Report BGSE

8/14/2019 Report BGSE

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1. Industry Overview

The Indian equity market has widely been regarded as the best performing

amongst the emerging markets of the world. This has also been proved beyond

doubt across the financial world that the regulatory norms in place governing

the Indian Capital Market are one of the best in the world. Recently NSE has

been awarded Derivative Exchange of the year by Asia Risk Magazine.

Morgan Stanley research has estimated that trading volumes in the Indian

Markets isexpected to double to $ 3.2 trillion in 2010 from about $1.6 trillion currently

translating into 2530 percent annual growth. Morgan Stanley has also projects

the Indian brokerage business to grow to $3.9 billion by 2015. Hence lots of

international financial services major like Citigroup,Standard Chartered,

Frances Societe Generale, Kuwait based Global investment house,Duetche

Bank, ABN Amro, UBS, Fortis (European banking and insurance major), BNP

Paridas, E*Trade (Fourth largest online broking firm in US) have announced

their foray in the securities and wealth management business in India either

through joint ventured with leading Indian broking houses or plans to venture

in at their own in a big way.

The government of Indias increasing thrust too on use of derivatives for risk

management in the area of Commodity Prices, Foreign Currency and Interest

Rates also call for investigating the risk-return dynamics of investing/trading

with derivatives.

The growth of these markets has led to increasing involvement by institutions,

private equity, and international employees pension/insurance/provident funds

like CalPERS and individuals for investment purposes. As a result, there is

demand for academic research considering advantages and disadvantages of

K.L.E Societys Institute of Management Studies & Research, Hubli

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including managed derivatives in investors' portfolios. The proposed study

imbibes to enrich the body of knowledge in the field of managed stock futures

that will have far-reaching application.

Traded Value in Derivative Segment


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Records achieved in F&O Segment


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2. Company Overview

2.1 Holding Company

The Bangalore Stock Exchange Limited (BgSE) is a self regulatory

organisation located in the garden city of India. The Exchange is managed by

the Governing Board consisting of members nominated by Securities Exchange

Board of India (SEBI), Public Representatives, Elected members and an

Executive Director. The Exchange has been serving the investor community

continuously since its inception in the year 1963.

Over the decades, it has been a journey of progress to the Exchange from the

pith to the pinnacle, from the alcove to the acme and, has emerged as a premier

Exchange in India. The continuous change alone is the changeless law.

As the saying goes, to keep pace with the fast changing technology and

financial system, the Exchange went On-line in 1996. The Exchange has come

a long way since the launch of BEST (Bangalore Electronic Securities

Trading), its On-line trading system on 29th July 1996.

Empowerment of the investors in the market has been the focus of the

Exchange. Information needs of market participants are met through the

Service Centres established by the Exchange at various places in Karnataka. In

addition to this, Investment Education Centre at Bangalore plays a vital role in

enhancing the knowledge base of the participants through several short and

long duration programmes.


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2.1.1 Members

The Exchange has 241 members serving the diverse needs of investors. The

corporate members constitute more than 25% of the total membership of the

Exchange. Members operate within the overall framework of policies and

practices developed over a period of time by the Exchange.

2.1.2 ListingThe securities listed at the Exchange includes a number of innovative and

seasoned corporates from different sectors of industry. As on 31st March 2006,

the number of companies listed on the Exchange are 384 consisting of 186

regional and 198 non regional companies.

2.1.3 Investor Services Centre

With a view to support the investors to resolve their grievances expeditiously,

Exchange has established a Investor Services Committee comprising of Public

Representatives, members and Executive Director, who oversee the functioning

of the Cell and they take appropriate steps for amicable settlement.

To enable the investors at other places to have access to various services,

Centres have been set up at Davangere, Hassan, Hubli, Mysore, Madkeri,

Mangalore Shimoga and Tumkur.


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2.1.4 Investor Information Centre

The Exchange has established a well equipped Library and Investor

Information Centre to cater to varied information needs of investors, corporates

members and others. The Centre has a collection of wide range of books,

periodicals, journals, annual reports, prospectus and research publications

relating to Capital markets. Circulars, notifications issued by authorities are

available. Draft prospectus, offer documents and other related information are

displayed regularly.

In addition, information on over 4000 companies is available in the Corporate

data-bank for investors, corporates and members to help them in investment

decision making process. This data bank consists of details of promoters,

previous public issues, track record, digital form annual reports, financial

performance of companies. Fundamental analysis and Technical analysis, other

general information on industry, sector and economic scenario etc., are

available.

2.1.5 Investment Education Centre

Empowerment of investors through education is the focus of the Exchange. The

Exchange has established an exclusive investment education centre to cater to

the needs of the market participants. This Centre conducts regular and intensive

training sessions, seminars and workshops. In addition to this, the Exchange

continuously holds monthly Investors Meet at Bangalore on last sunday of

every month on various current topics and issues


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2.2 BgSE Financials Limited, a company jointly promoted by Bangalore

Stock Exchange Limited and its members was incorporated in the year 1999.

The tech savy company inherits from its parent, Bangalore Stock Exchange, a

strong legacy of nearly four decades of uninterrupted & unmatched expertise

and trust with the investing public in the Capital Market.

The Company has a vision of being one of the leading financial super markets

in India covering a wide array of products & services supported by a large

network of delivery channels spread across the Country as well as being thetrusted name amongst the broking fraternity in the Country through

strategic alliances both at national and international levels.

BgSE Financials Limited has corporate membership with both National Stock

Exchange of India Ltd. (NSE) and Bombay Stock Exchange Ltd. (BSE). The

Company facilitates trading on these premier exchanges through a strong

network of registered traders. The unique feature of BgSE Financials Limited is

that it does not trade on its own account instead provides facilities to its Sub-

brokers to offer quality services to investing public. BgSE Financials Limited

has more than 150 registered Sub-brokers with presence in the state of

Karnataka, Chennai, Delhi, Kolkatta and Mumbai.

The Companys unique trading system allows the Trader to access multiple

markets viz.NSE (Cash and F&O Segments) and BSE (Cash Segment) through

a single window, thus giving the advantage of instant choice of the Exchange

where he/she would like his/her order to be executed. Using state-of-the-art

technology, trading on these exchanges is made possible even from remote

locations through VSAT and leased lines. The company offers Trading Floor

facilities at its Corporate Office at Bangalore as also at key centres in the State

of Karnataka at Davangere, Hubli, Hassan, Madikeri, Mysore, Mangalore,

Shimoga and Tumkur.


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2.2.1 SERVICES OFFERED BY THE COMPANY :

DP Services

Real Time Trading at NSE/BSE

Online/Internet Trading at NSE/BSE & F&O

Trading in F&O

Distribution of Mutual Funds

GOI Relief Bonds/Capital Gain Bonds/Tax Saving Bond

Retail Debt Market segment of NSE

IPO

Registrar & Share Transfer Agent

2.2.2 Depository Participant (DP) Services

The Company is a registered Depository Participant(DP) of National Securities

Depository Limited(NSDL). The Company offers DP services to varied clients

spread across the Country viz., clearing members, traders and

investors. Currently, the client base is around 75000 and the same is increasing

day-by-day.


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2.2.3Salient Features of the DP Services are:

Low transaction charges: Charges levied by BgSE Financials Limited are

perhaps the lowest in the industry.

Quicker Settlement: Having trading arrangements with the broking

intermediary which is also a Depository Participant gives an edge in terms of

savings in time and cost.

Greater Convenience: Multiple services all under one roof thereby avoiding

the hassle of dealing with multiple agencies for different services.

Network: An ever increasing network of service points brings BgSE Financial

Limited to close proximity with its clients and investing public.

Technology: State-of-art-technology has been implemented to provide better

and faster service.

Registrar & Share Transfer Agent

The Securities and Exchange Board of India has recently granted the

Certificate of Registration to the Company to take up activities as \" Category I

- Registrar to an Issue and Share Transfer Agent\" . The company is

commencing the above operations very shortly.


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2.3 Board of Directors

Chairman Justice R Jayasimha Babu

Independent Director Mr. N. Nityananda

Independent Director Major General. T.M.John

Independent Director Mr. M.R. Mayya

Director Mr. M.K. Ananda KumarChief Executive Officer Mr.K.N.Ramanatha


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3. Some of the competitors for Sharavu Securities Pvt Ltd are as follows-:

3.1 Indiabulls

Indiabulls is Indias leading Financial Services and Real Estate company

having over 640 branches all over India. Indiabulls serves the financial needs

of more than 4,50,000 customers with its wide range of financial services and

products from securities, derivatives trading, depositary services, research &

advisory services, consumer secured & unsecured credit, loan against shares

and mortgage & housing finance. With around 4000 Relationship Managers,

Indiabulls helps its clients to satisfy their customized financial goals. Indiabulls

through its group companies has entered Indian Real Estate business in 2005. It

is currently evaluating several large-scale projects worth several hundred

million dollars.

3.1.1 Indiabulls Financial Services Ltd is listed on the National Stock

Exchange, Bombay Stock Exchange and Luxembourg Stock Exchange. The

market capitalization of Indiabulls is around USD 2500 million (29th

December 2006). Consolidated net worth of the group is around USD 700

million. Indiabulls and its group companies have attracted USD 500 million of

equity capital in Foreign Direct Investment (FDI) since March 2000. Some of

the large shareholders of Indiabulls are the largest financial institutions of the

world such as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley

and Farallon Capital.

3.2 Way 2 Wealth

Way2Wealth is a premier Investment Consultancy Firm that has been launched

with the aim of making investing simpler, more understandable and profitable

for the investors. Way2Wealth brings a wide range of product offerings from

Fixed Income Securities, Life Insurance and Mutual Funds to Equity and

Derivatives (on the National Stock Exchange) for the convenience and benefit


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of it customers. Way2Wealth has over 40 easily accessible Investment Outlets

spread across 20 major towns and cities in the country.

