Project Report of Debasish

GYAN JYOTI COLLEGE
NORTH BENGAL UNIVERSITY
A STUDY
ON
VARIOUS RISKS HEDGING (Derivatives)
IN STOCK MARKET
Submitted By
DEBASISH GUPTA
IN PARTIAL FULFILLMENT FOR THE AWARD OF THE
DEGREE
OF
BACHELOUR OF BUSINESS ADMINISTRATION (BBA)
GYAN JYOTI COLLEGE

GYAN JYOTI COLLEGE
A STUDY
ON
VARIOUS RISKS HEDGING TECHNIQUES (Derivatives)
IN
STOCK MARKET
DEBASISH GUPTA
REG.NO:-790045
ROLL.NO:-79/BBA/080226
I N P A R T I A L F U LF I L L M E N T F O R T H E A W A R D O F
THE
DEGREE
OF
BACHELOUR OF BUSINESS ADMINISTRATION (BBA)
GYAN JYOTI COLLEGE

MAY 2011
GYAN JYOTI COLLEGE
EXAMINNER’S CERTIFICATE
Certified that project report “A STUDY ON VARIOUS RISKS

HEDGING TECHNIQUES (Derivatives) IN STOCK MARKET” is
the bonafide work of “Mr Debasish Gupta” who carried the project
under my guidance. This project is approved and is acceptable
quality and form.
Internal Examiner External Examiner

To whom so ever it may concern
This is to certify that the project report entitled “ A STUDY ON VARIOUS RISKS
HEDGING TECHNIQUES (Derivatives) IN STOCK MARKET ” Submitted in partial
fulfillment of the requirements for the degree of Bachelor of Business Administration in
Gyan Jyoti College under North Bengal Univercity.
Debasish Gupta Reg.No.790045 & Roll. NO. 79/BBA/080226 has worked under my
supervision and guidance and that no part of this report has been submitted for the award
of any other degree, Diploma, Fellowship or other similar titles or prizes and that the
work has not been published in any journal or Magazine.
Certified
name
(Bachelor of Business Administration)

ACKNOWLEDGEMENT
Of many people who have enormously helpful in conducting this
project I am especially grateful to The Branch manager Mrs. Tanima
Ghosh of his continued support, encouragement and friendly
behaviour. I would like to thank particularly Mrs. Moon Moon Singh
(Sen), Regional Co-Ordinator, INDIA BULLS FINANCE LTD. For
devoting his/her valuable time and briefing me on various aspect of
the study on various risks hedging techniques (derivatives).
I would like to Acknowledgement my Teacher Mrs. Monalisa, BBA
Faculty of Gyan Jyoti College for her best guidance during the
course of my study.
I am also thankful to all the staffs of INDIA BULLS FINANCE LTD.
In Siliguri Branch and all the staffs of those particular where
I am conducting the study for their aduring the course of my project.
(DEBASISH GUPTA)
(Reg. No.
:- 790045)
(Roll. No. :-
79/BBA/080226)
GYAN JYOTI COLLEGE
NORTH BENGAL UNIVERCITY
STUDENT DECLARATION
I here by declare that I am Debasish Gupta a student of GYAN

JYOTI COLLEGE under NORTH BENGAL UNIVERCITY, going to
under take the project title “A STUDY ON VARIOUS RISKS
HEDGING TECHNIQUES (Derivatives) IN STOCK MARKET”.
Submitted in partial fulfillment of the requirements for the degree
of BACHELOR OF BUSINESS ADMINISTRATION to NORTH
BENGAL UNIVERSITY, INDIA, is my original work and would not
be submitted for the award of any other degree, diploma, fellowship,
or any other similar title or prizes.
PLACE: Siliguri Debasish Gupta
Date: (Reg. No. : - 790045)
(Roll. No. : - 79/BBA/080226)

GYAN JYOTI COLLEGE
NORTH BENGAL UNIVERCITY
UNIVERSITY STUDY CENTRE CERTIFICATE
This is to certify that the project entitled “A STUDY ON VARIOUS

RISKS HEDGING TECHNIQUES (DERIVATIVES) IN STOCK
MARKET” submitted in partial fulfillment of the requirements for
the Degree of Bachelor of Business Administration of Gyan Jyoti
College under North Bengal University.
DEBASISH GUPTA has worked under my supervision and guidance

and that no part of this report has been submitted for the award of
any other degree, diploma, fellowship or other similar titles or
prizes and that the work has not been published in any journal or
magazine.
Certified
T A B L E O F CO N T E N T
Subjects Page
CHAPTER – 1 Introduction………………………………………………….1 -60

1.1 Back ground of the study
1.2 Introduction of derivatives
1.3 Objective of study
1.4 Overview of Company
CHAPTER – 2 Methodology……………………………………………….61 - 65
2.1 Literature Review
2. 2 Type of Research
2. 3 Sampling Techniques
2. 4 Sample Description
2. 5 Instrumentation Techniques
2.6 Actual Collection Data
2.7 Tools used for Testing of Hypothesis
2. 8 Sample procedure
2. 9 Data Collection
2. 10 Focus Group Interview
2. 11 Other Software Used for Data Collection
CHAPTER – 3 Analysis and interpretation……………………………66 - 117

3.1 Research Design
3.2 P r e s e n t a t i o n a n d Analysis o f t h e D a t a
CHAPTER – 4 Finding & Suggestion………………………………… 118-123
CHAPTER – 5 Annexure
Bibliography
Table - 1 Monthly income of the Respondents……………………70
Table – 2 Education Qualifications of Respondents………………72
Table – 3 Professions of Respondents………………………………..74
Table – 4 Savings Patterns of the Respondents…………………….76
Table – 5 Savings Patterns of the Respondents…………………….78
Table – 6 Respondents Means of Investment……………………….80
Table – 7 Objective of Respondents regarding investment………82
Table –8 Awareness of risk in stock market………………………..84
Table – 9 Awareness of risk hedging tools available in stock
Market………………………………………………………….86
Table –10 Respondents awareness that broker is using risk
hedging technique…………………………………………..88
Table –11Types of risk hedging technique used by investor……90
Table –12 Source of awareness mechanism regarding risk
Hedging…………………………………………………………92
Table –13 Enjoying the benefits by using risk hedging
Technique……………………………………………………..94
Table –14 Showing Respondents are getting benefit by risk
hedging techniques………………………………………....96
Table –15 Major problems encountered by investor in using
risk hedging tools………………………………………….. 98
Table –16 Satisfaction level of investor using derivative
risk hedging tools……………………………………….. 100
Table –17 Showing Respondents about Derivatives……………..102
Table –18 Use of derivative in stock market by broker………..104
Table –19 Types of derivative technique used by broker………106
Table –20 Brokers recommended for derivatives……………… 108
Table –21 Main Objective for Derivatives………………………. 110
Table –22 Showing Respondent’s awareness of Derivatives
Techniques……………………………………………….. 112
Table –23 Effectiveness of using derivatives……………………. 114
Chart - 1 Monthly income of the Respondents……………………………71
Chart – 2 Education Qualifications of Respondents…………………….73
Chart – 3 Professions Of Respondents……………………………………..75
Chart – 4 Savings Patterns Of the Respondents………………………….77
Chart – 5 Savings Patterns Of the Respondents………………………….79
Chart – 6 Respondents Means of Investment……………………………..81
Chart – 7 Objective of Respondents regarding investment……………83
Chart – 8 Awareness of risk in stock market……………………………..85
Chart – 9 A w a r e n e s s o f r i s k h e d g i n g t o o l s a v a i l a b l e i n s t o c k
Market……………………………………………………………87
Chart – 1 0 R e s p o n d e n t s a w a r e n e s s t h a t b r o k e r i s u s i n g r i s k
hedging technique…………………………………………….89
Chart – 1 1 T y p e s o f r i s k h e d g i n g t e c h n i q u e u s e d b y i n v e s t o r … … . . 9 1
Chart – 1 2 S o u r c e o f a w a r e n e s s r e g a r d i n g r i s k h e d g i n g
Mechanism ……………………………............................93
Chart – 1 3 E n j o y i n g t h e b e n e f i t s b y u s i n g r i s k h e d g i n g
Technique……………………………………………………….95
Chart – 1 4 S h o w i n g R e s p o n d e n t s a r e g e t t i n g b e n e f i t b y r i s k
hedging techniques……………………………………………97
Chart – 1 5 M a j o r p r o b l e m s e n c o u n t e r e d b y i n v e s t o r i n u s i n g
risk hedging tools…………………………………………….99
Chart – 1 6 S a t i s f a c t i o n l e v e l o f i n v e s t o r u s i n g d e r i v a t i v e … … … 1 0 1
Table –17Showing Respondents about Derivatives ……………..103
Chart – 1 8 U s e o f d e r i v a t i v e i n s t o c k m a r k e t b y b r o k e r … … … … 1 0 5
Chart – 1 9 T y p e s o f d e r i v a t i v e t e c h n i q u e u s e d b y b r o k e r . . … … . . . 1 0 7
Chart – 2 0 B r o k e r r e c o m m e n d e d f o r d e r i v a t i v e s … … … … … … … . . 1 0 9
Chart – 2 1 M a i n O b j e c t i v e f o r D e r i v a t i v e s … … … … … … … … … … . 1 1 1
Chart – 2 2 S h o w i n g R e s p o n d e n t ’ s a w a r e n e s s o f D e r i v a t i v e s
Techniques…………………………………………………....113
Chart – 2 3 E f f e c t i v e n e s s o f u s i n g d e r i v a t i v e s … … … … … … … … … 1 1 5
EXCUTIVE SUMMERY
I) Introduction
India Bulls Agency – the most admired broker agency, offers a wide range of investing
product. Its specialized subsidiaries and affiliates in the area of investing, Consultants
Stock Broking, Investors Services, Computershare, Global Services
Comtrade, Insurance Broking.
This management Research Project undertook at India Bulls Agency in Siliguri focuses
in the area of various risk hedging techniques in stock market.
The project requires understanding the different risk hedging techniques existing in the
stock market, make the proper study off ; i.e. understanding the key features, the benefits
that will offer to the investors and return that the investors can duly expect.
The researcher study has been divided in different phases or steps for a fast effective and
efficient outcome.
The main parts of the projects are divided in the category, primarily as Introduction, that
includes topics like --- Background of the study, Statement of the problem, Need and
importance of the study, and also Objective of the researcher.
II) Objective:
Through this survey researcher wants to the know the awareness of people about various
risks hedging technique (Derivatives) in stock market and identify the probable reason
why this derivatives are being used in stock market.
Here researcher will keep his eyes on the following mentioned objectives in his study.
• To identify the method of trading in stock market.

• To measure the effectiveness of stock market.
• To identify the drawback of hedging techniques.
• To measure the effectiveness of derivatives.
• To know different kinds of financial derivatives.
• To know different types are associated with investment in stock market.
• To measures the awareness regard different kinds of financial
III) Methodology
Secondary, Review of The Literature which give a whole conceptual idea of the
researcher by subdividing the topics further as ---it’s purpose, Methodology; It’s benefits,
and also conclusion from it.
Methodology that gives a ringside views as what as what are the tools and techniques
used, which includes topics like--- Types of researcher, sampling Techniques, sampling
description, instrument ion Techniques, Actual collection of data, different types of
advance tools and software’s were used for the analytical study.
Fourth one includes topics like Profiles covering the details profile of the Industry,
company, and the respondent’s profile in details.
Fifth one’s includes the whole presentation and analysis of the data interpretation of the
research study covering the sub topics as Hypothesis, Table for presentation of the data,
Explanation of the complex Table for the research and Conclusion from the whole
analytical study has been squeeze out for an effective and efficient solution of the
problems.
IV) Analysis
For the marketing research we have to few statistical tools and software’s were used to
evaluate the market status of different risk hedging techniques in a stock market. After
collection of all the relevant data’s, collected from different source’s, a details analytical
study has been done. With the help of different types of tools to get the proper
wholesome view of the problem. And on the basis of analytical study, some solution and
suggestion has been drawn to overcome the detected problems. The project includes
marketing of retail products and financial services.
In the last phase of the project we were also involve in market research activities. Where
we have to collect the information in the form of database for all the institutional investor
societies, trusts and associations and also from individuals.
There are various risk hedging that are using in stock market.
• Forwards
• Futures
• Options
• Warrants
• LEAPS
• Baskets
• Swaps
• Swaptions
V) C o n c l u s i o n
Derivatives is a very useful risk hedging techniques but hedging
does not always make money. The best that can be achieved using
hedging is the removal of unwanted exposure, i.e. unnecessary risk.
The hedged position will make less profit than the unhedged
position, half the time. One should not enter into a hedging strategy
hoping to make excess profits for sure; all that can come out of
hedging is reduced risk.
VI) Recommendation
In derivatives market there should be proper legislations for the

effective implementation of derivative contracts. The utility of
derivatives through hedging can be derived, only when, there is
transparency with honest dealings. The players in the derivative
market should have a sound financial base for dealings derivative
transactions. What is more important for the success of derivatives
is the prescription of proper capital adequacy norms, training of
financial intermediaries and the provision of well- established
indices. Brokers must also be trained in the intricacies of the
derivative transactions.
Now, derivatives have been introduced in the Indian Market in the

