Jun-09 27-Aug-09 72.8 43.15 700
25-Jun-09 27-Aug-09 60.85 51.2 700
26-Jun-09 27-Aug-09 76.6 42.4 700
29-Jun-09
TABLE 20
27-Aug-09 81.25
FOR MAHIDRA & MAHINDRA
36.15 700
30-Jun-09 27-Aug-09 68.85 42.5 700
1-Jul-09 27-Aug-09 76.1 36.4 700
2-Jul-09 27-Aug-09 74.4 34.25 700
DATE EXP DATE CALL (C ) PUT (P) STRIKE
1-Jun-09 27-Aug-09 152.55 131.75 7
2-Jun-09 27-Aug-09 155.85 122.45 7
3-Jun-09 27-Aug-09 135.7 130.85 7
4-Jun-09 27-Aug-09 126.5 129.5 7
5-Jun-09 27-Aug-09 135.65 117.95 7
8-Jun-09 27-Aug-09 123.05 117.1 7
9-Jun-09 27-Aug-09 152.1 101.7 7
10-Jun-09 27-Aug-09 165.05 90.65 7
11-Jun-09 27-Aug-09 196.2 77.75 7
12-Jun-09 27-Aug-09 174.1 83.3 7
15-Jun-09 27-Aug-09 150.55 89.25 7
16-Jun-09 27-Aug-09 161.1 79.45 7
17-Jun-09 27-Aug-09 141.65 85.5 7
18-Jun-09 27-Aug-09 133.1 84.15 7
19-Jun-09 27-Aug-09 124.95 82.9 7
22-Jun-09 27-Aug-09 106.25 89.3 7
23-Jun-09 27-Aug-09 98.25 89.05 7
24-Jun-09 27-Aug-09 108.8 78.45 7
25-Jun-09 27-Aug-09 93.35 85.9 7
26-Jun-09 27-Aug-09 87.85 84.2 7
29-Jun-09 27-Aug-09 86.8 77.2 7
30-Jun-09 27-Aug-09 76.85 80.4 7
1-Jul-09 27-Aug-09 88.8 69.35 7
2-Jul-09 27-Aug-09 85.45 66.55 7
ANALYSIS TABLE

ABAN For ABAN, out of 34 cases in only 1 case the parity was not found.
ABB For ABB, in 8 cases the parity was not there out of 62 cases.
ABIR For all 35 trading days parity exists.
ACC For all 62 trading days parity exists.

AIRTEL For AIRTEL, the data was available for only 8 days and parity existed
for all 8 trading days.
AURO For AURO PHARMA, again the data was available for 17 days and
PHARMA parity existed for all 17 days.
AXIS Parity exists for all 61 trading days for which data was available.
BEML Parity exists for all 62 trading days for BEML.
BHSN For BHSN STEEL, the parity was not there in only one case out of 62
trading days.
COLPAL Parity exists in all 34 cases where data was available.

Dr. Out of 62 trading days, in 7 cases the parity was not found.
REDDY
HIND Parity exists for all 60 trading days.
ZINC
ICICI In case of ICICI out of 62 trading days parity didn’t existed for 21 days
which is of course a considerable figure.
PNB Out of 62 trading days, for 18 cases parity was not found to be there.
M&M Out of 62 trading days, parity was not found on four days.
REL Data available was only for 34 trading days and parity didn’t existed in
CAPTL only 3 cases.
TULIP Parity existed for all 62 trading days.
ULTRA Out of 62 trading days, parity was not found to be there in one case that
CEM of course can be neglected.

In all the above cases the parity was not there in the last case. i.e. the options that expire on 27 th
Aug. It is evident as the value of call and put options on the last day is zero. So we haven’t
included this in any of the above cases.

INTERPRETATION:
The above results clearly show that parity exists in put call prices of the options. However, in
some cases parity was not found to be there but the no. of such cases was of course negligible.
Still, on observing such cases, three factors were found that may have affected the equation.

