Scope of Option Funds in Indian Market

SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS
Scope of Option Funds in Indian Market
SUBMITTED BY:
VIKASH KUMAR MBA-IB (2007-2009) Roll No. : A1802007E71
INDUSTRY GUIDE Mr. Munish Sabharwal ISC HEAD SBIMF-CHANDIGARH
FACULTY GUIDE Ms. Deepmala Soni
AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH
AMITY UNIVERSITY UTTAR PRADESH

CERTIFICATE OF ORIGIN
This is to certify that Mr.Vikash Kumar, a student of Post Graduate Degree in Amity International Business School, Noida has worked in the company SBI Mutual Fund Chandigarh, under the able guidance and supervision of Mr. Munish Sabharwal, designation ISC HEAD, SBI Mutual Fund Chandigarh. The period for which he was on training was for Eight weeks, starting from 1st May 2008 to 30th June 2008. This Summer Internship report has the requisite standard for the partial fulfillment the Post Graduate Degree in International Business. To the best of our knowledge no part of this report has been reproduced from any other report and the contents are based on original research.
Ms. Deepmala Soni
Vikash Kumar
ACKNOWLEDGEMENT
I express my sincere gratitude to my industry guide Mr. Munish Sabharwal, ISC HEAD, SBI MUTUAL FUND Chandigarh, for his able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible. I would also like to thank the entire team of SBI MUTUAL FUND Chandigarh specially Ms. Prerna Kapoor, for the constant support and help in the successful completion of my project. Also, I am also thankful to my faculty guide Ms. Deepmala Soni of my institute, for her continued guidance and invaluable encouragement.
Vikash Kumar
Executive Summary
When the markets were booming the trade in the NATIONAL STOCK EXCHANGE used to be around 100000 crores on daily basis. Market trade has come down to 15000 crores a day due to this market crash and low market sentiments. The stock markets have been very volatile and many of the investors have a crunch that it will continue to happen and that is the reason they are apprehensive about the investing directly into the stock market. But still they want to avail the benefits of investing into the stock market. Many of the mutual funds are showing negative returns over the last six months. So in our study we have tried to find out that can it be possible in this Indian market with very high volatility to launch a fund which can provide returns even in this volatility. We as mutual funds are allowed to invest into Options for the purpose of hedging and are not allowed to use them to earn profits by using them in other ways. It means we can limit our risk through hedging but are not allowed to use them for earning which is done in USA. Over the last one year the Indian market has been into every kind of phases which are being volatile, bull phase and the bear phase. So on the daily closing values of NSE we have applied various market strategies of options and have calculated approximate returns and have found that a good yield can be achieved by using options. But applying option strategies is not easy for an investor himself as it requires expertise and hence we have proposed SBI MUTUAL FUNDS to launch an Equity Fund which will buy and sell options. The risk factor in such a fund would be limited as options are hedging instruments by default.
INTRODUCTION PART
Objective of the Study

There are two objectives of my study. Primary Objective: The primary objective of the study is to get a deeper understanding of the Indian stock market and the use of options in the same by understand the different types of options and various strategies of options which can be used in different market scenarios. Secondary Objective: To find out the possibility of launching an options income fund in the Indian Mutual Fund Industry and to find out whether it is possible to get constant returns by using INDEX options in the Indian market.
Research Methodology
An effort has been made on my part to make the research in Options Mutual Fund as exhaustive as possible. The research has been done through the following steps: Research Design: The research approach is Quantitative. The research type is descriptive. It is also an Ad-hoc research at it is done at a particular point of time. Sample Design: I have used ordinal scale for the data. And I categorize my data according to very years and the data is in order of various years. So it is nominal or ordinal data. Type of Sample: I have taken the daily returns of the S&P CNX Nifty for the last 12 months and according to the market sentiments at that time I have applied various option strategies to calculate the returns. Hypothesis: Null Hypothesis: It is possible to get constant and less volatile returns by using options. Alternate Hypothesis: It is not possible to get constant and less volatile returns by using options.
Data collection: I have collected time series data for my research. I collected data from secondary resources from various sites. The information about market return has been collected from NSE website. Information has been sourced from many other secondary sources also namely, books, newspapers, trade journals, and white papers, industry portals, government agencies, trade associations, industry news and developments etc. Scope of the Study: Scope of the study is very wide. It provides an overview about the options, different types of options and focusing upon option strategies. It is a bit technical as it tried to find out the actual rate of return of the Options Fund uses model Black Scholes Model of Option Pricing which includes equation named as Geometric Brownian Motion which implies that the index returns will have lognormal distribution.
Limitations of the Study