form of index options and index futures. Index options and index
futures are basically derivate tools based on a stock index. They are
really the risk management tools. Since derivatives are permitted
legally, one can use them to insulate his equity portfolio against the
vagaries of the market.
Every investor in the financial area is affected by index
fluctuations. Hence, risk management using index derivatives is of
far more importance than risk management using individual security
options. Moreover, portfolio risk is dominated by the market risk,
regardless of the composition of the portfolio. Hence, investors
would be more interested in using index-based derivative products
rather than security – based derivative products.
There are no derivatives based on interest rates In India
today. However, Indian users of hedging services are allowed to buy
derivatives involving other currencies on foreign markets. India has
a strong dollar rupee forward market with contracts being traded for
one to six months expiration. Daily trading volume on this forward
market is around $500 million a day. Hence, a derivative available
in India in foreign exchange area is also highly beneficial to the
user.
• Awareness regarding various risk hedging techniques in the
investor should be improved for that purpose concern organization
can take help from advertise and print media.
• To increase the awareness in investor for long term investment
the concerned organization should think to improve.
• Prices in an organized derivatives market reflect the perception
of market participants about the future and lead the prices of
underlying to the perceived future level. The prices of derivatives
converge with the prices of the underlying at the expiration of the
derivative contract. Thus, derivatives help in discovery of future
as well as current prices.
• The derivatives market helps to transfer risks from those who
have them but may not like them to those who have an appetite for
them.
• Derivatives due to their inherent nature are linked to the
underlying cash markets. With the introduction of derivatives the
underlying market witnesses higher trading volumes because of
participation by more players who would not otherwise participant
for lack of an arrangement to transfer risk.
• Speculative trades shift to a more controlled environment of
derivatives market. In the absence of an organized derivatives
market speculators trade in the underlying cash markets.
Margining, monitoring and surveillance of the activities of various
participants become extremely difficult in these kinds of mixed
markets.
• An important incidental benefit that flows from derivatives
trading is that it acts as a catalyst for new entrepreneurial activity.
The derivatives have a history of attracting many bright creative
well-educated people with an entrepreneurial attitude. They often
energies others to create new, businesses new products and new
employment opportunities, the benefits of which are immense.
• Derivatives markets help increase savings and investment in the
long run. Transfer of risk enables market participants to expand
their volume of activity.
• Hedgers face risk associated with the price of an asset. They use
futures or options markets to reduce or eliminate this risk.
• 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 are in business to take advantage of a discrepancy of
a between prices in two different markets.
• India Bulls as a firm should try to put more emphasis on the customer satisfaction to
the direction of achieving this end the branch should guide the investor and help them
make their investment decisions. This will make the investors a bit more confident
about their actions.
• The company should make some efforts to indicate the habit of online trading among
the local masses, for this the company should adopt a proper and well targeted
marketing.
• In order to increase its efficiency in operation, the firm should bring about few
organizations changes, it should be aware of the customers needs; it should bring up
more advertising techniques like campaign.
Chapter – 1
INTRODUCTION
Background of the study
At present, a wide variety of investment avenues are open to the investors to suit their
needs and nature. Knowledge about the different avenues enables the investor to choose
investment intelligently. The required levels decide the choice of the investor. Any
rational investor, before investing his or her investing his or her investible wealth in the
stock market, analyses the risk associated with the particular stock. The actual return he
receives from a stock may vary from his expected return and the risk is expected return
and the risk is expressed in terms of variability of return. The down side risk may be
caused by several factors, either common to all stocks or specific to a particular stock.
Investor in general would like to analyse the risk factor.
In the present state of the economy, there is an imperative need for the corporate clients
to protect their operating profits by shifting some of the uncontrollable financial risks to
those who are able to bear and manage them. Thus, risk management becomes a must for
survival since there is a high volatility in the present financial markets.
In the 1920s, the American stock market was booming. People got loans to buy stock,
promising their loan brokers that the stock will go up and pay the loans off. But, some
stocks didn't go up, leaving the shocked share holders in further debt. Some owners of
stock were also the owners of their own business, and had to fire their workers to pay off
the debt. This left the former workers unemployed and in poverty, unable to buy anything
from stores. Now the stores couldn't make any money, and this set off a chain reaction
across the nation which caused the Great Depression. This spread poverty,
unemployment and misery across the nation and the world, for that was a time where
many countries needed America's financial help to recover from the devastations of
World War I. After a few years, President Franklin Roosevelt made up a plan to get
America back on it's feet. The Great Depression lasted from 1929 to 1932.
Meanwhile, marketers are experimenting with methods and strategies to boost the trading
of stocks. It has been found that India is a big market; a growing market with various
investments needs to suit an individual. Being a rapidly developing nation in all
dimensions, there is certainly no lack of demand for customized services to satisfy
individual investor with a full suite of financial services. The stock market continues to
be an excellent source of revenue for companies participating in the market, and in many
cases, the public as well.
In view of the above, it is considered necessary to study the market of a company which
is proving itself as a no. 1 Broker house in the market to keep the position static and so
devising competitive strategies to acquire new and permanent investors on the basis
of the latent needs of the investors. Hence, it would unfold the growing market and
analyze the gap existing between the services offered and the latent needs of the
customer.
In this context, derivatives occupy an important place as a risk reducing

machinery. Derivatives are useful to reduce many of the risks discussed above. In fact,
the financial service companies can play a very dynamic role in dealing with such risks.
They can ensure that the above risks are hedged by using derivatives like forwards,
futures, options, swap, leaps etc. derivatives, thus, enable the clients to transfer their
financial risks to the financial service companies. This really protects the clients from
unforeseen risks and helps them to get their due operating profits or to keep the project
well within the budgeted costs. To hedge the various risks that one faces in the financial
market today, derivatives are absolutely essential.
DERIVATIVES
Derivative is a product whose value is derived from the value of one
or more basic variables, called bases in a contractual manner. The
underlying asset can be equity, forex, commodity or any other asset.
The international Monetary Fund defines derivatives as “financial
instruments that are linked to a specific financial instrument or
indicator or commodity and through which specific financial risks
can be traded in financial markets in their own right. The value of a
financial derivative derives from the price of an underlying item,
such as an asset or index. Unlike debt securities, no principal is
advanced to be repaid and no investment income accrues.”
The emergence of the market for derivative products, most notably
forwards futures and options can be traced back 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 of fully transfer price risks by locking- in asset prices.
As instruments risk management, these generally do not influence
the fluctuations in the underlying asset prices. However, by lock-in
asset prices, derivative products minimize the impact of fluctuations
in asset prices on the profitability and cash flow situation of risk-
averse investor.
Derivative is a product whose value is derived form the value of one
or more basic variables, called bases in a contractual manner. The
underlying asset can be equity, forex, commodity or any other asset.
Derivative products initially emerged as hedging devices against
fluctuations in commodity prices and commodity- linked derivatives
remained the sole form of such products for almost three hundred
years. The financial derivatives came into spotlight in post – 1970
period due to growing instability in the financial markets. However,
since their emergence, these products have become very popular and
by 1990s, they accounted for about two- thirds total transactions in
derivative products. In recent years, the market for financial
derivatives has grown tremendously both in terms of variety of
instruments available, their complexity and also turnover. The
factors generally attributed as the major driving force behind growth
of financial derivatives are
(a) Increased volatility in asset prices in financial markets
(b) Increased integration of national financial markets with the
international markets
(c)Marked improvement in communication facilities and sharp
decline in their costs
(d) Development of more sophisticated risk management tools,
providing economic agents wider choice of risk management
strategies, and
(e) Innovations in the derivatives returns over a large number of
financial assets, leading to higher returns, reduced risk as well as
transaction costs as compared to individual financial assets. In
the class of equity derivatives, futures and options on stock
indices have gained more popularity than on individual stocks,
especially among institutional investors, who are major users of
index-linked derivatives. Even small investors find these useful
due to high correlation of the popular indices with various
portfolios and ease of use. The lower costs associated with index
derivatives vis-à-vis derivative products based on individual
securities is another reason for their growing use.
Types of Derivatives
The most commonly used derivatives contracts are forwards,
futures and options which they will discuss in detail later.
Forwards: A forward contract is a customized contract between
two entities where settlement takes place on a specific date in the
future at today’s pre-agreed price.
Futures: Futures contract is an agreement between two parties to
buy or sell an asset at a certain time in the future at a certain
price. Futures contracts are special types of forward contracts in
the sense that the former are standardized exchange-traded
contracts.
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 given 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 upto one year, the
majority of options traded on options exchanges having 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
upto three years.
Baskets: Basket options are options on portfolios of underlying
assets. The underlying asset is usually a moving average or a
basket of assets. Equity index options are a form of basket
options.
Swaps: Swaps are private agreements between two parities to
exchange cash flows in the future according to prearranged
forms. They can be regarded as portfolios of forward contracts.
The two common used swaps are:
• Interest rate swaps: These entail swapping only the
interest 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 one
direction being in a different currency than those in the
opposite direction.
Swaptions: Swaptions are options to buy or sell a swap that will
become operative at the expiry of the expiry of the options. Thus a
Swaptions is an option on a forward swap. Rather than have calls
and puts the Swaptions market has receiver Swaptions and payer
Swaptions A receiver Swaptions an options to receiver fixed and pay
floating. A payer Swaptions is an option to pay fixed and receives
floating.
Derivatives markets in India
The first step towards introductions of derivatives trading in India
was the promulgation of the Securities Laws (Amendment)
Ordinance 1995 which withdrew the prohibition on options in
securities. The markets for derivatives however did not take off as
there was no regulatory framework to govern trading of derivatives.
SEBI set up a 24- member committee under the Chairmanship of Dr.
L.C. Gupta on November 18 1996 to develop appropriate regulatory
framework for derivatives trading in India. The committee submitted
its report on March 17, 1998 prescribing necessary pre-conditions
for introduction of derivatives trading in India. The committee
recommended that derivatives should be declared as ‘securities’ so
that regulatory framework applicable to trading of ‘securities’ could
also govern trading of securities. SEBI also set up a group in June
1998 under the Chairmanship of Prof. J. R. Varma, to recommend
measures for risk containment in derivatives market in India. The
report which was submitted in October 1998 worked out the
operational details of margining system, methodology for charging
initial margins, broker net worth deposit requirement and real-time
monitoring requirements.
The SCRS was amended in December 1999 to include derivatives

within the ambit of ‘securities’ and the regulatory framework were
developed for governing derivatives trading. The act also made it
clear that derivatives shall be legal and valid only if such contracts
are traded on a recognized stock exchange thus precluding OTC
derivatives. The government also rescinded in March 2000, the
three-decade old notification, which prohibited forward trading in
securities.
Derivatives trading commenced in India in June 2000 after SEBI

granted the final approval to this effect in May 2000. SEBI
permitted the derivatives segments of two stock exchanges. NSE and
BSE and their clearing house/corporation to commence trading and
settlement in approved derivatives contracts. To begin with SEBI
approved trading in index futures contracts based on S&P CNX Nifty
and BSE-30 (Sensex) index. This was followed by approval for
trading in options commenced in June 2001 and the trading in
options on individual securities commenced in July 2001. Futures
contracts on individual stocks were launched in November 2001.
Futures and Options contracts on individual securities are available
on 41 securities stipulated by SEBI. Trading and settlement in
derivative contracts is done accordance with the rules byelaws and
regulations of the respective exchanges and their clearing
house/corporation duly approved by SEBI and notified in the official
gazette.
NSE’S derivatives markets
The derivatives trading on the NSE commenced with S&P CNX Nifty
Index futures on June 12, 2000. The trading 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. Today, both in terms of volume and
turnover, NSE is the largest derivatives exchange in India.
Currently, the derivatives contracts are available for trading, with 1
month, 2 months and 3 months expiry. A new contract is introduced
on the next trading day following the expiry of the near month
contract.
Trading mechanism
The future and options trading system of NSE, called NEAT- F&O
trading system, provides a fully automated screen- based Trading for
Nifty futures & options and stock futures & options on a nationwide
basis and an online monitoring and surveillance mechanism. It
supports an anonymous order driven market which provides complete
transparency of trading operations and operates on strict price- time
priority. It is similar to that of trading of equities in the cash
Market (CM) segment. The NEAT-F&O trading system is accessed
by two types of users. The Trading Members(TM) have access to
functions such as order entry, order matching, and order matching,
order and trade management. It provides tremendous flexibility to
users in terms of kinds orders that can be placed on the system.
Various conditions like Immediate or Cancel, Limit/Market price,
stop loss, etc. can be built into an order. The Clearing Members
(CM) use the trader workstation for the purpose of monitoring the
trading member
(s) for whom they clear the trades. Additionally, they can enter and
set limits to positions, which a trading member can member can
take.
Introduction to futures and option
In recent years. Derivatives have become increasingly important in
the field of finance. While futures and options are now actively
traded on many exchanges, forward contracts are popular on the
OTC market.
Forward contracts
A forward contract is an agreement to buy or sell an asset on a
specified date for a specified price. One of the parties to the
contracts assumes a long position and agrees to buy the underlying
asset on a certain specified future date for a certain specified price.
Th other party assumes a short position and agree to sell the asset
on the same date for same price. Other contract details like delivery
date, price and quantity are negotiated bilaterally by parties to the
contract. The forward contracts are normally traded outside the
exchanges.
However forward contracts in certain markets have become
very standardizes, 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.
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
look on to a rate today and reduce his uncertainty. Similarly an
importer who is required to make a payment in dollars two months
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 market instead
of cash market.
The speculator would 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.
Forward markets world-wide afflicted by several problems:
• Lack of centralization of trading,
• Illiquidity, and
• Counterparty risk
In the first two of these, the basic problem is that of too much
flexibility and generality. The forward market is like a real estate
market in that any two consenting adults can form contracts against
each other. This often makes them design terms of the deal which
are very convenient in that specific situation, but makes the
contracts non-tradable.
Counterparty risk arises from the possibility of default by any

one party to the transaction declares bankruptcy, the other suffers.
Even when forward markets trade standardized contracts, and hence
avoid the problem of illiquidity, sill the counterparty risk remains a
very serious issue.
Introductions to futures
Future markets were designed to solve the problems that exist in
forward markets. A futures contract is an agreement between two
parities to buy or sell an asset at a certain time in the future at a
certain price. But unlike forward contracts, the futures contracts are
standardized and exchange traded. To facilitate liquidity in the
futures contracts, the exchange specifies certain standardized
features of the contracts. It is a standardized contract with standard
underlying instrument, a standard quantity and quality of the
underlying instrument that can be delivered, (or which can be used
for reference purposes in settlement) and a standard timing of such
settlement. A futures contract may be offset prior to maturity by
entering into an equal and opposite transaction. More than 99% of
futures transactions are offset this way.
The first financial futures market
The first exchange that traded financial derivatives was launched in
Chicago in the year 1972. A division of the Chicago Mercantile
Exchange, it was called the International Monetary Market (IMM) ad
trade currency futures. The brain behind this was a man called Leo
Melamed, acknowledged as the “father of financial futures” who was
then the chairman of the Chicago Mercantile Exchange. Before IMM
opened in 1972, the Chicago Mercantile Exchange sold contracts
whose value was counted in millions. By 1990, the underlying value
of all contracts traded at the Chicago Mercantile Exchange totaled
50 trillion dollars.
These currency futures paved the way for the successful marketing
of a dizzying array of similar products at the Chicago Mercantile
Exchange, the Chicago Board of Trade, and the Chicago Board
Options Exchange. By the 1990s, these exchanges were trading
futures and options on everything from Asian and American stock
indexes to interest rate swaps, and their success transformed
Chicago almost overnight into the risk-transfer capital of the World.
The standardized items in a futures contract are
• Quantity of the underlying
• Quality of the underlying
• The date and the month of delivery
• The units of price quotation and minimum price change
• Location of settlement
Introduction to options
In this section, they look at the next derivative product to be traded
on the NSE, namely options. Options are fundamentally different
from forward and futures contracts. An option gives the holder of
the option the right to do something. The holder does not have to
exercise this right. In contrast, in a forward and futures contract,
the two parties have committed themselves to doing something.
Whereas it costs nothing (except margin requirements) to enter into
a futures contract, the purchase of an option requires an up-front
payment.
History of options
Although options have exited for a long time, they were traded OTC,
without much knowledge of valuation. The first trading in options
began in Europe and the US as early as the seventeenth century. It
was only in the early 1900s that a group of firms set up what was
known as the put and call Brokers and Dealers Association with the
aim of providing a mechanism for bringing buyers and sellers
together. If someone wanted to buy an option, he or she would
contract one of member firms. The firm would then attempt to find a
seller or writer of the option either from it’s from its own clients or
those of other member firms. If no seller could be found, the firm
would undertake to write the option itself in return for a price.
This market however suffered from two deficiencies. First, there

