A study on ONLINE TRADING IN FUTURES AND OPTIONS AT FIRST GLOBAL SECURITIES .

LTD In partial fulfillment of the requirements for the award of the degree in MASTER OF BUSINESS ADMINISTRATION
Submitted by

RAGHUNADHAREDDY.G H.T.No. 07107110

Under the guidance of

MISS. ARUNA REDDY.G Asst.Professor

MALLA REDDY INSTITUTE OF MANAGEMENT

(Affiliated to Osmania University)
MAISAMMAGUDA, DHULAPALLY, SECUNDERABAD 500014. 2007-2009

DECLARATION

I hereby declare that this project entitled A STUDY ON ONLINE TRADING IN FUTURES AND OPTIONS has been carried out by means under the able guidance of MISS.ARUNAREDDY. MANAGEMENT. Asst.Professor MALLA REDDY INSTITUTE OF

This project report is submitted in partial fulfillment of the requirement from the award of Master of Business Administration Degree.

I also declare that this project is a result of my own efforts and has not been submitted to any other university for any other degree or diploma.

Date

: RAGHUNADHAREDDY.G

Place : Secunderabad

ACKNOWLEDGEMENT

I wish to thank the management of FIRST GLOBAL SECURITIES.LTD for their kind gesture of allowing me to undertake this project and its various employees who lent their helping hand towards the completion of this study.

am

particularly

in

debited

to

Mr.

KRISHNA.B

of

FIRST

GLOBAL

SECURITIES.LTD for giving me the opportunity to undertake this project in the esteemed organization I thank Dr. SRINIVASA SASHTRY, Mr. UDAY KUMAR, H.O.D and all my faculty members who motivated me in the completion of this project

Special thanks to my faculty cum guide Miss. ARUNA REDDY.G for the helpful comments and information regarding the logic and documentation of the project.

Last but not least, I am thankful to my parents to all my friends for their wholehearted support and suggestions, which helped me in completing this project.

ABSTRACT:

The present project A Study on tax saving schemes of different mutual funds comprises of seven units. Unit-I Deals with introduction about the project, objectives of the study, need, scope

Research design, data sources, limitations, data collection methods & sampling plan are discussed. UNIT-II In this unit, information regarding the project topic, is A STUDY ON TAX SAVING SCHEMES OF DIFFERENT MUTUAL FUNDS collected UNIT-III In this unit Industry profile i.e. Industry over view, primary and secondary market, and laws governing capital market, regulators, and need of capital market. About NSE: promoters, corporate structure, milestones of NSE and company profile are discussed. UNIT-IV UNIT-V In this unit, analysis of data and interpretation is done and presented. In this unit findings of the study are presented.

UNIT- VI In this unit, suggestions to the project is presented.

CONTENTS

Chapter no I Introduction Objectives Need of the study Scope of the study

Name of the concept

Page no 1 2 3 4 5 6 7- 41 42- 45 46- 59 60-83 84 85 86

Research Methodology Limitations II III Review of literature Industry profile Company profile IV V VI VII Data analysis and interpretation Summary Suggestions Conclusion Bibliography

EVOLUTION OF DERIVATIVES:
Derivatives have probably been around for as long as people have been trading with one another. Forward contracting date back at least to the 12th century, and may well have been around before then. Merchants entered into contracts with another for future delivery of specified amount of commodities as specified price. A primary motivation for pre-arranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest. The following factors have contributed to the growth of financial derivatives: Increased volatility in asset prices in financial markets. Increased integration of national financial markets with the international markets. Marked improvement in communication facilities and sharp decline in their costs. Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies. Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risk as well as transactions costs as compared to individual financial assets.

OBJECTIVES OF THE STUDY:

To analyze the derivatives market in India. To analyze the operations of futures and options. To find the profit/loss position of futures buyer and seller and also the option writer and option holder. To study about risk management with the help of derivatives.

NEED OF THE STUDY

The turnover of the stock exchange has been tremendously increasing from last 10 years. The number of trades and the number of investors, who are participating, have increased. The investors are willing to reduce their risk, so they are seeking for the risk management tools

Prior to SEBI abolishing the BADLA system, the investors had this system as a source of reducing the risk, as it has many problems like no strong margining system, unclear expiration date and generating counter party risk. In view of this problem SEBI abolished the BADLA system.

After the abolition of the BADLA system, the investors are seeking for a hedging system, which could reduce their portfolio risk, SEBI thought the introduction of the derivatives trading, as a first step it has set up a 24 member committee under the chairmanship of Dr.L.C. Gupta to develop the appropriate framework for derivatives trading in India, SEBI accepted the recommendation of the committee on may 11, 1998 and approved the phase introduction of the derivatives trading beginning with stock index futures.

There are many investors who are willing to trade in the derivatives segment, because of its advantage like limited loss unlimited profit by paying the small premiums.

SCOPE OF THE STUDY:

The study is limited to Derivatives with special reference to futures and option in the Indian context and the First global securities.ltd, has been taken as a representative sample for the study. The study cant be said as totally perfect. The study has only made a humble attempt at evaluation derivatives market only in India context. The study is not based on the international perspective of derivatives markets, which exists in NASDAQ, CBOT etc.,

RESEARCH METHODLOGY

The following are the steps involved in the study:

1. SELECTION OF THE SCRIP:

The scrip selection is done on random and the scrip selected is Reliance Communication and ICICI bank. The Lot size of Reliance Communication is 350 and ICICI bank is 175. Profitability position of the futures buyer and seller and also the option holder and option writer.

2. DATA COLLECTION :

The data of the Reliance Communication and ICICI bank have been collected from Business line and the internet. The data consist of the January contract and the period of 27 th December, 2008 to 31st January, 2009.

3.ANALYSIS:

The analysis consists of the tabulation of the data assessing the profitability positions of the futures buyer and seller and also option holder and the option writer, representing the data with graphs and making the interpretation using data.

LIMITATIONS OF THE STUDY:

The following are the limitation of this study 10

 The study is conducted in short period, due to which the study may not be detailed all aspect. Lack of time on performing the project in detail study. The scrip chosen for analysis id Reliance Communication, ICICI bank. The data collected is completely restricted to 31st January, 2009; hence this analysis cannot be taken universal.

DERIVATIVES

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The emergence of the market for derivatives products, most notably forwards, futures and options, can be tracked to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, these generally do not locking-in asset prices, derivative product minimizes the impact of fluctuations in asset prices on the profitability and cash flow situation of riskaverse investors. Derivatives are risk management instruments, which derive their value from an underlying asset. The underlying asset can be bullion, index, share, bonds, currency, interest etc., Banks, securities firms, companies and investors to hedge risks, to gain access to cheaper money and to make profit, use derivatives are likely to grow even at a faster rate in future.

DEFINATION:
Derivative is a product whose value is derived from the value of an underlying asset in contractual manner. The underlying asset can be equity, forex, commodity or any other asset. Securities contracts (regulation) act, 1956 (SCR act) defines derivative to secured or unsecured, risk instrument or contract for differences or any other form of security. A contract which derives its value from the prices, or index of prices, of underlying securities.

EVOLUTION OF DERIVATIVES:
Derivatives have probably been around for as long as people have been trading with one another. Forward contracting date back at least to the 12th century, and may well have been 12

around before then. Merchants entered into contracts with another for future delivery of specified amount of commodities as specified price. A primary motivation for pre-arranging a buyer or seller for a stock of commodities in early forward contracts was to lessen the possibility that large swings would inhibit marketing the commodity after a harvest. The following factors have contributed to the growth of financial derivatives: Increased volatility in asset prices in financial markets. Increased integration of national financial markets with the international markets. Marked improvement in communication facilities and sharp decline in their costs. Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies. Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risk as well as transactions costs as compared to individual financial assets.

FUNCTION OF DERIVATIVES MARKETS:

The following are the various functions that are performed by the derivatives markets. They are: Prices in an organized derivatives market reflect the perfection of market participants about the future and lead the price of underlying to the perceived future level. Derivatives market helps to transfer risks from who have them but may not like them to those who have an appetite for them Derivatives trading acts as a catalyst for new entrepreneurial activity.