Every study conducted is conducted under some boundaries and this study is no exception to it. The limitations of this project are:
1. Since the time was limited to carry out a study of all the stock trading
into the NSE so I have only been able to conduct the research using INDEX OPTIONS. 2. As the research is completely based on the data available on net so minor variations in the data may be possible. 3. Use of Black scholes formula to calculate the premium of the options but in the market it is also affected by the demand and supply mechanism. 4. As the returns calculated are only on the one year closings of S&P CNX Nifty so a variation in returns in past may be different from the same.
Industry Profile
A Review of literature on the industry:

Today mutual fund perhaps represents the most appropriate investment opportunity for most small investors as well as the institutional investors. As the financial markets have become more complex, the investors need a financial intermediary who can provide the required knowledge and the professional expertise for the purpose of investing successfully. In USA the banking industry has been well overtaken by the Mutual Fund Industry as there is more money into the Mutual Fund Industry for management than the deposits in the bank. Indian households started investing more of the savings into the capital market after 1980s. Now the investment flows more into the equity and debt instruments than the conventional bank deposits. Until 1992 the investors of the primary market were assured good return because the price of the new equity issues was controlled and was very low. Mutual Funds have a merged as professional intermediaries. They not only provide expertise on successful investing but also allow investing in small amount and have benefits of having a diversified portfolio with a good potential for income and growth. In India Unit Trust of India occupied the place in the capital market as the first intermediaries in 1964 which was the market monopoly till 1987. UTI was established in 1963 by an act of Parliament. It was set up by the Reserve Bank of India and later was delinked from RBI. The first scheme launched by UTI was US-64 which was the first open end scheme in the country. Unit linked Insurance Plan (ULIP) was launched in 1971 and after that scheme like Childrens Gift Growth Fund, Master share were launched. In 1987 SBI Mutual Fund was the first non- UTI other public sector mutual fund was launched and many other PSU Banks and Financial Institutions were allowed to established mutual fund. In the year ending 1993 the Assets under Management were nearly Rs. 47,004 crores nearly 7 times of Rs. 6700 in 1988. Later in 1993 the private sector companies were allowed to establish mutual funds which have given investors a broader choice of fund familys. In 1995 there were eleven private sector mutual funds existing into the economy. In 1996 a comprehensive set of regulations for mutual funds in India was introduced with SEBI regulations.
During the period 1996-1999 both SEBI and AMFI launched Investor awareness programmes which were designed to educate investors about mutual funds. These days the industry is facing the spate of mergers and acquisitions. The Industry has been facing a problem due to market crash and the six months returns of almost all the equity schemes have gone negative. And the philosophy of the Indian Investor is to invest in a period of boom rather than opting for value investing. The Industry is only allowed to invest in Options for the purpose of hedging rather but is not allowed to use them for earning good returns. A Mutual Fund is allowed only to invest maximum of 20% of their Assets into Options and futures.
Major Companies
The major players of the Indian Mutual Fund Industry are:
Reliance Mutual Fund The sponsor of Reliance Mutual Fund is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on 11th March, 2004. Today reliance is the market leader in the mutual fund industry. The approach of the AMC is very aggressive. The AUM of Reliance MF is approximately Rs. 90,813 Crores. Unit Trust of India Mutual Fund UTI was the first Indian mutual fund industry and had the market monopoly for the period of 1963-87. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The Current AUM of UTI MF is Rs.50770 crores. HDFC Mutual Fund: HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited. The Current AUM of HDFC MF is Rs.52710 crores. Prudential ICICI Mutual Fund Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. Who is one of the major players in USA and ICICI LTD.? This Mutual Fund has an AUM of Rs. 59475 Crores Birla Sun Life Mutual Fund: Birla Sun Life Mutual Fund is a Joint Venture between Aditya Birla Group and Sun Life Financial. This AMC uses conservative long term approach for investing and has an AUM of Rs. 41075 Crores.
State Bank of India Mutual Fund SBI Mutual Funds is India's largest bank sponsored mutual fund which is sponsored by the biggest bank of India (State Bank of India) with an investor base of over 3 million. SBI MF is a joint venture of State Bank of India & Societe Generale of France and is currently managing domestic assets of nearly 31000 crores.
AUM (Rs. Crores) 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0
IM F M F M F F M F TI M D FC el ia nc LI F BI M S IC e E F
lI C
tia
en
ru d
Company
Reliance MF Prudential ICICI MF HDFC MF UTI MF BIRLA SUNLIFE MF SBI MF
AUM (Rs. Crores) 90813 59475 52710 50770 41075 31000
IR
LA
SU
The Growth of the Indian Mutual Fund industry

