Archive for the ‘futures’ Category

Theta Value of Options Part 1 :D

In this article we try to discuss how time decay affects option pricing over time, though it is considered a significant risk factor, understanding the dynamics of time decay in option itself may reveal how to use it for incurring profits. As we  already know, most options have  a limited life span, i.e. till its expiration date. The option expiration date is the date after which the option contract becomes void and right to exercise it no longer exists. For all stock options listed on the National Stock Exchange, the expiration date falls on the last Thursday of the expiration month (except when that Thursday is a holiday, in which case it will be brought forward by one day to Wednesday).

.

Not only do options expire on the set expiration date they also keep loosing their value over time. This phenomenon of loosing time value overtime is called time value decay. The risk related to time value decay of option price can be hedged by choosing options which are to expire in more distant months, where there is longer time remaining to expiration. This can slow down the rate of decay but one has to pay higher premiums on forward month options, which subjects it to higher Delta risk of more loss from wrong-way price movement and higher Vega risk which can arise from adverse changes in volatility.

.

.The graph displayed here clearly shows that keeping volatility and price of the underlying constant, for the same At-The-Money strike of Nifty 5400 Call, for different expiry months the premium increases as the time remaining to expiration increases. For September expiry, when there are 69 days remaining to expiration the premium is `211, as we move towards August expiry the premium has decreased to `143.20 as only 34 days are left to expiration. Finally comparing it with present month expiry of July the Premium is lesser at `69.15 when there are 6 days remaining to expiration (which also includes some intrinsic value).

.

The premium or the option price paid to acquire any option has two components: intrinsic value and time value (also known as extrinsic value). The intrinsic value depends on the moneyness of the option. Only if the option is In-The-Money it will have intrinsic value. At-the-money options and Out-of-the-money options have no intrinsic value. The second component of the option premium is time value, the time value depends upon the length of time remaining to exercise the option, the moneyness of the option, as well as the volatility of the underlying’s market price. In case of In-The-Money options, the time value decreases as the option goes deeper into the money, for Out-of-The-Money options, as they have no intrinsic value, time value is the same as option price.

.

Wait for the final part 😀

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,http://www.smctradeonline.com
,http://www.smcwealth.com

HOW IMPORTANT IS INTEREST RATE?

Essentially, interest is nothing more than the cost someone pays for the use of someone else’s money. In India, an individual willing to purchase a home uses bank’s money (through a mortgage) and in return pays interest to the bank for the privilege or the credit card user borrows money for the short term in order to buy something right away. But the very question that comes to everyone’s mind is how to determine where the rates are heading & what impact will it have?

.

So in order to find where the interest rates are heading all one needs to do is to look at the deposits & loans advances of the banks. If banks credit growth is more than its deposits then banks may raise the deposit rates or may increase the lending rates in order to match the asset & liability mismatch. When the Central Bank (RBI) feels that the credit growth has started picking up & is higher than its target levels, RBI tinkers with its policy rates gives signals to the commercial banks to review the interest rates be it on the deposit front or on the lending front.

.

Effects of the rising interest rates On individuals

.

.

The first indirect effect of an increased rate is that banks increase the rates that they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if they carry a floating interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay their EMI’s, and when these installments become more expensive, households are left with less disposable income.

.

On the Corporates financials

.

Corporates too borrow money from banks to run and expand their operations. When the banks make borrowing more expensive, corporates may  not borrow at all or may not borrow at the same pace that they were doing when the rates were lower. Less business spending can slow down the growth of a company, resulting in decreases in profit.

.

Even businesses are also indirectly affected as a result of the actions of the individual consumers as individuals are left with less disposable income which affects the company’s top & bottom lines (that is, revenue and profits). Apart from having an indirect affect businesses are affected in a more direct way as well.

.

On GDP Growth

.

The government essentially has two weapons in its arsenal to help guide the economy towards a path of stable growth without excessive inflation; monetary policy and fiscal policy. Fiscal policy comes from the government in the form of taxation and federal budgeting policies. While fiscal policy can be very effective in specific cases to spur growth in the economy, most market watchers look to monetary policy to do most of the heavy lifting in keeping the economy in a stable growth pattern. Monetary policy is defined as any action to limit or increase the amount of money that is circulating in the economy. That means the central bank (RBI) can make money easier or harder to come by, thereby encouraging spending to spur the economy and constricting access to capital when growth rates seem to be approaching unsustainable levels.