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Derivatives markets help increase saving and investment in long run.

PARTICIPANTS:
The following three broad categories of participants in the derivatives market:

SWAPS OPTIONS FUTURES FORWARDS DERIVATIVES

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HEDGERS:
Hedgers face risk associated with the price of an asset. They use futures or options markets to reduce or eliminate this risk.

SPECULATORS:
Speculators wish to bet on future movements in the price of an asset. Futures and options contracts can give them an extra leverage; that is, they can increase both the potential gains and potential losses in a speculative venture.

ARBITRAGEURS:
Arbitrageurs are in business to take of a discrepancy between prices in two different markets, if, for example, they see the futures price of an assets getting out of line with the cash price, they will take offsetting position in the two markets to lock in a profit.

SELF CLEARING MEMBER:

A SCM clears and settles trades executed by him only either on his own account or on account of his clients.

TRADING MEMBER CLEARING MEMBER:

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Trading Member Clearing Member is Clearing Member who is also a Trading Member. Trading Member Clearing Member may clear and settle his own proprietary trades and clients trades as well as clear and settle for other TMs

PROFESSIONAL CLEARING MEMBER:

Professional Clearing Member is a clearing Member who is not a Trading member. Typically, banks or custodians could become a Professional Clearing Member and clear and settle for Trading Members.

TYPES OF DERIVATIVES :

DERIVATIVES

OPTIONS

FUTURES

SWAPS

FORWARD

OPTION INDEX

OPTION STOCKS

INDEX FUTURES

STOCK FUTURES

INTEREST RATE

CURRENCY

PUT OPTION

CALL OPTION

PUT OPTION

CALL OPTION

FORWARDS:
A forwards contract is a customized contract between two parties, where settlement takes place on a specific date in the future todays pre-agreed price.

FUTURES:
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A futures contract is an agreement between two parties to buy or sell an asset at a certain time at a certain price.

OPTIONS:
Options are of two types-calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a give future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

WARRANTS:
Options generally have lives of up to one year; the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the counter.

LEAPS:
The acronym LEAPS means long-term Equity anticipation securities. These are options having a maturity of up to three years.

BASKETS:
Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average of a basket of assets. Equity index options are a form of basket options.

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SWAPS:
Swaps are private between two parties to exchange cash floes in the future according to prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used Swaps are:

INTEREST RATE SWAPS:

These entail swapping only the related cash flows between the parties in the same currency.

CURRENCY SWAPS:
These entail swapping both principal and interest between the parties, with the cash flows in on direction being in a different currency than those in the opposite direction.

DIFFERENT TYPE OF SWAPS ARE AS FOLL ACCRETING SWAPS:

An interest rate swap under which the notional principal increases over the maturity of the swap.

AMORTIZING SWAPS:
An interest rate swap where two floating rate streams are exchanged, which are linked to two different reference rate

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BASICS SWAPS:
An interest rate swap where two floating rate streams are exchanged, which are linked to two different reference rates.

CALLABLE SWAPS:
A fixed - to- floating interest rate swap under which the fixed rate payer has the right to terminate the contract before the specified maturity.

CROSS CURRENCY SWAPS:

A currency swap under which even the underlying principal amount is exchanged in the beginning and underlying amount is exchanged in the beginning and re-exchanged in the end.

FORWARD START SWAPS:

An interest rate swap under which the effective date is a long time after the trade date.

PLAIN VANILLA SWAPS:

The basic interest rate swap whereby one party makes interest payments on a fixed rate basics, and the other on a floating rate basis.

PUTTABLE SWAPS:
A fixed-to-floating interest rate swap under which the fixed rate receiver has the right to terminate the contract before the specified maturity.

ROLLER COASTER SWAPS:

An interest rate swap under which the notional principal increases as well as decreases over the maturity of the swap.

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ZERO COUPON SWAPS:

An interest rate swaps having no periodic interest payments. The payment is made in a lump sum on the maturity date.

SWAPTION:
Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap.

DERIVATIES TRADING AT NSE / BSE:

The derivatives trading on the National Stock Exchange commenced with S&P CNX Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on July 2. 2001. Single stock futures were launched on November 9, 2001. The index futures and options contract on NSE is based on S&P CNX Nifty Index. Currently, the futures contracts have a maximum of 3months expiration cycles. Three contracts are available for trading, with 1 month, 2months and 3monthsexpiry. A new contract is introduced on the next trading of Derivatives is taking place with SENSEX comprising 30 scripts for Index Futures and Options.

RATIONALE BEHIND THE DEVELOPMENT OF DERIVATIVES:

Holding portfolios of securities is associated with the risk of the possibility that the investor may realize his returns, which would be much lesser than what he expected to get. There are various factors, which affect the returns: 1. Price or dividend (interest) 20

2. Some are internal to the firm like Industrial policy Management capabilities Consumers preference Labour strike, etc. These forces are to a large extent controllable and are termed as non systematic risks. An investor can easily manage such non-systematic by having a well-diversified portfolio spread across the companies, industries and groups so that a loss in one may easily be compensated with a gain in other.

There are yet other of influence which are external to the firm, cannot be controlled and affect large number of securities. They are termed as systematic risk. They are: 1.Economic 2.Political 3.Sociological changes are sources of systematic risk. For instance, inflation, interest rate, etc. their effect is to cause prices of nearly allindividual stocks to move together in the same manner. We therefore quite often find stock prices falling from time to time in spite of companys earning rising and vice versa. Rational Behind the development of derivatives market is to manage this systematic risk, liquidity in the sense of being able to buy and sell relatively large amounts quickly without substantial price concession. In debt market, a large position of the total risk of securities is systematic. Debt instruments are also finite life securities with limited marketability due to their small size relative to many common stocks.

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FUTURES
DEFINITION:
A Futures contract is an agreement between two parties to buy or sell an asset a certain time in the future at a certain price. To facilitate liquidity in the futures contract, the exchange specifies certain standard features of the contract. The standardized items on a futures contract are: Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotations and minimum price change Location of settlement

FEATURES OF FUTURES:
Futures are highly standardized. The contracting parties need not pay any down payments. Hedging of price risks. They have secondary markets to.

TYPES OF FUTURES: On the basis of the underlying asset they derive, the futures are divided into two types:

I.

STOCK FUTURES :
The stock futures are the futures that have the underlying asset as the individual securities. The settlement of the stock futures is of cash settlement and the settlement and the settlement price of the future is the closing price of the underlying security.

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II.

INDEX FUTURES :
Index futures are the futures, which have the underlying asset as an Index. The Index futures are also cash settled. The settlement price of the Index futures shall be the closing value of the underlying index on the expiry date of the contract.

PARTIES IN THE FUTURES CONTRACT:

There are two parties in a future contract, the buyer and the seller. The buyer of the futures contract is one who is LONG on the futures contract and the seller of the futures contract is who is SHORT on the futures contract. The pay off for the buyer and the seller of the futures of the contracts are as follows:

PAY-OFF FOR A BUYER OF FUTURES:

Profit

FP F 0 S2 FL Loss S1

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CASE 1:-The buyer bought the futures contract at (F); if the future price goes to S1 then the buyer gets the profit of (FP). CASE 2:- The buyer gets loss when the future price goes less then (F), if the future price goes then the buyer gets the loss of (FL). to S2

PAY-OFF FOR A SELLER OF FUTURES:

Profit

FL S2 F S1

FP Loss

F FUTURES PRICE S1, S2 SETTLEMENT PRICE CASE 1:- The seller sold the future contract at (F); if the future goes to S1 then the seller gets the profit of (FP).

CASE 2:- The seller gets loss when the future price goes greater than (F), if the future price goes to S2 then the seller gets the loss of (FL).

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MARGINS:

Margins are the deposits with reduce counter party risk, arise in a futures contract. These margins are collect in order to eliminate the counter party risk. There are three types of margins:

INITIAL MARGIN:
Whenever a futures contract is signed, both buyer and seller are required to post initial margins. Both buyer and seller are required to make security deposits that are intended to guarantee that they will infact be able to fulfill their obligation. This deposits are initial margins and they are often referred as purchase price of futures market.