Assets Under Management 700000 600000 500000 400000 300000 200000 100000 0 31-3-1993 31-3-1999 31-3-2001 31-3-2004 31-3-2006 31-3-2007 31-3-2008
Indian households started investing more of the savings into the capital market after 1980s. Until 1992 the investors of the primary market were assured good return because the price of the new equity issues was controlled and was very low. In the year ending 1993 the Assets under Management were nearly Rs. 47,004 crores nearly 7 times of Rs. 6700 in 1988. In 1995 there were eleven private sector mutual funds existing into the economy. During the period 1996-1999 both SEBI and AMFI launched Investor awareness programmes which were designed to educate investors about mutual funds which made a positive effect on the Industry and since then it has grown very fast as we can see in the above mentioned chart.
Company Profile
A Review of literature of SBI Mutual Funds:

SBI Mutual Funds is India's largest bank sponsored mutual fund which is sponsored by the biggest bank of India (State Bank of India) with an investor base of over 3 million. SBI MUTUAL FUNDS was established in 1987 to provide Asset Management Services to the retail and institutional investors. Today SBI MF is a joint venture of State Bank of India & Societe Generale of France and is currently managing domestic assets of nearly 31000 crores. SBI entered into a memorandum of understanding with Societe Generale Asset Management (SGAM), which offers retail investors, corporate clients and institutional investors a wide range of products.SGAM is a dominant player in Global Mutual Fund arena with presence in over 20 countries spanning Europe, United States and Asia, Managing over 500 Billion euros in assets. SBI MUTUAL FUND is the first Fund which is sponsored by a bank to launch an OFFSHORE FUND RESURGENT INDIA OPPORTUNITIES FUND. The schemes of SBIMF have constantly outperformed their benchmarks. Growth through innovation and stable investment policies is the SBI MF credo.
ABOUT OPTIONS
An option gives the holder of the option the right to buy or sell an underlying asset at a pre-decided price at or before a specified date. The holder does not have to exercise his right to get this right he has to make some payment which is called premium of the options. The writer of the option gets the premium from the buyer and writes an obligation to buy or sell the underlying asset on the will of the holder. TERMINOLOGY OF OPTIONS 1. Index Options: These options have the index as the underlying asset. Some options are European while others are American. Option Contracts are cash settled. 2. Stock Option: Stock options are options on individual stocks. The stock option contract gives the holder the right to buy or sell shares at the specified price. 3. Buyer of an Option: The buyer of an option is the one who buy paying the option premium gets the rights but not the obligation to buy or sell the particular underlying asset. 4. Writer of An Option: The writer of an option is the one who receives option premium and is obliged to sell or buy the underlying asset if the buyer asks him to do so. 5. Types of the options : There are two basic types of options A. Call Option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. B. Put Option: A put option gives the holder the right but not the obligation to sell an asset but a certain date of a certain price. 6. Option Price: Option price is the price which is paid by the buyer of the option to the seller of the option it is also referred option premium. 7. Expiration Date: The date specified in the option contract is know as expiration date, the exercise date, the date of the maturity or the strike date.
8. American Options: The American Options are the options which can be exercised at any time up to the expiration date. Most of the Exchange traded options in India are American. 9. European Options: European options are the options which can be exercised only on the expiration date. European Options are easier to analyze then the American Options. 10.In-the-money option: In the money option is the one which would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index would be in the money if the current index price is higher then the strike price of the option and vice-versa. 11.At-the-money option: At the money option is the one which would lead to zero cash flow to the holder if it were exercised immediately. An option on the index is at the money will the current index price is equal to the strike price of the options. 12.Out-of-the-money option: Out of the money option is the one which would lead to a negative cash flow to the holder if it were exercised immediately. A call option on the index would be Out of the money if the current index price is lesser then the strike price of the option and vice-versa. 13.Intrinsic value of an option: It is the difference between the strike price and the spot price. The intrinsic value of a call option is the amount the option is in the money if it is ITM. The intrinsic value would be zero if the call is out of the money. 14.Time value of an option: The time value of an option is the difference between the premium and it is intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. So it is clear that the longer the time to expiration the greater is the options time value or else it is equal. At the time of expiration an option should not have any time value.
Pricing Options
1. Pricing index options:
As per BlackScholes options pricing model, index options should be valued in the same way as ordinary options on common stock. It assumes that investors can cost lessly purchase the underlying stocks in the exact amount necessary to replicate the Index. Before using the BlackScholes formula for index options, we must however make adjustments for the dividend payments received on the index stocks. If the dividend payment is sufficiently smooth, this merely involves replacing the current index value S in the model with where q is the annual dividend yield and T is the time to expiration in years. I in this project have used the same theory to calculate the premium on options.
2. Pricing stock options:
Much of the things which apply on index options do also apply on stock options. But before having a look at the methodology we should first see the factors affecting the price of a stick option. a) b) c) d) e) f) The stock price The strike price The expiration time Market volatility The risk free interest rate Dividends
Method of Calculation of the Premiums and Greeks