Mission

Way2Wealth is a premier Investment Consultancy Firm, launched with

the mission to be the pre-eminent destination for personalized financial

solutions helping individuals create wealth.

Philosophy

We believe that our knowledge combined with our investors trust and

involvement will lead to the growth of wealth and make it an exciting

experience.

Sivan Securities started in 1984, has a long and illustrious track record of being

amongst the premier Financial Intermediaries in the country as well as being anincubator for IT start-up firms.

The Venture Capital division came to be known as Global Technology

Ventures (GTV has provided venture capital to companies such as Kshema

Technologies, MindTree, Ivega etc.) and the Financial Intermediary Division

was spun off as Way2Wealth in the year 2000. Way2Wealth is promoted by

Sivan Securities and Global Technology Ventures Ltd.

3.3 ASIT C MEHTA

Mission:

To build reputation synonymous with quality, competitiveness, reliability,

fairness and transparency in business dealings and be a responsible corporate

citizen.


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Capital and Currency Market Intermediation:

Asit C. Mehta investment Intermediates Ltd. currently provides most of the services

as follows:

Equity Market Trade Execution Service:-Membership of the National

Stock Exchange (NSE),The Stock Exchange, Mumbai (BSE) Trade

Execution is done through Private Network which is approved by theExchanges and efficiency is offered in trading by display of rates of both

the exchanges simultaneously.

Derivatives Trading:-Membership of Futures and Options segment of

National Stock Exchange and derivatives segment of The Stock

Exchange Mumbai.

On Line Trading Facility:-Approval granted by NSE and BSE as per

norms laid down by SEBI for providing such facility,

www.investmentz.com is the website that provides on line trading

facility.

Depository Services: -A depository participant of Central Depository

Services of India (CDSL).

IPO Services: -Using the technology backbone the company provides

an online services to bid for various IPOs . It is also possible to actively

participate in IPO market even from centers, which do not have

collection bank facilities.

Mutual Fund distribution: -The company is an approved distributor of

various Mutual funds. The company has developed the necessary

software to aid the investor in deciding the mutual fund scheme that is

best suited to his investment objectives.

Portfolio Management Service: -The group company, Nucleus Netsoftand GIS (India) Ltd. holds a license for providing Portfolio Management


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Services. The company is in the process of finalizing various schemes

for investing through PMS service.

3.4 Motilal Oswal

Motilal Oswal Financial Services is a well-diversified financial services group

having businesses in securities, commodities, investment banking and venture

capital.

With 1160 Business locations and more than 2,00,000 investors in over 360

cities, Motilal Oswal is well suited to handle all your wealth creation and

wealth management needs.

The company has in the last year placed 9.48% with two leading private equity

investors - New Vernon Private Equity Limited and Bessemer Venture Partners

at post money company valuation of Rs. 1345 crore. (Rs. 13.45 billion).

Motilal Oswal Financial Services Ltd., consists of four companies.

Motilal Oswal Investment Advisors Pvt. Ltd. is our Investment Banking arm

with collective experience of over 100 years in investment banking/corporate

banking and advisory services

Motilal Oswal Commodities Broker (P) Ltd. has been providing commodity

trading facilities and related products and services since 2004.

Motilal Oswal Venture Capital Advisors Private Limited has launched the

India Business Excellence Fund (IBEF), a US$100 mn India focused Private

EquityFund..

3.4.1 Motilal Oswal Securities Ltd. (MOSt) is a leading research and

advisory based stock broking house of India, with a dominant position in both

institutional equities and retail wealth management. Our services include


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equities, derivatives, e-broking, portfolio management, mutual funds,

commodities, IPOs and depositary.

Motilal Oswal Securities Ltd. was founded in 1987 as a small sub-broking unit,

with just two people running the show. Focus on customer-first-attitude, ethical

and transparent business practices, respect for professionalism, research-based

value investing and implementation of cutting-edge technology have enabled

us to blossom into an almost two thousand-member team.


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BRANCHES OF BGSE FINANCIALS LIMITED

ARSIKERE

CHITRADURGA

(DP Collection Centre)

DAVANGERE

HASSAN

DHARWAD

HUBLI

MADIKER


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4. Theoretical background of the project :

Rational investors wish to maximize the returns on their funds for a given level

of risk. All the investment decisions possess varying degree of risks. Returns

come in the form of income such as interest or dividends or through growth in

capital values (i.e. capital gains) short terms as well as long term.





been awarded Derivative Exchange of the year by Asia Risk Magazine.In

India, NSE has close to 95 percent market share in the total traded volume of

business transacted in India and more than 99.5 percent market share in the

total traded volume in the derivative segment. The derivative volumes has been

more than 80 percent of the combined traded volumes (Equity & Derivative

Segment) and are growing with an accelerated pace.

Trading volumes in the equity segment have grown rapidly with average daily

turnover increasing from Rs.17 crores during 1994-95 to Rs.6,253 crores

during 2005-06., where as in the derivative segment it has grown to Rs. 19,220

from merely Rs. 413 crores in the year 2001-02. As of now, for the month of

March 2007 average daily turnover was Rs. 7998 crores for equity segment and

Rs. 33,036 for derivative segment. The volumes in the derivatives have been

progressively more escalating in the case of index

based derivatives. In the month of December 2006, S&P CNX Nifty has 39

percent and 83 percent share in the traded volumes of futures segment and

options segment respectively (Derivatives Update, December 2006, NSE). The


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aggregate share of Nifty in futures and options has been 58.27 percent for the

month of March 2007.


Markets is expected to double to $ 3.2 trillion in 2010 from about $1.6 trillion

currently translating into 25- 30 percent annual growth. Morgan Stanley has

also projects the Indian brokerage business to grow to $3.9 billion by 2015.

Hence lots of international financial services major like Citigroup, StandardChartered, Frances Societe Generale, Kuwait based Global investment house,

Duetche Bank, ABN Amro, UBS, Fortis (European banking and insurance

major), BNP Paridas, E*Trade (Fourth largest online broking firm in US) have

announced their foray in the securities and wealth management business in

India either through joint ventured with leading Indian broking houses or plans

to venture in at their own in a big way.




with derivatives. The growth of these markets has led to increasing

involvement by institutions, private equity, and international employees

pension/insurance/provident funds like CalPERS and individuals

for investment purposes. As a result, there is demand for academic research

considering advantages and disadvantages of including managed derivatives in

investors' portfolios. The proposed study imbibes to enrich the body of

knowledge in the field of managed stock futures that will have far-reaching

application.


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Hence, the researcher has realized that there is definite need to look into the

derivative based investment strategies in general and the index based

derivatives in particular.

The proposed research would focus on the sources of economic efficiency

gains from the use of derivatives. These sources are based on the premise that

derivatives provide much needed liquidity in helping to complete capital

markets, lowering transaction costs, and reducing agency costs. Now themillion dollar question lies in how the characteristics of derivatives may be

capitalized by investors for their enhanced efficiency and utility relative to the

assets that underlie them. The basic idea behind is to find if at all derivatives

can be used as a good investment alternative to suit to the requirement of

different class of investors with varying risk appetite.

The proposed study would go a long way in assisting/helping the large number

of market participants in designing and regulating the challenges and

opportunities posed by the use of derivative products as an integral part of the

investment strategy.


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5. Rationale of the project

Rational investors wish to maximize the returns on their funds for a given level

of risk. All the investment decisions possess varying degree of risks. Returns

come in the form of income such as interest or dividends or through growth in

capital values (i.e. capital gains) short terms as well as long term.





been awarded Derivative Exchange of the year by Asia Risk Magazine.


Markets is

expected to double to $ 3.2 trillion in 2010 from about $1.6 trillion currently

translating into 2530 percent annual growth. Morgan Stanley has also projects

the Indian brokerage business to grow to $3.9 billion by 2015. Hence lots of

international financial services major like Citigroup,Standard Chartered,

Frances Societe Generale, Kuwait based Global investment house,Duetche

Bank, ABN Amro, UBS, Fortis (European banking and insurance major), BNP

Paridas, E*Trade (Fourth largest online broking firm in US) have announced

their foray in the securities and wealth management business in India either

through joint ventured with leading Indian broking houses or plans to venture

in at their own in a big way.




with derivatives.


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The growth of these markets has led to increasing involvement by institutions,

private equity, and international employees pension/insurance/provident funds

like CalPERS and individuals for investment purposes. As a result, there is

demand for academic research considering advantages and disadvantages of

including managed derivatives in investors' portfolios. The proposed study

imbibes to enrich the body of knowledge in the field of managed stock futures

that will have far-reaching application.

Hence, there is a need for the research to look into the derivative based

investment strategies in general and the index based derivatives in particular &

the company in which the project is undertaken has less volume of trading in

derivatives as compared to equites because the investors think there is more

risk involved entering in derivatives, so if the risk & returns are defined or

valuated then investors can plan their strategies before investing, this in turn

will benefit the company to increase the volume o derivative trading


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6. Utility of the project

As the number of traders in the derivative segment are very less as

compared to equity segment i.e 20% in the company which is due to

ineffective hedging and insufficient knowledge of rational trading, this

data helps the traders to hedge their risk effectively.

The turnover can be increased as the traders will increase their

efficiency in hedging their risk in derivative segment.

The data also helps to hedge the traders risk effectively when there are

volatile sessions in the market.


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7. Objectives of the study

1. Examine the performance of selected companies through option greeks

& suggest various derivative based investment strategies like Long

Future (Naked), Covered call (Long future with short call), Protective

put (Short future with long put), Straddle, Strangle.

2. Examine the risk associated with each of the above investment

strategies.

