Sandip Mt Ppt

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A

MANAGEMENT THESIS

On

PUT-CALL RATIO AS AN EFFECTIVE MEASURES TO DETERMINE THE DIRECTION

OF MARKET MOVEMENTS IN INDIAN MARKETS

SUBMITTED TO SUBMITTED BY

MR. ABHAY KUMAR SANDEEP S. PATIL

8NBNS012

ICFAI NATIONAL COLLEGE NASHIK


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INTRODUCTION

Indian economy at its height compelled the world to change its viewpoint towards

India. Out of the several factors which changed the face of modern India, we are going

to discuss the most roaring of them i.e. our share market. The earlier reform

procedures adopted by India gave India the two most sought after world-class brands

i.e. SENSEX and NIFTY. The magical figures displayed by our market turned all the

heads on India. And India became one of the most favoured places for investment.

MISSIONTo create long term value by empowering individual investors through superior

financial services supported by culture based on highest level of teamwork, efficiency

and integrity

VISIO

To provide the most useful and ethical Investment Solutions - guided by values drivenapproach to growth, client service and employee development


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Purpose

To get an idea about the Indian share market.

To find out the client investment behaviors.

To know how to calculate derivatives. Effectiveness of put-call ratio.


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Nature of the Project.

In the beginning I have collected the secondary data about Indian share

market movement from the internet

Designed a questionnaire to find out the information about the

consumer investment behavior.

To collect the primary data with the help of questionnaire.

.


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OBJECTIVE OF THE PROJECT

To study about call ratio effectiveness.

To study about BSE and NSE.

To know the about current indian market.

To study and analyze the various strategies of Derivative market segment.

To study the trading segment of Derivative market.

To study and understand the concepts of the Derivative market

To analyze and interpret the data i.e. strategies.

To find out the risk of profit and loss of the traders.

To make recommendations if any, to improve the investment portfolio of the investors.

To study the present behavior and predicting the future behavior of market movements based

on rise/fall in put-call ratio.


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PRIMARY DATA:

collecting required information from UNICORN INVESTMENT SOLUTION.

also give a proper guidance from Branch manager Mr.santosh jadhav and

RM Mr.shantanu sir.

SECONDARY DATA:

Collecting other information throw net on www.google .com and INC book.

METHODOLOGY


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I have collected the relevant information about Unicon investment

solution from the internet and prepared a questionnaire for primary data

collection. I went to the Unicon investment solution and interviewed

few Trading personal and tried to get some information by directly

asking question to some of the customer.

The information provided by trading personal depicts that mostly

upper middle class people prefer to come to Investment.

PROGRESSREPORT


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COMPANY PROFILE

Unicon solution is a financial services conglomerate which has emerged as a one-stop

investment solutions provider. It was founded in 2004 by two visionary and flamboyantentrepreneurs, Mr. Gajendra Nagpal and Mr. Ram M Gupta.UNICON is supported by

more than 3500 Uniconians and has a scrupulous network of over 100 branches, 600

plus business partner locations & 2500 premises which give UNICON a national

footprint.

The Equity broking arm UNICON Securities Pvt. Ltd offers personalized services

on the NSE, BSE & Derivative markets.

Unicon customers have the advantage of trading in all the market segments

together in the same window, as we understand the need of transactions to be

executed with high speed and reduced time. At the same time, they have theadvantage of having all Advisory Services for Life Insurance, General Insurance, Mutual

Funds and IPOs also.

The equity broking arm UNICON Securities Pvt. Ltd offers personalized

services on the NSE, BSE & Derivative markets. The Commodity broking arm

UNICON Commodities Pvt. Ltd offers services in Commodity trading on NCDEX and


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What It Is:

The Put/Call ratio is a popular sentiment indicator. These types of indicators attempt to

gauge the prevailing level of bearishness in the market. Typically, sentiment indicators

are used as contrarian tools. In other words, when market participants are most bullish,

the likelihood of a downside reversal is greatest. And when investors become overly

bearish, a market rally may be on the horizon.

How ItWorks:

There are several Put/Call ratios in use. The one that many investors rely on is based on

data collected by the Chicago Board Options Exchange (CBOE). Each day, the CBOE

adds together all of the call and put options that are traded on all individual equities.

Purchasing a call option, you'll remember, simply amounts to a bet that a particular a

stock or index will rise in value. By contrast, a put buyer is anticipating that an

underlying stock or index is poised to fall.

PUT CALL RATIO


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Definition of derivatives:-

Derivative is a product whose value is derived from the value of one or more basicvariables, called bases (underlying asset, index, or reference rate), in a contractual

manner.

The underlying asset can be equity, forex, commodity or any other asset. For e.g.:Wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a

change in prices by that date. Such a transaction is an example of a derivative.