OPTION CALCULATOR
INPUT Standard deviation Variance Maturity in years Risk-free rate(Annual) Share price Exercise price Dividends VALUE OUTPUT 35.00% 0.1225 0.1 2.00% 100 100 (d1) (d2) N(d1) N(d2) N(-d1) N(-d2) N`(d1) VALUE 0.0734 -0.0373 0.5293 0.4851 0.4707 0.5149 0.3978 OPTION VALUE Call Premium Put Premium Premium Leverage ITM/OTM/ATM CALL ITM/OTM/ATM PUT VALUE 4.51 4.39 0.0451 GREEKS Delta Call Delta Put Gamma Theta Call Theta Put Vega Rho Call Rho Put VALUE 0.5293 -0.4707 0.0359 22.9819 20.9859 12.5792 4.8417 -5.1384
ATM ATM
CALCULATION OF ANNUAL RETURNS

year 2007 Month June Strategy Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Premiums Paid (Rs.) 234 131 103 236 132 104 237 133 104 245 137 108 177 155 122 321 180 141 321 180 141 Return Generated (RS.) -28.75 -109.75 81 71 175 -104 150.2 -16.75 166.95 301.6 409.6 -108 559.95 681.95 -122 97.55 -108.55 206.1 96 114.3 -18.3
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
year 2008
Month JANUARY
FEBRUARY
MARCH
APRIL
MAY
Strategy Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish Anticipating Volatility Bullish Bearish
Premiums Paid (Rs.) 336 188 148 291 163 128 270 151 119 259 145 114 286 160 126 6526
Return Generated (RS.) 909.05 -188 1097.05 354.65 3.65 351 179.9 -151 330.9 196.95 310.95 -114 106.9 -160 266.9 5990
TOTAL So the percentage returns would be:
(Total Returns / Total Investments)* 100 Return % = (5990/6526)* 100 = 91.8%
JUNE 2007
Date NIFTY Date NIFTY
1-Jun-07 4-Jun-07 5-Jun-07 6-Jun-07 7-Jun-07 8-Jun-07 11-Jun-07 12-Jun-07 13-Jun-07 14-Jun-07
4297.05 4267.05 4284.65 4198.25 4179.5 4145 4145.6 4155.2 4113.05 4170
15-Jun-07 18-Jun-07 19-Jun-07 20-Jun-07 21-Jun-07 22-Jun-07 25-Jun-07 26-Jun-07 27-Jun-07 28-Jun-07 29-Jun-07
4171.45 4147.1 4214.3 4248.65 4267.4 4252.05 4259.4 4285.7 4263.95 4282 4318.3
NIFTY 4350
4300
4250
4200
4150
4100
4050
4000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 25 -
Calculation of Profits
1.
Anticipating Volatility:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 131 103 STRIKE PRICE 4297.05 4297.05 PROFIT 21.25 184 Net Profit -28.75 If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself.
2. Bullish Index:
OPTION 1 OPTION 2 BUY CALL STRIKE PRICE 4297 PROFIT 21.25 NET PROFIT PREMIEUM 1 PREMIEUM 2 131
-109.75
If I am bullish about the index I will buy a call option and exercise at the point when the market is at its peak. But here the market has shown a downfall .So I will not exercise the call option and bear the loss of the premium on it.
3. Bearish Index:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY PUT 103 STRIKE PRICE 4297 PROFIT 184 NET PROFIT 81
And if I am bearish about the market I will buy a put option and will wait for the market to go down and will exercise it. I will purchase the underlying from the market and sell it at the option price.
JULY 2007
Date 2-Jul-07 3-Jul-07 4-Jul-07 5-Jul-07 6-Jul-07 9-Jul-07 10-Jul-07 11-Jul-07 12-Jul-07 13-Jul-07 16-Jul-07 NIFTY Date NIFTY 4313.75 17-Jul-07 4357.55 18-Jul-07 4359.3 19-Jul-07 4353.95 20-Jul-07 4384.85 23-Jul-07 4419.4 24-Jul-07 4406.05 25-Jul-07 4387.15 26-Jul-07 4446.15 27-Jul-07 4504.55 30-Jul-07 4512.15 31-Jul-07 4496.75 4499.55 4562.1 4566.05 4619.35 4620.75 4588.7 4619.8 4445.2 4440.05 4528.85