3. Examine the extent to which the derivatives have been able to hedge the

risk.

4. Examine whether derivatives can be used as an alternative to delivery

based investing.

7.1 Methodology

The daily data on futures and options for the period starting from 10th Dec

2007 to 3rd April 2008 would be used to calculate option greeks.


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8. An Introduction to Futures & Options

8.1 HistoryIn the mid-1840s, Chicago began to emerge as the market center for farmers in

neighboring states. At harvest time, farmers converged on the city to sell their

grain. There was often so much grain that the farmers had to dump a lot of it

into Lake Michigan because there were not enough buyers and no way to store

it. This was unfortunate, because by the time spring rolled around, grain was in

short supply. How did these extreme conditions of having too much grain and

then not enough of it affect grain prices? Lets take a closer look at the forces

of supply and demand to give us a clue.

8.2 A Tomato Story

As an example, take a look at what happens to the price of tomatoes in the

summer. Farmers have so many tomatoes to sell that they must lower their

prices to get people to buy all of them. (Who can resist a bargain?) When prices

fall because of excess supply, buyers have the upper hand.But what happens in

the winter? People want tomatoes then just as much as in the summer.But as

you know, fewer tomatoes are available. Tomatoes cant be grown in the cold,

so

most are grown in greenhouses (or these days, shipped from warm places). You

cant grow nearly as many tomatoes in a greenhouse as you can on a large

farm, and shipping is more difficult than having a supply nearby, so fewertomatoes are brought to the market. People who want tomatoes for their salads

and BLTs during the winter find that there is more demand for tomatoes than

supply. When a lot of people want to buy something thats not readily

available, they end up competing with one another to purchase what they want,

and in this process prices go up.


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People who still want tomatoes in the winter find that they must be willing to

spend more money to buy them. Prices of tomatoes rise to a point where a lot

of buyers drop out tomato prices have become too expensive for them. The

tomatoes go to the people willing to pay that higher price, and get sold despite

that higher price.

8.3 CME (Chicago Mercantile Exchange)

The success of the CBOT inspired others to create exchanges that would assist

the process of buying and selling futures contracts on other farm products. In

1874, merchants formed the Chicago Produce Exchange, later named the

Chicago Butter and Egg Board, and then in 1919 the CME (Chicago Mercantile

Exchange). The commodities traded at the exchange throughout these years

were butter and eggs. Later, CME began offering trading in hides, onions andpotatoes.During the 1950s, CME also began trading contracts on turkeys and

frozen eggs. And in

1961 CME introduced a new contract that really put the exchange on the map

frozen pork belly futures. Youve probably heard of pork bellies dozens of

times, and youre more familiar with them than you realize. It is from pork

bellies that we get bacon, a necessary part of those BLTs In 1972, CME

introduced financial futures, with the launch of eight currency futures contracts.


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With its reputation for innovation firmly established, CME went on to become

a leading provider of options on futures and cash-settled futures contracts, and

also developed an electronic trading platform to permit trading nearly twenty-

four hours a day.

Today, CME is the largest futures exchange in the U.S. and the second largest

in the world, trading a record 1.05 billion contracts in 2005.

8.4 Futures ContractsStandardized forward contracts evolved into todays futures contracts. For

example, a JuneCME Live Cattle futures contract would require the seller to

deliver 40,000 pounds of livecattle of a certain quality to the buyer upon

expiration of the contract.A great advantage of standardized contracts was that

they were easy to trade. As a result,the contracts usually changed hands many

times before their specified delivery dates. Many people who never intended to

make or take delivery of a commodity began to actively engage in buying and

selling futures contracts. Why? They were speculating taking a chance

that as market conditions changed they would be able to buy or sell the

contracts at a profit. The ability to eliminate a position on a contract by

buying or selling it before the delivery date called offsetting is a key

feature of futures trading. Actually, only about 3% of all futures contracts

currently result in physical delivery, because most people clear or eliminate

their positions before the contract expires. Every futures contract has a last day

of trading, and all open positions must be closed out by this Last Trading Day.

For a physical delivery contract like CME Live Cattle, the open positions can

be closed out by making an offsetting futures trade or by making/taking

physical delivery of the cattle. For cash-settled futures contracts, positions can

be closed out by making an offsetting futures trade or by leaving the position

alone and having it closed out by one final mark to market settlementadjustment.


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9. Some terminologies

9.1 Bull Market

A bull market is a market in which prices are rising. When someone is referred

to as being bullish, that person has an optimistic outlook that prices will be

rising.

9.2 Bear Market

A bear market is one in which prices are falling. Therefore, a bearish view is

pessimistic, and that person would believe that prices are heading downward.

9.3 Going Long

If you were to buy a futures contract to initiate a position, you would be long.

A person who has purchased 10 pork belly futures contracts is long 10 pork

belly contracts.

Someone who is long in the market expects prices to rise. They expect to make

money by later selling the contracts at a higher price than they originally paid

for them.


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9.4 Going Short

A more difficult concept involves the sale of futures contracts before buying

them. Someone who sells a futures contract to initiate a position is said to be

short for example, short 10 pork belly contracts would mean that a person

initiated a position by selling those 10 contracts.A short seller has entered into

an obligation to deliver a commodity at a future date, at a price agreed upon

today, but with the ability to offset that obligation by buying back the futures

contract.


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9.5Contract Maturity

Futures contracts have limited lives, known as contract maturities. Contract

maturity is expressed in terms of months, such as December. The contract

maturity designates the time at which deliveries are to be made or taken, unless

the trader has offset the contract by an equal, opposite transaction prior to

maturity.

9.6 DeliveryOnly about 3% of all futures contracts actually result in physical delivery or

cash settlement of the commodity. The other 97% are simply offset. That

means that the majority of participants close out their positions prior to the

contracts delivery date (sellers buy back the futures they sold, and buyers sell

back the futures they bought).

9.7 Hedge

If you hedge, you buy or sell a futures contract as a temporary substitute for a

cash market transaction to be made at a later date. Hedging usually involves

holding opposite positions in the cash market and futures market at the same

time. Hedging is a business management tool used to manage price risk.

9.8 Long Hedge

If you put on a long hedge you purchase a futures contract in anticipation of

an actual cash market purchase. Processors or exporters typically use long

hedges as protection against an increase in the cash price.

9.9 Short Hedge

To put on a short hedge you would sell a futures contract in anticipation of a

later cash market sale. Traders use short hedges to eliminate or lessen the


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possible decline in value of ownership of an approximately equal amount of a

cash financial instrument or physical commodity.

9.10 Speculator

You would be considered a speculator if you bought and sold futures

contracts for the sole purpose of making a profit. Speculators attempt to

anticipate price changes. They do not use the futures markets in connection

with the production, processing, marketing or handling of a product, and haveno interest in making or taking delivery.


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9.11 Hedging Is Not Always Perfect

Hedging works best when the hedger has carefully calculated the basis. The

basis is the difference between the specific commodity the hedger buys or sells

in the local cash market and the standardized specifications of the futures

contract. For example, CME cattle futures contract quality specifications are

based on corn-fed steers. But what if a rancher is hedging grass-fed steers and

bulls a lower quality grade of cattle? The rancher needs to recognize that his

local price for these animals will typically be lower than the cattle futuresmarket price.

And unlike a feedlot operator raising corn-fed steers near a CME delivery city

and who can choose to make delivery against his short position, this particular

rancher cannot. The rancher must therefore always close out the futures

position and sell the cattle at the local market.


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10.An Introduction to option greeks

10.1 What are greeks ?

There are ways of estimating the risks associated with options, such as the risk

of the stock price moving up or down, implied volatility moving up or down, or

how much money is made or lost as time passes. They are numbers generated

by mathematical formulas. Collectively, they are known as the "greeks.

10.2 Why use Greeks?

For the general investor and retail options trader, knowing the delta of your

options position gives you an indication of how your options value will change

with movements in the underlying stock price - all other variables remaining

the same. Knowing your time decay (theta) gives you an indication of how

much time value your option position is losing each day - all other variables

remaining the same. Other measures are explained below.

The professional market uses the Greeks to measure exactly how much they

need to hedge their portfolio. The Greeks also enable the measurement of how

much risk the portfolio is exposed to, and where that risk lies (with movements

in interest rates or volatility, for example)

10.3 Delta

A by-product of the Black Scholes model is the calculation of delta: the degree

to which an option price will move given a change in the underlying stock

price, all else being equal. For example, an option with a delta of 0.5 will move

half a cent for every one cent movement in the underlying stock.

A far out-of-the-money call will have a delta very close to zero; an at-the-

money call a delta of 0.5; a deeply in-the-money call will have a delta close to

1.


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Call deltas are positive; put deltas are negative, reflecting the fact that the put

option price and the underlying stock price are inversely related. The put delta

equals the call delta minus 1.

The delta is often called the neutral hedge ratio. For example if you have a

portfolio of n shares of a stock then n divided by the delta gives you the

number of calls you would need to write to create a neutral hedge - i.e. a

portfolio which would be worth the same whether the stock price rose by a

small amount or fell by a small amount. In such a "delta neutral" portfolio anygain in the value of the shares held due to a rise in the share price should be

exactly offset by a loss on the value of the calls written, and vice versa.

Formula:

10.4 Gamma

Gamma is a measure of the change in delta for a change in the underlying stock

price. If you are hedging a portfolio using the delta-hedge technique described

above, then you will probably want to keep gamma as small as possible. The

smaller gamma is, the less often you will have to adjust the hedge to maintain a

delta neutral position. If gamma is too large a small change in stock price could

break your hedge. Adjusting gamma, however, can be tricky and is generally

done using options - unlike delta, it cannot be done by buying or selling the

underlying asset, as the gamma of the underlying asset is, by definition, always

zero so more or less of it will not affect the gamma of the total portfolio.


