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2. Why Derivatives in India
Integration of
Increased volatility
National &
in asset prices
International Market
Development of
Low Transaction
Risk Management
Cost of Trading
Tools
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3. Origin
• First introduced in Chicago Board of
Trade in 1848 for forward contract in
1. Commodities
• Derivative Introduce in Indian Stock
Exchanges in June 2000
2.
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4. Derivatives Trading on Exchanges
Index Index
Futures Options
Stock Stock
Futures Options
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5. Business Growth of F&O Segment in
India
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6. Types of Market
Spot Market
Derivative
Market
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7. Spot Market
Assets Class Delivery
Immediate
Delivery
Equity Shares
Commodity Physical
Immediate
Payment Currency Physical
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8. Derivative Market
Forward Segment
Future Segment
Options Segment
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9. Forwards
Transaction
Two Private
Contact at Expiry
Parties
Date
Physical /
(Forward
Cash
Price)
Settlement
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10. Participants in Forward Contract
Money
Delivery of Asset
Buyer Seller
(Who takes a (Who takes a
long position) short position )
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11. Future
Contract Between Two Parties
Traded in Recognized Stock
Exchange
Future Date
Price Agreed Upon Today
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12. Participants in Futures Contract
Payment Sell Contract
Buy Contract Payment
Clearing Future Seller
Future Buyer
Corporation
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13. Positions in a Futures Contract
• When a person buy a
Long futures contract
• When a person sell a
Short futures contract
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14. Difference Between Future & Forward
Forward Future
Nature of Contracts Customized Standardized
Counterparty Any Party Clearing Corporation
Credit Risk Exist No Risk
Liquidity Very Low Very High
Margins Not Required Received / Paid on
Daily Basis
Valuation Not Done Daily Basis
Delivery
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15. Options
A contract between two parties
Where Buyer of the option has
the right and not obligation to
fulfill the contract
Seller is under obligation to
fulfill the Contract
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16. Types of Options
Call Option
Options
Put Option
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17. Call Options
Right to Buy
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18. Put Options
Right to Sell
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19. Factors impacting Option Prices
Underlying Time to
Strike Price
Price Expiration
Risk Free Rate Volatility
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20. Derivative Terminology
Lot Size Expiry Date Contract Size
Spot Price Strike Price Initial Margin
Mark to
Option
Market Closing Price
Premium
Margin
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21. Contact Specification
S. no Terminology Remark Index Future Index Option
(Nifty) (Nifty)
1 Lot Size Minimum Quantity traded 50 50
in a lot decided by the
exchanges
2 Spot Price Price prevailing in 5500 5500
delivery market
3 Future/Strike Price Prevailing in future 5550 5550
Price market/price for which call
or put option exercise
4 Option Premium Amount decided by the 100
exchange on the basis of
strike price and spot price
5 Expiry Date Last Thursday of a month Last Thursday Last Thursday
6 Contract Next Three Month Feb, March, April Feb, March, April
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22. Contact Specification
S. no Terminology Remark Index Future Index Option
(Nifty) (Nifty)
7 Initial Margin Minimum amount Rs 69,375
required to make position (25% of
(Suppose 25% of contract 2,77,500)
Size)
Option Premium * Lot Rs 5,000
Size (100*50)
8 Closing Price Closing Price at the end of 5500
day
9 Mark to Market Difference between Trade Pay Rs 2,500 No MTM as we
Margin price & closing Price pay whole
(Daily Settled ) (5550-5500)*50 amount
MTM=(Trade price –
closing price)* Lot Size
Our Expectation is that index rise
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23. Participant
• Insuring an investment
Hedgers against risk.
• Who bets on derivatives
Speculators markets
• Attempt to profit from
Arbitrageurs pricing inefficiencies
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24. Play Grounds
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26. Important Website
www.nseindia.com
www.bseindia.com
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29. Taxation
Particulars Income /Loss from
Derivatives
Head
“Income from Business &
Profession’
Taxed According to the tax slab
Loss from Derivatives Adjusted under all Five Head Profit
& Carry Forward to Next Year
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30. Cost of Trading in Derivative
Sr. Taxes Rates Futures Options
Buy 1 Lot of Nifty at 6000 ,Contract Size 3,00,000 3,000
( 50shares* 6000) / Buy 6000 call option at 60 Rs
premium(50shares*60)
Brokerage 0.03 % On Contract 90 Rs (0.03% on 3,00,000) 75 Rs (2.5% on 3,000)
1 Size/2.5% on Option
Premium (Both Side)
Service Tax 10.36% on Brokerage 9.32 7.77
2 Amount (10.36% on 90 Rs) (10.36% on 75 Rs)
(Both Side)
Securities 0.017% on Contract Size 25.50 2.55
3 Transaction (Only on Selling Side) (0.0085% on 3,00,000 Rs) (0.0085% on 3000Rs)
Tax(STT)
Stamp Duty 0.004% on Contract 12(0.004% on 3,00,000 Rs) 1.2(0.004% *3,000Rs)
4 Size(Both Side)
5 Education Cess 2% on Tax Amount 0.93(2% on 9.32+25.50+12) 0.23(2% * 7.77+2.55
+1.2)
6 Higher Edu Cess 1% on Education Cess 0.014 (1% on 0.93) 0.0028 (1% on 0.23)
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Total Cost 137.76 86.75

31. How does One Make Money in A
Futures Contract?
• Trade according to the trends
• Complete knowledge of Derivatives
• Discipline Approach
• Keep Stop loss on every trade
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