Posts Tagged ‘National Stock Exchange’

Theta Value of Options Final Part :)

Continuing the final part from where i have stopped writing……………. 🙂

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At-The-Money options have the maximum time value, because intrinsic value can begin to rise at this point.

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.The graph here indicates that the (absolute) value of Theta is highest at 2.67 for Nifty 5400 Call, which is At-The-Money (ATM) strike (which is at present the closest strike to the underlying’s spot value), as the strikes move away from ATM, and gets deep into the money or deep out of the money Theta and time value tends to decrease.

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Coming to the relationship between time value and the length of time remaining to expiration, time value of an option decays at a non-constant rate, as its expiration date approaches and becomes worthless after that date. This rate of time decay is known as Theta, which measures the amount by which option’s value decreases per day.

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Theta values are negative for all options as options are always losing time value while moving towards expiration, till options take zero time value at expiration. At expiration Theta wipes out all time value leaving the options with no value or some degree of intrinsic value. The most important characteristic of Theta is that it is not constant, as date of expiration comes closer, Theta increases, implying that the amount of time value decreasing from the option’s premium per day accelerates with each passing day.

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As you can see from the graph the rate of decay (Theta) is lower in the contracts expiring in more distant months. The August 5400 Nifty call (which has 34 Days remaining to expiry), have a Theta value of -2.67; meaning this option is losing Rs.2.67 in time value each day. This rate of decay is lower for each forward month, e.g. September 5400 call (69 days remaining to expiration) has a Theta of – 2.12. But in case of the present July 5400 call option, (with volatility and price of the underlying held constant) the rate of loss of time value accelerates as the call option gets nearer to expiration (i.e., the rate of decay is much faster on the option near to expiration than with a lot of time remaining on it). With 6 days remaining to expiration Theta is -5.03, and with 1 day remaining to expiration value of Theta has increased to 8.32.

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Considering time value and its dependence on volatility, higher volatility gives rise to higher time value as increased uncertainty about underlying’s price near expiration, tends to increase Theta.

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In conclusion, while trading options one has to consider Theta decay risk carefully as the option price may fall exponentially near expiration. However option traders can turn time value decay into profits by trading net selling option strategies which always have positive position Theta as income will be generated through time value option premiums even if the underlying remains stationary and range bound and options expire worthless. Covered Call or Covered Put Writing, Calendar Spreads, Call or Put Ratio Spreads, Call or Put Credit Spreads, Short Strangle or Straddle and even simple Call Writing and Put Writing are few common option strategies which have positive position Theta.

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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).

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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.

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.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).

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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.

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Wait for the final part 😀

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

Indian Stock Market Reaction To Indian Budget :)

Indian stock markets, reacted positively to the budget, with a benchmark index breaking free to close 237 points higher than its previous weekly close. 🙂

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) moved up 237.92 points or 1.47 percent to end Friday at 16,429.55 points, 237 points above its previous weekly close at 16,191.63 points.

The broader S&P CNX Nifty of the National Stock Exchange (NSE) too posted gains to end the week at 4,922.3 points, up 77.4 points or 1.57 percent.

Broader market indices, however, ended the week in the red with the BSE midcap index closing 0.54 percent down and the BSE smallcap index 1.67 percent lower.

“Though it is not possible to keep everyone happy, the finance minister has done a commendable job. This was evident from the way markets reacted to the announcements,” said Jagannadham Thunuguntla, the equity head for brokerage firm SMC Capitals.

“The budget did help in breaking from the side-ways movement, but it is not going to help much going forward. A lot of the budget news has been factored in and one should not expect a major rally,” he added.

The top gainers during the week included Hindalco (up 7.7 percent), Maruti Suzuki (up 6.8 percent), L&T (up 6.2 percent), Hero Honda (up 5.5 percent) and ICICI Bank (up 5 percent).

Among top losers were ITC (down 6.5 percent), Reliance Communications (down 2.8 percent), Tata Power (down 2.2 percent), Hindustan Unilever (down 2.2 percent) and Reliance Industries (down 0.6 percent).

Data with markets watchdog Securities and Exchange Board of India (SEBI) showed that foreign funds were net buyers during the week, having bought scrips worth $313.56 million.