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Formula:

10.5Vega

Vega (sometimes known as kappa) is the change in option price given a one

percentage point change in volatility. Vega is used for hedging volatility risk.

Long calls and long puts always have negative theta. Long calls and long putsboth always have positive vega. Short calls and short puts both always have

negative vega. Stock has zero vega it's value is not affected by volatility.

Positive vega means that the value of an option position increases when

volatility increases, and decreases when volatility decreases. Negative vega

means that the value of an option position decreases when volatility increases,

and increases when volatility decreases.

10.6 Theta

Theta is the change in option price given a one day decrease in time to

expiration. It is a measure of time decay. Theta is generally regarded as a

descriptive statistic, used to gain an idea of how time decay is affecting your

portfolio, rather than as the basis of a hedge. Hedging a portfolio against time

decay, the effects of which are completely predictable, would be pointless.

Short calls and short puts always have positive theta. Stock has zero theta its

value is not eroded by time. All other things being equal, an option with more

days to expiration will have more extrinsic value than an option with fewer

days to expiration


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10.7Rho

Rho is the change in option price given a one percentage point change in the

risk-free interest rate. The more expensive it is to hold a stock position, the

more expensive the call option. An increase in interest rates increases the value

of calls and decreases the value of puts. A decrease in interest rates decreases

the value of calls and increases the value of puts.

10.1.1 In The Money OptionsA call option is considered In The Money ( ITM ) when the call option's strike

price is lower than the prevailing market price of the underlying stock, thus

allowing its owner to buy the underlying stock at lower than the prevailing

market price by exercising the call option.

Example : If GOOG is trading at $300, it's $200 strike call options are In The

Money ( ITM ) as it allows one to buy GOOG at $200 when it is trading at

$300 now. The $200 strike call options therefore has an intrinsic value of $100.

A put option is considered In The Money ( ITM ) when the put option's strike

price is higher than the prevailing market price of the underlying stock, thus

allowing its owner to sell the underlying stock at higher than the prevailing

market price by exercising the put option.

Example : If GOOG is trading at $300, it's $400 strike put options are In The

Money ( ITM ) as it allows one to sell GOOG at $400 when it is trading at

$300 now. The $400 strike call options therefore has an intrinsic value of $100.


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10.1.2At The Money Options

Stock Options whose strike price is exactly at or very near the prevailing price

of the underlying stock. At The Money Options ( ATM ) is one of the three

option money ness states that all option traders has to be familiar with before

even thinking of actual options trading.

For example, if QQQQ is trading at $50, it's $50 strike price call and put

options are At The Money. Usually, this situation is very rare as stock prices

changes every single minute. Industry experts usually refer to strike priceswithin a few cents of the prevailing stock price as At The Money too. At The

Money is also the only status where both call option and put option occurs

together.

10.1.3 Out of The Money Options

A call option is considered Out Of The Money ( OTM ) when the call option's

strike price is higher than the prevailing market price of the underlying stock. It

confers you the right to buy the underlying stock at a HIGHER price than the

prevailing stock price and hence it has no intrinsic value. Such a call option

will gain in value very quickly should the underlying stock rally above it's

strike price. As it has completely no intrinsic value and requires the underlying

stock to gain in price significantly in order to realise a profit, it is also the

cheapest to buy in terms of absolute dollars.

Example : If GOOG is trading at $300, it's $400 strike call options are Out Of

The Money ( OTM ) as it allows one to buy GOOG at $400 when it is trading

at only $300 now.

A put option is considered Out Of The Money ( OTM ) when the put option's

strike price is lower than the prevailing market price of the underlying stock.

This allows you to sell the undelying stock for lower than the prevailing market

price which will not make any sense and therefore contains no intrinsic value.


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Example : If GOOG is trading at $300, it's $200 strike put options are Out Of

The Money ( OTM ) as it allows one to sell GOOG at $200 when it is trading at

$300 now.

10.2 Trading Strategies: Meaning

10.2.1 Covered Call

An options strategy whereby an investor holds a long position in an asset and

writes (sells) call options on that same asset in an attempt to generate increased

income from the asset. This is often employed when an investor has a short-

term neutral view on the asset and for this reason hold the asset long and

simultaneously have a short position via the option to generate income from the

option premium.

This is also known as a "buy-write".

For example, let's say that you own shares of the TSJ Sports Conglomerate and

like its long-term prospects as well as its share price but feel in the shorter term

the stock will likely trade relatively flat, perhaps within a few dollars of its

current price of, say, $25. If you sell a call option on TSJ for $26.00, you earn

the premium from the option sale but cap your upside.

10.2.2 Naked Call WritingIn options terminology, "naked" refers to strategies in which the underlying

stock is not owned and options are written against this phantom stock position.

(In the articles Come One, Come All -Covered Calls and Married Puts: A

Protective Relationship, we deal exclusively with options that have underlying

stock positions.) The naked strategy is a more aggressive, having a lot more

risk, but it can be used to generate income as part of a diversified portfolio. If

not used properly, however, a naked call position can have disastrous

consequences since a stock can theoretically rise to infinity


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Let us consider the following example: ABC's stock trades for $100 and the

$105 call that is one month to expiry trades at $2. You, not owning any ABC

stock, can sell (write) a naked call at $2 and collect $200. By doing so, you are

speculating that ABC stock will be below $107 ($105 + $2 premium) at expiry

(if it is below $107, the person to whom you sold the naked call will not

exercise it). Consider the payoff diagram

10.2.3 Protective Put

The investor employing the protective put strategy owns shares of underlying

stock from a previous purchase, and generally has unrealized profits accrued

from an increase in value of those shares. He might have concerns about

unknown, downside market risks in the near term and wants some protection

for the gains in share value. Purchasing puts while holding shares of underlying

stock is a directional strategy, but a bullish one.


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10.2.4 Straddles

An options strategy with which the investor holds a position in both a call and

put with the same strike price and expiration date.

Straddles are a good strategy to pursue if an investor believes that a stock's

price will move significantly, but is unsure as to which direction. The stock

price must move significantly if the investor is to make a profit. As shown in

the diagram above, should only a small movement in price occur in either

direction, the investor will experience a loss. As a result, a straddle is extremely

risky to perform. Additionally, on stocks that are expected to jump, the market


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tends to price options at a higher premium, which ultimately reduces the

expected payoff should the stock move significantly

10.2.5 Strangles

An options strategy where the investor holds a position in both a call and put

with different strike prices but with the same maturity and underlying asset.

This option strategy is profitable only if there are large movements in the price

of the underlying asset.

This is a good strategy if you think there will be a large price movement in the

near future but are unsure of which way that price movement will be.

The strategy involves buying an out-of-the-money call and an out-of-the-

money put option. A strangle is generally less expensive than a straddle as the

contracts are purchased out of the money..

For example, imagine a stock currently trading at $50 a share. To employ the

strangle option strategy a trader enters into two option positions, one call and

one put. Say the call is for $55 and costs $300 ($3.00 per option x 100 shares)

and the put is for $45 and costs $285 ($2.85 per option x 100 shares). If the

price of the stock stays between $45 and $55 over the life of the option the loss

to the trader will be $585 (total cost of the two option contracts). The trader

will make money if the price of the stock starts to move outside of the range.

Say that the price of the stock ends up at $35. The call option will expire

worthless and the loss will be $300 to the trader. The put option however has

gained considerable value, it is worth $715 ($1,000 less the initial option value

of $285). So the total gain the trader has made is $415.


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11.Company: ABB LtdDate N(d1) N(d2) sigma Gamma

0.279 0.399087 0.2 0.000279

10-Dec-07 0.335 0.368978 0.0684 0.00065

11-Dec-07 0.080 -0.14598 0.7863 9.1E-05

12-Dec-07 0.226 0.240338 0.1604 0.000389

13-Dec-07 0.411 0.257839 0.8436 3.73E-05

14-Dec-07 0.499 0.497804 0.3602 2.38E-06

17-Dec-07 0.237 -0.49953 4.1041 1.95E-05

18-Dec-07 -0.412 -0.42084 0.2177 0.000198

19-Dec-07 0.026 -0.4953 2.8113 4.14E-05

20-Dec-07 0.007 -0.4967 2.8726 4.6E-0524-Dec-07 -0.500 -0.5 0.0756 2.79E-33

26-Dec-07 -0.144 -0.49823 2.5983 0.000126

27-Dec-07 -0.473 -0.49412 0.6524 8.34E-05

28-Dec-07 0.103 0.151819 0.1751 0.000327

31-Dec-07 0.041 -0.39897 1.6707 3.62E-05

1-Jan-08 -0.315 -0.25107 0.0694 0.000587

2-Jan-08 -0.500 -0.5 0.0099 2.39E-14

3-Jan-08 -0.019 -0.19166 0.7311 8.68E-05

4-Jan-08 -0.026 -0.16413 0.6299 0.000103

7-Jan-08 -0.063 -0.20572 0.6392 0.000106

8-Jan-08 -0.087 -0.02573 0.0967 0.000714

9-Jan-08 -0.048 -0.06218 0.2803 0.00025710-Jan-08 0.073 0.12091 0.1171 0.000626

11-Jan-08 0.080 -0.47191 2.3447 3.27E-05

14-Jan-08 -0.235 -0.22562 0.1887 0.000378

15-Jan-08 0.014 -0.41335 1.6057 5.65E-05

16-Jan-08 0.036 -0.49008 2.6235 3.71E-05

17-Jan-08 -0.300 -0.40726 0.6789 0.000108

18-Jan-08 -0.107 -0.46377 1.7125 6.26E-05

21-Jan-08 0.154 -0.5 6.8997 1.86E-05

22-Jan-08 -0.008 -0.5 5.0167 3.3E-05

23-Jan-08 -0.046 -0.4998 3.5763 4.95E-05

24-Jan-08 0.048 -0.5 6.6339 2.95E-05

25-Jan-08 0.094 -0.5 7.559 2.73E-05

28-Jan-08 -0.240 -0.49999 3.6253 6.49E-05

29-Jan-08 -0.304 -0.46606 1.0447 0.000247

30-Jan-08 0.249 -0.49966 4.1185 0.000107

31-Jan-08 -0.338 -0.49973 2.5242 0.000144

1-Feb-08 #REF! #REF! 1.902 #REF!