was no secondary market and second, there was no mechanism to
guarantee that the option would honor the contract.
In 1973, Black, Merton and Scholes invented the famed Black-Scoles
formula. In April 1973, CBOE was set up specifically for the
purpose of trading options. The market for options developed so
rapidly that by early ’80s, the number of shares underlying the
option contract sold each day exceeded the daily volume of shares
traded on the NYSE. Since then, there has been no looking back.
Index derivatives
Index derivatives are derivatives contracts which derive their value
from an underlying index. The tow most popular Index derivatives
are index futures and index options. Index derivatives have become
very popular worldwide. Index derivatives offer various advantages
and hence have become very popular.
• Institutional and large equity-holder needs portfolio-hedging
facility. Index derivatives are more suited to them and more cost-
effective than derivatives based on individual stocks. Pension
funds in the US are known to use stock index futures for risk
hedging purposes.
• Index derivatives offer ease of use for hedging any portfolio
irrespective of its composition.
• Stock index is difficult to manipulate as compared to individual
stock prices, more so in India, and the possibility of cornering is
reduced. This is party because an individual stock has a limited
supply, which can be cornered.
• Stock index, being an average, is much less volatile than
individual stock prices. This implies much lower capital adequacy
and margin requirements.
• Index derivatives are cash settles, and hence do not suffer from
settlement delays and problems related to bad delivery,
forged/fake certifi cates.
Applications of futures and options
The phenomenal growth of financial derivatives across the world is
attributed the fulfillment of needs of hedgers, speculators and
arbitraguers by these products. A pay off is the likely profit/loss
that would accrue to a market participant with change in the price of
the underlying asset.
Trading underlying versus trading stock futures
The single stock futures market in India has been a great success
story across the world. NSE ranks first in the world in terms of
number of contracts traded in single stock futures. One of the
reasons for the success could be the ease of trading and setting these
contracts.
To trade securities, a customer must open a security trading

account with a securities broker and a demat account with a
securities depository. Buying security involves putting up all the
money upfront. With the purchase of shares of a company, the
holder becomes a part owner of the company. The shareholder
typically receives the rights and privileges associated with the
security, which may include the receipt of dividends, invitation to
the annual shareholders meeting and the power to vote.
Selling securities involves buying the security before selling
it. Even cases where short selling is permitted, it is assumed that the
securities broker owns the security and then “lends” it to the trader
so that he can sell it. Besides, even if permitted, short sales on
security can only be executed on an up-tick.
To trade futures, a customer must open a futures trading
account with a derivatives broker. Buying futures simply involves
putting in the margin money. They enable the futures traders to take
a position in the underlying security without having to open an
account with a securities broker. With the purchase of futures on a
security, the holder essentially makes a legally binding promise or
obligation to buy the underlying security at some point in the future
(the expiration date of the contract).
Security futures do not represent ownership in a corporation and the
holder is therefore not regarded as shareholder.
A futures contracts represents promise to transact at some point in
the future. In this light, a promise to sell security is just as easy to
make as promise to buy security. Selling security futures without
previously owning them simply obligates the trader to selling a
certain amount of the underlying security at some point in the
future. It can be done just easily as buying futures, which obligates
the trader to buying a certain amount of the underlying security at
some point in the future. It can be done just as easily as buying
futures, which obligates the trader to buying a certain amount of the
underlying security at some point in the futures. In the following
sections we shall look at some uses of security future.
Futures payoffs
Futures contracts have linear payoffs. In simple words, it means that
the losses as well as profits for the buyer and the seller of a futures
contract are unlimited. These linear payoffs are fascinating as they
can be combined with options with options and the underlying to
generate various complex payoffs.
Payoff for buyer of futures: Long futures
The payoff for a person who buys a futures contract is similar to the
payoff for a person who holds an asset. He has a potentially
unlimited uppside as well as potentially unlimited downside. Take
the case of a speculator who buys a two- month Nifty index futures
contract when Nifty stands at 2220. The underlying asset in this
case is the Nifty portfolio. When the index moves up, the long
futures position starts making profits, and when the index moves
down it starts making losses.
Payoff for seller of futures: Short futures
The payoff for a person who sells a futures contract is similar to the
payoff for a person who shorts an asset. He has a potentially
unlimited upside as well as potentially unlimited downside. Take the
case of a speculator who sells a two- month Nifty index futures
contract when the Nifty stands at 2220. The underlying asset in this
case is the Nifty portfolio. When the index moves down, the short
futures position starts making profits, and when the index moves up,
it starts making losses. The shows the payoff diagram for the seller
of a futures contract.
Application of futures
Hedging: Long security, sell futures
Futures can be used as an effective risk-management tool. Take the
case of investor who holds the shares of a company and gets
uncomfortable with market movements in the short run. He sees the
value of his security falling from Rs.450 to Rs. 390. In the absence
of stock futures, he would either suffer the discomfort of a price fall
or sell the security in application of a market upheaval. With
security futures he can minimize his price risk. All ha need do is
enter into an offsetting stock futures position, in this case, take on a
short position. Assume that the spot price of the security he holds is
Rs.390. two-month futures cost him Rs.402. For this he pays an
initial margin. Now if the price of the security falls any further, he
will suffer losses on the security he holds. However, the losses he
suffers on the security will be offset by the profits he makes on his
short futures position. Take for instance that the price of his
security falls to Rs.350. the fall in the price of the security will
result in a fall in the price of futures. Futures will now trade at a
price lower than the price at which he entered into a short futures
position. Hence his short futures position will start making profits.
The loss of Rs.40 incurred on the security he holds, will be made up
by the profits made on his short futures position.
Index futures in particular can be very effectively used to get

rid of the market risk of a portfolio. Every portfolio contains a
hidden index exposure or a market exposure. This statement is true
for all portfolios, whether a portfolio is composed of index
securities or not. In the case of portfolios, most of the portfolio risk
is accounted for by index fluctuations (unlike individual securities,
where only 30-60%) of the securities risk is accounted for by index
fluctuations). Hence a position LONG PORTFOLIO + SHORT NIFTY
can often become one- tenth as risky as the LONG PORTFOLIO
position!
Suppose we have a portfolio of Rs. 1 million which has a beta
of 1.25. Then a complete hedge is obtained by selling Rs. 1.25
million of Niffty futures.
Speculation: Bullish security, buy futures
Take the case of a speculator who has a view on the direction of the
market. He would like to trade based on this view. He believes that
a particular security that trades at Rs. 1000 is undervalued and
expects its price to go up in the next two – three months. In the
absence of a deferral product, he would have to buy the security and
hold on to it. Assume he buys 100 shares which cost him one lakh
rupees. His hunch proves correct and two months later the security
closes at Rs.1010. He makes a profit of Rs. 1000 on an investment
of Rs. 1, 00,000 for a period of two months. This works out to an
annual return of 6 percent.
Speculator: Bearish security, sell futures
Stock futures can be used by a speculator who believes that a
particular security is over-valued and is likely to see a fall in price.
In the absence of a deferral product, there wasn’t much he could do
to profit from his opinion. Today all he needs to do is sell stock
futures.
Simple arbitrage ensures that futures on an individual securities
move correspondingly with the underlying security, as long as there
is sufficient liquidity in the market for the security. If the security
price rises, so will the futures price. If the security price falls, so
will the futures price. Now take the case of the trader who expects
to see a fall in the price of ABC Ltd. He pays a small margin
contract of futures on ABC at Rs. 240(each contract for 100
underlying shares). He pays a small margin on the same. Two
months later, when the futures contract expires, ABC closes at 220.
on the day of expiration, the spot and the futures price converges.
He has made a clean profit of Rs.20 per share. For the one contract
that he brought, this works out to be Rs.2000.
Arbitrage: Overpriced futures: buy spot, sell futures
As we discuss earlier, the cost-of-carry ensures that the futures
price stay in tune with the spot price. Whenever the futures price
deviates substantially from its fair value, arbitrage opportunities
arise.
ABC Ltd. trades at Rs. 1000. One-month ABC futures trade at
Rs.1025 and seem overpriced. As an arbitrageur, you can make
riskless profit by entering into the following set of transactions.
1. On day one, borrow funds; buy the security on the cash/spot
market at 1000.
2. Simultaneously, sell the futures on the security at 1025.
3. Take delivery of the security purchased and hold the security
for a month.
4. On the futures expiration date, the spot and the futures price
converge. Now unwind the position.
5. Say the security closes at Rs.1015. Sell the security.
6. The result is a riskless profit of Rs.15 on the spot position and
Rs.10 on the futures position.
7. Return the borrowed funds.
When does it make sense to enter into this arbitrage? If your cost of
borrowing funds to buy the security is less than the arbitrage profit
possible, it makes sense for you to arbitrage. This is termed as cash
– and- carries arbitrage. Remember however, that exploiting an
arbitrage opportunity involves trading on the spot and futures
market. In the real world, one has to build in the transactions costs
into the arbitrage strategy.
Arbitrage: Underpriced futures: buy futures, sell spot
Whenever the futures price deviates substantially from its fair
value, arbitrage opportunities arise. It could be the case that you
notice the futures on a security you hold seem underpriced. How can
you cash in on this opportunity to earn riskless profits? Say for
instance, ABC Ltd. trades at Rs. 1000. One-month ABC futures trade
at Rs.965 and seem underpriced. As an arbitrageur, you can make
riskless profit by entering into the following set of transactions.
1. On day one, sell the security on the cash/spot market at 1000.

2. Make delivery of the security.
3. Simultaneously, buy the futures on the security at 965.
4. On the futures expiration date, the spot and the futures price
converge. Now unwind the position.
5. Say the security closes at Rs.975. buy back the security.
6. The futures position expires with a profit of Rs. 10.
7. The result is a riskless profit of Rs.25 on the spot position and
Rs.10 on the futures position.
Options payoffs
The Optionality characteristic of options results in a non-linear
payoff for options. In simple words, it means that the losses for the
buyer of an option are limited, however the profit are potentially
unlimited. For a writer, the payoff is exactly the opposite. His
profits are fascinating as they lend themselves to be used to
generate various payoffs by using combinations of options and the
underlying. We look here at the six basic payoffs.
P a y o f f s p r o f i l e f o r s e l l e r of a s s e t : L o n g a s s e t
In this basic position, an investor buys the underlying asset, Nifty
for instance, for 2220, and sells it at a future date at an unknown
price, St. once it is purchased, the investor is said to be “long “ the
asset.
P a y o f f s p r o f i l e f o r s e l l e r of a s s e t : S h o r t a s s e t
In this basic position, an investor short the underlying asset, Nifty
for instance, for 2220,and buys it back at future date at an unknown
price, St. Once it is sold, the investor is said to be “short” the asset.
P a y o f f s p r o f i l e f o r b u y e r of c a l l o p t i o n s : L o n g c a l l
A call option gives the buyer the right to buy the underlying asset at
the strike price specified in the option. The profit / loss that the
buyer makes on the option depend on the spot price of the
underlying. If upon expiration, the spot price exceeds the strike
price, he makes a profit. Higher the spot price more is the profit he
makes. If the spot price of the underlying is less than the strike
price, he lets his option expire un-exercised. His loss in this case is
the premium he paid for buying the option.
The figure shows the profits/losses from a long position on the

index. The investor brought the index at 2220. If the index goes
up, he profits. If the index falls, he losse
Payoff for an investor who went Long of Nifty at 2220
The figure shows the profits/losses from a short position on the
index. The investor sold the index at 2220. If the index falls, he
profits. If the index rises, he losses
Payoff for an investor who went short of Nifty at 2220
The figure shows the profits/losses for the buyer of a three-

month Nifty 2250 call option. As can be seen, as the spot Nifty
rises, the call option is in-the-money. If upon expiration, Nifty
closes above the strike of 2250, the buyer would exercise his
option and profit to the extent of the difference between the
Nifty-close and the strike price. The profits possible on this
option are potentially unlimited. However if Nifty falls blow the
strike of 2250, he lets the options expire. His losses are limited to
the extent of the premium he paid for buying the option.
for buying the option. Gives the payoff for the buyer of a three
month call option(often referred to as long call) with a strike of
2250 brought at a of 86.60.
P a y o f f s p r o f i l e f o r w r i t e r of c a l l o p t i o n s : S h o r t a s s e t
A call option gives the buyer the right to buy the underlying asset at
the strike price specified in the option. For selling the option, the
writer of the option charges a premium. The profit / loss that the
underlying. Whatever is the buyer’s profit is the seller’s loss. If
upon expiration, the spot price exceeds the strike price, the buyer
will exercise the option on the writer. Hence as the spot price
increases the writer of the option starts making losses. Higher the
spot price more is the loss he makes. If upon expiration the spot
price of the underlying is less than the strike price, the buyer lets
his option expire unexercised and the writer gets to keep the
premium.
The figure shows the profits/losses for the seller of a three-month
Nifty 2250 call option. As the spot Nifty rises, the call option is
in-the-money. And the writer starts making losses. Expiration,
Nifty closes above the strike of 2250, the buyer would exercise
his option and profit on the writer who would suffer a loss to the
extent of the difference between the Nifty-close and the strike
price. The loss that can be incurred by the writer of the option is
potentially unlimited, whereas the maximum profit is limited to
the extent of the up-front option premium of Rs. 86.60 charged
by him.
Payoff for writer of call option