MAKING TO MARKET MARGINS:

The process of adjusting the equity in an investors account in order to reflect the change in the settlement price of futures contract is known as MTM margin.

MAINTENANCE MARGIN:
The Investor must keep the futures account equity equal to or grater the certain percentage of the amount deposited as initial margin. If the equity goes less than that percentage of initial margin, then the investor receives a call for an additional deposit of cash known as maintenance margin to bring the equity upto the initial margin.

Role of Margins:
The role of margins in the futures contract is explained in the following example. S sold a sathyam June futures contract to B at Rs.300; the following table shows the effect of margins on the contract. The contract size of sathyam is Rs.1200. The initial margin amount is say Rs.20,000/-, the maintenance margin is 65% of initial margin. 25

PRICING THE FUTURES:

The fair value of the futures contract is derived from a model known as the cost of carry model. This model gives the fair value of the contract.

COST OF CARRY:
F = S (1+r+q)t Where F Future Price S Spot price of the underlying r Cost of financing q Expected Dividend Yield t Holding period.

FUTURES TERMINOLOGY : SPOT PRICE :

The price at which an asset trades in the spot market.

FUTURES PRICE:
The price at which the futures contract trades in the futures market.

CONTRACT CYCLE:
The period over which contracts trades. The index futures contracts on the NSE have one month, two - month and three month expiry cycle which expire on the last Thursday of the month. Thus a January expiration contract expires on the last Thursday January and a February expiration

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contract cases trading on the last Thursday of February. On the Friday following the last Thursday, a new contract having a three month expiry is introduced for trading.

EXPIRY DATE:
It is the date specifies in the futures contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist.

CONTRACT SIZE:
The amount of asset that has to be delivered under one contract. For instance, the contract size on NSEs futures market is 200 niftiest.

BASIS:
In the context of financial futures, basis can be defined as the futures price minus the spot price. There will be different basis for each delivery month for each contract. In a normal market, basis will be positive. This reflects that futures prices normally exceed spot prices.

COST CARRY:
The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset.

OPEN INTEREST:
Total outstanding long or short position in the market at any specific time. As total long positions in the market would be equal to short positions, for calculation of open interest only one side of the contract is counter.

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FORWARDS
DEFINITION:

A forward contract is an agreement to buy or sell an asset on a specified for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract. The forward contracts are normally traded outside the exchanges.

SAILENT FEATURES:
They are bilateral contracts and hence exposed to counter party risk. Each contract is custom designed, and hence is unique in terms of contract size expiration date

and the asset type and quality. The contract price is generally not available in public domain. On the expiration date, the contract has to be settled by delivery of the asset. If the party wishes to reverse the contract, is has compulsorily go to the same counter-party,

which often results in high prices being charged. However, forward contracts in certain markets have become very standardized, as in the case of foreign exchange, thereby reducing transaction costs and increasing transactions volume. This process of standardization reaches its limit in the organized futures market.

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Forward contracts are very useful in hedging and speculation. The classic hedging application would be that of an exporter who expects to receive payment in dollars three months later. He is exposed to the risk of exchange rate fluctuations. By using the currency forward market to sell dollars forward, he can lock on to a rate today and reduce his uncertainty, Similarly hence can reduce his exposure to exchange rate fluctuations by buying dollar forward. If a speculator has information or analysis, which forecasts an upturn in a price, then he can go long on the forward, wait for the price to rise, and then take a reversing transaction to book profits. Speculators may well be required to deposit a margin upfront. However, this is generally a relatively small proportion of the value of the assets underlying the forward contract. The use of forward markets here supplies leverage to the speculator. A forward contract for the future delivery of a particular underlying asset must have the following information: i. ii. iii. iv. v. vi. vii. viii. ix. x. Name of the principal party Name of the counter party Name of the underlying asset to be delivered Amount of contract Date of delivery Place of delivery Price agreed upon The date when the contract is sold The value date Other terms and conditions

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LIMITATIONS:
Lack of centralization of trading Illiquidity, and Counter-party risk

DIFFERENCE BETWEEN FORWARDS & FUTURES

Futures are standardized forward contracts. The standardization in features the segregates the futures as a distinct class of forward contracts as against the general OTC forward contracts, are brought out in below table.

Sl.no. 1. 2.

FORWARDS FUTURES Forward contracts are traded over the counter. Futures are traded on organized exchanges. Forward contracts are bilateral contracts and Futures deal not with one another but with the hence, the parties to the contract are exposed clearing house of the exchange. As is the case to the counter-pay default risk. In case of the with trading in share on stock exchanges default of the opposite party, a trader in where every buyer or seller buys or sells the forwards has to seek legal recourse under share from or to the clearing house of the Indian Contract Act, 1872 which is expensive exchange, in case of futures also the default and time consuming. risk is bourn by the clearing house of exchange in which the trading taking place. The buyers and sellers are thus insulated from

3.

the counter party default risk. Forward contracts are highly customized and Futures contract are standardized in terms of each contract is unique in size, maturity and size, expiry and asset quality. For example, on

30

asset quality.

futures contract in the nifty index is for 200 units of index baskets, contract for the three months viz., current month and the next two month, are available and composition of nifty

is well-defined (quality). Settlement of contract normally takes place Settlement of contracts can be either through through delivery. If, however, a party wishes delivery of the underlying or through a cash to reverse the contract before expiry, it has to settlement of the difference in contract price go to the same counter-party. and the actual ruling market price of the underlying on the expiry date. Futures position, however, can be easily closed out by any party by entering into an opposite contracts on the same exchange. Any

difference in the two contract prices viz., initial contracted price & reversing contract 5. price, will be its profit or loss. Forward contracts normally result in delivery. Delivery is rate in the futures contracts and the majority of the contracts are closed out before maturity by the participants and are settled by payments of differences without any actual delivery of the underlying assets 6. taking place. Forward markets are normally preferred by Futures market, due to its ease of access, the hedgers who need customized contracts. It attracts all three classes of traders viz., does not really help the markets in price hedgers, speculators, arbitrageurs and greatly

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7.

discovery. helps in price discovery of the underlying. Forwards do not require payment of margins. Exchanges have well-defined margin payment requirement for the futures trading. The margin is collected by the exchange from the traders at the end of trading day on which the contract is entered into. The margin is marked-to-market at the end of every subsequent trading day based on the days closing prices and traders with adverse margins are required to pay the differences.

OPTIONS
DEFINITION:
Option is a type of contract between two persons where one grants the other the right to buy a specific asset at a specific price within a specific time period. Alternatively the contract may grant the

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other person the right to sell a specific asset at a specific price within a specific time period. In order to have this right, the option buyer has to pay the seller of the option premium. The assets on which option can be derived are stocks, commodities, indexes etc. If the underlying asset is the financial asset, then the option are financial option like stock options, currency options, index options etc., and if options like commodity option. Three parties are involved in the option trading, the option seller, buyer and the broker. 1. The option seller or writer is a person who grants some one else the option to buy or sell. He

receives a premium on its price. 2. 3. The option buyer pays a price to the option writer to induce him to write the option. The securities broker acts as an agent to find the option buyer from seller and receives a

commission or fee for it.

PROPERTIES OF OPTION:
Options have several unique properties that set them apart from other securities. The following are the properties of option: Limited Loss High leverages potential Limited life.

PARTIES AN OPTION CONTRACT: BUYER OF THE OPTION:

The buyer of an option is one who by paying option premium buys the right but not the obligation to exercise his option on seller/writer. 33

WRITER/SELLER OF THE OPTION:

The writer of the call/put options is the one who receives the option premium and is their by obligated to sell/buy the asset if the buyer exercises the option on him.

TYPES OF OPTIONS:
The options are classified into various types on the basis of various variables. The following are the various types on options.

ON THE BASIS OF THE UNDERLYING ASSET:

On the basis of the underlying asset the option are divided in to two types:

INDEX OPTIONS
The Index options have the underlying asset as the index.