4-Feb-08 0.337 -0.5 6.6027 1.05E-05

5-Feb-08 0.287 -0.49997 5.0265 1.52E-05

6-Feb-08 0.500 0.5 0.0587 3.76E-43

7-Feb-08 0.500 0.5 0.0587 7.44E-44

8-Feb-08 0.452 0.414366 0.5205 5.16E-05

11-Feb-08 0.237 -0.31435 1.7441 5.35E-0512-Feb-08 0.499 0.498844 0.2615 3.75E-06


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13-Feb-08 0.275 -0.19421 1.4661 6.21E-05

14-Feb-08 0.272 -0.28591 1.7331 5.31E-0515-Feb-08 0.250 -0.4968 3.591 2.65E-05

18-Feb-08 0.500 0.5 0.0517 3.4E-116

19-Feb-08 0.225 -0.476 2.7334 4.36E-05

20-Feb-08 0.192 -0.49923 3.8165 3.73E-05

21-Feb-08 0.165 -0.49989 4.2522 4.03E-05

22-Feb-08 0.142 -0.40481 1.802 0.000112

25-Feb-08 0.300 0.051489 0.802 0.00027

26-Feb-08 0.500 0.5 0.1416 3.07E-09

27-Feb-08 0.500 0.496085 0.9386 1.04E-06

28-Feb-08 -0.500 -0.5 0.9299 1.15E-07

29-Feb-08 0.098 -0.49899 3.6085 2.85E-05

3-Mar-08 0.170 -0.49811 3.5921 3.05E-054-Mar-08 -0.192 -0.42502 1.1896 9.61E-05

5-Mar-08 -0.195 -0.43603 1.2585 9.25E-05

7-Mar-08 0.097 -0.49992 4.2669 3.26E-05

10-Mar-08 0.089 -0.49994 4.2836 3.54E-05

11-Mar-08 -0.500 -0.5 0.1079 1.86E-24

12-Mar-08 -0.041 -0.49441 2.6364 5.86E-05

13-Mar-08 -0.100 -0.49906 3.0509 5.12E-05

14-Mar-08 -0.076 -0.49473 2.5546 6.48E-05

17-Mar-08 0.161 -0.5 8.4737 2.22E-05

18-Mar-08 -0.135 -0.49934 3.025 7.13E-05

19-Mar-08 -0.170 -0.49988 3.3757 6.13E-0524-Mar-08 -0.500 -0.5 0.0543 0

25-Mar-08 -0.165 -0.5 4.7832 8.04E-05

26-Mar-08 -0.500 -0.5 0.7601 9.24E-10

27-Mar-08 0.056 -0.00968 0.2186 0.002531

28-Mar-08 0.174 -0.44688 2.3394 4.05E-05

31-Mar-08 0.007 -0.36541 1.3791 7.99E-05

1-Apr-08 0.044 -0.40591 1.678 6.65E-05

2-Apr-08 -0.500 -0.5 0.0083 9.2E-105

3-Apr-08 0.184 -0.49999 5.1131 2.12E-05


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11.2 2-month Options

Date N(d1) N(d2) sigma Gamma

0.279131 0.399087 0.2 0.000279

10-Dec-07 0.307485 0.058083 1.1 0.00041

11-Dec-07 0.492314 -0.5 12.65 2.76E-06

12-Dec-07 0.279747 -0.42765 2.6 0.00019

13-Dec-07 0.494816 -0.5 13.7 1.85E-06

14-Dec-07 0.380294 -0.49999 5.8 5.92E-05

17-Dec-07 0.5 -0.5 65.85 9.58E-35

18-Dec-07 0.27789 -0.48738 3.35 0.000166

19-Dec-07 0.5 -0.5 43.35 1.56E-17

20-Dec-07 0.5 -0.5 43.05 4.61E-1724-Dec-07 0.218769 -0.07854 1.1 0.000652

26-Dec-07 0.5 -0.5 37.85 4.42E-13

27-Dec-07 0.440719 -0.5 9.75 2.63E-05

28-Dec-07 0.117484 -0.47703 2.6 0.000323

31-Dec-07 0.499855 -0.5 24.85 5.12E-08

1-Jan-08 0.11245 -0.14141 1.05 0.0006

2-Jan-08 -0.02684 0.071935 0.15 0.004404

3-Jan-08 0.485809 -0.5 11.05 5.51E-06

4-Jan-08 0.468698 -0.5 9.45 1.26E-05

7-Jan-08 0.466246 -0.5 9.65 1.37E-05

8-Jan-08 0.122716 -0.27744 1.45 0.000468

9-Jan-08 0.284784 -0.49882 4.2 0.00012610-Jan-08 0.15545 -0.33733 1.75 0.000385

11-Jan-08 0.5 -0.5 35 3.83E-14

14-Jan-08 0.192625 -0.47099 2.75 0.000249

15-Jan-08 0.499977 -0.5 23.45 8.59E-09

16-Jan-08 0.5 -0.5 37.7 1.8E-14

17-Jan-08 0.445839 -0.5 9.5 2.45E-05

18-Jan-08 0.499966 -0.5 23.8 1.32E-08

21-Jan-08 0.5 -0.5 94.25 6.95E-56

22-Jan-08 0.5 -0.5 63.8 7.18E-28

23-Jan-08 0.5 -0.5 43.2 2.58E-15

24-Jan-08 0.5 -0.5 83 2.12E-41

25-Jan-08 0.5 -0.5 88.3 4.71E-45

28-Jan-08 0.5 -0.5 45.55 7.52E-15

29-Jan-08 0.493163 -0.5 12.65 3.19E-06

30-Jan-08 0.5 -0.5 49.35 1.03E-25

31-Jan-08 0.5 -0.5 29 4.2E-12

1-Feb-08 0.499981 -0.5 21.3 8.6E-09

4-Feb-08 0.5 -0.5 75.35 6.27E-48

5-Feb-08 0.5 -0.5 61.15 6.87E-33

6-Feb-08 0.356893 0.251463 0.75 0.00065

7-Feb-08 0.356347 0.249492 0.75 0.000659

8-Feb-08 0.401051 -0.5 6.65 5.74E-05

11-Feb-08 0.499946 -0.5 22.4 2.27E-0812-Feb-08 0.277575 -0.48598 3.3 0.00021


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13-Feb-08 0.499176 -0.5 18.55 3.53E-07