1).TIME:
In general. it was found that as maturity period draws nearer, the parity was not there. This may
be due to the fact also the value of an option declines more rapidly as the option approaches the
expiration day.

2). STOCK PRICES:


As the value of stock increases the value of call option must increase and the value of put must
decrease. This may affect result as well.

3). RISK FREE RATE:


Generally, as the rate of interest increases, the value of call option increases and corresponding
price of put decreases. But, here it was observed that rate of interest increased, the value of call
option decreased and hence violated the parity equation.

In case where put call theory violates, arbitrage opportunities arise.

Arbitrage is a strategy where investors earn profit with out making an initial investment. For the
arbitrageur to obtain an arbitrage profit, the present stock price must be sufficiently higher than
the implied stock price to cover the cost of short selling in every future state. Arbitrage strategies
are not a useful source of profits for the average trader, but knowing how synthetic relationships
work can help us understand options better. In the options market, arbitrage trades are often
performed by firm or floor traders to earn small profits with little or no risk.

To setup an arbitrage, the options trader would go long on an underpriced position and sell the
equivalent overpriced position. If puts are overpriced relative to calls, the arbitrager would sell a
naked put and offset it by buying a Synthetic put.

Similarly, when calls are overpriced in relation to puts, one would sell a naked call and buy
a Synthetic call

The uses of synthetic are common in options arbitrage strategies. .

However, an important lesson to learn from here is that the actions by floor traders doing
reversals and conversions quickly restore the market to equilibrium, keeping the price of calls
and puts in line, establishing the parity in call & put prices.

A conversion involves buying the underlying stock while simultaneously buying a put and
selling a call.

For a reverse conversion we short the underlying stock while simultaneously selling a put and
buying a call.

3.3 LIMITATIONS:

1. As the strike price was chosen to be 700 for all the companies, data was available only
for 22 companies in the given range.
2. Due to non-availability of data sample size was very small.
3. Due to paucity options with varying prices could not be taken.
4. Analysis has been done without taking into account transaction cost.
CHAPTER 4
CONCLUSION
CONCLUSION:
The put/call parity theory was developed to link the prices of calls and puts through the price of
the underlying stock, an appropriate interest rate, and the time to maturity of the options. This
equation is one of the important equations today used in finance. However, option market is not
yet so developed in our country. Many investors are not even aware of option trading. Acc to
product-wise no. of contracts traded during 2008-09, stock options constitute only 2.02% of the
entire market. In fact, due to its mathematical nature many people finds it difficult to understand
option trading.
But due to flexibility involved in option trading where we can not only reduce but transfer our
risk as well to other person more and more people have started trading in options. Since its
inception in July 2001, the option market has grown tremendously.
The put call parity theory helps the investors to analyze properly and then to decide over what
option he should buy & what options to sell on.

From the study that we carried out, we can conclude that

 Put call parity holds for Indian stocks that shows that the market is efficient.

 The magnitude of violations of put call parity is very small. Out of 1014 cases for which
put call parity calculations were done, violation was there only in 72 cases i.e. 7.10 %,
which can be neglected.

On the whole it can be concluded that put call parity theorem holds in Indian context.
Whatever deviations may found may disappear once transaction cost is taken into
account.
BIBLIOGRAPHY
Shapiro, Alan, C., Multinational Financial Management, 8th ed. Wiley

Hull, J.C., options, futures and other derivatives. New Delhi: PHI, 2007

Sharpe, William, Gordon Alexander and Jeffrey V. Bailey, Investments, fifth edition, Prentice
Hall

Weiyu Guo, Tie Su, “Option Put-Call Parity Relations” International Journal of Business
and Economics, 2006, Vol. 5, No. 3, 225-230

Amin. K. I. and C.M.C. Lee 1997, “option trading discovery. And earning news dissemination.”
Contemporary accounting Research. 14. 153. 192

WEB REFERNCES
www.nseindia.com
www.investopedia.com
www.yahoofinance.com
www.scribd.com
www.OPTIONTRADINGpedia.com
www.optionguides.com

SEARCH ENGINES
GOOGLE.
appendix