P a y o f f s p r o f i l e f o r b u y e r of p u t op t i o n s : L o n g a s s e t
A put option gives the buyer the right to sell the underlying asset at
the strike price specified in the option. The profit / loss that the
underlying. If upon expiration, the spot price is below the strike
price, he makes a profit. Lower the spot price more is the profit he
makes. If the spot price of the underlying is higher than the strike
price, he lets his option expire un exercised. His loss in this case is
the premium he paid for buying the option.
P a y o f f s p r o f i l e f o r w r i t e r of p u t o p t i o n s : S h o rt p u t
A put option gives the buyer the right to sell the underlying asset at
the strike price specified in the option. For selling the option, the
writer of the option charges a premium. The profit / loss that the
buyer makes on the option depend on spot price of the underlying.
Whatever is the buyer’s profit is the seller’s loss. If upon
expiration, the spot price happens to be below the strike price, the
buyer will exercise the option on the writer. If upon expiration the
sport price of the underlying is more than the strike price, the buyer
lets his option expire un-exercised and the writer gets to keep the
premium.
Application of options
We look here at some application of option contracts. We refer to
single stock option here. However since the index is nothing but a
security whose price or level is a weighted average of securities
constituting the index, all strategies that can be implemented using
stoke futures can also be implemented using index option.
Hedging: Have underlying buy puts
Owners of stocks or equity portfolios often experience discomfort
about the overall stock market movement. As an owner of stocks or
an equity portfolio, sometimes you may have a view that stoke
prices will fall in the near future. At other times you may see that
the market is in for a few days or weeks of massive volatility, and
you do not have an appetite for this kind of volatility. The union
budget is a common and reliable source of such volatility: market
volatility is always enhanced for one week before and two weeks
after a budget. Many investors simply do not want the fluctuations
of these three weeks. One way to protect your portfolio from
potential downside due to a market drop is to buy insurance using
put options.
Index and stoke option are a cheap and easily implementable
way of seeking this insurance. The idea is simple. To protect the
value of your portfolio from falling below a particular level, buy the
right number of put options with the right strike price. If you are
only concerned about the value of a particular stoke that you hold
buy put options on that stock. If you are concerned about the overall
portfolio, buy put options on the index. When the stock price falls
your stock will lose value and the put options bought by you will
gain, effectively ensuring that the total value of your stock plus put
does not fall below a particular level. This level depends on the
strike price of the stock options chosen by you. Similarly when the
index falls, your portfolio will lose value and the put options bought
by you will gain, effectively ensuring that the value of your
portfolio does not fall below a particular level. This level depends
on the strike price of the index option chosen by you.
Portfolio insurance using put option is of particular interest to
mutual funds who already own well-diversified portfolios. By
buying puts, the fund can limit its downside in case of a market fall.
Speculation: Bullish security, buy calls or sell puts
There are times when investors believe that security prices are going
to rise. For instance, after a good budget or good corporate results,
or the onset of stable Government. How does one implement a
trading strategy to benefit from an upward movement in the
underlying security? Using option there are two ways one can do
this:
1. Buy call option; or
2. Sell put options
We have already seen the payoff of a call option. The downside to
the buyer of the call option is limited to the option premium he pays
for buying the option. His upside however is potentially unlimited.
Suppose you have a hunch that the price of a particular security is
going to rise in a months time. Your hunch proves correct and the
price does indeed rise, it is this upside that you cash in on.
However, if your hunch proves to be wrong and the security price
plunges down, what you lose is only the option premium.
Speculation: Bearish security, sell calls or buy puts
One implements a trading strategy to benefit from a downward
movement in the market. Today, using options, investor has two
choices:
1. Sell call options; or
2. Buy put options
We have already seen the pay off of a call option. The upside to the
writer of the call option is limited to the option premium he receives
upright for writing the option. His downside however is potentially
unlimited. Suppose you have a hunch that the price of a particular
security is going to fall in a month’s time.
The figure shows the profit/losses for a buyer of calls at various
strikes. The in-the-money option with a strike of 1200 has the
higher premium of Rs.80.10 whereas the out-of the-money option
with a strike of 1300 has the lowest premium of Rs. 27.50
The
figure shows the profit/losses for a writer of puts at various
strikes. The in-the-money option with a strike of 1300 fetches the
highest premium of Rs.64.80 whereas the out-of the-money option
with a strike of 1200 has the lowest premium of Rs. 18.15
The spot price is 1250. There are five one-month calls and five one-
month puts trading in the market. The call with a strike of 1200 is
deep in-the-money and hence trades at higher premium. The call
with a strike of 1275 is out-of-the-money and trades at a low
premium. The call with a strike of 1300 is deep-out-of-money. Its
execution depends on the unlikely event that the price will rise by
more than 50 points on the expiration date. Hence writing this call
is a fairly safe bet. There is a small probability that it may be in-
the-money by expiration in which case the buyer exercise and the
writer suffers losses to the extent the price is above 1300. In the
more likely event of the call expiring out-of-the-money, the writer
earns the premium amount of Rs.27.50. similarly, the put with a
strike of 1300 is deep in-the-money and trades at a higher premium
than the at-the-money put a strike of 1250. The put with a strike of
1200 is deep-n-the-money and will only be exercised in the unlikely
event that the price falls by 50 points on the expiration date. The
choice of which put to buy depends upon how much the speculator
expects the markets to fall. The figure shows the profits/losses for a
seller of calls at various prices. The in-the-money option has the
highest premium of Rs.80.10 whereas the out-of-the-money option
has the lowest premium of Rs.27.50.
Profit
80.10
49.45
27.50
1200 1250 1300
Underlying security
Loss
Payoff for seller of call option at various strikes
Trading
Futures and options trading system
The futures & options trading system of NSE, called NEAT-F&O
trading system, provides a fully automated screen – based trading
for nifty future & option and stock future & option on nationwide
basis as well as and on line monitoring and surveillance mechanism.
It supports and order driven market and provides complete
transparency of trading operations. It is similar to that of trading of
equities in the cash market segment.
The software F&O market has been developed to facilitate efficient

and transparent trading in futures and option instruments. Keeping
in view the familiarity of trading members with the current capital
market trading system, modifications have been performed in the
existing capital market trading system, so as to make it suitable for
trading futures and options.
Basis of trading
The NEAT F&O system supports an order driven market, wherein
orders match automatically. Order matching is essentially on the
basis of security, its price, time and quantity. All quantity fields are
in units and price in rupees. The lot size on the futures market is for
100 Nifties. The exchange notifies the regular lot size and tick size
for each of the contracts traded on this segment from time to time.
When any order enters the trading system, it is an active order. It
tries to find a match on the other side of the book. If it finds a
match, a trade is generated. If it does not find a match, the order
becomes passive and goes and sits in the respective outstanding
order book in the system.
Client broker relationship in derivative segment
A trading member must have ensured compliance particularly with
relation to the following while dealing with clients:
1. Filling of ‘Know Your client’ form.
2. Execution of Client Broker agreement
3. Bring risk factors to the knowledge of client by getting
acknowledgement of client on risk disclosure document.
4. Timely execution of orders as per the instruction of clients in
respective client codes.
5. Collection of adequate margins from the client
6. Maintaining separate client bank account for the segregation
of client money.
7. Timely issue of contract as per the prescribed format to the
client
8. Ensuring timely pay-in and pay-out of funds to and from the
client
9. Resolving complaint of clients if any at the earliest
10. A v o i d i n g r e c e i p t a n d p a y m e n t o f c a s h a n d d e a l o n l y t h r o u g h
account payee cheques.
11. Sending the periodical statement of accounts to clients
12. Not charging excess brokerage
13. Maintaining unique client code as per the regulations.
O r d e r t y p e s a n d c o n d i t i on s
The system allows the trading members to enter orders with various
conditions attached to them as per their requirements. These
conditions are broadly divided into the following categories:
• Time conditions
• Price conditions
• Other conditions
Basket trading
In order provide a facility for easy arbitrage between futures and
cash markets, NSE introduced basket-trading facility. This enables
the generation of portfolio offline order files in the derivatives
trading system and its execution in the cash segment A trading
member can buy or sell a portfolio through a single order, once he
determines its size. The system automatically works out the quantity
of each security to be bought or sold in proportion to their weights
in the portfolio.
Futures and options market instruments
The F&O segment of NSE provides trading facilities for the
following derivative instruments:
1. Index based futures
2. Index based options
3. Individual stock options
4. Individual stock futures
Contract specifications for index futures
NSE trades Nifty, CNX IT and BANK Nifty futures contracts having
one month, two-month and three-month expiry cycles. All contracts
expire on the last Thursday of every month. Thus a January
expiration contract would expire on the last Thursday of January and
a February expiry contract would cease trading on the last Thursday
February. On the Friday following the last Thursday, a new contract
having a three-month expiry would be introduces for trading.
Contract specification for index options
On NSE’s index options markets, contracts at different strikes,
having one-month and three-month expiry cycles are available for
trading. There are typically one-month, two-month and three-month
option, each with minimum seven different strikes for trading.
Hence at a given point in time there are minimum 3*7*2 or 42
options products. Option contracts are specified as follows: DATE-
EXPIRYMONTH-YEAR-CALL/PUT-AMERICAN/EUROPEAN-
STRIKE. For example the European style call option contract on the
Nifty index with a strike price of 2040 expiring on the 30 th June
2005 is specified as ’30 JUN 2005 2040 CE’.
Just as in the case of futures contracts, each option product
(for instance, the 28 Jun 2005 2040 CE) has its own order book and
its own price. All index options contracts are cash settled and expire
on the last Thursday of the month. The clearing corporation does the
novation. Just as in the case futures, trading is in minimum market
lot size of 100 units. The minimum tick for an index options
contract is 0.05 paise.
C r i t e r i a f o r s t o c k s an d i n d e x e l i g i b i l i t y f o r t r ad i n g
E l i g i b i l i t y c r i t e r i a of s t o c k s
• The stock is chosen from amongst the top 500 stocks in terms of
average daily market capitalisation and average daily traded
value in the previous six month on a rolling basis.
• The stock’s median quarter-sigma order size over the last six
months should be not less than Rs. 1 lakh. For this purpose, a
stock’s quarter-sigma order size should mean the order size (in
value terms) required to cause a change in the stock price equal
to one-quarter of standard deviation.
• The market wide position limit in the stock should not be less
than Rs. 50 crore. The market wide position limit (number of
shares) is valued taking the closing prices of stocks in the
underlying cash market on the date of expiry of contract in the
month. The market wide position limit of open position (in
terms of the number of underlying stocks) on futures and option
contracts on a particular underlying stock should be lower of :
- 30 times the average number of shares trading daily,
during the previous calendar month, in the relevant
underlying security in the underlying segment. or
- 20% of the number of shares held by non-promoters in
the relevant underlying security i.e. free-fbat holding.
• If an existing security fails to meet the eligibility criteria for
three month consecutively, then no fresh month contract
will be issued on that security.
• However, the existing unexpired contracts can be permitted to
trade till expiry and new strikes can also be introduced in the
existing contract months.
For unlisted companies coming out with initial public offering, if
the net public offer is rs.500 crores or more, then the exchange may
consider introducing stock options and stock futures on such stocks
at the time of its listing in the cash market.
E l i g i b i l i t y c r i t e r i a of i n d i c e s
The exchange may consider introducing derivative contracts on
index if the stocks contributing to 80% weightage of the index are
individually eligible for derivative trading. However, no single
ineligible stocks in the index should have a weightage of more than
5% in the index. The above criteria is applied every month, if the
index fails to meet the eligibility criteria for three months
consecutively, then no fresh month contract would be issued on that
index, However, the existing unexpired contacts will be permitted to
trade till expiry and new strikes can also be introduced in the
existing contracts.
Charges
The maximum brokerage chargeable by a trading member in relation
to trades affected in the contracts admitted to dealing on the F&O
segment of NSE is fixed at 2.5% of the contract value in case of
index futures and stock futures. In case of index options and stock
option it is 2.5% of notional value of the contract [(strike price +
premium) * Quantity)], exclusive of statutory levies. The
transaction charges payable to the exchange by the trading member
for the trades executed by him on the F&O segment are fixed at the
rate of Rs. 2 per lakh of turnover (0.002%) subject to a minimum of
Rs. 1, 00,000 per year. However for the transactions in the options
sub-segment the transaction charges are levied on the premium value
at the rate of 0.05% (each side) instead of on the strike price as
levied earlier. Further to this, trading members have been advised to
charge brokerage from their clients on the Premium price (traded
price) rather than Strike price. The trading members contribute to
Investor Protection Fund of F&O segment at the rate of Rs. 10 per
crore of turnover (0.0001%).
Clearing and settlement

National Securities Clearing Corporation Limited
(NSCCL) undertakes clearing and settlement of all
NSCCL trades executed on the futures and options (F& O)
segment of the NSE. It also acts as legal counterparty to all trades
on the F&O segment and guarantees their financial settlement.
Clearing entities
Clearing and settlement activities in the F&O segment are
undertaken by NSCCL with the help of the following entities:
Clearing members
In the F&O segment, some members, called self clearing members,
clear and settle their trades executed by then only either on their
own account or on account of their clients. Some others called
trading member-cum-clearing member, clear and settle their own
trades as well as trades of other trading members (TMs). Besides,
there is a special category of members, called professional clearing
members (PCM) who clear and settle trades executed by TMs. The
members clearing their own trades of others of others, and the PCMs
are required to bring in additional security deposits in respect of
every TM whose trades they undertake to clear and settle.
Clearing banks
Funds settlement takes place through clearing banks. For the
purpose of settlement all clearing members are required to open a
separate bank account with NSCCL designated clearing bank for
F&O segment. The clearing and settlement process comprises of the
following three main activities:
1. Clearing
2. settlement
3. Risk Management
Clearing mechanism
The clearing mechanism essentially involves working out open
positions and obligations of clearing (self-clearing/trading-cum-
clearing/professional clearing) members. This position is considered
for exposure and daily margin purposes. The open positions of CMs
are arrived at by aggregating the open positions of all the TMs and
all custodial participants clearing through him, in contracts in which
they have traded. A TM’s open position is arrived at as the
summation of his proprietary open position and clients’ open
positions, in the contracts in which he has traded. While entering
o r d e r s o n t h e t r a d i n g s y s t e m , T M Are required to identify the orders, whether
proprietary (if they are their own trades) or client (if entered on behalf of clients) through
‘Pro/Cli’ indicator provided in the order entry screen. Proprietary positions are calculated
on net basis (buy – sell) for each contract. Clients’ positions are arrived at by summing
together net (buy – sell) positions of each individual client. A TM’s open position is the
sum of proprietary open position, client open long position and client open short position.
Settlement mechanism
All futures and options contracts are cash settled, i.e. through exchange of cash. The
underlying for index futures/options of the Nifty index cannot be delivered. These
contracts, therefore, have to be settled in cash. Futures and options on individual
securities can be delivered as in the spot market. However, it has been currently
mandated that stock options and futures would also be cash settled. The settlement
amount for a CM is netted across all their TMs/clients, with respect to their obligations
on MTM, premium and exercise settlement.
Settlement of futures contracts
Futures contracts have two types of settlements, the MTM settlement which happens on a
continuous basis at the end of each day, and the final settlement which happens on the
last trading day of the futures contract.
MTM settlement:
All futures contracts for each member are marked-to-market (MTM) to the daily
settlement price of the relevant futures contract at the end of each day. The profits/losses
are computed as the difference between:
1. The trade price and the day’s settlement price for contracts executed during
the day but not squared up.
2. The previous day’s settlement price and the current day’s settlement price for
brought forward contracts.
3. The buy price and the sell price for contracts executed during the day and
squared up.
Final settlement for futures
On the expiry day of the futures contracts, after the close of trading hours, NSCCL marks
all positions of a CM to the final settlement price and the resulting profit/loss is settled in
cash. Final settlement loss/profit amount is debited/ credited to the relevant CM,s
clearing bank account on the day following expiry day of the contract.
Settlement prices for futures
Daily settlement price on a trading day is the closing price of the respective futures
contracts on such day. The closing price for a futures contract is currently calculated as
the last half an hour weighted average price of the contract in the F&O Segment of NSE.
Final settlement price is the closing price of the relevant underlying index/security in the
capital market segment of NSE, on the last trading day of the contract. The closing price
of the underlying Index/security is currently its last half an hour weighted average value
in the capital market segment of NSE.
S e t t l e m e n t o f o p t i o n s c o n t r a ct s
Options contracts have three types of settlements, daily premium
settlement, exercise settlement, interim exercise settlement in the
case option contracts on securities and final settlement.
Daily premium settlement
Buyer of an option is obligated to pay the premium towards the
options purchased by him; similarly, the seller of an option is
entitled to receive the premium for the option sold by him. The
premium payable amount and the premium receivable amount are
netted to compute the net premium payable or receivable amount for
each client for each option contract.
Exercise settlement
Although most option buyers and sellers close out their options by
an offsetting closing transaction, an understanding of exercise can
help an option buyer determine whether exercise might be more
advantageous than an offsetting sale of the option. There is always a
possibility of the option seller being assigned an exercise. Once an
exercise of an option has been assigned to an option seller, the
option seller is bound to fulfill his obligation (meaning, pay the
cash settlement amount in the case of a cash-settled option) even
though he may not yet have been notified of the assignment.
Interim exercise settlement
Interim exercise settlement takes place only for option contracts on
securities. An investor can exercise his in-the-money options at any
time during trading house, through his trading member. Interim
exercise settlement is effected for such options at the close of the
trading hours, on the day of exercise. Valid exercised option
contracts are assigned to short positions in the option contract with
the same series (i.e. having the same underlying, same expiry date
and same strike price ), on a random basis, at the client level. The
CM who has exercised the option receives the exercise settlement
value per unit of the option from the CM who has been assigned the
option contract.
Final exercise settlement
Final exercise settlement is effected for all open long in-the-money
strike price options existing at the close of trading hours, on the
expiration day of an option contract. All such long positions are
exercised and automatically assigned to short positions in option
contracts with the same series, on a random basis. The investor who
has long in-the-money options on the expiry date will receive the
exercise settlement value per unit of the option from the investor
who has been assigned the option contract.
Exercise process
The period during which an option is exercisable depends on the
style of the option. On NSE, index options are European style, i.e.
options are only subject to automatic exercise on the expiration day,
if they are in-the-money. As compared to this, options on securities
are American style. In such cases, the exercise is automatic on the
expiration day, and voluntary prior to the expiration day of the
option contract, provided they are in-the-money. Automatic exercise
means that all in-the-money options would be exercise by NSCCL on
the expiration day of the contract. The buyer of such options need
not give an exercise notice in such cases. Voluntary exercise means
that the buyer of an in-the-money option can direct his TM/CM to
give exercise instruction to NSCCL. In order to ensure that an
option is exercised on a particular day, the buyer must direct his TM
to exercise before the cut-off time for accepting exercise
instructions for that day. Usually, the exercise order will be
accepted by the system till the close of trading house. Different TMs
may have different cut-off times for accepting exercise instruction
from customer, which may very for different options. An option,
which expires unexercised, becomes worthless of every option,
which is in-the-money at expiration. Once an exercise instruction is
given by a CM to NSCCL, it cannot ordinarily be revoked. Exercise
notices given by a buyer at anytime on a day are processed by
NSCCL after the close of trading hours on the day. All exercise
notice received by NSCCL from the NEAT F&O system are
processed to determine their validity. Some basic validation checks
are carried out to check the open buy position of the exercising
client/TM and if option contract is in-the-money. Once exercised
contracts are round valid, they are assigned.
Assignment process
The exercise notices are assigned in standardized market lots to
short position in the option contract with the same series (i.e. same
underlying, expiry date and strike price) at the client level.
Assignment to the short position is done on a random basis. NSCCL
determines short positions, which are eligible to be assigned and
than allocates the exercised positions to any one or more short
positions.
Assignments are made at the end of the trading day on which

