Pradeep Singha

Company Profile
Sharekhan, Indias leading stock broker is the retail arm of SSKI Into broking since 80 years. Focused on providing equity solutions to every segment. Largest ground network of 210 branded share shops in 90 cities.

ShareKhan Offers
Broking in Equities & Derivatives on NSE & BSE Depository Services Commodities Trading on MCX & NCDEX IPO Services Portfolio Management Services Distribution Services Structured Products with Fixed Returns

Objective Of The Study

To explore the knowledge of applying different types of Option Trading Strategies. To study Option Strategies in the Stock Market in deeper sense. To analyze the market fluctuation of nifty in future and Option contract. To make Stock holders purchase a protective put to hedge against losses from a declining stock.

Defining Derivatives
A derivative is a financial instrument whose value depends on the value of some other financial instrument, called the underlying asset Common examples of underlying assets are stocks, bonds, Gold, Crude oil etc.

Options

Options are instruments whereby the right is given by the option seller to the option buyer to buy or sell a specific asset at a specific price on or before a specific date. Call Option - The right to buy a specified amount of currency at a specified rate Put Option -The right to sell a specified amount of currency at a specified rate Premium - The price of an option Strike - The rate at which the right can be exercised Expiry Date - The date at which the right can be exercised

Bullish Strategy
Market Opinion Bullish Most popular strategy with investors Used by investors because of better leveraging compared to buying the underlying stock insurance against decline in the value of the underlying. Risk Reward Scenario Maximum Loss = Limited (Premium Paid) Maximum Profit = Unlimited Profit at expiration = Stock Price at expiration Strike Price Premium paid Break even point at Expiration = Strike Price + Premium paid

Bullish Buy Call Strategy:-

Symbol: Buy Call Price Underlying Price

BANKBARODA 620 @ 50.50 653.80

Breakeven

670.50

Outflow

12625.00

Lot Size
Loss on Expiry

250
4175.00

Reward
Risk

Unlimited
12625.00

Bullish Put Spread Strategy:-

Symbol: Buy Put Price (OTM) Underlying Price Lot Size Loss on Expiry

JSWSTEEL 700.00 @ 16.00 709.15 500 425.00

Breakeven Sell Put Price (ITM) Inflow Reward Risk

710.00 720.00 @ 26.00 5000.00 5000.00 5000.00

BEARISH STRATEGIES:
Market Opinion Bearish. For investors who want to make money from a downward price move in the underlying stock Offers a leveraged alternative to a bearish or short sale of the underlying stock Risk Reward Scenario Maximum Loss Limited (Premium Paid) Maximum Profit - Limited to the extent of price of stock Profit at expiration - Strike Price Stock Price at expiration - Premium paid Break even point at Expiration Strike Price Premium paid

Bearish Sell Call Strategy:-

Symbol:
Sell Call Price Underlying Price Lot Size Loss on Expiry

BAJAJ-AUTO
1450 @ 112.80 1636.45 125 9206.25

Breakeven

1562.80

Inflow Reward Risk

14100.00 14100.00 Unlimited

Bearish Put Spread Strategy:-

Symbol: Sell Put Price (OTM) Underlying Price Lot Size Loss on Expiry

ITC 250.00 @ 2.10 258.40 1000 1700.00

Breakeven Buy Put Price (ITM) Outflow Reward Risk

256.70 260.00 @ 5.40 3300 6700.00 3300.00

Neutral Strategy:

Long Call Butterfly Strategy:-

Long Call Butterfly is a strategy that must be devised when the investor is neutral on the market direction and expects volatility to be less in the market. A Long Call Butterfly strategy is formed by selling two At-the-Money Call Options, buying one Out-of-the-Money Call Option and one Inthe-Money Call Option. A Long Call Butterfly is similar to a Short Straddle except that here the investors losses are limited. The investor will benefit if the underlying Stock/ Index remains at the middle strike at expiration

Investor view: Neutral on direction and bearish on Stock/ Index volatility. Risk: Limited to the premium paid. Reward: limited Lower Breakeven: Strike price of Lower Strike Long Call + net premium paid. Higher Breakeven: Strike Price of Higher Strike Long Call net premium paid.

Symbol: Buy Call (ITM) Sell Call (ATM) - 2 Lots Underlying Price Lot Size Profit on Expiry

BHEL 220.00 @ 12.50 230.00 @ 6.40 229.20 1000 6650.00

Breakeven Buy Call (OTM)

222.55 and 237.45 240.00 @ 2.85

Outflow Reward Risk

2550 7450.00 2550.00

Short Call Butterfly Strategy:

Short Call Butterfly is a strategy that must be devised when the investor is neutral on the market direction and expects volatility to be significant in the market. A Short Call Butterfly strategy is formed by buying two At-the-Money Call Options, selling one Outof- the-Money Call Option and one In-the-Money Call Option. Compared to Straddle and strangle, this strategy offers very small returns. The risk involved is slightly less as compared to them. The investor will benefit if the underlying Stock/ Index finishes on either side of the upper and lower strike prices at expiration.

Investor view: Neutral on direction and bullish on Stock/ Index volatility. Risk: Limited to difference between adjacent Strikes net premium received. Reward: Limited to the premium received. Lower breakeven: Strike price of higher Strike Short Call + net premium received. Higher breakeven: Strike price of Lower Strike Short Call - net premium received

Symbol: Sell Call (ITM) Buy Call (ATM) - 2 Lots Underlying Price Lot Size Loss on Expiry

BHEL 220.00 @ 12.50 230.00 @ 6.40 229.20 1000 6650.00

Breakeven Sell Call (OTM)

222.55 and 237.45 240.00 @ 2.85

Inflow Reward Risk

2550.00 2550.00 7450.00

FINDING

Investors are not much aware about the derivatives market as well as the future and options. Value of an option depends upon the strike price, expiration date, value of underlying asset etc. Value of an option comprises intrinsic value of option and time value of option. Option values have lower and upper boundaries. It was also observed that many broking houses offering internet trading allow clients to use their conventional system as well just ensure that they do not loose them and this instead of offering-broking services they becomes service providers. I recommend the exchange authorities to take steps to educate investors about their rights and duties. I suggest to the exchange authorities to increase the investors confidences.

I also recommend the exchange authorities to appoint a well educated persons, so that he can provide the basic information to the client regarding the future and options. I recommend the exchange authorities to be vigilant to curb wide fluctuations of prices. The speculative pressures are responsible for the wide changes in the price, not attracting the genuine investors to the greater extent towards the market. Genuine investors are not at all interested in the speculative gain as their investment is based on the future profits, therefore the authorities of the exchange should be more vigilant to curb the speculation.