Benchmark indices in the US ended slightly lower this week with Dow Jones industrial average dipping 0.8 percent, the Standard and Poor’s 500 Index 500 down 0.4 percent and the Nasdaq composite falling 0.3 percent.

Indian Stock Traders To Contend With Fewer Holidays in 2010 !

Indian Stock Traders To Contend With Fewer Holidays in 2010

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Indian brokerages and traders would have to contend with fewer trading holidays in 2010, going by the list of weekdays on which the markets will remain closed in 2010.

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Moreover, they would have to put in longer hours this year owing to the decision of stock exchanges to increase the trading hours.

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In comparison to 2009, when there were 19 holidays throughout the year, the projected number of public holidays in 2010 has dropped to just 11, including the first day of the year.

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As per the official of Bombay Stock Exchange (BSE), this is certainly not by design.

Eight holidays this year — including Dussehra, Guru Nanak’s birthday, Christmas, Independence Day — fall either on a Saturday or Sunday,” he said.

“It’s only that we have mentioned them on our holiday list.”

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According to SMC Capital’s Jagannadham Thunuguntla, the Securities and Exchange Board of India was already contemplating a cut in the number of holidays to align the Indian markets with other peers, where trading holidays are restricted to six-seven a year.

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“This year, coincidentally, this has fallen in place. Many festivals and events are on weekends. That’s why, if you notice, today has been declared a holiday as a consolation to us,” Thunuguntla told.

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The authorities at the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have not only increased the trading hours by 55 minutes but have also decided not to advance the opening bell this year .

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From Jan 4 onwards, trading will commence at 9 a.m., while the closing bell will ring at 3.30 p.m. in a move intended to woo foreign funds from other major Asian markets like Singapore and Hong Kong.

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FLASHBACK 2009


For India, 2009, been a great year with the return of a stable government at centre, good FII inflow, 80% increase in the Indian stock market and less terror attacks. But globally, H1N1 influenza and a series of bankruptcy by some big international giants are some events, which we never want to happen again.

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Putting behind the worst annual performance ever, Indian equities were on a roll in 2009, catapulting a key index by more than 80 percent, to close the year with one of the best gains among emerging markets.

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At closing bell Thursday, the 30-share benchmark sensitive index (Sensex) of the Bombay Stock Exchange (BSE) was ruling at 17,464.81 points with an impressive gain of 7,817.5 points, or 81.03 percent, over the previous year’s close at 9,647.31 points.

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This was the best annual performance since 1999 and was in sharp contrast to 2008, when the Sensex ended with a hefty loss of 10,639.68 points or 52.45 percent making it the third-worst performing equities index among emerging markets.

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The story was no different at the National Stock Exchange (NSE), the other major bourse in the country, where the broader 50-scrip S&P CNX Nifty gained a hefty 2,241.9 points or 75.76 percent when it closed at 5,201.05 points Thursday.

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The main factors that made key indices rise like a Phoenix was resilience of the Indian economy and impressive growth despite global slowdown that also reflected in corporate earnings and the return of the foreign institutional funds.

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According to markets watchdog, the Securities and Exchange Board of India, such overseas funds pumped about $17.46 billion into the Indian stock markets in 2009, as opposed to a net sale worth $13.135 billion for the first time in over a decade..

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‘The performance in 2009 surpassed the expectations of even the most optimistic person. There were not many places left for foreign funds to invest and India was among the few attractive destinations,’ said Jagannadham Thunuguntla, equity head at SMC Capitals.

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Even as the Sensex gained 7,817.5 points, some of the 13 sector-specific indices stood out because of their performance — the metals index appreciated the most, up 233.68 percent, while auto followed with a gain of 204.16 points..

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Similarly, the indices for information technology was up 132.78 percent, capital goods gained 104.26 percent, consumer durables rose 97.8 percent, banking gained 83.9 percent, state-run enterprises inflated 80.54 percent, power moved up by 74.3 percent.

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On the whole, the year started on a promising note with the government unveiling a second dose of fiscal stimulus to help the economy weather the adverse impact of a slowdown in the global economy — touted as the worst in eight decades.