.

Stock Price Effects

.

Clearly, changes in the rates affect the behavior of consumers and business; hence the stock market is also affected. Remember that one method of valuing a company is to take the sum of all the expected future cash flows from that company discounted back to the present. To arrive at a stock’s price, take the sum of the future discounted cash flow and divide it by the number of shares available. This price fluctuates as a result of the different expectations that people have about the company at different times and are willing to buy or sell shares at different prices. If the company is seen as cutting back on its growth spending or is making less profit – either through higher debt expenses or less revenue from consumers then, the estimated amount of future cash flows will drop. All else being equal, this will lower the price of the company’s stock.

.

Investment Effects

.

With a lowered expectation in the growth and future cash flows of the company, investors will not get as much growth from stock price appreciation, making stock ownership less desirable. Furthermore, investing in stocks can be viewed as too risky as compared to other investments. When the central bank raises its rate, newly offered government securities, such T- bills and bonds, are often viewed as the safest investments and will usually experience a corresponding increase in interest rates. In other words, the “risk-free” rate of return goes up, making these investments more desirable.

.

.

Conclusion

.

We should keep in mind, however, that these factors and results are all interrelated. What we described above are very broad interactions, which can play out in innumerable ways. Interest rates are not the only determinant of stock prices and there are many considerations that go into stock prices and the general trend of the market – an increased interest rate is only one of them. Therefore, one can never say with confidence that an interest rate hike will have an overall negative effect on stock prices.

.

Stay Tuned for More Updates :)

More Hybrid Varieties of Tur/Red Gram Set to Hit Market

Hello Friends here we come up with the Latest Agri Commodities updates from various parts of the country.

.

More hybrid varieties of Tur/Red Gram set to hit market

.

More hybrid varieties of Tur/Red Gram set to hit market

.

The Hyderabad-based International Crops Research Institute for the Semi-Arid Tropics (Icrisat), a non-profit, non-political agricultural research organisation, is set to release three new hybrid varieties of pigeon pea (tur or red gram) for commercial multiplication by seed companies, a senior scientist said.

.

“After the commercialization of cytoplasmic male sterility (CMS)-based pigeon pea hybrid (ICPH 2671) two years ago, we have developed three more hybrid varieties.

.

The test results are promising and we will give parental lines to seed companies for multiplication later this year,” CL Laxmipathi Gowda, Global Theme Leader, Crop Improvement and Management, Icrisat, told reporters.

.

🙂

In Other major Commodities Update, there are news of Cane farmers in Maharashtra set to rake in at least Rs 4k crore of additional income in the current 2009-10 season and South India planters’ income dropping to Rs 1,479 cr.

🙂

.

Cane farmers to reap bonanza

.

Cane farmers in Maharashtra are set to rake in at least Rs 4,000 crore of additional income in the current 2009-10 season due to better prices paid by sugar mills.

.

During the previous 2008-09 season (October-September), mills in the State crushed 400.27 lakh tonnes (lt) of cane and paid an average final rate of Rs 1,513 a tonne to growers at their farm-gate.

.

That translated into a total income of Rs 6,056 crore for the farmers.

.

For the ongoing season, total crushing is expected at 455 lt, with the final farm-gate price of cane averaging around Rs 2,250 a tonne.

.

That would result in an income of Rs 10,237 crore or Rs 4,181 crore more than what was paid out in 2008-09, said Mr Prakash Naiknavare, Managing Director, Maharashtra State Cooperative Sugar Factories Federation.

.

🙂

.

South India planters’ income drops Rs 1,479 cr:

.

Going by the production figures and prices for coffee, tea, rubber, pepper,cardamom and vanilla, the plantation owners earned a total of Rs 14,834.84 crore in 2008.

.

In 2009, it dropped to Rs 13,355.51 crore.

.

Plantation industry sources said the data on the lower income for the growers do not take into account the rise in production costs.

This means, the plantation sector, as a whole, could have taken a bigger hit.

.

The drop in rubber production has been a big drag on the income of the planters, who had to cope with Rs 10 a kg fall in prices.

.

The average price in 2009 was Rs 97.56 a kg against Rs 107.74 in 2008.

.

Currently, rubber prices average over Rs 130 a kg.

.

🙂

.