STOCK OPTIONS:
A stock option gives the buyer of the option the right to buy/sell stock at a specified price. Stock option are options on the individual stocks, there are currently more than 50 stocks, there are currently more than 50 stocks are trading in the segment.

ON THE BASIS OF THE MARKET MOVEMENTS:

On the basis of the market movements the option are divided into two types. They are:

CALL OPTION:

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A call option is bought by an investor when he seems that the stock price moves upwards. A call option gives the holder of the option the right but not the obligation to buy an asset by a certain date for a certain price. The name of the company whose shares are to be bought. The number of shares to be purchased. The purchase price or the exercise price or the strike price of the shares to be brought. The expiration date, the date on which the contract or the option expires.

PUT OPTION:
A put option is bought by an investor when he seems that the stock price moves downwards. A put options gives the holder of the option right but not the obligation to sell and asset by a certain date for a certain price.

The name of the company share to be sold. The number of shares to be sole. The selling price or the striking price. The expiration date of the option.

III. ON THE BASIS OF EXERCISE OF OPTION:

On the basis of the exercising of the option, the options are classified into two categories.

AMERICAN OPTION:
American options are options that can be exercised at any time up to the expiration date, most exchange-traded option are American.

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EUROPEAN OPTION:
European options are options that can be exercised only on the expiration date itself. European options are easier to analyze than American options.

PAY-OFF PROFILE FOR BUYER OF A CALL OPTION

The pay-off of a buyer options depends on a spot price of a underlying asset. The following graph shows the pay-off of buyer of a call option.

S - Strike price SP- Premium/loss E1 Spot Price 1 E2 Spot price 2 SR Profit at spot price E1 36

OTM Out of the money ATM At the money ITM In the money

CASE1:- (Spot price>Strike Price) As the spot price (E1) of the underlying asset is more than strike price (S). The buyer gets profit of (SR), if price increases more than E1 then profit also increase more than SR.

CASE2:- (Spot price<Strike price) As a spot price (E2) of the underlying asset is less than strike price (s). The buyer gets loss of (SP), if goes down less than E2 then also his loss is limited to his premium (SP).

PAY-OFF PROFILE FOR SELLEROF A CALL OPTION

The pay-off of seller of the call option depends on the spot price of the underlying asset. The following graph shows the pay-off of seller of a call option:

37

S - Strike price SP- Premium/loss E1 Spot Price 1 E2 Spot price 2 SR Profit at spot price E1 CASE1:- (Spot price>Strike Price)

OTM Out of the money ATM At the money ITM In the money

As the spot price (E1) of the underlying asset is more than strike price (S). The seller gets profit of (SR), if price increases more than E1 then profit also increase more than SR. CASE2:- (Spot price<Strike price) As a spot price (E2) of the underlying asset is less than strike price (s). The seller gets loss of (SP), if goes down less than E2 then also his loss is limited to his premium (SP).

PAY-OFF PROFILE FOR BUYER OF A PUT OPTION

38

The pay-off of the buyer of the option depends on the spot price of the underlying asset. The following graph shows the pay-off of the buyer of put option.

S - Strike price SP- Premium/loss E1 Spot Price 1 E2 Spot price 2 SR Profit at spot price E1 CASE1:- (Spot price<Strike Price)

OTM Out of the money ATM At the money ITM In the money

As the spot price (E1) of the underlying asset is more than strike price (S). The buyer gets the profit (SR), if price increases less than E1 then profit also increase more than (SR). CASE2:- (Spot price>Strike price)

39

As a spot price (E2) of the underlying asset is more than strike price (s). The buyer gets loss of (SP), if price goes more than E2 than the of buyer is limited to his premium (SP).

PAY-OFF PROFILE FOR SELLER OF A PUT OPTION

The pay-off of the seller of the option depends on the spot price of the underlying asset. The following graph shows the pay-off of the buyer of put option.

S - Strike price SP- Premium/loss E1 Spot Price 1 E2 Spot price 2 SR Profit at spot price E1 CASE1:- (Spot price<Strike Price) 40

OTM Out of the money ATM At the money ITM In the money

As the spot price (E1) of the underlying asset is more than strike price (S). The seller gets the profit (SR), if price increases less than E1 then profit also increase more than (SR). CASE2:- (Spot price>Strike price) As a spot price (E2) of the underlying asset is more than strike price (s). The seller gets loss of (SP), if price goes more than E2 than the Profit of seller is limited to his premium (SP).

FACTORS AFFECTING THE PRICE OF AN OPTION STOCK PRICE:

The pay-ff from a call option is a amount by which the stock price exceeds the strike price. Call options therefore become more valuable as the stock price increases and vice versa. The pay-off from a put option is the amount; by which the strike price exceeds the stock price. Put options therefore become more valuable as the stock price increases and vice versa.

STRIKE PRICE:
In case of a call, as a strike price increases, the stock price has to make a larger upward move for the option to go in-the-money. Therefore, for a call, as the strike price increases option becomes less valuable and as strike price decreases, option become more valuable.

TIME TO EXPIRATION:
Both put and call American options become more valuable as a time to expiration increases.

Volatility:
The volatility of a stock price is measured of uncertain about future stock price movements. As volatility increases, the chance that the stock will do very well or very poor increases. The value of both calls and puts therefore increase as volatility increase.

RISK-FREE INTEREST RATE:

41

The put option price decline as the risk-free rate increases where as the prices of call always increase as the risk-free interest rate increases.

DIVIDENDS:
Dividends have the effect of reducing the stock price on the x dividend rate. This has an negative effect on the value of call options and a positive effect on the value of put options.

PRICING OPTIONS:
The black scholes formula for the price of European calls and puts on a non-dividend paying stock are:

CALL OPTION:

C = SN(D1) Xe -r t N(-D2)PUT OPTION:

P = Xe-rt N(-D2)-SN(-D2)
where

C = VALUE OF CALL OPTION S = SPOT PRICE OF STOCK N = NORMAL DISTRIBUTION V = VOLATILITY X = STRIKE PRICE

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r = ANNUAL RISK FREE RETURN t = CONTRACT CYCLE

n (S/X) + (r+v2/2)t

d1 =

-------------------------v t

d2 =

d1 v t

OPTIONS TERMINOLOGY: STRIKE PRICE:

The Price specified in the options contract is known as strike price or Exercise price.

OPTIONS PREMIUM:
Options Premium is the price paid by the options buyer to the option seller.

EXPIRATION DATE:
The date specified in the options contract is known as expiration date.

OUT-OF-THE-MONEY OPTION:
An out-of-the-money option is an option that would lead to negative cash flow if it is exercised immediately.

IN-THE-MONEY OPTION:

43

An In the money option is an option that would lead to positive cash inflow ti the holder if it exercised immediately.

AT-THE-MONEY OPTION:
An at the money option is an option that would lead to Zero cash flow if it is exercised immediately.

MONEYNESS Out-of-the Money In-the-money At-the-money

PUT OPTIONS Spot Price>exercise Price Spot Price<exercise Price Spot Price=exercise Price

CALL OPTIONS Spot Price<Exercise Price Spot Price>Exercise Price Spot Price=Exercise Price

INTRINSIC VALUE OF OPTIONS:

The intrinsic value of an option is ITM, if option is ITM. If the option is OTM, its intrinsic. Call option intrinsic value Put option intrinsic value = = Stock Price Striking Price Striking Price Stock Price

TIME VALUE OF AN OPTION:

The time value of an option is the difference between its premium and its intrinsic value. Time Value = Premium Intrinsic Value

BSE

44

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The Surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified

NSE

45

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

OUR MISSION
NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of. Establishing a nation-wide trading facility for equities, debt instruments and hybrids, Ensuring equal access to investors all over the country through an appropriate communication network, Providing a fair, efficient and transparent securities market to investors using electronic trading systems, Enabling shorter settlement cycles and book entry settlements systems, and

46

MEETING THE CURRENT INTERNATIONAL STANDARDS OF SECURITIES MARKETS.