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As a result, the Sensex rallied till Jan 6 and gained 7.13 percent in just three days of trading. But then came the confession of a multi-million dollar fraud by Satyam Computer founder B. Ramalinga Raju, triggering a 7.25 percent fall in just one session.

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Till February, the barometer index was oscillating between 9,000-odd points and 10,300-levels. But as signs of a prolonged economic recession receded the world over, Indian equities found more takers and reflected in steady rise in the index.

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By the beginning of May it was trading comfortably around the 12,000-point mark and gave a thumping welcome to the electoral victory of the Congress party-led United Progressive Alliance — that even saw suspension of trading as indices hit the upper circuit twice.

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On that eventful day of May 18, the Sensex stood at 14,284.21 points, gaining 2,110.79 points, or 17.33 percent, over the previous close, while Nifty also rose 17.3 percent, or 636.4 points, to close at 4,308.05 points.

The remaining months of the year saw a steady rise in the index with interim corrections even as events like the presentation of an industry-friendly national budget and a high growth for the economy during the second quarter boosted investor sentiments.

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Looking at individual stocks that go into the Sensex basket, the top five gainers during 2009 were Tata Motors, up 398.33 percent at Rs.792.60; Mahindra and Mahindra, up 293.23 percent at Rs.1,080.80; Sterlite Industries, up 230.45 percent at Rs.861.65; Hindalco, up 211.23 percent at Rs.160.75; and Maruti Suzuki, up 199.88 percent at Rs.1,559.65.

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Only three stocks ended lower — Bharti Airtel was down 54.02 percent at Rs.328.80; Reliance Communications was down 23.92 percent at Rs.172.90; and Reliance Industries which ended lower since the company declared a 1:1 bonus.

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Looking ahead, the markets expect some more action once the government’s divestment programme gets underway even as investors have their fingers crossed on when the Sensex will breach the magical 21,000 mark.

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So, overall, the year 2009 has been one of the most significant chapters in the stock market growth with an increase of 80% in its value. Further, we keep our spirits high on FM’s comment that Indian economy can grow at 7.75% in FY10.

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India’s Stocks Rose to Highest since May 2008

India’s stocks rose to their highest in 19 months

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India’s stocks rose to their highest in 19 months after foreign direct investment into the nation jumped 61 percent

and the government relaxed a rule to make some state-run companies globally competitive.

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Tata Motors Ltd., soared to the highest in more than two years after foreign direct investment into the nation rose to $1.74 billion in November.

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Oil & Natural Gas Corp., the largest state-owned oil explorer, climbed the most in three weeks as the government increased the cap on the amount some state-run companies can spend to acquire assets and set up joint ventures.

“Money always chases opportunity and now the opportunity is in India,” said

Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd. in New Delhi.

“There are not many options left for the global investor.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 129.50, or 0.8 percent, to 17,360.61, the highest since May 16, 2008.

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The gauge has risen 3.8 percent this week, the most in more than a month.

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The Sensex climbed 80 percent this year, set for its best annual performance in 18 years as economic expansion accelerated and the election victory of Prime Minister Manmohan Singh ruling coalition in May raised optimism he will push through reform measures to boost growth.

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The S&P CNX Nifty Index on the National Stock Exchange rose 0.7 percent to 5,178.40.

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The BSE 200 Index increased 0.7 percent to 2,169.65.

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🙂

JSW Energy IPO Receives Tepid Response

The Rs 2,700-crore initial public offering


of JSW Energy got subscribed a modest 1.67 times on the final day of issue today, reflecting muted investor sentiment amid poor performance by other power sector majors in the bourses.

The IPO of JSW Energy received bids for over 38 crore shares, against 22.76 crore shares on offer, garnering a demand of 1.67 times the shares on offer, as per data available on the National Stock Exchange.

Analysts said the weak response of retail investors in the issue shows that investors prefer to stay away from the power sector.

“The memories of recent power IPO listing debacle is still fresh in the mind of investors. It was mainly IPO financing based demand as only institutional investors are participating who mainly brings in borrowed money,” SMC Capitals Equity Head Jagannadham Thunuguntla said.

The portion reserved for qualified institutional buyers got subscribed 2.88 times, while the high networth individuals bid for 0.74 per cent of the shares on offer. Retail investors portion remained got subscribed 0.17 per cent.