14-Feb-08 0.499899 -0.5 22.25 4.14E-0815-Feb-08 0.5 -0.5 46.9 2.94E-18

18-Feb-08 0.398428 0.31238 0.7 0.000596

19-Feb-08 0.5 -0.5 37 1.77E-12

20-Feb-08 0.5 -0.5 50.25 3.19E-18

21-Feb-08 0.5 -0.5 53.85 1.11E-19

22-Feb-08 0.499429 -0.5 21.85 2.61E-07

25-Feb-08 0.41776 -0.5 9.55 4.7E-05

26-Feb-08 0.26316 -0.26007 1.7 0.000547

27-Feb-08 0.445886 -0.5 11.25 2.97E-05

28-Feb-08 0.424166 -0.5 11.25 3.97E-05

29-Feb-08 0.5 -0.5 43.25 9.82E-21

3-Mar-08 0.5 -0.5 41.5 1.16E-184-Mar-08 0.492865 -0.5 13.25 3.64E-06

5-Mar-08 0.49439 -0.5 13.85 2.8E-06

7-Mar-08 0.5 -0.5 47.55 1.72E-21

10-Mar-08 0.5 -0.5 45.7 2.54E-19

11-Mar-08 -0.06653 -0.34622 1.2 0.00085

12-Mar-08 0.5 -0.5 29.3 1.2E-10

13-Mar-08 0.5 -0.5 34.8 9.5E-13

14-Mar-08 0.499999 -0.5 28.25 5.43E-10

17-Mar-08 0.5 -0.5 96.1 9.36E-58

18-Mar-08 0.5 -0.5 31.4 1.56E-10

19-Mar-08 0.5 -0.5 36.1 3.85E-1224-Mar-08 -0.34485 -0.40711 0.6 0.001234

25-Mar-08 0.5 -0.5 52.85 8.44E-18

26-Mar-08 0.381509 -0.5 8.8 6.85E-05

27-Mar-08 0.171613 -0.46627 2.55 0.000438

28-Mar-08 0.499905 -0.5 27.35 4.26E-08

31-Mar-08 0.484208 -0.5 16.5 7.93E-06


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11.33-month


0.279 0.399087 0.2 0.000279

10-Dec-07 0.271 0.137151 0.8584 0.000366

11-Dec-07 0.301 0.19964 0.7863 2.93E-05

12-Dec-07 0.499 0.499567 0.1604 2.08E-06

13-Dec-07 0.270 0.138378 0.8436 3E-05

14-Dec-07 0.408 0.423097 0.3602 3.88E-05

17-Dec-07 0.342 -0.49602 4.1041 5.32E-06

18-Dec-07 0.398 0.433005 0.2177 7.74E-05

19-Dec-07 0.260 -0.45201 2.8113 1.09E-05

20-Dec-07 0.279 -0.4523 2.8726 1.08E-0524-Dec-07 0.500 0.5 0.0756 9.89E-10

26-Dec-07 0.263 -0.42846 2.5983 1.3E-05

27-Dec-07 0.285 0.209834 0.6524 4.86E-05

28-Dec-07 0.416 0.446678 0.1751 9.71E-05

31-Dec-07 0.230 -0.24388 1.6707 2.19E-05

1-Jan-08 0.260 0.130247 0.8594 0.000404

2-Jan-08 0.500 0.5 0.0099 6.38E-56

3-Jan-08 0.334 0.264251 0.7311 3.13E-05

4-Jan-08 0.363 0.326339 0.6299 3.23E-05

7-Jan-08 0.353 0.310572 0.6392 3.39E-05

8-Jan-08 0.500 0.5 0.0967 8.33E-12

9-Jan-08 0.481 0.488197 0.2803 1.58E-0510-Jan-08 0.500 0.499967 0.1171 4.32E-07

11-Jan-08 0.256 -0.38413 2.3447 1.35E-05

14-Jan-08 0.476 0.487388 0.1887 3.13E-05

15-Jan-08 0.212 -0.22632 1.6057 2.28E-05

16-Jan-08 0.273 -0.42434 2.6235 1.3E-05

17-Jan-08 0.285 0.20864 0.6789 5.05E-05

18-Jan-08 0.192 -0.28083 1.7125 2.49E-05

21-Jan-08 0.429 -0.5 6.8997 2.68E-06

22-Jan-08 0.362 -0.49977 5.0167 6.77E-06

23-Jan-08 0.299 -0.48985 3.5763 1.24E-05

24-Jan-08 0.415 -0.5 6.6339 3.85E-06

25-Jan-08 0.441 -0.5 7.559 2.57E-06

28-Jan-08 0.285 -0.49255 3.6253 1.32E-05

29-Jan-08 0.158 -0.09477 1.0447 6.08E-05

30-Jan-08 0.293 -0.49818 4.1185 1.28E-05

31-Jan-08 0.286 -0.40987 2.5242 2.29E-05

1-Feb-08 0.282 -0.24041 1.902 2.54E-05

4-Feb-08 0.449 -0.5 6.6027 2.44E-06

5-Feb-08 0.403 -0.49944 5.0265 4.71E-06

6-Feb-08 0.500 0.5 0.0587 4.86E-15

7-Feb-08 0.500 0.5 0.0587 7.62E-15

8-Feb-08 0.324 0.306411 0.5205 6.65E-05

11-Feb-08 0.228 -0.25526 1.7441 2.63E-0512-Feb-08 0.437 0.456364 0.2615 6.7E-05


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13-Feb-08 0.227 -0.16312 1.4661 3.16E-05

14-Feb-08 0.238 -0.24458 1.7331 2.56E-0515-Feb-08 0.311 -0.48857 3.591 9.81E-06

18-Feb-08 0.500 0.5 0.0517 2.47E-09

19-Feb-08 0.240 -0.45242 2.7334 1.58E-05

20-Feb-08 0.293 -0.49506 3.8165 1.07E-05

21-Feb-08 0.309 -0.49848 4.2522 1E-05

22-Feb-08 0.125 -0.35798 1.802 3.54E-05

25-Feb-08 0.031 -0.12605 0.802 8.63E-05

26-Feb-08-

0.193 -0.09732 0.1416 0.000433

27-Feb-08 0.189 -0.01991 0.9386 6.57E-05

28-Feb-08 0.011 -0.19544 0.9299 7.55E-05

29-Feb-08 0.311 -0.49029 3.6085 1.39E-053-Mar-08 0.350 -0.48062 3.5921 1.03E-05

4-Mar-08 0.262 0.003812 1.1896 4.37E-05

5-Mar-08 0.279 -0.00251 1.2585 3.98E-05

7-Mar-08 0.364 -0.49643 4.2669 9E-06

10-Mar-08 0.371 -0.49635 4.2836 8.83E-06

11-Mar-08 0.500 0.5 0.1079 3.22E-10

12-Mar-08 0.301 -0.40795 2.6364 1.81E-05

13-Mar-08 0.305 -0.45829 3.0509 1.56E-05

14-Mar-08 0.263 -0.41664 2.5546 2.11E-05

17-Mar-08 0.473 -0.5 8.4737 1.41E-06

18-Mar-08 0.265 -0.46836 3.025 2.06E-05

19-Mar-08 0.311 -0.48 3.3757 1.54E-05

24-Mar-08 0.500 0.499996 0.0543 2.93E-07

25-Mar-08 0.373 -0.49936 4.7832 8.08E-06

26-Mar-08 0.353 0.259983 0.7601 5.36E-05

27-Mar-08 0.499 0.499609 0.2186 2.17E-06

28-Mar-08 0.239 -0.40098 2.3394 2.41E-05

31-Mar-08 0.204 -0.17042 1.3791 4.41E-05

1-Apr-08 0.255 -0.22209 1.678 3.32E-05

2-Apr-08 0.500 0.5 0.0083 6.09E-28

3-Apr-08 5.1131 #DIV/0!


46


47/100

1-month Call

N(d1)

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0 5 10 15 20 25 30 35 40

N

1 month put

Time to Expire

0

5

10

15

20

25

30

35

40

-0.6 -0.4 -0.2 0 0.2 0.4 0.6

Time to Ex


47


48/100

2-month Call

-0.4

-0.3

-0.2

-0.10

0.1

0.2

0.3

0.4

0.5

0.6

0 10 20 30 40 50 60 70

Seri

2-Month Put

0

10

2030

40

50

60

70

-0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4

Seri


48


49/100

3-Month Call

-0.3

-0.2

-0.10

0.1

0.2

0.3

0.4

0.5

0.6

0 20 40 60 80 100

Seri

3-Month Put

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0 20 40 60 80 100

Seri


49


50/100

11.2 Analysis :

11.2.1 Delta for Call Options

1-Month

For this Company, Call options for 1 month are very volatile and they react

very heavily with a small change in the spot price, in all there are 31 options

which are highly insignificant to exercise & the other remaining options are in

between 0.2 & 0.6 which signifies ATM options i.e it will not cause any losses

to the traders if they exercise the option.

2-Months

The analysis for this month option is completely opposite from the previous

one because there are hardly 3 options which are of deep OTM, so this is a very

safe bet for the traders because majority of the options are in the range of 0.5,

the hedging is effective in case of purchasing 2 month options of ABB

Company

3-Months

Only one option is deep OTM which is negative, so in this company as the

options time to expiry goes on increasing the effectiveness of hedging also

increases. But when we consider theta for analysis, the value of the option goes

on diminishing, but nevertheless the options of this company are turning intopure OTM options. The hedging will be effective for these options which is

risk free.

11.2.2 Put Options for Delta

1 Month

Around 17 options are deep OTM which are highly insignificant to exercise,

the same has been reflected from the 1 month call options, so the hedging is not


50


51/100

at all effective in case of this scrip, this is a very riskier option specially 1

month options, other options are lying between 0.0 to 0.6, in that also most of

them are OTM options.

2 Months

As said in the earlier analysis, as the time frame of the option is increasing, the

scrip is giving out a real significant option to exercise, it shows a better

position as compared to 1 month options, so exercising this will not harm any

trader but yes it does not benefit any trader but very safe on hedging.3 Months

The case has completely turned down in 3 months contract because most of the

options are highly insignificant to exercise and a trader will suffer losses by

exercising this option, hedging through this scrip is not at all effective.

11.2.3 Interpretation for Gamma

There is a positive correlation between delta & gamma. It also tells that a mereincrease in gamma shows an increase in the value for an increase in the price of

the option, the pace has went on decreasing subsequently in all the terms of the

contract. So as previously said there exists a positive correlation between both.


51


52/100

11.2.4 Strategies for ABB

As the options in 1 month are very riskier & very volatile, so the best

type of strategy suggested for this one is Naked Call because

exercising this option would be a heavy loss trade.

Straddles can also be one of the good strategy for this type of option

because of high volatility in the call as well as in the put options &

strangles in case of 3 month options because of deep OTM Options.

According to the research done, straddles can be used as an effective

hedging tool for 1 & 2 month contracts because the opton is getting

non-riskier as it is approaching the expiry date & this is the best

recommended strategy, but not in the case of 3 months because of

deep OTM options in this scrip.