The standards set by NSE in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities.

EQUITY SHARES
By investing in shares, investors basically buy the ownership right to the company. When the company makes profits, shareholders receive their share of the profits in the form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companys shares goes up in the market. This allows shareholders to sell shares at a profit, leading to capital gains. Investors can invest in shares either through primary market offerings or in the secondary market. The primary market has shown abnormal returns to investors who subscribed for the public issue and were allotted shares.

STOCK EXCHANGE:

In a stock exchange a person who wishes to sell his security is called a seller, and a person who is willing to buy the particular stock is called as the buyer. The rate of stock depends

47

on the simple law of demand and supply. If the demand of shares of company x is greater than its supply then its price of its security increases. In Online Exchange the trading is done on a computer network. The sellers and buyers log on to the network and propose their bids. The system is designed in such ways that at any given instance, the buyers/sellers are bidding at the best prices. The transaction cycle for purchasing and selling shares online is depicted below:

Stock Exchange Member/ Broking firm. Client (BSE / NSE) Member/ Broking firm. Client

Transacti on Cycle

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COMPANY PROFILE
FIRST GLOBAL is a multinational firm of Indian origin, with operations spread all over India and in major financial centers like London & New York. First Global is a composite member of Bombay Stock Exchange Ltd. (BSE). National Stock Exchange of India Ltd. (NSE), London Stock Exchange and NASDAQ.

First Global is an international, full-services securities house, servicing primarily an institutional client base, across the US, UK, Continental Europe and India. It is also servicing retails clients in India through a pan India network of branches.

First Global Stock broking Pvt. Ltd is registered with Securities and Exchange Board of India and is a member of BSE AND NSE. It is also registered with SEBI as Portfolio Manager. FG States, is a registered broker-dealer, member NASD/SIPC, with its principal office in New York. First Global (UK) Ltd., the regulated by the Financial Services Authority (FSA), and is a member of the London Stock Exchange. Through FG (UK) Ltd., we trade across UK & Europe, in diverse markets like Finland, Spain, Germany, France, etc.

First Global employs some of the finest analytical minds in the business, with its people having consummate skills in financial analysis, mathematics, statistics and accounting.

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Within the institutional set, First Global deals primarily with Hedge Funds, and devises aggressive trading strategies for them, including long/short combinations.

First Global covers stocks on a fundamental and technical basis across major market\est. like India the US and Europe. In addition to this, it tracks select commodities and major world economies,. Nearly all major sectors like Consumers, Cyclical, Semiconductors, Software, Networking. Biotech Automobiles and pharmaceuticals fall within the ambit of our coverage, through our analysts, numbering over 20 presently and growing. First Global prides itself only on one aspect its ability to continually make money through its research, both Technical and Fundamental, for its clients. What sets us apart is our consistent delivery of value to our clients portfolios we view our success as a complete securities house, through the narrow prism of our clients portfolios. If their portfolios do well as a result of our advice, we sleep well. Otherwise, we dont. This is the reason why investors and money managers across the world value First Global highly we are neutral, we are completely independent, we have no conflicts like Corporate Finance, Proprietary trading etc., our research is arguably the best in the business (our track-record shows it) and all put together, we help our clients make money.

THE POWER OF KNOWLEDGE PEDIGREE COUNTS

Indias only Internationally Ranked securities Firm First Global is the only Indian brokerage house rated by Asia Money in Asias top 10 list of best International research houses, as far back as 2000 and rated No.3 in Asia in the best buy/sell recommendation category.

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INDIANS BEST RESEARCH HOUSE

Our team of analyst research more than 150 Indian companies, apart from researching most global companies like Intel, Microsoft, Vodafone etc. which also includes field research for in-depth corporate and stock. No wonder, when it comes to making accurate Investment decisions, our customers never go wrong. The Foreign Institutional Investors (FIIs) Choice The worlds largest FIIs trust us with their investments, thus making us one of the largest institutional brokerage houses in India. When we talk, People Listen Our views on stocks and markets trigger major money flows at times giving us that leading edge to influence market trends. Indias Truly Global Securities Company We also have our presence in UK & US through a network of fully functional offices in these regions already keeping us ahead in the globalization race.

ROCK SOLID BALANCE SHEET

With an extremely high capital adequacy. First Global is one of the best capitalized securities firm in India. In fact, we have a higher capital base than a number of foreign securities firms operating in India.

THE POWER OF CONVENIENCE CUSTOMER IS THE KING

It takes accurate research, constant investment advice and timely action to make or save money in the stock markets. Our internationally ranked research and advice comes as smooth as silk so you can make the right investment moves at the right time.

CONVENIENCE TRADING OPTIONS

51

We offer you multiple options for executing order on Equity and F&O segments as well as Commodes. Customers can trade through a telephone call or personal visit to the nearest First Global bran ch or can do online trading sitting at their homes or offices through e-trading websites or can call up on our toll free number from anywhere in India,

ACCOUNT EXECUTIVE
At First Global, Account Executive suggests when to buy/sell, what to buy/sell and also keeps track of customer portfolio which helps in making right investment decisions. The Accounts Executives offer one window service & also keep customers updated on the latest news & view.

DEMAT SERVICES
To offer our customers one stop service, we are also making an application for becoming a Depository participant.

PRODUCTS OFFERED
Equity Trading Derivative Trading Portfolio Management Services Commodity Trading Fundamental Research Reports Trading Research Reports Mutual Fund Distribution Investment in IPOs

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EQUITY TRADING
Too long, you have tried to navigate the stock market on your own. Too many times, you have felt overwhelmed by the difficulty of making money consistently. Too many times, your broker has let you down, giving in accurate, poorly researched and downright disastrous advice well, not any mo re first global is here. Say good bye to helplessness. Nervousness and insecurity. Say a big hallo to confidence, security and peace of mind. Now you have on your side, Indias pre-eminent brokerage house First global is an international securities house with memberships of the London stock exchange, NASDAQ, the national stock exchange of India limited ,and the Bombay stock exchange ltd. First global offers expert investment advice based on its rich experience in the fundamental and technical research and its exposure to the markets world over. It has schemes designed to suit every investor right from the corporate investors, HNIs, day traders, Nonresident Indians, and small Individual investors.

FIRST GLOBAL OFFERS OFFLINE TRADING OFF- LINE TRADING

An Offline Securities Trading account offers you the convenience of trading from your home, office and even while you are traveling through the telephone or through SMS. You have the option of calling up any of our branches and place an order on phone or SMS or you can even visit our branch personally to trade through your account.

53

FIRST GLOBAL OFFLINE SECURITIES TRADING ACCOUNT GIVES YOU THE ADVANTAGE OF:
Pan India network of branch offices.NSE and BSE on an integrated platform. Trade through phone, or in person at branch or though the dedicated team of Relationship managers. Access to internationally acclaimed buy/sell recommendations in person, though phone, SMS, E-Mail, etc .and make the right investment decision. Moving money (pay-outs & pay-ins of funds) easily though a zero balance account with the designated banks even through the web. An account executives keeping a track of your portfolio in the market and suggest timely actins to help you make or save money. Integrated online and offline trading- first Global does not segregate Internet Trading from its regular clients, it is at the absolute discretion of the clients, it is at the absolute discretion of the client whether he want to deal online or offline.

DERIVATIVE TRADING FUTURES AND OPTIONS

FIRST GLOBAL is an International securities house with memberships of the London Stock Exchange, NASDAQ, The National Stock Exchange of India Ltd. And the Bombay Stock Exchange Ltd. First Global offers expert investment advice based on its rich experiences in fundamental and technical research and its exposure to the markets world right from the corporate, HNIs, Day traders, Non-resident Indians, and small individual Investors.