exercise instruction is received by NSCCL and notified to the
members on the same day. It is possible that an option seller may
not receive notification from its TM that an exercise has been
assigned to him until the next day following the date of the CM by
NSCCL.
E x e r c i s e s e t t l e m e n t c o m p u t at i o n
In case of index option contracts, all open long position at in-the-
money strike prices are automatically exercised on the expiration
day and assigned to short positions in option contracts with the same
series on a random basis. For options on securities, where exercise
settlement may be interim or final, interim exercise for an open long
in-the-money option position can be effected on any day till the
expiry of the contract. Final exercise is automatically effected by
NSCCL for all open long in-the-money positions in the expiring
month option, contract, on the expiry day of the option contract. The
exercise settlement price is the closing price of the underlying
(index or security) on the exercise day (for interim exercise) or the
expiry day of the relevant option contract (final exercise). The
exercise settlement value is the difference between the strike price
and the final settlement price of the relevant option contract. For
call options, the exercise settlement value receivable by a buyer is
the difference between the final settlement price and the strike price
for each unit of the underlying conveyed by the option contract,
while for put options it is difference between the strike price and
the final settlement price for each unit of the underlying conveyed
by the option contract. Settlement of exercises of options on
securities is currently by payment in cash and not by delivery of
securities. It takes place for in-the-money option contracts.
The exercise settlement value for each unit of the exercised
contract is computed as follows:
Call options = Closing price of the security on the day of exercise –
Strike price
Put options = Strike price – Closing of the security on the day of
exercise
For final exercise the closing price of the underlying security is
taken on the expiration day. The exercise settlement by NSCCL
would ordinarily take place on 3rd day following the day of exercise.
Members may ask for clients who have been assigned to pay the
exercise settlement value earlier.
Special facility for settlement of institutional deals
NSCCL provides a special facility to Institutions /Foreign
Institutional Investors (FII) /Mutual Funds etc. to execute through
any TM, which may be cleared and settled by their own CM. Such
entities are called custodial participants (CPs). To avail of this
facility, a CP is required to register with NSCCL through his CM. A
unique CP code is allotted to the relevant field on the trading
system at the of order entry.
Such trades executed on behalf of a CP are confirmed by their own
CM (and of the TM through whom the order is entered), within the
time specified by NSE on the trade day though the tton-line
confirmation facility. Till such time the trade is confirmed by CM of
concerned CP, the same is considered as a trade of the TM and the
responsibility of settlement of such trade vests with CM of the TM.
Once confirmed by CM concerned CP, such CM is responsible for
clearing and settlement of deals of such custodial clients. FIIs have
been permitted to trade in all the exchange traded derivative
contracts subject to compliance of the position limits prescribed for
them and their sub-accounts, and compliance with the prescribed
procedure for settlement and reporting. A FII/a sub-account off the
FII, as the case may be, intending to trade in the F&O segment of
the exchange, is required to obtain a unique Custodial Participant
(CP) code allotted from the NSCCL. FII/sub-accounts of FIIs which
have been allotted a unique CP code by NSCCL are only permitted
to trade on the F&O segment. The FII/sub-account of FII ensures
that all orders placed by them on the Exchange carry the relevant CP
code allotted by NSCCL.
Risk management
NSCCL has developed a comprehensive risk containment mechanism
for the F&O segment. The salient features of risk containment
mechanism on the F&O segment are:
1. The financial soundness of the members is the key to risk
management. Therefore, the requirements for membership in
terms of capital adequacy (net worth, security deposits) are quite
stringent.
2. N S C C L c h a r g e s a n u p f r o n t i n i t i a l m a r g i n f o r a l l t h e o p e n
positions of a CM. It specifies the initial margin requirements for
each futures/options contract on a daily basis. It also follows
value-at-risk (VaR) based margining through SPAN. The CM in
turn collects the initial margin from the TMs and their respective
clients.
3. T h e o p e n p o s i t i o n s o f t h e m e m b e r s a r e m a r k e d t o m a r k e t b a s e d o n
contract settlement price for each contract. The difference is
settled in cash on a T+1 basis.
4. NSCCL’s on-line position monitoring system monitors a CM’s
open positions on a real-time basis. Limits are set for each CM
based on his capital deposits. The on-line position monitoring
system generates alerts whenever a CM reaches a potion limit set
up by NSCCL monitors the CM for MTM value violation, while
TMs are monitored for contract-wise position limit violation.
5. CMs are provided a trading terminal for the purpose of
monitoring the open positions of all the TMs clearing and settling
through him. A CM may set exposure limits for a TM clearing and
setting through him. NSCCL assists the CM to monitor the intra-
day exposure limits set up by a CM and whenever a TM exceed
the limits, it stops that particular TM from further trading.
6. A member is alerted of his position to enable him to adjust his
exposure or bring in additional capital. Position violations result
in withdrawal of trading facility for all TMs of a CM in case of a
violation by the CM.
7. A separate settlement guarantee fund for this segment has been
created out of the capital of members.
The most critical component of risk containment mechanism for

F&O segment is the margining system and on-line position
monitoring. The actual position monitoring and margining is carried
out on-line through parallel Risk Management System (PRISM).
PRISM uses SPAN® (Standard Portfolio Analysis of Risk) system
for the purpose of computation of on-line margins, based on the
parameters defined by SEBI.
NSCCL-SPAN
The objective of NSCCL-SPAN is to identify overall risk in a
portfolio of all futures and options contracts for each member. The
system treats futures and options contracts uniformly, while at the
same time recognizing the unique
Exposures associated with options portfolios, like extremely deep
out-of-the-money short positions and inter-month risk. Its over-
riding objective is to determine the largest loss that a portfolio
might reasonable be expected to suffer from one day to the next day
based on 99% VaR methodology. SPAN considers uniqueness of
option portfolios. The following factors affect the value of an
option:
1. Underlying market price
2. Strike price
3. V o l a t i l i t y ( v a r i a b i l i t y ) o f u n d e r l y i n g i n s t r u m e n t
4. Time to expiration
5. Interest rate
As these factor changes, the value of options maintained within a
portfolio also changes. Thus, SPAN constructs scenarios of probable
changes in underlying prices and volatilities in order to identify the
largest loss a portfolio might suffer from one day to the next. It than
sets the margin requirement to cover this one-day loss. The complex
calculations (e.g. the pricing of options) in SPAN are executed by
NSCCL. The results of these calculations are called risk arrays. Risk
arrays, and other necessary data inputs for margin calculation are
provided to members daily in a file called the SPAN risk parameter
file. Members can apply the data contained in the risk parameter
files, to their specific portfolios of futures and options contracts, to
determine their SPAN margin requirements. Hence, member need not
execute complex option pricing calculations, which is performed by
NSCCL. SPAN has the ability to estimate risk for combined future
and options portfolios, and also re-value the same under various
scenarios of changing market conditions.
Types of margins
The margining system for F&O segment is explained below:
• Initial margin: Margin in the F&O segment is computed by
NSCCL up to client level for open positions of CMs/TMs.
These are required to be paid up-front on gross basis at
individual client level for client positions and on net basis for
proprietary positions. NSCCL collects initial margin for all
the open positions of a CM based on the margins computed by
NSE-SPAN. A CM is required to ensure collection of adequate
initial margin from his TMs up-front. The TM is required to
collect adequate initial margins up-front from clients.
• Premium margin: In addition to initial margin, premium
margin is charged at client level. This margin required to be
paid by a buyer of an option till the premium settlement is
complete.
• Assignment margin for options on securities: Assignment
margin is levied in addition to initial margin and premium
margin. It is required to be paid on assigned positions of CMs
towards interim and final exercise settlement obligations for
option contracts on individual securities, till such obligations
are fulfilled. The margin is charged on the net exercise
settlement value payable by a CM towards interim and exercise
settlement.
• Client margins: NSCCL intimates all members of the margin
liability of each of their client. Additionally members are also
required to report details of margins collected from clients to
NSCCL, which holds in trust client margin monies to the
extent reported by the member as having been collected from
their respective clients.
Adjustments for corporate actions
The basis for any adjustment for corporate actions is such that the
value of the position of the market participants, on the cum and ex-
dates for the corporate action, continues to remain the same as far as
possible. This facilitates in retaining the relative status of positions,
namely in-the-money, at-the-money and out-the-money. This also
addresses issues related to exercise and assignments.
Corporate actions can be broadly classified under stock

benefits and cash benefits. The various stoke benefits declared by
the issues of capital are bonus, rights, merger/de-merger,
amalgamation, splits, consolidations, hive-off, warrants and secured
premium notes (SPNs) among others. The cash benefit declared by
the issuer of capital is cash dividend.
Any adjustment for corporate actions is carried out on the last
day on which a security is traded on a cum basis in the underlying
equities markets, after the close of trading hours. Adjustments may
entail modifications to positions and/or contract specifications as
listed below, such that the basic premise of adjustment laid down
above is satisfied:
1. Strike price
2. Position
3. Market lot/multiplier
The adjustments are carried out on any or all of the above, based on
the nature of the corporate action. The adjustments for corporate
actions are carried out on all open, exercised as well as assigned
positions.
Objective
Through this survey researcher wants to the know the awareness of people about various
risks hedging technique (Derivatives) in stock market and identify the probable reason
why this derivatives are being used in stock market.
Here researcher will keep his eyes on the following mentioned objectives in his study.
• To identify the method of trading in stock market.

• To measure the effectiveness of stock market.
• To identify the drawback of hedging techniques.
• To measure the effectiveness of derivatives.
• To know different kinds of financial derivatives.
• To know different types are associated with investment in stock market.
• To measures the awareness regard different kinds of financial
Company Profile
I N D I A B U L L S , is a premier integrated
financial services provider, and ranked among the top five in the country in all its
business segments, services over 16 million individual investors in various capacities,
and provides investor services to over 300 corporates, comprising the who is who of
Corporate India. INDIA BULLS covers the entire spectrum of financial services such as
Stock broking, Depository Participants, Distribution of financial products - mutual funds,
bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal
Finance Advisory Services, Merchant Banking & Corporate Finance, placement of
equity, IPOs, among others. India Bulls has a professional management team and ranks
among the best in technology, operations and research of various industrial segments.|
I About India Bulls

NDIA BULLS - India’s premier integrated personal financial advisory group with a wide
network of 575 offices & 7300 professionals operating from 387 towns/cities and also
established presence in UAE & USA.
INDIA BULLS, ranked among the top five in the country in all its business segments,
services over 16 million individual investors in various capacities, and provides investor
services to over 300 corporates, comprising the who is who of Corporate India.
INDIA BULLS covers the entire spectrum of financial services such

as Stock Broking, Demat Services, Insurance, Wholesale/Retail
Debt, Primary Market, Mutual Funds, Fixed Deposits, Loan Products
Distribution, Investment Banking, Registrars & Share Transfer
Agents, Medical Transcription, BPO, Realties.
• India Bulls Consultants Limited
• India Bulls Stock Broking Limited
• India Bulls Investors Services Limited
• India Bulls Computershare Pvt Limited
• India Bulls Global Services Limited
• India Bulls Comtrade Limited
• India Bulls Insurance Broking Private Limited
Overview Of The Company
The
birth of India Bulls was on a modest scale in 1981. It began with the
vision and enterprise of a small group of practicing Chartered
Accountants who founded the flagship company …India Bulls
Consultants Limited. They started with consulting and financial
accounting automation, and carved inroads into the field of registry
and share accounting by 1985. Since then, they have utilized their
experience and superlative expertise to go from strength to
strength…to better their services, to provide new ones, to innovate,
diversify and in the process, evolved India Bulls as one of India’s
premier integrated financial service enterprise.
Thus over the last 20 years India Bulls has traveled the success
route, towards building a reputation as an integrated financial
services provider, offering a wide spectrum of services. And they
have made this journey by taking the route of quality service, path
breaking innovations in service, versatility in service and finally…
totality in service.
Their highly qualified manpower, cutting-edge technology,

comprehensive infrastructure and total customer-focus has secured
for us the position of an emerging financial services giant enjoying
the confidence and support of an enviable clientele across diverse
fields in the financial world.
Their values and vision of attaining total competence in their

servicing has served as the building block for creating a great
financial enterprise, which stands solid on their fortresses of
financial strength - their various companies.
With the experience of years of holistic financial servicing behind us and years of
complete expertise in the industry to look forward to, they have now emerged as a
premier integrated financial services provider. And today, they can look with pride at the
fruits of their mastery and experience – comprehensive financial services that are
competently segregated to service and manage a diverse range of customer requirement.
India Bulls Consultants Limited
Board of Directors& India Bulls Group India Bulls
• Mr. C Parthasarathy
Chairman
• Mr. M Yugandhar
Managing Director
• Mr. M S Ramakrishna
Director
Key Personnel at Head office
• V Ganesh
• V Mahesh
• K Sridhar
• S Gopichand
• J Ramaswamy
• M S Manohar
• S Ganapathy Subramanian
• T R Prashant Kumar
• Ashok K Mittal
• Air Commodore (Retd) R Raghuram, VSM
Customer Support - mailmanager@India Bulls.com
India Bulls Stock Broking Limited
Stock Broking Services | Distribution of Financial Products |