N IF T Y
4650 4600 4550 4500 4450 4400 4350 4300 4250 4200 4150 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
1) Anticipating Volatility:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 132 STRIKE STRIKE 4313.75 4313.75 PROFIT 307 Not exercised
104
Net Profit
71
If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise
itself. But the market did not show any downfall so I should only exercise the call option and bear the loss of premium on the Put Option.
2) Bullish Index:
OPTION 1 OPTION 2 BUY CALL STRIKE PRICE 4313.75 PROFIT 307 NET PROFIT PREMIEUM 1 PREMIEUM 2 132
175
If I am bullish about the Index I would buy a call option and when the index is at a high level I will exercise the option and sell the underlying at the market price which is higher than the exercise price.
3) Bearish Index:
OPTION 1 OPTION 2 PREMIEUM 1 BUY PUT STRIKE 4313.75 PROFIT Not exercised Net Profit -104 PREMIEUM 2 104
Here I was bearish about the Index but it has shown a growth. Now I should not exercise the option and have to bear the loss of the Premium.
August 2007
Date 1-Aug-07 2-Aug-07 3-Aug-07 6-Aug-07 7-Aug-07 8-Aug-07 9-Aug-07 10-Aug-07 13-Aug-07 14-Aug-07 16-Aug-07 NIFTY 4345.85 4356.35 4401.55 4339.5 4356.35 4462.1 4403.2 4333.35 4373.65 4370.2 4178.6 Date NIFTY 17-Aug-07 4108.05 20-Aug-07 4209.05 21-Aug-07 4074.9 22-Aug-07 4153.15 23-Aug-07 4114.95 24-Aug-07 4190.15 27-Aug-07 4302.6 28-Aug-07 4320.7 29-Aug-07 4359.3 30-Aug-07 4412.3 31-Aug-07 4464
NIFTY
4500 4400 4300 4200 4100 4000 3900 3800 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
1. Anticipating Volatility:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 133 104 STRIKE PRICE 4345 4345 PROFIT 116.25 270.95 NET PROFIT 150.2 If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I
will sell and purchase the underlying at market prices at the time of exercise itself.
2. Bullish Index:
-16.75
If I am bullish about the Index I would buy a call option and when the index is at a high level I will exercise the option and sell the underlying at the market price which is higher than the exercise price. But here the index has only shown a downfall so I should not exercise the option but bear the loss of premium.
3. Bearish Index:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY PUT 104 STRIKE PRICE 4345 PROFIT 270.95 NET PROFIT 166.95
September 2007
Date 3-Sep-07 4-Sep-07 5-Sep-07 6-Sep-07 7-Sep-07 10-Sep-07 11-Sep-07 12-Sep-07 13-Sep-07 14-Sep-07 NIFTY Date NIFTY 4474.75 17-Sep-07 4494.65 4479.25 18-Sep-07 4546.2 4475.85 19-Sep-07 4732.35 4518.6 20-Sep-07 4747.55 4509.5 21-Sep-07 4837.55 4507.85 24-Sep-07 4932.2 4497.05 25-Sep-07 4938.85 4496.85 26-Sep-07 4940.5 4528.95 27-Sep-07 5000.55 4518 28-Sep-07 5021.35
N IF T Y S E P T E M B E R
5100 5000 4900 4800 4700 4600 4500 4400 4300 4200 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
I. Anticipating Volatility:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 137 108 STRIKE PRICE 4474.75 4474.75 PROFIT 546.6 0 NET PROFIT 301.6
If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself. But the market did not show any downfall so I should only exercise the call option and bear the loss of premium on the Put Option.
II. Bullish Index:

OPTION 1 OPTION 2 BUY CALL STRIKE PRICE 4474.75 PROFIT 546.6 NET PROFIT PREMIEUM 1 PREMIEUM 2 137
409.6
III. Bearish Index:

OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY PUT 108 STRIKE PRICE 4474.75 4474.75 PROFIT 0 NET PROFIT -108
Here I was bearish about the Index but it has shown a growth. Now I should not exercise the option and have to bear the loss of the Premium.
October 2007
Date 1-Oct-07 3-Oct-07 4-Oct-07 5-Oct-07 8-Oct-07 9-Oct-07 10-Oct-07 NIFTY Date NIFTY 5068.95 17-Oct-07 5559.3 5210.8 18-Oct-07 5351 5208.65 19-Oct-07 5215.3 5185.85 22-Oct-07 5184 5085.1 23-Oct-07 5473.7 5327.25 24-Oct-07 5496.15 5441.45 25-Oct-07 5568.95
11-Oct-07 12-Oct-07 15-Oct-07 16-Oct-07
5524.85 5428.25 5670.4 5668.05
26-Oct-07 29-Oct-07 30-Oct-07 31-Oct-07
5702.3 5905.9 5868.75 5900.65
NIF TY
6000 5800 5600 5400 5200 5000 4800 4600 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 155 122 STRIKE PRICE 5068.95 5068.95 PROFIT
836.95 NET PROFIT
0 559.95
If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself. But the market did not show any downfall so I should only exercise the call option and bear the loss of premium on the Put Option.
2. Bullish Index:
681.95
3. Bearish Index:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY PUT 122 STRIKE PRICE 5068.95 PROFIT 0 NET PROFIT -122
Here I was bearish about the Index but it has shown a growth. But the market has grown so now I should not exercise the option and have to bear the loss of the Premium.
November 2007
Date 1-Nov-07 2-Nov-07 5-Nov-07 6-Nov-07 NIFTY Date NIFTY 5866.45 16-Nov-07 5906.85 5932.4 19-Nov-07 5907.65 5847.3 20-Nov-07 5780.9 5786.5 21-Nov-07 5561.05
7-Nov-07 8-Nov-07 9-Nov-07 12-Nov-07 13-Nov-07 14-Nov-07 15-Nov-07
5782.35 5698.75 5663.25 5617.1 5695.4 5937.9 5912.1
22-Nov-07 23-Nov-07 26-Nov-07 27-Nov-07 28-Nov-07 29-Nov-07 30-Nov-07
5519.35 5608.6 5731.7 5698.15 5617.55 5634.6 5762.75
NIFTY November
6000
5900
5800
5700 5600
5500
5400
5300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
A. Anticipating Volatility:
OPTION 1 BUY CALL OPTION 2 BUY PUT PREMIEUM 1 PREMIEUM 2 180 141
STRIKE PRICE 5866.45 5866.45 PROFIT 71.45 347.1 NET PROFIT 97.55
If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself.
B. Bullish Index:
-108.55
C. Bearish Index:
OPTION 1 OPTION 2 BUY PUT STRIKE PRICE PREMIEUM 1 PREMIEUM 2 141
5866.45 PROFIT 347.1 NET PROFIT 206.1
December 2007
Date 3-Dec-07 NIFTY Date NIFTY 5865 17-Dec-07 5777
4-Dec-07 5-Dec-07 6-Dec-07 7-Dec-07 10-Dec-07 11-Dec-07 12-Dec-07 13-Dec-07 14-Dec-07
5858.35 5940 5954.7 5974.3 5960.6 6097.25 6159.3 6058.1 6047.7
18-Dec-07 19-Dec-07 20-Dec-07 24-Dec-07 26-Dec-07 27-Dec-07 28-Dec-07 31-Dec-07
5742.3 5751.15 5766.5 5985.1 6070.75 6081.5 6079.7 6138.6
N IF TY D ec em ber
6 20 0 6 10 0 6 00 0 5 90 0 5 80 0 5 70 0 5 60 0 5 50 0 1 2 3 4 5 6 7 8 9 10 1 1 12 13 1 4 1 5 16 17 18 19
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 180 141 STRIKE PRICE 5865 5865 PROFIT 294.3 122.7 NET PROFIT 96 If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself.
2. Bullish Index:
114.3
3. Bearish Index:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 141
STRIKE PRICE 5865 PROFIT 122.7 NET PROFIT -18.3 And if I am bearish about the market I will buy a put option and will wait for the market to go down and will exercise it. I will purchase the underlying from the market and sell it at the option price.
January 2008
Date NIFTY Date NIFTY
1-Jan-08 2-Jan-08 3-Jan-08 4-Jan-08 7-Jan-08 8-Jan-08 9-Jan-08 10-Jan-08 11-Jan-08 14-Jan-08 15-Jan-08
6144.35 6179.4 6178.55 6274.3 6279.1 6287.85 6272 6156.95 6200.1 6206.8 6074.25
16-Jan-08 17-Jan-08 18-Jan-08 21-Jan-08 22-Jan-08 23-Jan-08 24-Jan-08 25-Jan-08 28-Jan-08 29-Jan-08 30-Jan-08 31-Jan-08
5935.75 5913.2 5705.3 5208.8 4899.3 5203.4 5033.45 5383.35 5274.1 5280.8 5167.6 5137.45
6400 6200 6000 5800 5600 5400
Value JANUARY
5200 5000 4800 1 3 5 7 9 11 13 15 17 19 21 23
Case Number
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY CALL BUY PUT 188 148 STRIKE PRICE 6144.35 6144.35 PROFIT 0 1245.05 NET PROFIT 909.05 If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself. Here I would not exercise the call option as the marker has substantially come down and bear the loss of premium on it.
2. Bullish Index:
OPTION 1 OPTION 2 BUY CALL STRIKE PRICE 6144.35 PROFIT 0 NET PROFIT PREMIEUM 1 PREMIEUM 2 188
-188
3. Bearish Index:
OPTION 1
OPTION 2 PREMIEUM 1 PREMIEUM 2 BUY PUT 148 STRIKE PRICE 6144.35 PROFIT 1245.05 NET PROFIT 1097.05
And if I am bearish about the market I will buy a put option and will wait for the market to go down and will exercise it. I will purchase the underlying from the market and sell it at the option price. As we can see here that the, market has came down a lot which has made the buyer of the option have a huge profit out of it.