54

FIRST GLOBAL OFFERS ONLINE TRADING AS WELL OFFLINE TRADING FACILITIES. ONLINE TRADING
The online trading offers you the convenience of trading from your home, office and even while you are travelling with your laptop. In case you are not in a position to go online, you have the option of calling up any of our branches and place an order on phone or you can even visit our branch personally to trade though your account. First Global Online Securities trading account gives you the power to: Trade via web, phone, or in person at a branch. Get access to internationally acclaimed buy/sell recommendations and make the right investment decision. Move money (pay-outs & pay-ins of funds) easily through a zero balance account with the designated banks through the payment gateway. NSE and BSE on an integrated platform.

OFF-LINE TRADING
An Offline Securities Trading account offers you the convenience of trading from your home, office and even while you are travelling through the telephone or through SMS or you can even visit our branch personally to trade through your account. First Global Offline Securities trading account gives you the advantage of: Pan India Network of Branch offices. NSE and BSE on an integrated platform. Trade through phone, or in person at branch or through the dedicated team of Relationship Managers. Access to internationally acclaimed buy/sell recommendations in person, through Phone, SMS, E-Mail, etc. and make the right investment decision. Moving money (pay-outs &

55

pay-ins of funds) easily through a zero balance account with the designated banks even through the web. Moving securities easily through a depository account with First Global. An account executive keeping a track of your portfolio in the market and suggest timely actions to help you make or save money. Integrated online and offline trading-First Global does not segregate Internet Trading clients from its offline trading clients. It is at the absolute discretion of the client whether he wants to deal online or offline. Too long, you have tried to navigate the stock market on your own. Too many times, you have felt over whelmed by the difficulty of making money consistently. Too many times, your broker has let you down, giving inaccurate, poorly researched and downright disastrous advice.

DEMAT ACCOUNT
Indian Stock markets have come a long way in the last 10 years. The share certificates have been replaced with paperless- dematerialized shares. The Depository system in India has linked the issuers, the transfers agents, the brokers, the stock exchanges and the clearing-houses through one system Depositories 9NSDL 7 CDSL) and their participants. The depositories facilitated the holding of securities in the dematerialized form and securities transactions are processed by means of account transfers through the demit slips just like the money is transferred with cherub. We are in the process of getting membership of CDSL and NSDL. Once we are registered we shall be providing the following facilities. The first Depository account for every customer will be opened free of cost along with the Securities trading account and we will be charging a concessional rate for the annual charges. For any additional depository account, the regular charges would be applicable. The securities trading & depository account opening form may be downloaded from our site and can be submitted at any of our branches or alternatively

56

you can contact us and our account opening executives will get in touch with you.In case of Online Trading, the depository account is integrated with the Online trading accountant you can operate your depository account online through First Global online trading module. For such account First Global will charge only concessional depository charges. In case of Offline trading, the depository account is opened along with securities trading account and provides the convenience to the investor to trade with First Global and also hold their security in an account managed by First Global. For such account First Global charges very nominal fees. First Global also offers stand alone depository account which offers

professional depository participant services to investors from all its offices at very competitive price.Services offered to Depository account holders. Online transaction facility for both NSDL AND CDSL through Internet. Access to client information on Web. Online facility for depository accounts through the branch network. Periodic depository statement for clients for information on their account status.

ABOUT COMPANY
It is MNC company in research department it takes place at 4th rank. In this branch there are five employess. Both they work hard and they co-operate each other.

MISSION AND VALUES

To be the premier business development and resource partner to leading wealth management firms. We foster business growth and client satisfaction by providing customized solutions, exceptional support and award-winning service excellence.

FIRST GLOBAL VALUES

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INTEGRITY:
We understand that integrity is fundamental to our organization. Our business and reputation are built on acting in the best interests of the company, our employees, our advisors and their clients.

OWNERSHIP:
We understand that to best serve our advisors and their clients, we must be reliable, be dependable and take ownership of our role in creating a mutually successful partnership.

EDUCATION:
We are the recognized knowledge leader for wealth management firms. We are committed to providing a learning environment for our advisors and our employees.

TEAMWORK:
We understand that cooperation applies to all levels of our company and across all departments. We value those who listen, show interest and seek mutual collaboration. Our shared goal is to find the best way to assist, guide and support our advisors and their clients.

RESOURCEFULNESS:

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We collectively use our expertise, experience, judgment, creativity and ingenuity to solve problems and meet challenges in order to help wealth management firms grow while serving their clients.

VERSATILITY:
We understand that we must be able and willing to adjust to any situation in support of our advisors' needs, both as a firm and as individuals.

RELATIONSHIPS:
Building strong relationships is important to us. We value teamwork and enjoy partnering with people who are passionate and enthusiastic about their work.

INITIATIVE:
We cultivate those who have the courage to create, make decisions and act on their informed intuition to adapt their business practices without fear of failure. We value ingenuity and inspired thinking Marketing is the first step in building a successful financial services practice. Through effective marketing you create awareness among your clients of the myriad of wealth management services that you offer. 1st Global offers a comprehensive marketing calendar as well as a variety of marketing materials available to use with your clients to help grow your business.

DIRECT MAIL & NEWSLETTERS

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1st Globals mailing programs are designed to help you generate a continuous schedule of financial services appointments with your clients. The program combines direct mail pieces with supplemental marketing materials to help raise client awareness of your total wealth management service offerings and invite them to your office for one-on-one meetings

MARKETING FIELD GUIDE

1st Global's Marketing Field Guide provides advisors with a comprehensive marketing plan. The field guide incorporates a variety of mailing materials, client seminars, focused target follow up lists and effective scripts for use by the advisor and staff. It is designed to promote an advisor's unique ability to provide comprehensive holistic wealth management services. Detailed plans are provided for each month including timelines for setup, deployment, follow-up, and how to calculate the effectiveness of each plan's marketing component.

FINANCIAL SOLUTIONS
At 1st Global, the cornerstone of our corporate philosophy is the belief in comprehensive wealth management, a holistic approach to financial services. Following this model, you do more for your clients by understanding how all the pieces of their financial puzzle fit and work together. This philosophy is symbolized by the Method 10, which describes the ten key areas of wealth management that encompass comprehensive financial services. To find out more on Method 10 or on the image to the left. As an independent advisor partnering with 1st Global, you have the freedom to choose the right solutions for your clients without pressure to promote or push proprietary products. 1st Global provides access to a

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large number of investment companies. With this flexibility, you are able to offer your clients a full range of financial services, including

SECURITIES BROKERAGE SERVICES

1st Global Capital Corp. offers wide-ranging access to information, a diverse portfolio of financial products, premium services and advanced technology that enables advisors to meet each unique client need. Securities brokerage services include:

Comprehensive access to financial products: stocks, bonds, CDs, mutual funds and variable annuities

Consolidated client statements and year-end tax reports that are simple and easy to understand

Brokerage account VIP privileges, including unlimited check writing, VISA platinum debit/ATM cards, and automatic investment features

Online access for clients to view their brokerage accounts World-class compliance support Dedication to excellence in customer service

INSURANCE SERVICES
As an integral and often overlooked part of a comprehensive financial plan, insurance solutions address many individual and business needs such as:

Asset protection Business succession Estate planning

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Non-qualified retirement strategies Disability Long-term care

1st Global Insurance Services offers access to over 80 different insurance companies so you can select from a variety of solutions for your clients various and specific needs

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ICICI BANK ANALYSIS

The analysis is carried out from 27-12-2008to 31-01-2009 i.e. around 5 weeks.

OVERVIEW:
ICICI Bank is India's second-largest bank with total assets of Rs. 3,446.58 billion (US$ 79 billion) at March 31, 2007 and profit after tax of Rs. 31.10 billion for fiscal 2007. ICICI Bank is the most valuable bank in India in terms of market capitalization and is ranked third amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalisation*. The Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established a branch in Belgium. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

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HISTORY:
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing mediumterm and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE.

