The present study has used buy-and-hold strategies involving future & options and a combination their-off, like Covered Call, Straddle and Strangle .In an attempt to make appropriate investment decisions in particular under risk the portfolio manager must be able to compare the hedging effectiveness of the strategies involving the use of options under covered call and the pure option strategies like straddle and strangle. The study also examines the risk and return associated to taking of future position as buy-and-hold strategy vis-à-vis cash position.
The Indian equity market has widely been regarded as one of the best performing market amongst the emerging markets of the world like China, Indonesia, Brazil, Russia, Mexico, Korea etc. The first step towards introduction of derivatives trading in India was the promulgation of the Securities Laws (Amendment) Ordinance, 1995. It withdrew the prohibition on options in securities. SEBI set up a 24 -member committee under the Chairmanship of Dr. L. C. Gupta on November 18, 1996 to develop regulatory framework for derivatives trading in India. In its report, the committee prescribed necessary pre-conditions for introduction of derivatives trading in India; it recommended that derivatives should be declared as 'securities' so that the regulatory framework applicable to trading of 'securities' could also govern trading of securities.
SEBI also set up a group in June 1998 under the Chairmanship of Prof. J. R. Varma to recommend measures for risk containment in derivatives market. The Report worked out the operational details of margining system, methodology for charging initial margins, broker net worth, deposit requirement and real-time monitoring requirements.
Derivatives trading commenced in India after SEBI granted the final approval to commence trading and settlement in approved derivative contracts on the NSE and BSE.
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. Objectives of the Project
To examine the performance of various derivatives based investment strategies.
To examine the risk associated with different investment strategies
To examine whether derivatives can be used as an alternative to cash market investing.
Scope of study
This study helps to improve investment activities in securities.
It helps to give ideas about derivatives to students.
New strategies can be identified by the people who actively invest in derivatives.
Out of the money call and in the money put only selected to apply the strategies. It may be further analysed in different dimensions. Some popular strategies only taken in to analysis, it has a wide scope to add other derivatives based strategies.
The boundary of the study is that the collection of data is limited to a specific time period Jan-2007 to march-2007.