52


53/100

12.Company ACC

12.1 1-Month


0.279 0.234946 0.2 0.000279

10-Dec-07 -0.374 -0.39475 0.5 0.001805

11-Dec-07 0.365 -0.38273 10.95 8.8E-05

12-Dec-07 -0.110 -0.21649 1.45 0.001216

13-Dec-07 0.314 -0.34975 9.85 0.00013

14-Dec-07 0.500 -0.4999 39.25 5.33E-08

17-Dec-07 0.498 -0.49823 34.95 1.06E-06

18-Dec-07 -0.219 -0.28591 1.35 0.001491

19-Dec-07 0.495 -0.49662 35.9 2.44E-0620-Dec-07 0.483 -0.48614 31.15 9.93E-06

24-Dec-07 -0.449 -0.46553 2 0.000575

26-Dec-07 -0.153 -0.22241 3.75 0.00187

27-Dec-07 -0.274 -0.29971 1.7 0.003367

28-Dec-07 0.344 -0.35317 6.75 0.000115

31-Dec-07 0.480 -0.48173 14.25 1.12E-05

1-Jan-08 0.165 -0.22304 3.55 0.000348

2-Jan-08 0.264 -0.2806 5.3 0.000201

3-Jan-08 0.486 -0.48808 16.1 7.91E-06

4-Jan-08 0.321 -0.35667 7.3 0.000132

7-Jan-08 0.117 -0.10496 2.2 0.000675

8-Jan-08 0.481 -0.48122 16.55 1.13E-05

9-Jan-08 0.472 -0.46701 15.3 1.74E-05

10-Jan-08 0.500 -0.49992 31.15 5.84E-08

11-Jan-08 0 .500 -0.5 40.15 8.54E-10

14-Jan-08 0.490 -0.49291 22.15 6.34E-06

15-Jan-08 0.201 -0.32838 7.05 0.00027

16-Jan-08 0.369 -0.41357 12.25 0.0001

17-Jan-08 -0.119 -0.29754 2.7 0.000838

18-Jan-08 0.143 -0.23707 5.3 0.000431

21-Jan-08 0.500 -0.5 128.35 1E-29

22-Jan-08 0.404 -0.43516 17.95 8.42E-05

23-Jan-08 0.489 -0.49159 31.55 8.46E-0624-Jan-08 -0.112 -0.27951 3.5 0.001048

25-Jan-08 0.461 -0.47046 28.5 2.93E-05

28-Jan-08 0.215 -0.30506 15.75 0.000298

29-Jan-08 -0.142 -0.27436 5.25 0.001211

30-Jan-08 0.278 0.172427 6.1 0.001166

31-Jan-08 0.318 -0.26313 31 0.000212

1-Feb-08 0.457 -0.44512 12.2 3.63E-05

4-Feb-08 0.437 -0.41686 11.35 5.57E-05

5-Feb-08 0.273 0.153284 1.45 0.0011

6-Feb-08 0.238 -0.10758 3.8 0.000467

7-Feb-08 0.342 -0.29131 7.75 0.000172

8-Feb-08 0.327 -0.26542 7.3 0.00019711-Feb-08 0.500 -0.5 42 1.92E-09


53


54/100

12-Feb-08 0.481 -0.47758 19.45 1.61E-05

13-Feb-08 0.484 -0.48139 20.9 1.25E-0514-Feb-08 0.421 -0.40155 13.8 7.23E-05

15-Feb-08 0.258 -0.15023 5.75 0.000379

18-Feb-08 0.229 0.090875 2.3 0.001149

19-Feb-08 0.496 -0.49495 33.25 2.9E-06

20-Feb-08 0.456 -0.44597 22.4 3.64E-05

21-Feb-08 0.348 -0.29628 13.4 0.000162

22-Feb-08 0.237 -0.09182 6.75 0.000487

25-Feb-08 0.480 -0.47458 44.3 1.44E-05

26-Feb-08 0.265 -0.08915 12.8 0.00039

27-Feb-08 0.003 -0.25929 13.6 0.000685

28-Feb-08 0.249 0.079492 9 0.000836

29-Feb-08 0.453 -0.46252 12.7 3.58E-053-Mar-08 0.292 -0.34899 7.2 0.000197

4-Mar-08 0.500 -0.5 42.05 4.62E-11

5-Mar-08 0.236 -0.25996 5.45 0.000329

7-Mar-08 0.260 -0.28557 6.4 0.000282

10-Mar-08 0.500 -0.49982 32.7 1.69E-07

11-Mar-08 0.500 -0.5 45.7 5.8E-10

12-Mar-08 0.194 -0.25813 5.95 0.00036

13-Mar-08 0.497 -0.49736 28.2 2.21E-06

14-Mar-08 0.467 -0.47153 19.8 2.49E-05

17-Mar-08 0.490 -0.49171 28.5 7.42E-06

18-Mar-08 0.267 -0.33092 10.75 0.00023819-Mar-08 0.392 -0.41444 17.6 9.17E-05

24-Mar-08 0.381 -0.40351 27.4 9.92E-05

25-Mar-08 0.129 -0.23073 12.75 0.00049

26-Mar-08 -0.500 -0.5 0.05 0

27-Mar-08 -0.057 -0.17023 5.7 0.001608

28-Mar-08 0.482 -0.48172 15.4 1.26E-05

31-Mar-08 0.450 -0.43793 12.4 3.94E-05

1-Apr-08 0.327 0.218103 1.45 0.000853

2-Apr-08 0.463 -0.45273 14.1 2.77E-05

3-Apr-08 0.432 -0.41333 11.9 5.55E-05


54


55/100

12.22-Month

Date N(d1) N(d2) sigma 0.000279

0.279 0.399087 0.2 0.001062

10-Dec-07 0.368 0.340479 0.5 1.01E-05

11-Dec-07 0.482 -0.5 10.95 0.000565

12-Dec-07 0.238 -0.17124 1.45 1.88E-05

13-Dec-07 0.468 -0.5 9.85 2.29E-16

14-Dec-07 0.500 -0.5 39.25 1.86E-13

17-Dec-07 0.500 -0.5 34.95 0.000661

18-Dec-07 0.230 -0.15189 1.35 1.7E-13

19-Dec-07 0.500 -0.5 35.9 3.11E-11

20-Dec-07 0.500 -0.5 31.15 0.00056224-Dec-07 0.167 -0.39353 2 0.000253

26-Dec-07 0.275 -0.49634 3.75 0.000644

27-Dec-07 0.213 -0.29595 1.7 0.000104

28-Dec-07 0.366 -0.5 6.75 1.03E-05

31-Dec-07 0.482 -0.5 14.25 0.000192

1-Jan-08 0.299 -0.4896 3.55 0.000106

2-Jan-08 0.355 -0.49994 5.3 3.67E-07

3-Jan-08 0.499 -0.5 16.1 4.84E-05

4-Jan-08 0.427 -0.5 7.3 0.000425

7-Jan-08 0.189 -0.40815 2.2 5.2E-07

8-Jan-08 0.499 -0.5 16.55 1.26E-06

9-Jan-08 0.498 -0.5 15.3 3.33E-1210-Jan-08 0 .500 -0.5 31.15 8.95E-17

11-Jan-08 0 .500 -0.5 40.15 2.93E-08

14-Jan-08 0 .500 -0.5 22.15 8.05E-05

15-Jan-08 0.403 -0.5 7.05 1.11E-05

16-Jan-08 0.484 -0.5 12.25 0.000412

17-Jan-08 0.240 -0.45702 2.7 0.000162

18-Jan-08 0.335 -0.49997 5.3 1.03E-98

21-Jan-08 0.500 -0.5 128.35 1.5E-06

22-Jan-08 0 .498 -0.5 17.95 2.26E-10

23-Jan-08 0.500 -0.5 31.55 0.00048

24-Jan-08 0.075 -0.49866 3.5 5.44E-09

25-Jan-08 0.500 -0.5 28.5 7.64E-06

28-Jan-08 0.489 -0.5 15.75 0.000135

29-Jan-08 0.361 -0.49992 5.25 8.64E-05

30-Jan-08 0.408 -0.49999 6.1 5.16E-13

31-Jan-08 0.500 -0.5 31 6.28E-06

1-Feb-08 0.492 -0.5 12.2 1.19E-05

4-Feb-08 0.485 -0.5 11.35 0.000728

5-Feb-08 0.279 -0.12408 1.45 0.000262

6-Feb-08 0.304 -0.49509 3.8 6.25E-05

7-Feb-08 0.430 -0.5 7.75 7.51E-05

8-Feb-08 0.418 -0.5 7.3 2.22E-16

11-Feb-08 0.500 -0.5 42 4.19E-0712-Feb-08 0.499 -0.5 19.45 1.9E-07


55


56/100

13-Feb-08 0.500 -0.5 20.9 9.61E-06

14-Feb-08 0.487 -0.5 13.8 0.00020115-Feb-08 0.293 -0.5 5.75 0.00073

18-Feb-08 0.009 -0.47514 2.3 9.54E-11

19-Feb-08 0.500 -0.5 33.25 2.48E-07

20-Feb-08 0.500 -0.5 22.4 1.86E-05

21-Feb-08 0.475 -0.5 13.4 0.000174

22-Feb-08 0.312 -0.5 6.75 1.47E-13

25-Feb-08 0.500 -0.5 44.3 3.06E-05

26-Feb-08 0.458 -0.5 12.8 2.07E-05

27-Feb-08 0.473 -0.5 13.6 8.7E-05

28-Feb-08 0.405 -0.5 9 4.22E-06

29-Feb-08 0.494 -0.5 12.7 6.43E-05

3-Mar-08 0.428 -0.5 7.2 1.17E-184-Mar-08 0.500 -0.5 42.05 0.000142

5-Mar-08 0.369 -0.49996 5.45 0.000106

7-Mar-08 0.395 -0.5 6.4 3.13E-12

10-Mar-08 0.500 -0.5 32.7 5.78E-19

11-Mar-08 0.500 -0.5 45.7 0.000124

12-Mar-08 0.376 -0.5 5.95 5.13E-10

13-Mar-08 0.500 -0.5 28.2 2.69E-07

14-Mar-08 0.500 -0.5 19.8 1.3E-09

17-Mar-08 0.500 -0.5 28.5 3.21E-05

18-Mar-08 0.462 -0.5 10.75 1.83E-06

19-Mar-08 0.497 -0.5 17.6 1.9E-0824-Mar-08 0.500 -0.5 27.4 2.21E-05

25-Mar-08 0.471 -0.5 12.75 7.22E-89

26-Mar-08 0.500 0.5 0.05 0.000192

27-Mar-08 0.334 -0.5 5.7 1.09E-05

28-Mar-08 0.485 -0.5 15.4 3.72E-05

31-Mar-08 0.453 -0.5 12.4 0.000552

1-Apr-08 0.318 -0.05623 1.45 1.31E-06

2-Apr-08 0.498 -0.5 14.1 4.97E-06

3-Apr-08 0.493 -0.5 11.9


56


57/100

12.33-Month


0.279 0.399087 0.2 0.000279

10-Dec-07 0.268 0.258373 0.5 0.001224

11-Dec-07 0.495 -0.5 10.95 2.63E-06

12-Dec-07 0.211 -0.16683 1.45 0.000475

13-Dec-07 0.489 -0.5 9.85 5.99E-06

14-Dec-07 0.500 -0.5 39.25 7.15E-23

17-Dec-07 0.500 -0.5 34.95 1.19E-18

18-Dec-07 0.228 -0.11789 1.35 0.000519

19-Dec-07 0.500 -0.5 35.9 5.89E-19

20-Dec-07 0.500 -0.5 31.15 2.15E-1524-Dec-07 0.213 -0.34444 2 0.0004

26-Dec-07 0.329 -0.49136 3.75 0.000161

27-Dec-07 0.248 -0.23091 1.7 0.00045

28-Dec-07 0.430 -0.5 6.75 4.8E-05

