Assignment 4 - “Derivatives”

Ques.1) Pick up a stock from NSE website www.nseindia.com & do the following exercise:

a) Check and list how many futures contracts are currently traded on the exchange of
this particular stock. Also, write down the specifications of any one contract in terms
of tick size/price steps, lot size, tick value, expiry date etc.
b) Check the closing price of the stock from the spot market on Dec 1, 2016 and take it
as “S” & price the futures based on it having expiry on Feb 23, 2017. (Take risk free
rate as 4% p.a.)
c) Check the futures price on Dec 1, 2016 from the F&O segment of NSE and comment
whether the futures contract is underpriced, overpriced or accurately priced.
d) Take the closing prices of the stock from the cash segment and futures prices from
the F&O segment expiring on Feb 23, 2017 from NSE from Dec 1, 2016 till Feb 23,
2017 and show graphically the convergence of the spot and futures prices.
e) Show the open interest and volume of this contract and distinguish between the
two.
f) Show the margin account of a person, indicating initial margin (take 10%), mark-to-
market margin & maintenance margin (take 5%, wherever needed), having a long
position in 10 contracts from Dec 1, 2016 till expiry. ( take the closing prices of
futures contract on Dec 1, 2016 as the contract price)
g) Repeat the above exercise if the person is having short position in 10 contracts
instead of long position.
h) Show the payoff diagrams of the person having long (and short) position in 10
contracts taking different expected future spot prices on Feb 23, 2017. ( take the
closing prices of futures contract on Dec 1, 2016 as the contract price)
i) Calculate the actual profit/loss on long (and short) position on Feb 23, 2017 when
the contract expires.
j) What will be the profit/loss if the person has a short position in 10 contracts entered
on Dec 1, 2016 and squares it off on Feb 19, 2017. ( take the closing prices on Feb 19,
2017 as the settlement price)

Ques.2) Exercise on Options

a) Check and list how many option contracts are currently traded on the exchange
of the same stock. Also, write down the specifications of any one call option
contract and one put option contract in terms of tick size/price steps, lot size, tick
value, expiry date, premium, strike price etc.
b) Are these contracts American or European style?
c) Check the closing price of the stock from the spot market on Dec 1, 2016 and
take it as “S” & see how many call option contracts and put option contracts
traded on that stock expiring on Feb 23, 2017 are ATM, OTM and ITM.
d) Also, explain the concept of the time value and intrinsic value using calculation
based on that date for each contract.
e) Take any one call option contract and one put option contract amongst those
available & show the payoff diagrams of the person taking different expected
future spot prices on Feb 23, 2017 if he is
a. Buyer of the option
b. Writer of the option
f) Under what circumstances, does one choose to be the buyer of call option and
not seller of put option or vice-versa? Similarly, under what circumstances, does
one choose to be the buyer of put option and not seller of call option or vice-
versa?
g) Calculate the actual profit/loss on these contracts (one call and one put option
contract with long and short position) on Feb 23, 2017 when the contract
expires.
h) What will be the profit/loss if the person has a short position in 10 put option
contracts entered on Dec 1, 2016 and squares it off on Feb 19, 2017? ( take the
closing prices on Feb 19, 2017 as the settlement price)
i) What will be the profit/loss if the person has a long position in 10 call option
contracts entered on Dec 1, 2016 and squares it off on Feb 19, 2017? ( take the
closing prices on Feb 19, 2017 as the settlement price)