BOARD MEMBERS
1. 2. 3. 4. 5. 6. Mr. N. Vaghul, Chairman Mr. Sridar Iyengar Mr. Lakshmi N. Mittal Mr. Narendra Murkumbi Mr. Anupam Puri Mr. Arun Ramanathan

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7. Mr. M.K. Sharma 8. Mr. P.M. Sinha 9. Prof. Marti G. Subrahmanyam 10. Mr. T.S. Vijayan 11. Mr. V. Prem Watsa 12. Mr. K.V. Kamath, Managing Director & CEO 13. Ms. Chanda Kochhar, Joint Managing Director & Chief Financial Officer

INVESTOR RELATIONS:
ICICI Bank disseminates information on its operations and initiatives on a regular basis. The ICICI Bank website serves as a key investor awareness facility, allowing stakeholders to access information on ICICI Bank at their convenience. ICICI Bank's dedicated investor relations personnel play a proactive role in disseminating information to both analysts and investors and respond to specific queries.

PRICES OF ICICI BANK IN FUTURE MARKET.

FIRST WEEK.
OPEN 1165 1202 1240 1302.5 1339.05 HIGH 1210.05 1235 1288 1352.05 1322.5 LOW 1163 1200 1237 1301 1248 CLOSE 1205.5 1227 1282 1347 1248

DATE 27-12-2007 28-12-2007 31-12-2007 01-01-2008 02-01-2008

65

10 40 15 30 10 30 15 20 10 20 15 10 10 10 15 00 OE PN HH I G LW O C S L E O

INTERPRETATION OF FIRST WEEK GRAPH:

Open value High value Low value Close value = = = = 1165 1352.05 1163 1248

CALCULATION OF B.E.P. :
B.E.P = = = High Value + Low Value / 2 1352.05+1163/2 1257.52

SECOND WEEK:
DATE 03-01-2008 04-01-2008 07-01-2008 08-01-2008 09-01-2008 OPEN 1238.5 1240 1322.05 1392.5 1388.5 HIGH 1285 1302.2 1394.25 1410 1398 LOW 1233 1238 1322.05 1384.05 1360 CLOSE 1238.5 1287.55 1394.25 1384 1362.7

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15 40 10 40 15 30 10 30 15 20 10 20 15 10 10 10 OE PN HH I G LW O C S L E O

INTERPRETATION OF SECOND WEEK GRAPH:

Open value High value Low value Close value = = = = 1238.5 1410 1233 1362.7

CALCULATION OF B.E.P. :
B.E.P = = = High Value + Low Value / 2 1410 + 1233 / 2 1321.50

THIRD WEEK:
OPEN 1370.65 1412 1448 1442 1468 HIGH 1420 1452 1455 1474 1469 LOW 1370 1396 1429 1435 1459 CLOSE 1407 1435 1439 1741 1460

DATE 10-01-2008 11-01-2008 14-01-2008 15-01-2008 16-01-2008

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10 50 18 40 16 40 14 40 12 40 10 40 18 30 16 30 14 30 12 30 10 30 OE PN HH I G LW O CO E LS

INTERPRETATION OF THIRD WEEK GRAPH:

Open value High value Low value Close value = = = = 1370.65 1474 1370 1460

CALCULATION OF B.E.P. :
B.E.P = = = High Value + Low Value / 2 1474 + 1370/ 2 1422

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FOURTH WEEK:
OPEN 1432 1422.5 1368 1335.01 1347 HIGH 1446 1429 1369 1362 1406 LOW 1430 1389 1341 1322.05 1347 CLOSE 1427 1392.2 1340.7 1360 1387

DATE 17-01-2008 18-01-2008 21-01-2008 22-01-2008 23-01-2008

1460 1440 1420 1400 1380 1360 1340 1320 1300 1280 1260

OPEN

HIGH

LOW

CLOSE

INTERPRETATION OF FOURTH WEEK GRAPH:

Open value High value Low value Close value = = = = 1432 1446 1322.05 1387

CALCULATION OF B.E.P. :
B.E.P = = = DATE High Value + Low Value / 2 1446 + 1322.05/ 2 1384.02

FIFTH WEEK:
OPEN HIGH LOW CLOSE

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24-01-2008 25-01-2008 28-01-2008 29-01-2008 30-01-2008 31-01-2008

1600 1400 1200 1000 800 600 400 200 0

1380 1385 1388 1239.85 1299 1244

1405 1420 1392 1286 1299.90 1224

1372.5 1382.1 1246 1201.10 1191.10 1167

1388 1405 1250 1277.30 1223.85 1187.40

OPEN

HIGH

LOW

CLOSE

INTERPRETATION OF FIFTH WEEK GRAPH:

Open value High value Low value Close value = = = = 1380 1420 1167 1187.40

CALCULATION OF B.E.P. :
B.E.P = = = High Value + Low Value / 2 1420 + 1167/ 2 1293.5

RELIANCE COMMUNICATION
OVERVIEW:
The Late Dhirubhai Ambani dreamt of a digital India an India where the common man would have access to affordable means of information and communication. Dhirubhai, who

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single-handedly built Indias largest private sector company virtually from scratch, had stated as early as 1999: Make the tools of information and communication available to people at an affordable cost. They will overcome the handicaps of illiteracy and lack of mobility. It was with this belief in mind that Reliance Communications (formerly Reliance Info comm) started laying 60,000 route kilometers of a pan-India fiber optic backbone. This backbone was commissioned on 28 December 2002, the auspicious occasion of Dhirubhais 70th birthday, though sadly after his unexpected demise on 6 July 2002. Reliance Communications has a reliable, high-capacity, integrated (both wireless and wire line) and convergent (voice, data and video) digital network. It is capable of delivering a range of services spanning the entire info comm (information and communication) value chain, including infrastructure and services for enterprises as well as individuals, applications, and consulting. Today, Reliance Communications is revolutionizing the way India communicates and networks, truly bringing about a new way of life.

BOARD OF DIRECTORS:
Shri Anil D. Ambani - Chairman Prof. J Ramachandran Shri S.P. Talwar 71

 Shri Deepak Shourie Shri A.K.Purwar

BUSINESS:
Reliance Communications is the flagship company of the Anil Dhirubhai Ambani Group (ADAG) of companies. Listed on the National Stock Exchange and the Bombay Stock Exchange, it is Indias leading integrated telecommunication company with over 40 million customers. Our business encompasses a complete range of telecom services covering mobile and fixed line telephony. It includes broadband, national and international long distance services and data services along with an exhaustive range of value-added services and applications. Our constant endeavour is to achieve customer delight by enhancing the productivity of the enterprises and individuals we serve. Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002, coinciding with the joyous occasion of the late Dhirubhai Ambanis 70th birthday, was among the initial initiatives of Reliance Communications. It marked the auspicious beginning of Dhirubhais dream of ushering in a digital revolution in India. Today, we can proudly claim that we were instrumental in harnessing the true power of information and communication, by bestowing it in the hands of the common man at affordable rates. We Endeavour to further extend our efforts beyond the traditional value chain by developing and deploying complete telecom solutions for the entire spectrum of Society.

VISION:

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We will leverage our strengths to execute complex global-scale projects to facilitate leading-edge information and communication services affordable to all individual consumers and businesses in India. We will offer unparalleled value to create customer delight and enhance business productivity. We will also generate value for our capabilities beyond Indian borders and enable millions of India's knowledge workers to deliver their services globally.

ANALYSIS PRICES OF RELIANCE COMMUNICATION IN FUTURE MARKET.

