contents derivatives futures. options. technical analysis. fundamental analysis. market

ContentsContents

Derivatives Futures. Options.

Technical analysis.

Fundamental analysis.

Market .

TATAMOTORSTATAMOTORSTataMotors FuturesJun 01, 2009 = 78000Jun 16, 2009 = 131640Profit = 53640.Returns in % = 68%.

BHARTIBHARTIBHARTI FuturesOct 1, 2009 = 44000Oct 28, 2009 = 0.Loss.

HULHULHUL OptionsJuly 13, 2009 = 500July 27, 2009 = 4000.Profit = Rs.3500

RCOMRCOMRCOM OptionsOct 5, 2009 = 7700Oct 29, 2009 = 0Loss

Uses of derivatives:Uses of derivatives:

Hedging

Arbitrage

Buy on Margin

Cash MarketCash Market

Derivative Derivative MarketMarket

DERIVATIVESDERIVATIVES

Derivative Definition:Derivative Definition:‘derivative’ refers to an asset

that has no independent value, but ‘derives’

its value

from that of an underlying asset.

ExamplesExamplesCurd, which is derivative of milk.Price of the curd depends on the

price of the milk.ADR like Satyam, Infosys etc.

DERIVATIVES

FUTURES OPTIONS

LONGSHOR

TCALL PUT

FuturesFuturesFutures are exchange-traded

contracts to buy or sell an asset in future at a price agreed upon today.

The asset can be share, index, interest rate, bond, rupee-dollar exchange rate, sugar, crude oil, soybean, cotton, coffee etc.

Types of FuturesTypes of FuturesIndex Futures : are derivative

contracts, which have the index value (Nifty, Sensex etc) as the underlying asset.

Stock Futures : are derivative contracts that have an equity share as the underlying asset.

PremiumPremium

Future > Spot

5300 > 5250

Prm = 50

Future < Spot

5250 < 5300

Disc = 50

DiscountDiscount

Date Nifty Spot Nifty Fut Prm/Disc

1-Jan-08 6144 6161 16

2-Jan-08 6179 6223 44

3-Jan-08 6179 6175 3

4-Jan-08 6274 6255 19

7-Jan-08 6279 6288 9

8-Jan-08 6288 6269 19

9-Jan-08 6272 6260 12

10-Jan-08 6157 6162 5

DERIVATIVES

FUTURES OPTIONS

LONGSHOR

TCALL PUT

Long Position in Long Position in FuturesFuturesBullish on stock or index.

Buy position on Future contract.

“To sell the contract on or before the expiration date.”

LONGLONGBuy now sell

later.

BUYBUY

SELLSELL5800

5000

5000

5800

BUYBUY

SELLSELL

DERIVATIVES

FUTURES OPTIONS

LONGSHOR

TCALL PUT

Short Position in Short Position in FuturesFuturesBearish on stock or index.

Sell Future contract.

“To buy the contract on or before the expiration date.”

SHORTSHORTSell now buy

later.

BUYBUY

SELLSELL 5800

5000

BUYBUY

SELLSELL 5800

5000

LONGLONGBuy now sell

later.Sell now buy

later.

SHORTSHORT

BUYBUY

SELLSELL

BUYBUY

SELLSELL5800

5000

Futures TradingFutures TradingLot size = 75.Future Price = 2800.Margin = 23%

Total Amt required to pay = 75 * 2800 * 23% = Rs.

48,300

Uses:Uses:

Hedging

Arbitrage

Buy on Margin

DERIVATIVES

FUTURES OPTIONS

LONGSHOR

TCALL PUT

HedgingHedgingInsurance.

When people decide to hedge, they are insuring themselves against a negative event.

For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.

75 shares.

Buy Price = 2800.

75 shares.

Short Position at 2800.

Market Price = 2000.

75 shares.Buy Price =

2800.Loss = 2000 - 2800 = -

800

75 shares.Buy Price =

2800.Profit = 2800-2000 =

800

Spot / cash Market

Future market

ArbitrageArbitrageThe simultaneous purchase and

sale of an asset in order to profit from a difference in the price.

"riskless profit“.

75 shares.

Buy Price = 2800.

75 shares.Short Position at

3000.

Market Price = 2000.75 shares.Buy Price =

2800.Loss = 2000 - 2800 = -

800

75 shares.Buy Price =

2800.Profit = 3000-2000 =

1000

Spot / cash Market

Future market

Net Profit/Loss = (-800+1000)*75 = 15000

Net Profit/Loss per share = (-800+1000) =200

75 shares.

Buy Price = 2800.

75 shares.Short Position at

3000.

Market Price = 4000.75 shares.Buy Price =

2800.Loss = 4000 - 2800 =

1200

75 shares.Buy Price =

2800.Profit = 3000-4000 = -

1000

Spot / cash Market

Future market

Net Profit/Loss = (-800+1000)*75 = 15000

Net Profit/Loss per share = (-800+1000) =200

Buying on MarginBuying on MarginReliance Industries.No of shares = 75.Price per share = 2800.

Spot / cash Market

Future market

Total Amt Paid =75 * 2800 = 2,10,000

Total Amt Paid =75 * 2800 *

23% = 48,300

Margin

You have Rs.40000…….You have Rs.40000…….

2300*75*23% = 39675

= 40000 / 230017 shares

350 * 75 = 26250

350 * 17 = 5950

FUTURES SPOT / CASH

PRICE = 2300PRICE = 2300

PRICE = 2650PRICE = 2650