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What are disadvantages of trading in derivatives?

Because of their ability to provide leveraging, derivative disasters are pretty common

in international markets.

just as there is huge potential of earning higher returns, it also exposes individuals and

corporation alike to money in case the market moves against the position held by them.

Too much leverage has been the cause of worry and pitfalls for many traders and

investors alike.


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Function of BSE:

The Stock Market is a pivotal institution in the financial system. A well-ordered stock market performs several economic functions:

It ensures the measure of safety and fair dealing.

It performs an act of magic by translating short-term investments into long-termfunds for companies.

It directs the flow of capital in the most profitable channels.

It induces companies to raise their standard of performance.

It offers guidance to management about the cost of capital.


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Derivative products:-

Derivative Contracts have several variants. The most common variants are forwards,

futures, options & swaps.

Forwards:-A Forward contract is a customized contract between 2 entities, where settlement takes

place on a specific date in the future at todays pre-agreed price.

Futures:-

A futures Contract is an agreement between 2 parties to buy or sell an asset at a certaintime in future at a certain price. Futures contract are special type of Forward contracts

in the sense that the former are standardized exchange-traded contracts.

Options:-

Options are of 2 types- calls and puts. Calls give the buyer the right but not theobligation 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.


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What is Option Trading ?Options are fundamentally different from 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, a 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


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Glossary of Options

Buyer of an option: The buyer of an option is the one who by paying the

option premium buys the right but not the obligation to exercise his

option on the seller/writer.

Writer of an option: The writer of a call/put option is the one who receives the

option premium and is thereby obliged to sell/buy the asset if the buyer

exercises on him.

Index option: These options have the index as the underlying. They are also

ash settled.

Stock option: Stock options are the option on individual stocks. Options

currently traded over the 500 stock in the US. A contract gives the holder the

right to buy or sell shares at the specified price.

American options:American options are the options that can be exercised at

any time up to the expiration date


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European options: European options are the options that can be exercised

only on the expiration date itself.

In the money option (ITM) :

ITM option is an option that would lead to a cash flow to the holder if it were

exercised immediately. A call option on the index is said to be in the money

when the current index stands at the higher level in the strike price. If the index

is much higher than the strike price, the call is said to the deep ITM. In the caseof the put, the put is the ITM if the index is below the strike price.

At the money option (ATM)

ATM option is an option that would lead to a cash flow. If it is exercised

immediately. An option on the index is said to be at the money when the currentindex equal to the strike price.


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Out the money option (OTM)

OTM option is an option that would lead to a negative cash flow to the holder if

it were exercised immediately. A call option on the index is said to be out themoney when the current index stands at the less level in the strike price. If the

index is much lower than the strike price, the call is said to the deep OTM. In

the case of the put, the put is the OTM if the index is above the strike price .

Covered Call Option

Covered option helps the writer to minimize his loss. In a covered call option,

the writer of the call option takes a corresponding long position in the stock in

the cash market; this will cover his loss in his option position if there is a sharp

increase in price of the stock. Further, he is able to bring down his average costof acquisition in the cash market (which will be the cost of acquisition less the

option premium collected)


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FINDING

Lack of Investor Awareness about the Derivatives Market & its Trading.

Derivatives Market basically trades depending upon the Underlying Securities. Sosmall fluctuations in the security results in changes in strategies for that particular

Derivative.

Small Investors usually prefer Cash Market over Derivatives Market because of Risk

& ignorance about market conditions.

In many of the Brokerage houses Application of Strategies on day-to-day basis is very

rare. The tendency is to have long position when market is bullish, & go for short

position when market is bearish.


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Recommendations

Avoiding wrong perception of the investors.

Investors think that, Derivative trading is more risky than equity trading; it is a bettingetc. their views are not cleared about derivative market. These wrong perceptions of the

investors should be avoided by giving proper suggestions to the clients.

Suggest the derivative trading to their clients who has currently invested in equity

market. On the basis of their income capacity, risk bearing capacity of the investor.

Introducing strategies to the Investors.


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CONCLUSION

After completing the project I came to know that Effective measurement of put-

call ratio helps to manage all the activities properly.

We are found some limitation also that is The study of the project is subject to the timeconstraints as only two contract period is taken into consideration. Only few companies

and Index i.e. Nifty are taken for interpreting and explaining the strategies. Premiums

and margins taken for explaining the strategies are not accurate but at the same time it is

made sure that it is not imaginary.

The final major advantage of options is that they offer more investment alternatives.

Options are a very flexible tool. There are many ways to use options to recreate other

positions. We call these positions synthetics.

Put-call ratio is most important function because investment is help to future

planning.

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