FIRST WEEK:
OPEN 792 782.1 HIGH 796.1 799 LOW 775.3 791.1 CLOSE 778.5 795

DATE 27-12-2007 28-12-2007

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31-12-2007 01-01-2008 02-01-2008

782.1 770 778.06

784 790.2 781.45

771 781.25 753

775.6 783 760

810 800 790 780 770 760 750 740 730 OE PN H H IG LO W C SE LO

INTERPRETATION OF FIRST WEEK GRAPH:

Open value High value Low value Close value = = = = 792 799 753 760

CALCULATION OF BREAK EVEN POINT(BEP):

BEP = = = High Value + Low Value/2 799 + 753 / 2 776

SECOND WEEK:
OPEN 765 HIGH 772.6 LOW 740.7 CLOSE 749.5

DATE 03-01-2008

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04-01-2008 07-01-2008 08-01-2008 09-01-2008

80 6 80 4 80 2 80 0 70 8 70 6 70 4 70 2 70 0 60 8

742 795 818 820

776.4 810 823 849

742 790 809 826

768.45 810 812 835

OE PN

H H I G

L W O

CO E L S

INTERPRETATION OF SECOND WEEK GRAPH:

Open value High value Low value Close value = = = = 765 849 740.7 835

CALCULATION OF BREAK EVEN POINT(BEP):

BEP = = = High Value + Low Value/2 849 + 740.7 / 2 794.85

THIRD WEEK:
OPEN 842 824 801 793 821 HIGH 836 824 804 799 826 LOW 828 817 791.6 787 811 CLOSE 831 822 792 788 817

DATE 10-01-2008 11-01-2008 14-01-2008 15-01-2008 16-01-2008

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850 840 830 820 810 800 790 780 770 760 750 OE PN H H IG LO W C SE LO

INTERPRETATION OF THIRD WEEK GRAPH:

Open value High value Low value Close value = = = = 842 836 787 817

CALCULATION OF BREAK EVEN POINT (BEP):

BEP = = = High Value + Low Value/2 836 + 787 / 2 811.5

FOURTH WEEK:
OPEN 799 792 772 741 729 HIGH 809 799.6 769 738 739 LOW 802 782 738 722 726 CLOSE 805 788 744 729 732

DATE 17-01-2008 18-01-2008 21-01-2008 22-01-2008 23-01-2008

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820 800 780 760 740 720 700 680 660 OP N E H IGH LOW C LOSE

Interpretation of fourth week graph:

Open value High value Low value Close value = = = = 799 809 722 732

Calculation of Break Even Point(BEP):

BEP = = = High Value + Low Value/2 809 + 722 / 2 765.5

FIFTH WEEK:
OPEN 730 740 732 650 650 644.80 HIGH 739 749 738 659 659.70 645 LOW 731 721 643 612.9 636.50 607.10 CLOSE 735 726 645 645.40 642.8 611.90

DATE 24-01-2008 25-01-2008 28-01-2008 29-01-2008 30-01-2008 31-01-2008

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800 700 600 500 400 300 200 100 0 O PEN HIG H LOW CL O S E

INTERPRETATION OF FIFTH WEEK GRAPH:

Open value High value Low value Close value = = = = 730 749 607.10 611.90

CALCULATION OF BREAK EVEN POINT(BEP):

BEP = = = High Value + Low Value/2 749 + 607.10 / 2 678.05

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NAM OF THE COMPANY: ICICI BANK

LOT SIZE: 175
DATE 27-12-2007 28-12-2007 31-12-2007 01-01-2008 02-01-2008 03-01-2008 04-01-2008 07-01-2008 08-01-2008 09-01-2008 10-01-2008 11-01-2008 14-01-2008 15-01-2008 16-01-2008 17-01-2008 OPEN 1165 1202 1240 1302.5 1339.05 1238.5 1240 1322.05 1392.5 1388.5 1370.65 1412 1448 1442 1468 1432 HIGH 1210.05 1235 1288 1352.05 1322.5 1285 1302.2 1394.25 1410 1398 1420 1452 1455 1474 1469 1446 LOW 1163 1200 1237 1301 1248 1233 1238 1322.05 1384.05 1360 1370 1396 1429 1435 1459 1430 CLOSE 12.05.5 1227 1282 1347 1248 1238.5 1287.55 1394.25 1384 1362.7 1407 1435 1439 1741 1460 1427

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18-01-2008 21-01-2008 22-01-2008 23-01-2008 24-01-2008 25-01-2008 28-01-2008 29-01-2008 30-01-2008 31-01-2008

1422.5 1368 1335.01 1347 1380 1385 1388 1239.85 1299 1244

1429 1369 1362 1406 1405 1420 1392 1286 1299.90 1224

1389 1341 1322.05 1347 1372.5 1382.1 1246 1201.10 1191.10 1167

1392.2 134.7 1360 1387 1388 1405 1250 1277.30 1223.85 1187.40

1600 1400 1200 1000 800 600 400 200 0 O PEN HIG H LO W CLO SE
BEP

INTERPRETATION OF JANUARY MONTH FUTURE MARKET OF ICICI BANK:

OPEN VALUE HIGH VALUE LOW VALUE = = = 1165 1474 1163

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CLOSE VALUE

1187.40

CALCULATION OF BREAK EVEN POINT (B.E.P):B.E.P. = = = HIGH VALUE + LOW VALUE/ 2 1474 + 1163 / 2 1318.5

NAME OF THE COMPANY: RELIANCE COMMUNICATIONS LOT SIZE:350

DATE 27-12-2007 28-12-2007 31-12-2007 01-01-2008 02-01-2008 03-01-2008 04-01-2008 07-01-2008 08-01-2008 09-01-2008 10-01-2008 11-01-2008 14-01-2008 15-01-2008 16-01-2008 17-01-2008 18-01-2008 21-01-2008 22-01-2008 23-01-2008 24-01-2008 25-01-2008 28-01-2008 29-01-2008 30-01-2008 31-01-2008 OPEN 792 782.1 782.1 770 778.06 765 742 795 818 820 842 824 801 793 821 799 792 772 741 729 730 740 732 650 650 644.80 HIGH 796.1 799 784 790.2 781.45 772.6 776.4 810 823 849 836 824 804 799 826 809 799.6 769 738 739 739 749 738 659 659.70 645 81 LOW 775.3 791.1 771 781.25 753 740.7 742 790 809 826 828 817 791.6 787 811 802 782 738 722 726 731 721 643 612.9 636.50 607 CLOSE 778.5 795 775.6 783 760 749.5 768.45 810 812 835 831 822 792 788 817 805 788 744 729 732 735 726 645 645.40 642.8 611.90

900 800 700 600 500 400 300 200 100 0 OPEN H IG H LO W CLO S E
BEP

INTERPRETATION OF JANUARY MONTH FUTURE MARKET OF RELIANCE COMMUNICATION :OPEN VALUE HIGH VALUE LOW VALUE CLOSE VALUE = = = = 792 849 607 611.90

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CALCULATION OF BREAK EVEN POINT (B.E.P):B.E.P. = = = HIGH VALUE + LOW VALUE/ 2 849 + 607 / 2 728

SUMMARY
Derivatives are mostly used for hedging purpose Derivatives market is an innovation to cash market. Approximately the average daily turnover of the NSE derivative segments reaches to the equal stage of cash market. In cash market the profit/loss of the investor depend the market price of the underlying asset. The investor may incur huge profits or he may incur huge loss. But in derivatives segment the investor the investor enjoys huge profits with limited downside. In cash market the investor has to pay the total money, but in derivatives the investor has to pay premiums or margins, which are some percentage of total money. In derivative segment the profit/loss of the option writer is purely depend on the fluctuations of the underlying asset.

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SUGGESTIONS
The derivative market is newly started in India and it is not known by every investor, so SEBI has to take steps to create awareness among the investors about the derivative segment In order to increase the derivatives market in India, SEBI should revise some of their regulations like contract size, participation of FII in the derivatives market. Contract size should be minimized because small investors cannot afford this much of huge premiums. SEBI has to take further steps in the risk management mechanism. SEBI has to take measures to use effectively the derivatives segment as a tool of hedging.

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CONCLUSION

Derivatives markets are used for hedging purpose. In bullish market the call option writer incurs more losses so the investor is suggested to go for a call option to hold, where as the put option holder suffers in a bullish market, so he is suggested to write a put option.

In bearish market the call option holder will incur more losses so the investor is suggested to go for a call option to write, where as the put option writer will get more losses, so he is suggested to hold a put option.

When the investor thinks that the market will be in bullish they should buy call option. When the investor thinks that the market will be in bearish they should buy put option.

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BIBLIOGRAPHY

BOOKS:
Financial Markets and Services Gordon and Natrajan Derivatives Core Module Workbook NCFM material Indian Financial System M.Y.Khan .

WEBSITES:
www.nseindia.com www.bseindia.com www.investopedia.com www.derivativeindia.com

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