February 2008
Date NIFTY Date NIFTY 1-Feb-08 5317.25 18-Feb-08 5276.9 4-Feb-08 5463.5 19-Feb-08 5280.8 5-Feb-08 5483.9 20-Feb-08 5154.45 6-Feb-08 5322.55 21-Feb-08 5191.8 7-Feb-08 5133.25 22-Feb-08 5110.75 8-Feb-08 5120.35 25-Feb-08 5200.7 11-Feb-08 4857 26-Feb-08 5270.05 12-Feb-08 4838.25 27-Feb-08 5268.4 13-Feb-08 4929.45 28-Feb-08 5285.1 14-Feb-08 5202 29-Feb-08 5223.5 15-Feb-08 5302.9
NIFTY FEBRUARY
5600
5400
5200
5000
4800
4600
4400 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
A. Anticipating Volatility:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2 163 128
BUY CALL BUY PUT STRIKE PRICE
5317.25
PROFIT
5317.25 479 354.65
166.65
NET PROFIT
B.
Bullish Index:
OPTION 2 PREMIEUM 1 PREMIEUM 2
OPTION 1
BUY CALL STRIKE PRICE
163
5317.25
PROFIT
363.75
NET PROFIT
200.75
C. Bearish Index:
OPTION 1 OPTION 2 PREMIEUM 1 PREMIEUM 2
128
BUY PUT STRIKE PRICE
5317.25
PROFIT
479
NET PROFIT
351
March 2008
Date 3-Mar-08 4-Mar-08 5-Mar-08 7-Mar-08 10-Mar-08 11-Mar-08 12-Mar-08 13-Mar-08 14-Mar-08 NIFTY 4953 4864.25 4921.4 4771.6 4800.4 4865.9 4872 4623.6 4745.8 Date NIFTY 17-Mar-08 4503.1 18-Mar-08 4533 19-Mar-08 4573.95 24-Mar-08 4609.85 25-Mar-08 4877.5 26-Mar-08 4828.85 27-Mar-08 4830.25 28-Mar-08 4942 31-Mar-08 4734.5
N IF T Y M a rc h
5000 4900 4800 4700 4600 4500 4400 4300 4200 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
OPTION 1 OPTION 2 PREMIEUM 1
151
PREMIEUM 2
119
4953
PROFIT
4953 449.9 179.9
0
NET PROFIT
If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I
exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself. Here I would not exercise the call option as the marker has substantially come down and bear the loss of premium on it.
2. Bullish Index:
151
PREMIEUM 2
4953
PROFIT
0
NET PROFIT
-151
3. Bearish Index
119
4953
PROFIT
449.9
NET PROFIT
330.9
And if I am bearish about the market I will buy a put option and will wait for the market to go down and will exercise it. I will purchase the underlying from the market and sell it at the option price. As we can see here that the,
market has came down a lot which has made the buyer of the option have a huge profit out of it.
April 2008
Date NIFTY Date NIFTY 1-Apr-08 4739.55 16-Apr-08 2-Apr-08 4754.2 17-Apr-08 3-Apr-08 4771.6 21-Apr-08 4-Apr-08 4647 22-Apr-08 7-Apr-08 4761.2 23-Apr-08 8-Apr-08 4709.65 24-Apr-08 9-Apr-08 4747.05 25-Apr-08 10-Apr-08 4733 28-Apr-08 11-Apr-08 4777.8 29-Apr-08
4887.3 4958.4 5037 5049.3 5022.8 4999.85 5111.7 5089.65 5195.5
15-Apr-08
4879.65
30-Apr-08
5165.9
N IF TY April
5300 5200 5100 5000 4900 4800 4700 4600 4500 4400 4300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
145
PREMIEUM 2
114
4739.55
PROFIT
4739.55 114 310.95
455.95
NET PROFIT
2. Bullish Index:
145
PREMIEUM 2
4739.55
PROFIT
402.5
NET PROFIT
257.5
3. Bearish Index:
114
4739.55
PROFIT
0
NET PROFIT
-114
And if I am bearish about the market I will buy a put option and will wait for the market to go down and will exercise it. I will purchase the underlying from the market and sell it at the option price. But as we can see that the market has risen so we should not exercise the put option and have to bear loss of the premium.
May 2008
Date 2-May-08 5-May-08 6-May-08 7-May-08 8-May-08 NIFTY 5228.2 5192.25 5144.65 5135.5 5081.7 Date 16-May-08 20-May-08 21-May-08 22-May-08 23-May-08 NIFTY 5157.7 5104.95 5117.65 5025.45 4946.55
9-May-08 12-May-08 13-May-08 14-May-08 15-May-08
4982.6 5012.65 4957.8 5011.75 5115.25
26-May-08 27-May-08 28-May-08 29-May-08 30-May-08
4875.05 4859.8 4918.35 4835.3 4870.1
NIFTY MAY2008
5300 5200 5100 5000 4900 4800 4700 4600 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
160
PREMIEUM 2
126
5228.2
5228.2
PROFIT
0
NET PROFIT
392.9 106.9
If I am anticipating the market to make big movements then I would purchase one call and one put option .When the market goes up then I exercise the call option and when it is down I exercise the put option and I will sell and purchase the underlying at market prices at the time of exercise itself. Here I would not exercise the call option as the marker has substantially come down and bear the loss of premium on it.
2.
Bullish Index:
OPTION 2 PREMIEUM 1
160
OPTION 1
PREMIEUM 2
5228.2
PROFIT
0
NET PROFIT
-160
3. Bearish Index:
126
5228.2
PROFIT
392.9
NET PROFIT
266.9
And if I am bearish about the market I will buy a put option and will wait for the market to go down and will exercise it. I will purchase the underlying from the market and sell it at the option price. As we can see here that the, market has came down a lot which has made the buyer of the option have a huge profit out of it.
SYNOPSIS
SBI MUTUAL FUNDS
Scope
of Option Funds in Indian Market
Students Name: Vikash Tayal Industry Guide: Mr. Munish Sabharwal Faculty Guide: Ms. Deepmala Soni
Objective of the Study