Note : For More Latest Industry, Stock Market and Economy News and Updates, please Click Here

How To Get Started in Online Investing? Final Part

Hello Friends here we come up with an extension of our previous blog “How To Get Started in Online Investing?” Part 1.

.

How To Get Started in Online Investing?

.

In previous blog, we have touched upon the questions, any beginner investors do have in their mind while going for investing.

.

At the same time we had also tried to look in previous blog that what is Online Trading, resources needed first of all to invest online, few steps to start investing online and how SMC ONLINE helps investors in reaping the benefits of online trading.

.

In this Blog, we would try to discuss about what are the further steps an investors need to take once the initial registrations are done with.

.

🙂

.

Once the registration formalities are done with, you would be required to load your online investing trading account with funds.

.

Once Funds would be deposited you would need to look out for the stocks on which you would like to invest prima facie.

.

One thing you should bear in mind that before investing, you should do the in-depth research about the company’s profile, performances and services.

.

In this respect investing firms like SMC ONLINE comes to your rescue usually by helping you with their excellent research support, stocks recommendations and quality statistics.

.

These things are really very important while you invest in buying the shares of any company.

As a wise investor you should keep your eyes open, and don’t blindly trust anyone.

.

Another very important thing is RISK FACTOR.

.

You’ll have to take the risk in terms of investing your money in the stock market.

Stock market is a bit similar to gambling.

.

But there is a big difference between the risk and calculated risk.

For a beginner, you should only go for calculated risk.

.

Don’t put your entire money in terms of buying the shares of a new company, even if the future potential of that company seems very high.

.

Start slowly, understand the market, earn some decent amount of money first of all and then go for big trading.

.

Once you have gotten started, you should start by learning a little bit about chart reading.

If you can read the charts you will have a good idea what is going on.

.

And as I said earlier, I would conclude this topic by saying that any beginner investor should look for a broker firm that gives good value for money with their commission fees.

.

🙂

.

Stay Tuned for more and more on this 🙂

.

However For More latest Industry,Stock Market and Economy News Updates, Click Here

Domestic Economy Rolls as Corporate India Offers 40% More Bonus Shares

Domestic Economy Rolls as Corporate India Offers 40% More Bonus Shares

.

Issue of bonus shares by Corporate India to its shareholders in the first 10 months of the fiscal has shot up 40% over the total during the fiscal ended March ‘09, after declining for two straight years.

.

This interesting jump in bonus issues indicates positive sentiment of the corporate sector to serve a larger equity base.

.

Companies like Britannia, TCS, Reliance Industries, Adani Enterprises, Jindal Steel, Divi’s Lab, JP Associates etc  have  issued bonus shares in the April ‘09-January ‘10 period.

There are as many as 61 companies which have done so.

.

Jagannadham Thunuguntla, equity head with Delhi-based merchant bank SMC Capitals, said:  “The increase in companies doling out bonus equity to its shareholders reflects that the domestic economy is on the path of recovery.”

.

Corporate India has got the confidence to expand equity capital base and issue bonus shares owing to the fact that they have performed very well this fiscal.

.

Bonus issue is an offer of free additional shares to existing shareholders.

This is one of the ways of rewarding shareholders, who largely benefit from capital gains.

.

A company may decide to distribute further shares as an alternative to increasing the dividend payout.

It is also known as a “scrip issue” or “capitalization issue”.

.

The number of companies issuing bonus shares declined more than a quarter after hitting a peak in 2006-07 to 72 firms in 2007-08 and shrunk further to just 44 companies for the year ended March ‘09.

.

This came after three consecutive years of rise in number of bonus issues, when more listed firms announced a bonus bonanza in line with the bull run of the stock market.

.

Bonus shares are issued by companies through capitalization of their free reserves.

When a company announces bonus issue, it is an indication of its management’s confidence to serve a larger equity base.

.

🙂

Global Coffee Output May Dip 3.6 Per cent in the 2009-10

Hello Friends here we come up with the Latest Agri Commodities updates from various parts of the globe.

.

Global Coffee Output May Dip 3.6 Per cent in the 2009-10

.

Global coffee output may dip 3.6% : ICO

.

Global coffee output may dip 3.6 per cent to 7.41 million tonnes (mt) in the 2009-10 crop year on fall in production in Brazil and Africa, the International Coffee Organisation (ICO) said.

.

Adverse climatic conditions in few growing regions may also affect crop quality, it added.