31-Dec-07 0.498 -0.5 14.25 1.06E-06

1-Jan-08 0.346 -0.47966 3.55 0.000134

2-Jan-08 0.416 -0.49971 5.3 5.87E-05

3-Jan-08 0.500 -0.5 16.1 2.74E-08

4-Jan-08 0.464 -0.5 7.3 2.27E-05

7-Jan-08 0.233 -0.36626 2.2 0.000318

8-Jan-08 0.500 -0.5 16.55 3.04E-08

9-Jan-08 0.500 -0.5 15.3 1.04E-0710-Jan-08 0.500 -0.5 31.15 2.16E-16

11-Jan-08 0.500 -0.5 40.15 1.33E-23

14-Jan-08 0.500 -0.5 22.15 1.99E-10

15-Jan-08 0.445 -0.5 7.05 4.07E-05

16-Jan-08 0.497 -0.5 12.25 1.99E-06

17-Jan-08 0.285 -0.42947 2.7 0.000287

18-Jan-08 0.395 -0.49985 5.3 9.09E-05

21-Jan-08 0.500 -0.5 128.35 1.9E-167

22-Jan-08 0.500 -0.5 17.95 5.14E-08

23-Jan-08 0.500 -0.5 31.55 1.48E-14

24-Jan-08 0.316 -0.48558 3.5 0.000243

25-Jan-08 0.500 -0.5 28.5 1.22E-12

28-Jan-08 0.499 -0.5 15.75 4.52E-07

29-Jan-08 0.382 -0.49988 5.25 0.000119

30-Jan-08 0.408 -0.49999 6.1 8.58E-05

31-Jan-08 0.500 -0.5 31 4.05E-13

1-Feb-08 0.498 -0.5 12.2 1.23E-06

4-Feb-08 0.496 -0.5 11.35 2.67E-06

5-Feb-08 0.209 -0.16783 1.45 0.000661

6-Feb-08 0.331 -0.49138 3.8 0.000188

7-Feb-08 0.466 -0.5 7.75 2.73E-05

8-Feb-08 0.457 -0.5 7.3 3.51E-05

11-Feb-08 0.500 -0.5 42 1.79E-2412-Feb-08 0.500 -0.5 19.45 5.68E-09


57


58/100

13-Feb-08 0.500 -0.5 20.9 1.4E-09

14-Feb-08 0.499 -0.5 13.8 8.88E-0715-Feb-08 0.399 -0.49997 5.75 9.34E-05

18-Feb-08 0.205 -0.40914 2.3 0.000466

19-Feb-08 0.500 -0.5 33.25 7.06E-16

20-Feb-08 0.500 -0.5 22.4 9.01E-10

21-Feb-08 0.497 -0.5 13.4 1.84E-06

22-Feb-08 0.421 -0.5 6.75 6.82E-05

25-Feb-08 0.500 -0.5 44.3 1.56E-22

26-Feb-08 0.495 -0.5 12.8 3.41E-06

27-Feb-08 0.497 -0.5 13.6 2.33E-06

28-Feb-08 0.468 -0.5 9 2.49E-05

29-Feb-08 0.494 -0.5 12.7 4.22E-06

3-Mar-08 0.465 -0.5 7.2 2.79E-054-Mar-08 0.500 -0.5 42.05 5.92E-28

5-Mar-08 0.413 -0.49984 5.45 8.1E-05

7-Mar-08 0.441 -0.49999 6.4 5.26E-05

10-Mar-08 0.500 -0.5 32.7 5.98E-18

11-Mar-08 0.500 -0.5 45.7 5.95E-30

12-Mar-08 0.427 -0.49997 5.95 6.24E-05

13-Mar-08 0.500 -0.5 28.2 2.64E-14

14-Mar-08 0.500 -0.5 19.8 1.92E-09

17-Mar-08 0.500 -0.5 28.5 5.91E-14

18-Mar-08 0.492 -0.5 10.75 6.15E-06

19-Mar-08 0.500 -0.5 17.6 3.39E-0824-Mar-08 0.500 -0.5 27.4 1.72E-12

25-Mar-08 0.497 -0.5 12.75 2.29E-06

26-Mar-08 0.500 0.5 0.05 9.74E-10

27-Mar-08 0.392 -0.49997 5.7 9.52E-05

28-Mar-08 0.499 -0.5 15.4 4.54E-07

31-Mar-08 0.494 -0.5 12.4 4.08E-06

1-Apr-08 0.188 -0.21243 1.45 0.000742

2-Apr-08 0.498 -0.5 14.1 1.46E-06


58


59/100

1-Month Call

N(d1) 0.279131361

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0 5 10 15 20 25 30 35 40

N(d1) 0.279131

1-Month Put

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0 5 10 15 20 25 30 35 40Seri


59


60/100

2-Month Call

0

0.1

0.2

0.3

0.4

0.5

0.6

0 10 20 30 40 50 60 70

Seri

2 month put

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0 10 20 30 40 50 60 70

Seri


60


61/100

3-Month Call

0

0.1

0.2

0.3

0.4

0.5

0.6

0 20 40 60 80 100

Seri

3-Month Put

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0 20 40 60 80 100

Seri


61


62/100

12.1Analysis

12.1.1 Delta for Call Options1-MonthAlmost all the options in 1 month are ATM options, except some of them i.e

around 10 options are running deep OTM options which is due to high reaction

to the delta because of high volatility in the market. So most of the times its a

non-risky investment in this scrip. Traders can hedge their risk effectively in

this scrip.

2-Month

This is one of the safest investment vehicle because from past 6 months, not

even one option is in negative delta which shows an active sign of hedging &

almost all the options are lying in the the range of 0.3 to 0.6 which are of ATM

options. So in all a risk less investment with effective hedging.

3-Month

The same trend has been followed as it was in the 2 month contracts, so it is a

carbon copy of the 2 month call options.


62


63/100

12.1.2Delta for Put Options

1-Month

The scatter diagram has been distributed in a very wide range, there are Deep

OTM Options, ATM Options but not ITM options. Sometimes it is very riskier

because of volatile sessions but only few numbers of options have behaved in

such a way, but the other options have behaved in great way as the highest

turnover providing scrip in F&O segment is supposed to be behaved.

2 & 3 Months

The options have been very very consistent in both these months, almost all the

options are of OTM Options which signifies a risk less investment in this

company scrip. The options which are of deep ITM are not showcased in delta

because it cannot sustain huge values & that part is taken care by gamma.

12.1.2 Gamma

As expected, gamma is positive & it is positively correlated with delta, so it

shows that any increase in the price will lead to increase in the value of the

option & as delta cannot withstand huge values, gamma is used to measure the

pace of change in the values of the delta, in other words it signifies an increase

in the delta will lead to increase in the value of gamma, which again is a

positive sign


63


64/100

12.2 Strategies for ACC

As it can be seen from the analysis, some of them are of OTM options &

for those options which can be riskier sometimes a strategy called as

Strangles can be used which is also a low cost & also has less margin

money.

Covered call is also one of the recommended strategy for this company

scrip because it is one of the risk less strategy as compared to other

strategies & as most of them are of ATM options so the investment will

be partially protected from decline in the prices which may lead to loss

in the future.

By going for a covered call, sometimes it provides an additional income

from the traders investment in this scrip.


64


65/100

13.Company : Bharti Airtel

1-Month

Date N(d1) N(d2) sigma 0.000279

0.279 0.399087 0.2 3.95E-05

10-Dec-07 0.440 -0.5 14.45 1.06E-14

11-Dec-07 0.500 -0.5 62.95 6.08E-06

12-Dec-07 0.489 -0.5 22.6 1.29E-15

13-Dec-07 0.500 -0.5 70.6 4.29E-07

14-Dec-07 0.499 -0.5 33.85 1.35E-08

17-Dec-07 0.500 -0.5 49.5 0.000474

18-Dec-07 0.099 -0.5 5.7 0.000633

19-Dec-07 0.003 -0.5 4.7 0.000173

20-Dec-07 0.288 -0.5 13.15 4.98E-06

24-Dec-07 0.491 -0.5 53.25 0.000688

26-Dec-07 0.019 -0.5 11.25 0.000418

27-Dec-07 0.117 -0.5 18.05 6.26E-08

28-Dec-07 0.500 -0.5 24 2.64E-19

31-Dec-07 0.500 -0.5 55 9.41E-09

1-Jan-08 0.500 -0.5 28.8 0.001083

2-Jan-08 -0.027 -0.3718 1.35 5.59E-06

3-Jan-08 0.491 -0.5 17.15 0.001764

4-Jan-08 0.212 0.032279 0.75 5.32E-057-Jan-08 0.423 -0.5 11.3 2.91E-10

8-Jan-08 0.500 -0.5 38.85 0.000953

9-Jan-08 -0.013 -0.43777 1.75 0.000196

10-Jan-08 0.268 -0.5 6.7 0.00052

11-Jan-08 0.267 -0.

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