There are two objectives of my study. Primary Objective: The primary objective of the study is to get a deeper understanding of the Indian stock market and the use of options in the same by understand the different types of options and various strategies of options which can be used in different market scenarios. Secondary Objective: o find out the possibility of launching an options income fund in the Indian Mutual Fund Industry and to find out whether it is possible to get constant returns by using INDEX options in the Indian market.
Findings:
We as mutual funds are allowed to invest into Options for the purpose of hedging and are not allowed to use them to earn profits by using them in other ways. It means we can limit our risk through hedging but are not allowed to use them for
earning which is done in USA. So on the daily closing values of NSE we have applied various market strategies of options and have calculated approximate returns and have found that a good yield can be achieved by using options. But applying option strategies is not easy for an investor himself as it requires expertise and hence we have proposed SBI MUTUAL FUNDS to launch an Equity Fund which will buy and sell options. The risk factor in such a fund would be limited as options are hedging instruments by default.
Conclusion:
It is possible to get constant returns by using options in the Indian Market. And there are may new types of funds which can provide good returns to the investors.
Student perception about Industry Guide:

He is a person who likes perfection. He is very hard working but was a bit reserve as well. He was very much available for every query that I had.

Scope of Option Funds in Indian Market

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Scope of Option Funds in Indian Market

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SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS

Scope of Option Funds in Indian Market

INDUSTRY GUIDE Mr. Munish Sabharwal ISC HEAD SBIMF-CHANDIGARH

FACULTY GUIDE Ms. Deepmala Soni

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

AMITY UNIVERSITY UTTAR PRADESH

Ms. Deepmala Soni

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

Objective of the Study

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

Limitations of the Study

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

A Review of literature on the industry:

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

AUM (Rs. Crores) 90813 59475 52710 50770 41075 31000

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

The Growth of the Indian Mutual Fund industry

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

A Review of literature of SBI Mutual Funds:

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

Method of Calculation of the Premiums and Greeks

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

CALCULATION OF ANNUAL RETURNS

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

TOTAL So the percentage returns would be:

(Total Returns / Total Investments)* 100 Return % = (5990/6526)* 100 = 91.8%

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 25 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 26 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 27 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 28 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 30 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 31 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 33 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 34 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 35 -

II. Bullish Index:

III. Bearish Index:

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 37 -

11-Oct-07 12-Oct-07 15-Oct-07 16-Oct-07

5524.85 5428.25 5670.4 5668.05

26-Oct-07 29-Oct-07 30-Oct-07 31-Oct-07

5702.3 5905.9 5868.75 5900.65

836.95 NET PROFIT

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 40 -

7-Nov-07 8-Nov-07 9-Nov-07 12-Nov-07 13-Nov-07 14-Nov-07 15-Nov-07

5782.35 5698.75 5663.25 5617.1 5695.4 5937.9 5912.1

22-Nov-07 23-Nov-07 26-Nov-07 27-Nov-07 28-Nov-07 29-Nov-07 30-Nov-07

5519.35 5608.6 5731.7 5698.15 5617.55 5634.6 5762.75

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 41 -

INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY UTTAR PRADESH - 42 -

5866.45 PROFIT 347.1 NET PROFIT 206.1