Depository Participants | Advisory Services | Research | Private
Client Group
Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and
The Hyderabad Stock Exchange (HSE).
India Bulls Stock Broking Limited, one of the cornerstones of the India Bulls edifice,
flows freely towards attaining diverse goals of the customer through varied services.
Creating a plethora of opportunities for the customer by opening up investment vistas
backed by research-based advisory services. Here, growth knows no limits and success
recognizes no boundaries. Helping the customer create waves in his portfolio and
empowering the invest investor completely is the ultimate goal.
It is an undisputed fact that the stock market is unpredictable and
yet enjoys a high success rate as a wealth management and wealth
accumulation option. The difference between unpredictability and a
safety anchor in the market is provided by in-depth knowledge of
market functioning and changing trends, planning with foresight and
choosing one & rsquo’s options with care. This is what they provide
in their Stock Broking services.
India Bulls offer services that are beyond just a medium for buying
and selling stocks and shares. Instead India Bulls provides services
which are multi dimensional and multi-focused in their scope. There
are several advantages in utilizing their Stock Broking services,
which are the reasons why it is one of the best in the country.
India Bulls offer trading on a vast platform; National Stock

Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange.
More importantly, India Bulls make trading safe to the maximum
possible extent, by accounting for several risk factors and planning
accordingly. India Bulls are assisted in this task by their in-depth
research, constant feedback and sound advisory facilities. India
Bull’s highly skilled research team, comprising of technical analysts
as well as fundamental specialists, secure result-oriented
information on market trends, market analysis and market
predictions. This crucial information is given as a constant feedback
to India Bull’s customers, through daily reports delivered thrice
daily; The Pre-session Report, where market scenario for the day is
predicted, The Mid-session Report, timed to arrive during lunch
break, where the market forecast for the rest of the day is given and
The Post-session Report, the final report for the day, where the
market and the report itself is reviewed. To add to this repository of
information, India Bulls publish a monthly magazine & ldquo; India
Bulls ;
The Finapolis & rdquo;, which analyzes the latest stock market
trends and takes a close look at the various investment options, and
products available in the market, while a weekly report, called
“ India Bulls Bazaar Baatein”, keeps us more informed
on the immediate trends in the stock market. In addition, India Bulls
specific industry reports give comprehensive information on various
industries. Besides this, India Bulls also offer special portfolio
analysis packages that provide daily technical advice on scrips for
successful portfolio management and provide customized advisory
services to help us make the right financial moves that are
specifically suited to their portfolio.
India Bulls Stock Broking services are widely networked across

India, with the number of its trading terminals providing retail stock
broking facilities. It services have increasingly offered customer
oriented convenience, which they provide to a spectrum of investors,
high-net worth or otherwise, with equal dedication and competence.
But true to India Bulls’s spirit, this success is not their final
destination, but just a platform to launch further enhanced quality
services to provide you the latest in convenient, customer-friendly
stock management.
Over the years they have ensured that the trust of their customers is
their biggest returns. Factors such as their success in the Electronic
custody business has helped build on their tradition of trust even
more. Consequentially their retail client base expanded very fast.
To empower the investor further they have made serious efforts to

ensure that their research calls are disseminated systematically to
all their stock broking clients through various delivery channels like
e m a i l , c h a t , S M S , p h o n e c a l l s e t c . Their foray into commodities broking has
been path breaking and they are in the process of converting existing traders in
commodities into the more organized mainstream of trading in commodity futures, both
as a trading and risk hedging mechanism.
In the future, their focus will be on the emerging businesses and to meet this objective,
they have enhanced their manpower and revitalized their knowledge base with enhances
focus on Futures and Options as well as the commodities business.
India Bulls Investors Services Limited
Recognized as a leading merchant banker in the country, they are registered with SEBI as
a Category I merchant banker. This reputation was built by capitalizing on opportunities
in corporate consolidations, mergers and acquisitions and corporate restructuring, which
have earned us the reputation of a merchant banker. Raising resources for corporate or
Government Undertaking successfully over the past two decades have given us the
confidence to renew their focus in this sector.
Their quality professional team and their work-oriented dedication have propelled us to
offer value-added corporate financial services and act as a professional navigator for long
term growth of their clients, who include leading corporate, State Governments, foreign
institutional investors, public and private sector companies and banks, in Indian and
global markets.
They have also emerged as a trailblazer in the arena of relationships, both at the customer
and trade levels because of their unshakable integrity, seamless service and innovative
solutions that are tuned to meet varied needs. Their team of committed industry
specialists, having extensive experience in capital markets, further nurtures this
relationship.
Their financial advice and assistance in restructuring, divestitures, acquisitions, de-

mergers, spin-offs, joint ventures, privatization and takeover defense mechanisms have
elevated their relationship with the client to one based on unshakable trust and
confidence.
India Bulls Insurance Broking Private

Limited
At India Bulls Insurance Broking Pvt. Ltd., they provide both life and non-life insurance
products to retail individuals, high net-worth clients and corporates. With the opening up
of the insurance sector and with a large number of private players in the business, they
are in a position to provide tailor made policies for different segments of customers. In
their journey to emerge as a personal finance advisor, they will be better positioned to
leverage their relationships with the product providers and place the requirements of their
customers appropriately with the product providers. With Indian markets seeing a sea
change, both in terms of investment pattern and attitude of investors, insurance is no
more seen as only a tax saving product but also as an investment product. By setting up a
separate entity, they would be positioned to provide the best of the products available in
this business to their customers.
Its wide national network, spanning the length and breadth of India, further supports
these advantages. Further, personalized service is provided here by a dedicated team
committed in giving hassle-free service to the clients.
India Bulls Global Services Limited
The specialist Business Process Outsourcing unit of the India Bulls Group. The legacy of
expertise and experience in financial services of the India Bulls Group serves us well as
they enter the global arena with the confidence of being able to deliver and deliver well.
Here they offer several delivery models on the understanding that

business needs are unique and therefore only a customized service
could possibly fit the bill. Their service matrix has permutations and
combinations that create several options to choose from.
Be it in re-engineering and managing processes or delivering new

efficiencies, their service meets up to the most stringent of
international standards. Their outsourcing models are designed for
the global customer and are backed by sound corporate and
operations philosophies, and domain expertise. Providing
productivity improvements, operational cost control, cost savings,
improved accountability and a whole gamut of other advantages.
They operate in the core market segments that have emerging

requirements for specialized services. Their wide vertical market
coverage includes Banking, Financial and Insurance Services
(BFIS), Retail and Merchandising, Leisure and Entertainment,
Energy and Utility and Healthcare.
Their horizontal offerings do justice to their stance as a comprehensive BPO unit and
include a variety of services in Finance and Accounting Outsourcing Operations, Human
Resource Outsourcing Operations, Research and Analytics Outsourcing Operations and
Insurance Back Office Outsourcing Operations.
India Bulls Comtrade Limited
At India Bulls Commodities, they are focused on taking commodities

trading to new dimensions of reliability and profitability. They have
made commodities trading, an essentially age-old practice, into a
sophisticated and scientific investment option.
Here they enable trade in all goods and products of agricultural and
mineral origin that include lucrative commodities like gold and
silver and popular items like oil, pulses and cotton through a well-
systematized trading platform.
Their technological and infrastructural strengths and especially their

street-smart skills make us an ideal broker. Their service matrix is
holistic with a gamut of advantages, the first and foremost being
their legacy of human resources, technology and infrastructure that
comes from being part of the India Bulls Group.
Their wide national network, spanning the length and breadth of
India, further supports these advantages. Regular trading workshops
and seminars are conducted to hone trading strategies to perfection.
Every move made is a calculated one, based on reliable research that
is converted into valuable information through daily, weekly and
monthly newsletters, calls and intraday alerts. Further, personalized
service is provided here by a dedicated team committed to giving
hassle-free service while the brokerage rates offered are extremely
competitive.
Their commitment to excel in this sector stems from the immense
importance those commodities broking has to a cross-section of
investors; farmers, exporters, importers, manufacturers and the
Government of India itself.
India Bulls Insurance Broking

Private Limited
At India Bulls Insurance Broking Pvt. Ltd., they provide both life
and non-life insurance products to retail individuals, high net-worth
clients and corporate. With the opening up of the insurance sector
and with a large number of private players in the business, they are
in a position to provide tailor made policies for different segments
of customers. In their journey to emerge as a personal finance
advisor, they will be better positioned to leverage their relationships
with the product providers and place the requirements of their
customers appropriately with the product providers. With Indian
markets seeing a sea change, both in terms of investment pattern and
attitude of investors, insurance is no more seen as only a tax saving
product but also as an investment product. By setting up a separate
entity, they would be positioned to provide the best of the products
available in this business to their customers.
Their wide national network, spanning the length and breadth of

India, further supports these advantages. Further, personalized
service is provided here by a dedicated team committed in giving
hassle-free service to the clients.
Chapter – 2
METHODOLOGY
LITERATURE REVIEW
In order to form a basis for the different stock market and various risk hedging techniques
being used, the review aimed for two objectives for available literature, journals and
website.
• Being familiarisation of stock and different available risk hedging techniques with
special reference to “Derivatives”.
• To know the past trends and current scenario of using risk hedging tools in stock
market. How to eliminate the extent of risk associated with investment in a stock
market.
The strategic importance of existence of different investor with varied levels of

educations, saving pattern, income and their attitude towards investment pattern in a
stock market. Unfortunately, few works were found relevant to the second objective; the
review was focused mainly as the first author’s published data and empirical research
findings and articles.
The purpose of the methodology section is to describe the research procedure this
includes the overall research design, type of research, the sampling procedure, data
collection methods, instruments used for data collection, and other tolls used of analysis.
TYPES OF RESEARCH
“Marketing research is the systematic design, collection, analysis, and reporting
of data and finding and relevant to a specific marketing situation facing the company.”
A good research design is necessary as it minimize the danger of hop hazard collection of
Information. Research design is a framework of plan for study guides the collection and
analysis of data. Despite the difficulties of establishing an entirely satisfactory
classification system, it is helpful to classify this research study on the basis of
fundamentals objectives of the research.
All research approaches can be classified into one of the general categories of research.
Exploratory, descriptive, and casual. These categories differ significantly in terms of
research purpose, research question, the precision of the hypothesis formed and the data
collection methods that are used.
Exploratory research Its main goal is to shed light on the real nature of the problem and
to suggest possible solution or new ideas.
Casual research: Its purpose is to test a cause and effect relationship. Type of research
the study title various risk hedging techniques (Derivatives) in stock market. Exploratory
research is to gather preliminary information that will help define the problem and
suggest hypotheses. The type of study conducted here is the survey. A survey is a fact-
finding study. It is a method of research involving collection of data directly from a
population or a sample there of at a particular.
It is always conducted at large population. It covers a definite geographical area.
SAMPLE TECHNIQUE Sampling is intended to gain the information about a
population. Thus it is critical at the outsets to identify the population properly and
accurately. The sampling
Technique is used to identify the target population, determining the sampling that
appropriate sample can be selected.
Probability sampling: Is based on the concept of random selection-a controlled
procedure that assures that each population element is given a know nonzero chance of
selection.
Non- Probability sampling: Is based on the concept of non random selection.
The study comes under the judgments sampling. Judgments sampling usually
associated with variety of obvious and not – so – obvious basis. The researcher selects
population member who are good prospect for accurate information.
SAMPLESIZE The customer of Siliguri are considered as the sampling and the total of
80 customers are selected using quota sampling method.
SAMPLE DESCRIPE Respondents are the customer who is interested to invest in
stock market. We went to responded according to area. This area is given by the India
Bulls itself. The survey is targeted to the highly income group people of the society, it
also include the people of the category of the people who invest through India Bulls or
switched to any other broker’s agency.
Following are the area where we went to survey and were responds to us
1. SEVOKE ROAD,SILIGURI
2. NAYA BAZAR, SILIGURI
3. HILL CART ROAD,SILIGURI
4. BIDHAN MARKET,SILIGURI
5. CHURCH ROAD,SILIGURI
INSTRUMENTATION AND TECHNIQUE: - Instrumentation and technique structure
and questionnaire has being used to collect primary data. Questionnaire both closed and
open end are used to collect and accurate and reliable data. The questionnaire consists of
16 questions. Almost all the closed end question are dichotomous that is the response to
theses question were either a yes or a no. Dichotomous questions are include in the study
because facilities easy tabulation analysis of the response.
Some questions were open end because the response to that question could vary greatly.
ACTUAL COLLECTION OF DATA: The researcher designer had wide variety of
method to consider either singly or in combination. They are group as follows
1. Primary data is original data that has not previously being collected. In this study
primary data was collected 80 individual customers and the total of the data collection
of adopt by the research for these study was the questionnaire.
2. Secondary data consist of ready available compiled statistical statement and report
whose data may be used. Common sources of the secondary data company
information system data.
Secondary data also has being collected from
• Magazine, newspaper – these sources also provide the latest
information with regard India Bulls Agency.
• Internet – the valuable information regarding past, present, future trend
in the financial service sector were gathered.
TOOLS USED FOR TESTING OF HYPOTHESIS In the research study the
researcher has used few statistical such as bar diagram, pie, percentage table etc.
SAMPLING PROCEDURE
Researcher is using the Convenience Sampling technique for sample selection criteria
because the population is not clearly defined.
DATA COLLECTION METHOD