.

Last year, world coffee output had stood at 7.69 mt, it said, adding that the estimate for this year is preliminary as data from Colombia and Vietnam is pending.

.

“With factors such as a prolonged dry season and high levels of coffee berry borer infestation, there appears to be little possibility of an increase in global production,” ICO said in its latest market report.

.

🙂

In Other major Commodities Update, there are news of rabi productions falling short of expectations and Uttarakhand government seems not to be increasing the sugar price.

🙂

.

Rabi output may fail to meet estimates:

.

All eyes are now on the estimates for the rabi crop this year.

A good winter crop (rabi) will help augment the foodgrain supply and ease food prices.

.

Hopes of a good crop have been fuelled by favourable weather conditions and the greater thrust on increasing the rabi crop.

.

The Union agriculture ministry has already indicated that the rabi season, this year, may see an additional 10 million tonne (mt) of output over the past year’s production, implying a growth of 8%.

.

This optimism on the rabi crop has prompted the Central Statistical Organisation or CSO — the government’s statistics arm — to estimate a meagre fall of 0.2% in agri output this year despite a 16% fall in the kharif (or summer crop) output due to the deficient monsoon.

.

🙂

.

Uttarakhand not to increase sugarcane price:

.

The Uttarakhand government seems to be in no mood to increase the price of Rs 215-220 per quintal for sugarcane despite a hefty increase by private sugar mills.

.

In the first week of December, the government announced the state advised price (SAP) of Rs 192-197 at a time when farmers were agitating for a price of Rs 250.

.

But soon, the private mills began paying heavy bonuses to farmers in the face of acute shortfall in a desperate bid to keep the factories running.

The government too decided to give bonus with a final price of Rs 215-220.

.

🙂

.

Note : For More Latest Industry, Stock Market and Economy News and Updates, please Click Here

Farm Production likely to Go Down

Farm Production likely to Go Down

.

Due to decline in kharif production on account of drought and floods in several parts of India,the output from agriculture sector is expected to decrease by 0.2% in the current fiscal against 1.6% growth in the previous year stated the Central Statistical Organization (CSO).

.

However, late last month, the RBI in its Q3 review of the monetary policy had projected that the agricultural GDP growth in 2009-10 is likely to be near zero.

.

Production of foodgrains and oilseeds is likely to decline by 8% and 5% in the 2009-10 crop year compared with the previous year.

.

The sugarcane output is likely to dip by 11.8% and that could add up to pressure on the sugar prices.

.

Meanwhile, among the horticultural crops, production of fruits and vegetables is expected to increase by 2.5% and 4.8%, respectively, in 2009-10.

.

Rice production is estimated to be 71.65 million tonnes in the 2009-10 kharif season as compared to the actual production of 84.58 million tonnes in the previous season.

.

On the other hand, production of coarse cereals is also likely to fall to 22.76 million tonnes from the actual production of 28.34 million tonnes in the 2008-09 kharif season.

.

🙂

Weekly Update of The Market (08th-12th February)

Hello Friends, here, we bring you the weekly overview of the Indian as well as of the Global economy and  latest global business and industry updates.

.

Weekly Update of The Market (08th-12th February)

.

After starting the year on a good note & Indices making fresh highs within few weeks many Asian markets have corrected between 7 to 10%.

.

The global sell off over sovereign debt problems in Europe and an unexpected rise in jobless claims in US put investors on the defensive mode.

.

The anxiety about sovereign debt in Greece, Portugal and Spain sparked a sell-off in the Euro & has led strength to US dollar.

.

Foreign investors sell off is an outcome of dollar-carry-trade unwinding as when they borrowed the dollar was cheap & now it is recovering.

.

Investors viewed the markets in year 2010 with confidence in view of recovery gaining momentum is now shaken over the debt problems, nascent economic recovery & confidence of the governments that stand behind the euro.

.

Efforts of China to curb lending preventing overheating in economy also pose a risk to derail the global recovery.

.

Back at home, the effect of turmoil in the international market also made government to think its strategy on ambitious disinvestment programme.

.

🙂

.

Lukewarm response to the NTPC, the much awaited issue managed to get subscription of just 1.2 times on its closing day.

.

The maximum bid of 20.87 crore shares was put by Indian institution under the first time adopted French Auction route.

.