Researcher is using the questionnaire technique for primary data collection. Here
researcher is conducting customer feedback sessions for filling up of questionnaire. This
questionnaire was provided by India Bulls agency to the researcher for survey.
EXPERTISE GROUP INTERVIEW
Researcher is conducting broker feedback sessions for filling up of questionnaire.
OTHER SOFTWARES USEDFOR DATA ANALYSIS:-Researcher is using many
software in which few of them are as follows:
MS – WORD
MS – EXCEL
Chapter – 3
ANALYSIS &
INTERPRETATION
RESEARCH DESIGN
Research design consists of three important terms plan – structure
and strategy of investigation conceived so on to obtain answer to
research question and to control variance is evident that research
design is more or, less a blue print orient of research. It can be
compared with the plan of house, which lays down the method and
procedure for the collection of requisite information and its measure
at certain meaningful conclusion at the end of proposed study.
FORMULATION OF QUESTIONNAIRE:-
To conduct a survey, questionnaire plays a major role because it is

the most popular method of conducting data. At first we have
decided which types of questions to be used. There are three types
of questions viz.
 Open-ended question
 Dichotomoces question
 Multi - choice question
An open-ended question gives the respondent complete freedom to
decide the form, length and detail of the answer to be provided by
him with regard to a particular question.
The Dichotomoces question has only two answer in the form of ‘yes’
or ‘no’ or ‘true’ or ‘false’.
In case of multiple choice questions, was very easy to understand by
respondent. Researcher offer them 4-5 options in each offered 1-5
type of ranking for requisite.
Keeping in view the objective the study, a short questionnaire was
developed using likert scale format.
PRESENTATION AND ANALYSIS OF THE DATA
TOOLS ANALYSIS.
Mainly for presentation of the data, here statistical representation
has been used. Statistical representation helps. In the interpretation,
retrospection and planning for the future and form the base of the
experience and organized in a narrative form, tabular or
graphical/diagrammatical form.
Now they are
Diagrammatic representation – pictorial representation of
statistical data is called so.
TYPESOF THE DIAGRAM USED
• PIE-CHART: This is very useful diagram to represent data, which are divided
into a number of categories. The diagrams consist of a circle divided into a number of
sectors. Where area is proportional to the values they represent. Again the areas of the
sectors are proportional to their angles of the different sectors. The full circle
represents the total value. This diagram can make comparison among the various
components or between a part and a whole of data EASILY.
• BAR CHART: This is another way of representation data graphically. As the name
implies, it consists of a number of ellipse bars, which originated from common base line
and equal widths. The length of these bars is proportional to the value they represent.
PERCENTAGE BAR: - These are particular useful in the statistical
work which require the presentation of the relative change of the
data. These are like the subdivided bar diagram, the only difference
being that the length of the bars kept equal and the division are
made in the bar represents the component of the aggregate.
The final stage in the statistical inquiry relates to the interpretation
of the data; that is drawing logical and meaningful conclusions from
the condense data. This requires expert skill and a lot of life into
simple figures. Ratios, percentage, average, charts, diagrams, index
number, time series, correlation and regression, co-efficient, all
these and many problems under investigation. These techniques help
us to understand the facts and set up tentative conclusions. Hence
conclusions are then tested for validity. If the figures confirm them,
then the final conclusions are drawn. A report to that effect is
drafted and the managerial decisions, regarding the future course of
action, are taken based on these conclusions.
Interpretation has two basis elements. The first is to relate

accurately the findings of the survey to the requirements of the
problem. We must look to the relevance of the data to the problem
under investigation. We must seek and find the link between the
information collected and the problem under investigation.
The second element of the interpretation relates to the conversion of
technical jargon into common language understood by even a Lyman.
Often, the statistical conclusions are much technical in character
and hence the common man or, even the managerial experts does not
understand its meaning and importance in his decision making. It is
therefore, necessary for the research expert to translate his technical
ideas into ordinary languages so that the reader is able to
understand, what have been found out as a result of investigations
and what means to him is and it affects him.
CHI – SQUARE TEST:-It is very popular test given by Karl

Pearson in 1990. This test is used to decide whether the discrepancy
between theory and experiment is significant or not, i.e. to test
whether the different between the theoretical and observed values
can be widely used test. But in this research study its uses
It is a very simple and widely used test. But in this research study
it’s mainly used “To test the independence of the attributes.”
Here the observation be classified according to two attributes and

the observed frequencies (On) in the different categories be shown
in a two way table called contingency table. Testing has been done
on the basis of cell frequencies whether the two attributes are
independence or not.
Under the null hypothesis (Ho) that the two attributes are
independent, the expected frequencies (Ei) of any cell = row total
*column/grand total.
The test statistic X 2

= [(Oi – Ei)] 2/Ei
Chi square distribution with v = df
If the calculated value of X 2

> the table value with v d.f. at
α label w we rejected null hypothesis Ho. Other wise we accept
Ho.
Thus, interpretation, formulation of logical and meaningful

conclusions it’s ultimate goal of all research.
Table – 1
Monthly income of the Respondents
Income group N o . of Percentage of Total

Respondent
Lessthen5,000 10 12.5%
5,000-15,000 15 1 8 . 7 5%
15,000-25,000 40 5 0%
Above 25,000 15 1 8 . 7 5%
Total 80 100
Source: - Questionnaires
It has been seen that 12.5% of respondent are in upto Rs.5,000
income group, 18.75% of respondent are in Rs.5,000-15,000 income
group, 50% of respondent are in Rs.15,000-25,000 income group,
18.75% of respondent are in Rs.25,000 income group.
Hence it can be concluded that most of the respondent are

falling in 15,000-25,000 income group.
Chart - 1
Source: Table – 1
Table - 2
Education Qualification of Respondents
Profession No. of Percentage of Total

Respondent
Under graduation 35 4 3 . 7 5%
Gr a d u a t i o n 20 2 5 . 0 0%
Post graduation 15 1 8 . 7 5%
Professional 10 1 2 . 5 0%
Total 80 100
It has been observed that 43.75% of respondent are in under

graduation, 25% of respondent are in Graduation, 18.75% of
respondent are in Post graduation, 12.50% of respondent are in
Professional.
Hence it can be concluded that most of the respondent are under

graduation.
Chart - 2
Source: Table - 2
Edu
Table - 3
Profession of Respondents
Profession No. of Percentage of Total

Respondent
Self employed 35 4 3 . 7 5%
Service 20 2 5 . 0 0%
Professional 15 1 8 . 7 5%
Others 10 1 2 . 5 0%
Total 80 100
It has been seen that 43.75% of respondent are in self employed,

25% of respondent are in Service, 18.75% of respondent are in
Professional, 12.50% of respondent are in others.
Hence it can be concluded that most of the respondent are self
employed
Chart - 3
Source: Table - 3
37.50%
Source: Table - 4
S a v i n g s P at t e r n s of t h e R e s p o n d e n t s
Savings No. of Percentage of

Respondent Total
Yes 75 9 3 . 7 5%
No 5 6.25%
Total 80 100
It has been seen that 93.75% of respondent are in savings for future,
25% of respondent are not savings for future.
Hence it can be concluded that most of the respondents are

savings for future.
Chart - 4
Source: Table - 4
Source: Table - 4
Table - 5
S a v i n g s P at t e r n s of t h e R e s p o n d e n t s
Source of No. of Percentage of Total

investment Responden
t
Bank 35 4 3 . 7 5%
Post office 15 1 8 . 7 5%
Stock market 20 2 5 . 0 0%
Others 10 1 2 . 5 0%
Total 80 100
Source:- Questionnaires
It has been seen that 43.75% of respondent are investing in Bank,

18.75% of respondents are in investing Post office, 25.00% of
respondents are in investing in Stock market, 12.50% of respondents
are in others.

investing in Bank.
Chart - 5
Source: Table - 5
Table - 6
R e s p o n d e n t s M e a n s of I n v e s t m e n t
Means No. of Percentage of

Respondent Total
India Bulls broker 26 3 2 . 5 0%
agency 20 2 5 . 0 0%
Share khan 24 3 0 . 0 0%
Anandrathi broker 10 1 2 . 5 0%
agency
Others
Total 80 100
It has been observed that 32.25% of respondent are investing their

savings through India Bulls broker agency , 25%of respondent in
Share khan, 30.25% of respondent in Anandrathi , 12.5% of
respondent are in Others through invest in share market.

investing their savings in share market through India Bulls broker
agency.
Chart - 6
Source: Table - 6
Resp
Source: Table - 6
32.25%
Table - 7
Objective of Respondents regarding investment
Objectives No. of Percentage of Total

Respond
ent
Short Term 40 5 0 . 0 0%
Long Term 20 2 5 . 0 0%
Capital Gain 10 1 2 . 5 0%
Others 10 1 2 . 5 0%
Total 80 100
It has been seen that 50% of respondent having Short Term objective
in investment , 25% having for Long Term , 12.5% of respondent for
Capital Gain, and 12.5% for others specified.
interested for Short Term objective.
Chart - 7
50.00%
Source: Table - 7
Source: Table - 7
Table - 8
A w a r e n e s s o f r i s k i n s t o c k m a r k et
Place No. of Percentage of

Respondent Total
Yes 15 1 8 . 7 5%
No 65 8 1 . 2 5%
Total 80 100
It has been seen that 18.75% of respondent are aware of different

risk associated with investment in stock market, while 65% of
respondent are not aware of risk.
Hence it can be concluded that most of the respondent are not aware
of risk in investment associated with stock market
.
Chart - 8
Source: Table - 8
Source: Table - 8
Table - 9
A w a r e n e s s o f r i s k h e d g i n g t o o l s a v a i l a b l e i n s t o c k m a r k et
Awareness of Risk No. of Percentage of

hedging techniques Respondent Total
Yes 10 1 2 . 5 0%
No 70 8 7 . 5 0%
Total 80 100
It has been observed that 12.50% of respondent are aware of

different risk hedging tools available in stock market, while 87.50%
Of respondent are not aware.
Hence it can be concluded that most of the respondent are not
aware of different risk hedging tools available in stock market.
Chart - 9
Source: Table
Source: -9 -
Table
Table - 10
R e s p o n d e n t s a w a r e n e s s t h a t b r ok e r i s u s i n g r i s k h ed g i n g
technique
Use of Risk hedging No. of Percentage of

techniques Respondent Total
Yes 10 1 2 . 5 0%
No 70 8 7 . 5 0%
Total 80 100
It has been seen that 12.50% of respondent are aware that the broker
are using risk hedging techniques, 87.50% of respondent are not
aware regarding that.
Hence it can be concluded that most of the respondent are not
aware of the fact that the broker are using risk hedging techniques.
Chart - 10
Respo
Source: Table - 10
Table - 11
Types of risk hedging technique used by investor
Risk hedging No. of Percentage of Total

techniques Respond
ent
Swap 10 1 2 . 5 0%
Futures 35 4 3 . 7 5%
Options 30 3 7 . 5 0%
Others 5 6.25%
Total 80 100
It has been seen that 12.50% of respondents are used Forward risk
hedging techniques, 43.75% of respondents are used Futures risk
hedging techniques, 37.50% of respondents are used Options risk
hedging techniques, 6.25% of respondents are used Others risk
hedging techniques.
Hence it can be concluded that most of the respondents are used

Futures risk hedging techniques.
Chart - 11
Ty
Source: Table - 11
Table - 12
Source of awareness regarding risk hedging mechanism
Inspired Group No. of Percentage of

Respondent Total
Peers 5 6.25%
Brokers 60 7 5 . 0 0%
Relatives 5 6.25%
Others 10 1 2 . 5 0%
Total 80 100
It has been observed that 6.25% of respondents are inspired with

Peers Group, 75% of respondents are inspired with Brokers Group,
6.25% of respondents are inspired with Relatives Group, 12.50% of
respondents are inspired with Others Group.
Hence it can be concluded that most of the respondents are 75%

of respondent are inspired with Brokers.
Chart - 12
Sou
Source: Table - 12
Table - 13
Enjoying the benefits by using risk hedging technique
Enjoying of Risk No. of Percentage of
hedging techniques Respondent Total
Yes 25 3 1 . 2 5%
No 55 6 8 . 7 5%
Total 80 100
It has been seen that 31.25% of respondents are enjoying their risk
hedging techniques, 68.75% of respondents are not enjoying their
risk hedging techniques
Hence it can be concluded that most of the respondents are not

enjoying their risk hedging techniques.
Chart - 13
Enj
Source: Table - 13
Table - 14
Showing Respondents are getting benefit by risk hedging

techniques
Benefits No. of Percentage of

Responde Total
nt
Protection against price 40 5 0 . 0 0%
fluctuation
Avoidance of carrying
10 1 2 . 5 0%
costs
Proper planning for
buying and selling 20 2 5 . 0 0%
Others 10 1 2 . 5 0%
Total 80 100
It has been seen that 50% of respondents are getting benefit by
Protection against price fluctuation, 12.50% of respondents are
getting benefit by Avoidance of carrying costs, 25% of respondent
are getting benefit by proper planning for buying and selling,
12.50% of respondents are getting benefit by others.

getting benefit by Protection against price fluctuation.
Chart - 14
Sho
Source: Table - 14
Table - 15
Major problems encountered by investor in using risk
hedging tools
Problems No. of Percentage

Respondent of Total
Inbuilt speculative 20 2 5 . 0 0%
mechanism
Counterparty risk 20 2 5 . 0 0%
Absence of proper
infrastructure 30 3 7 . 5 0%
Others 10 1 2 . 5 0%
Total 80 100
It has been seen that 25% of respondents are face the Inbuilt
speculative mechanism problems, 25% of respondents are face the
Counterparty risk problems, 37.50% of respondent are face the
Absence of proper infrastructure problems, 12.50% of respondents
are face the problems Others .
Hence it can be concluded that most of the respondents are face

the Absence of proper infrastructure problems.
Chart - 15
Major pro
Source: Table - 15
Table - 16
S a t i s f a c t i o n l e v e l of i n v e s t o r u s i n g d e r i v at i v e
Satisfactory level No. of Percentage of
Respondent Total
Good 10 1 2 . 5 0%
Very good 15 1 8 . 7 5%
Excellent 40 5 0 . 0 0%
Poor 15 1 8 . 7 5%
Total 80 100
It has been seen that 12.50% of respondent’s satisfied level “Good”

regarding derivatives, 18.75% of respondent’s satisfied level “Very
good” regarding derivatives, 50% of respondent’s satisfied level
“Excellent ” regarding derivatives, 18.75% of respondent’s satisfied
level “Poor” regarding derivatives.
Hence it can be concluded that most of the respondent’s

satisfied level “Excellent” regarding derivatives.
Chart - 16
Source: Table - 16
Institutional respondent
Table - 17
Showing Responses about Derivatives
Awareness of No. of Percentage of Total

Derivatives Respondent
Yes 2 2 0%
No 8 8 0%
Total 10 100
It has been seen that 80% of respondents are using Derivatives

techniques in stock trading, while 25% of respondents are not.
Hence it is clear that most of the respondents is using
Derivatives techniques in stock trading.
Chart - 17
Source: Table - 17
Table - 18
Use of derivative in stock market by broker
Use of No. of Percentage of Total
Derivatives Respondent
Yes 8 8 0%
No 2 2 0%
Total 10 100
It has been seen that 80% of respondents are using Derivatives

techniques in stock trading, while 25% of respondents are not.
Hence it is clear that most of the respondents is using
Derivatives techniques in stock trading.
Chart - 18 U
Source: Table - 18
Table -19
T y p e s o f d e r i v at i v e t e c h n i q u e u s e d b y b r o k e r
Derivatives No. of Percentage of

techniques Respondent Total
Future 3 3 0%
Option 4 4 0%
Swap 1 1 0%
Others 2 2 0%
Total 10 100
It has been seen that 30% of broker are using futures derivatives
techniques, 40% of option derivative, 10% are swap derivatives
techniques, while 20 %respondents are using other specified.
Hence it can be concluded that most of the Broker are using
option derivatives techniques.
T
Chart - 19
Source: Table -19
Table - 20
B r o k e r r e c o m m e n d e d f o r d e r i v at i v e s
Recommendation No. of Percentage of Total

for derivatives Respondent
Yes 7 7 0%
No 3 3 0%
Total 10 100
It has been seen that 70% of respondents are recommending for

using derivative techniques to his/her investor, while 25% of
respondents are not recommending.
Hence it can be concluded that most of the broker are

recommending for using derivative techniques to his/her investor .
Chart - 20
Source: Table - 20
Source: Table - 20
Table - 21
Main Objective for Derivatives
Use for No. of Percentage of Total
derivatives Respondent
Hedging the 6 6 0%
risk
Speculative 4 4 0%
Total 10 100
It has been observed that 60% of respondents are using derivatives

techniques for hedging the price risk, while 40% of respondents are
using for Speculation.
Hence it can be concluded that most of the respondent are using

derivatives techniques for hedging the price risk
Chart - 21
Source: Table - 21
Table - 22
Showing Respondent’s awareness of Derivatives

techniques
Awareness of No. of Percentage of Total
derivatives Respondent
Yes 3 3 0%
No 7 7 0%
Total 10 100
It has been seen that 30% of respondents are aware of Derivatives

techniques, 70% of respondents are not aware of Derivatives
techniques.
Hence it can be concluded that most of the respondents are not

aware of Derivatives techniques.
S h o w in g
Chart - 22 70%
60%
Source: Table - 22
Table - 23
E f f e c t i v e n e s s of u s i n g d e r i v at i v e s
Effectiveness N o . of Percentage of Total
Respondent
Highly effective 5 5 0%
Moderately 3 3 0%
Low effective 1 1 0%
Not at all 1 1 0%
Total 10 100
It has been seen that 50% of respondents think derivatives technique
is highly effective, 30% of respondents say moderated, while 10% of
respondents say its low effective and 10% think it is not at all
effective one.
Hence it can be concluded that most of the respondents think

derivative is a highly effective tool for risk hedging in stock
market.
Sho
Chart - 23
Source:
Source: Table
Table - 23- 23
Source: Table - 23
HYPOTHESIS TESTING
Sample size = 80
Number of respondent trading share with derivatives=8
Out of which 7 are able reduce risk with derivatives
Number of respondent trading share with derivatives=72
Out of which 65 are not satisfied.
Null hypothesis, Ho: - there no significant difference in share
trading with derivative and without derivatives.
Alternative hypothesis,: H1 there no significant difference.
The researcher presented the data in a 2*2 contingency table.
Types of Trading Satisfied Not Satisfied Total

with with
Derivatives Derivatives
With Derivatives 7(A) 1(B) 8
Without 7(C) 65(D) 72

Derivatives
Total 14 66 80
The expected frequencies of the cells:-
A=1.4
B=6.6
C=12.6
D=59.4
The calculated value of chi square = 30.1579
Also Degree of freedom (df) = (2-1) (2-1) = 1
Testing significant level = 5% and the table value of chi square at 5% level with 1df is
3.841.
Since calculated value of chi-square> table value. Hence null h y p o t h e s i s i s r e j e c t e d
Ho and accept H1 and conclude that there is a significant
difference in share trading with derivative and without derivatives.
Chapter – 4
FINDING & SUGGESTION
Finding of the study

The in-depth analysis of investor those invest in stock market shows the following
finding:
• Most of the respondents are come in 15,000-25,000 income
groups.
• Most of the respondents are under graduation.
• Most of the respondents are self employed.
• Most of the respondents are in savings for future.
• Most of the respondent are invest in Bank.
• Most of the respondent are invest in share market through India
Bulls broker agency.
• Most of the respondents are Short Term investor.
• Most of the respondents are not aware in different risk associated
with in stock market.
• Most of the respondent are not aware of different risk hedging
techniques are available in stock market.
• Most of the respondents are not aware that the broker used in risk
hedging techniques.
• Most of the respondents are used Futures risk hedging techniques.
• Most of the respondents are inspired with Brokers.
• Most of the respondents are not enjoying their risk hedging
techniques.
• Most of the respondents are getting benefit by Protection against
price fluctuation.
• Most of the respondent are face the Absence of proper
infrastructure problems.
• Most of the respondent’s satisfied level “Excellent” regarding
derivatives.
• Most of the respondents are aware about derivatives.
• Most of the respondents are used Derivatives techniques in stock
trading.
• Most of the respondents are used in option derivatives techniques.
• Most of the respondents are recommended to his/her investor for
use derivative techniques.
• Most of the respondents are used derivatives techniques for
hedging the price risk.
• Most of the respondents are not aware of Derivatives techniques.
• Most of the respondent thought derivatives techniques highly
effective.
SUGGESTION
In derivatives market there should be proper legislations for the

effective implementation of derivative contracts. The utility of
derivatives through hedging can be derived, only when, there is
transparency with honest dealings. The players in the derivative
market should have a sound financial base for dealings derivative
transactions. What is more important for the success of derivatives
is the prescription of proper capital adequacy norms, training of
financial intermediaries and the provision of well- established
indices. Brokers must also be trained in the intricacies of the
derivative transactions.
Now, derivatives have been introduced in the Indian Market in the

form of index options and index futures. Index options and index
futures are basically derivate tools based on a stock index. They are
really the risk management tools. Since derivatives are permitted
legally, one can use them to insulate his equity portfolio against the
vagaries of the market.
Every investor in the financial area is affected by index
fluctuations. Hence, risk management using index derivatives is of
far more importance than risk management using individual security
options. Moreover, portfolio risk is dominated by the market risk,
regardless of the composition of the portfolio. Hence, investors
would be more interested in using index-based derivative products
rather than security – based derivative products.
There are no derivatives based on interest rates In India
today. However, Indian users of hedging services are allowed to buy
derivatives involving other currencies on foreign markets. India has
a strong dollar rupee forward market with contracts being traded for
one to six months expiration. Daily trading volume on this forward
market is around $500 million a day. Hence, derivatives available in
India in foreign exchange area is also highly beneficial to the user.
• Awareness regarding various risk hedging techniques in the
investor should be improved for that purpose concern organization
can take help from advertise and print media.
• To increase the awareness in investor for long term investment
the concerned organization should think to improve.
• Prices in an organized derivatives market reflect the perception
of market participants about the future and lead the prices of
underlying to the perceived future level. The prices of derivatives
converge with the prices of the underlying at the expiration of the
derivative contract. Thus, derivatives help in discovery of future
as well as current prices.
• The derivatives market helps to transfer risks from those who
have them but may not like them to those who have an appetite for
them.
• Derivatives due to their inherent nature are linked to the
underlying cash markets. With the introduction of derivatives the
underlying market witnesses higher trading volumes because of
participation by more players who would not otherwise participant
for lack of an arrangement to transfer risk.
• Speculative trades shift to a more controlled environment of
derivatives market. In the absence of an organized derivatives
market speculators trade in the underlying cash markets.
Margining, monitoring and surveillance of the activities of various
participants become extremely difficult in these kinds of mixed
markets.
• An important incidental benefit that flows from derivatives
trading is that it acts as a catalyst for new entrepreneurial activity.
The derivatives have a history of attracting many bright creative
well-educated people with an entrepreneurial attitude. They often
energies others to create new, businesses new products and new
employment opportunities, the benefits of which are immense.
• Derivatives markets help increase savings and investment in the
long run. Transfer of risk enables market participants to expand
their volume of activity.
• Hedgers face risk associated with the price of an asset. They use
futures or options markets to reduce or eliminate this risk.
• 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 are in business to take advantage of a discrepancy of
a between prices in two different markets.
• India Bulls as a firm should try to put more emphasis on the customer satisfaction to
the direction of achieving this end the branch should guide the investor and help them
make their investment decisions. This will make the investors a bit more confident
about their actions.
• The company should make some efforts to indicate the habit of online trading among
the local masses, for this the company should adopt a proper and well targeted
marketing.
• In order to increase its efficiency in operation, the firm should bring about few
organizations changes, it should be aware of the customers needs; it should bring up
more advertising techniques like campaign.
Chapter – 5
ANNEXURE
THE QUESTIONNAIRE USED BY FOR COLLECTION DATA
COLLECTION IS AS FOLLOWED:
CUSTOMER RESPONSE
Dear
Respondent,
I Debasish Gupta a student of Gyan Jyoti College is
conducting a survey to study A study on Various risk hedging
techniques (Derivatives) in stock Market. It a part of academic
curriculum which is carried under Department of Business
administration and research, Gyan Jyoti College. It is a kind
request to you to fill up the following questionnaires and co-
operate me for completing my project.
I would be thankful if you answer the following question.
A) Name of area being surveyed:…………………………
B) Types of establishment
a) Residential
i) Apartment ii) Colony iii) Village
C) Commercial
i) Shopping Mall ii) business establishment
D) Company’s person Name:…………………………
E) Address:…………………………………………………
……………………………………………
F) Telephone No.:…………………
G) E-mail:…………………………………………………
1. Monthly household income (Rs)……?
(A) Less then 5,000 (B) 5,000 – 15,000
(C) 15,000 – 25,000 (D) 25,000
2. Educational Qualification:
(A) Under Graduation (B) Graduation
(C) Post Graduation (D) Professional
3. What is your profession?
(A) Self employed (B) Service
(C) Professional (D) Others Specify…………
4. Do you invest for savings?
(A) Yes (B) No
5. If yes where are invest?

(A)Bank (B) Post office
(C) Stock market (D) Other Specify…………
6. If you invest in stock market then which broker through will
you?
(A) India Bulls broker agency (B) Sharekhan
(C) Anand rathi broker agency (D) Other Specify…
7. What is your objectives regarding investment?
(A) Short Term (B) Long Term
(C) Capital Gain (D) Other Specify…………
8. Are you aware of what types of risk associated with your
investment in stock market?
(A) Yes (B) No
9. Are you aware how many risk hedging techniques are
available in stock market?
(A) Yes (B) No
10. Are you known your broker used any types of risk hedging
techniques?
(A) Yes (B) No
11. If yes then what types of risk hedging techniques are you
used?
(A)Swap (B) Futures
(C) Options (D) Other Specify…………
12. Who inspired you to use the risk hedging techniques?
(A) Peers (B) Brokers
(C) Relatives (D) Other Specify…………
13. Are you enjoying with your risk hedging techniques?
(A) Yes (B) No
14. If yes then which types of benefit are getting from your risk
hedging techniques?
(A) Protection against price fluctuation (B) Avoidance of
carrying costs
(C) Proper planning for buying and selling (D) Others
Specify…………
15. If no then which types of problem are face in your risk
hedging techniques?
(A) Inbuilt speculative mechanism (B)Counterparty risk
(C)Absence of proper infrastructure (D) Others
Specify…………
16. What is of your satisfactory level regarding derivatives?
(A) Good (B) Very good
(C) Excellent (D) Satisfactory
THE QUESTIONNAIRE USED BY FOR COLLECTION DATA
COLLECTION IS AS FOLLOWED:
INSTITUTIONAL INVESTOR RESPONSE

Dear
Respondent,
I Debasish Gupta a student of Gyan Jyoti College is
conducting a survey to study A study on various risk hedging
techniques (Derivatives) in stock Market. It a part of academic
curriculum which is carried under Department of Business
administration and research, Gyan Jyoti College. It is a kind
request to you to fill up the following questionnaires and co-
operate me for completing my project
I would be thankful if you answer the following question.
A) Name of area being surveyed:…………………………
B) Company’s person Name:………………………………
C) Address:…………………………………………………
……………………………………………….
D) Telephone No. :…………… E) E-mail:……………………
1. Do you familiar with the concept of derivatives?
(A) Yes (B) No
2. Do you use derivatives techniques in stock trading?
(A) Yes (B) No
3. If yes then which types of derivatives do you use?
(A) Futures (B) Options
(C)Swap (D) others specify……………
4. Do you recommendation any derivatives techniques to your client?
(A)Yes (B) No
5. Why the investors are using the derivatives techniques?

(A) Hedging the risk (B) Speculation
6. Do you think investors are aware about derivatives techniques?
(A)Yes (B) No
7. Do you derivative is the effective risk hedging techniques?
(A) Highly effectives (B) Moderately
(C) Low (D) Not at all
O T H E R T O O L S US E D
Chi-square test for independency of attribute.

The expected frequency of any cell = row total*Column Total /
grand Total
Expected Frequency of cell A=8*14/80=1.4
B=8*66/80=6.6
C=14*72/80=12.6
D=66*72/80=59.4
Bibliography
Website
www.NSEIndia .com
www.BSEIndia .com
www.India Bulls .com
www.moneycontrol .com
www.Derivatives .com
Magazine and Newspaper

The Telegraph
The Economics Times
Reference
Marketing Research
By S SHAJAHAN
Investment Analysis and Portfolio Management
By PRASANA CHANDRA
Financial Markets and Services
By GORDON. NATARAJAN
Marketing Management, Sikkim Manipal University
Financial Management, Sikkim Manipal University

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GYAN JYOTI COLLEGE

NORTH BENGAL UNIVERSITY

IN PARTIAL FULFILLMENT FOR THE AWARD OF THE

BACHELOUR OF BUSINESS ADMINISTRATION (BBA)

GYAN JYOTI COLLEGE

GYAN JYOTI COLLEGE

Certified that project report “A STUDY ON VARIOUS RISKS

Internal Examiner External Examiner

(Bachelor of Business Administration)

Of many people who have enormously helpful in conducting this

project I am especially grateful to The Branch manager Mrs. Tanima

Ghosh of his continued support, encouragement and friendly

behaviour. I would like to thank particularly Mrs. Moon Moon Singh

(Sen), Regional Co-Ordinator, INDIA BULLS FINANCE LTD. For

devoting his/her valuable time and briefing me on various aspect of

the study on various risks hedging techniques (derivatives).

I would like to Acknowledgement my Teacher Mrs. Monalisa, BBA

I am also thankful to all the staffs of INDIA BULLS FINANCE LTD.

In Siliguri Branch and all the staffs of those particular where

I am conducting the study for their aduring the course of my project.

I here by declare that I am Debasish Gupta a student of GYAN

PLACE: Siliguri Debasish Gupta

Date: (Reg. No. : - 790045)

(Roll. No. : - 79/BBA/080226)

UNIVERSITY STUDY CENTRE CERTIFICATE

This is to certify that the project entitled “A STUDY ON VARIOUS

DEBASISH GUPTA has worked under my supervision and guidance

CHAPTER – 1 Introduction………………………………………………….1 -60

CHAPTER – 3 Analysis and interpretation……………………………66 - 117

• To identify the method of trading in stock market.

In derivatives market there should be proper legislations for the

Now, derivatives have been introduced in the Indian Market in the

In this context, derivatives occupy an important place as a risk reducing

The SCRS was amended in December 1999 to include derivatives

Derivatives trading commenced in India in June 2000 after SEBI

Counterparty risk arises from the possibility of default by any

This market however suffered from two deficiencies. First, there

To trade securities, a customer must open a security trading

Index futures in particular can be very effectively used to get

1. On day one, sell the security on the cash/spot market at 1000.

The figure shows the profits/losses from a long position on the

Payoff for an investor who went short of Nifty at 2220

The figure shows the profits/losses for the buyer of a three-

Payoff for writer of call option

The software F&O market has been developed to facilitate efficient

Clearing and settlement

Assignments are made at the end of the trading day on which

The most critical component of risk containment mechanism for

Corporate actions can be broadly classified under stock

• To identify the method of trading in stock market.

I About India Bulls

INDIA BULLS covers the entire spectrum of financial services such

Overview Of The Company

Their highly qualified manpower, cutting-edge technology,

Their values and vision of attaining total competence in their

India Bulls Consultants Limited

Board of Directors& India Bulls Group India Bulls

India Bulls Stock Broking Limited

Stock Broking Services | Distribution of Financial Products |

India Bulls offer trading on a vast platform; National Stock

India Bulls Stock Broking services are widely networked across

To empower the investor further they have made serious efforts to

India Bulls Investors Services Limited

Their financial advice and assistance in restructuring, divestitures, acquisitions, de-