This has challenged the finance Ministry hopes on the proceeds from disinvestments to make up the sliding revenue & rising expenditure.

.

While it looks that PSU disinvestment may not yield desired results on market weakness, the 3G auction i.e. expected to garner Rs. 35,000 crore could be postponed to next fiscal year.

.

🙂

.

The fate of some of the IPO’s like NMDC, Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation that are on the disinvestment agenda before March 31, looks tough to sail through, if the stock markets do not rise and big investors do not come back.

.

On the contrary, Banks like Bank of Baroda & Indian Bank that were expected to raise money overseas have put now their plans on hold.

.

🙂

.

The good news from the external sector continued as the data showed a 9.3% annual increase in exports in December to $14.6 billion, a second consecutive month rise.

.

While imports increased by 27.2% from a year earlier to $24.75 billion.

.

Food inflation remained at high levels & rose to 17.56% in the week ended 23 January 2010 from 17.40% in the previous week on the back of rising pulses & potato prices.

.

Markets are likely to take a closer view of the advance estimates on economic growth for the current fiscal ending March 2010 scheduled to be released on Monday.

.

🙂

.

In the days to come an activity in the sectors like railways, fertiliser, textiles, pharma, education, power and infrastructure may be seen on expected positive policy announcements and budgetary sops.

.

It was clearly mentioned last week that world markets are going in downtrend and one should be careful in such a scenario and that one should be moving in cash.

.

Now the markets have taken a very sharp fall last week due to rise in Dollar Index and fall in all asset classes.

.

🙂

.

The coming week might see some counter rally from lower levels.

Nifty faces resistance between 4900-5000 levels and Sensex between 16400-17000 levels.

.

🙂

.

If we talk about commodity markets then one can see that strengthening dollar and lack of firm global cues had pressurized commodities prices to move southward.

.

Investors are selling riskier assets and putting their money in dollar as a safe haven buying.

.

Debt concerns facing Greece, Portugal and Spain coupled with dollar index which is trading above the mark of 80 is most likely to compel commodities to trade lower.

.

French and euro zone GDP, USD advance retail sales, USD U. of Michigan Confidence will give further direction to commodities.

.

Investors should keep an eye on gold – silver ratio.

It was 58:1 few months back, now reached to 67:1 on MCX, heading towards the level of 70:1.

It is demonstrating more selling in silver.

.

🙂

.

Stay Tuned for More on weekly updates.

.

Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

Moneywise…Be Wise ;)

.

If you find yourself asking the question –

.

Why should I Save ?

.

Why should I Invest ?

.

Where do I Invest ?

.

Who would Guide me to take informed decision on my Investments ?

.

…then look no further !

Why SMC?

.

SMC Group, a leading Financial services provider in India, a vertically integrated investment solutions company, with a pan-india presence is there to guide you and provide complete investment solutions to you.

.

SMC Group, having rich experience of more then two decades in financial markets, is one of the largest & most reputed investment solutions company that provides a wide range of services to its client base of more than 5, 50,000 clients with presence in more then 1500 cities.

.

SMC Online, an unit of SMC Group, is one stop financial investment portal for investor’s all financial needs.

Investors can trade online in Equities, FNO, Currency Futures, Commodities, apply online for IPOs, and invest online in Mutual Funds.

.

SMC is :

.

a) 4th Largest broking house of India in terms of trading terminals (Source: Dun and Bradsheet, 2008)

.

b) 5th largest distributor of Initial Public Offering (IPOs) in retail (Source: Prime Data Ranking)

.

c) Awarded ‘Fastest Growing Retail Distribution Network in Financial Services’ (Source: Business Sphere, 2008)

.

d) Recipient of ‘Major Volume Driver Award’ from BSE for last three years consecutively.

.

e) Nominated among the top three in the CNBC Optimix Financial Services Award 2008 under National Level Retail Category.

.

f) One of the largest Proprietary Arbitrage Desk doing risk free arbitrage in equities & commodities.

.

g) Commanding turnover of more then 3% in equity market, 4% in commodity market and 10% in DGCX.

.

h) Transparent and professional management.

.

j) Relentless focus on investor care.

.

k) World class in-house research facilities providing research support to investors.

.

l) All financial products and services under one roof.

.

🙂

.

Next Blog we would try to read more about the other SMC’s investment products and services.

Stay Tuned for more on this 🙂

.

To know more about the SMC Products and Services, click here.