“Most of the power sector stocks are trading about 20-30 per cent below issue price. JSW Enery is likely to witness lukewarm debut on the bourses on the day of listing as the actual price discovery is yet to happen,” Thunuguntla added.

BSE and NSE all Set to Improve Arbitration and Appeal Mechanism

NSE BSE Mechanism

BSE and NSE all Set to Improve Arbitration and Appeal Mechanism

Both the BSE and NSE will soon be adopting the best practices in the other to improve the investor grievance redressal mechanism where the NSE is considering putting in place an appeal mechanism similar to the one at BSE.

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However, BSE is looking at scrapping the arbitration fees to be paid by the investor for claims below Rs 10 lakh while efforts are on to provide investors with help from a representative of Investor Associations (IA).

Meanwhile, at present, there is a two-level arbitration process in BSE whereas, in NSE, there is a single-level arbitration meaning if you lose your case in arbitration in NSE you shall have to appeal in the High Court.

Further, in BSE, you can appeal against an unsatisfactory verdict to an appellate panel of 5 arbitrators before taking the matter to court while if the arbitration claim amount is less than Rs 25 lakh on the NSE and less than Rs 10 lakh in case of the BSE, a single arbitrator hears the case.

But, if the arbitration claims are higher than this amount then a panel of 3 arbitrators will decide the case while NSE agreed to the appeal mechanism subject to the Arbitration Act.

In addition, on the BSE, an investor seeking redressal has to file an application with the exchange at Investors’ Grievance Redressal Committee (IGRC) comprising of a former justice of high court and a broker member trying to resolve the dispute at the IGRC level itself.

However, if no mutually agreeable settlement is reached, the parties are advised to go in for arbitration while another proposal, when executed, will be beneficial to investors like the BSE levies arbitration fees of approximately Rs 4,000 whereas on the NSE, for claims of up to Rs 10 lakh, only the brokers have to pay the arbitration fees.

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Downward Movement Hits Indian Equities Markets

Downward Movement Hits Indian Equities Markets

Downward Movement Hits Indian Equities Markets

Indian equities markets entered into a consolidation zone with analysts terming the downward movement as long expected.

A benchmark index fell 5.44 percent from its last weekly close and ended trade below the 16,000-mark.

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The 30-share sensitive index (Sensex) ended 914.53 points, or 5.44 percent lower, at 15,896.28 points at the weekly close Friday, as opposed to the previous week’s close at 16,810.81 points.

The broader S&P CNX Nifty of the National Stock Exchange (NSE), too slipped, closing at 4,711.7 points, down 5.7 percent from its last weekly close.

However, companies with large-to-medium market capitalization saw greater selling with the BSE midcap index ending 7.36 percent lower and the BSE smallcap index losing 8.01 percent over the last week.

“This consolidation was expected anyways as the valuations were not commensurate with the earnings of corporates. To an extent a correction in valuations was warranted,” said Jagannadham Thunuguntla, equities head of brokerage and capital markets consultancy SMC Capital.

The markets started on a cautious note Monday ahead of the Reserve Bank of India‘s mid-year policy review Tuesday.

The Sensex ended a volatile day at 16,740.50 points — 70.31 points or 0.42 percent lower than Friday’s close.

The Nifty followed a similar trajectory and ended in negative at 4,970.9 points, down 0.52 percent.

Both benchmark indices nosedived Tuesday as the RBI indicated in its policy review that it would start tightening the monetary policy and look at exiting the stimulus measures.

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Data with markets watchdog Securities and Exchange Board of India (SEBI) showed that foreign funds were net sellers during the week, having sold scrips worth $12.8 million.

The top gainers this week on the Sensex were

Tata Motors (up 7.2 percent),
Ranbaxy Labs (up 4.8 percent),
Wipro (up 2.9 percent),
Grasim (up 1.6 percent) and
Hindustan Unilever (up 1 percent).

The top losers were :

DLF (down 18.5 percent),
Reliance Capital (down 14.5 percent),
Reliance Infrastructure (down 14.2 percent),
Hindalco (down 13.9 percent) and
Reliance Power (down 12.9 percent).

“Broadly speaking only about one percent of the quarterly results show a sound top line growth. Profits might have increased, but that is not because of increase in core operations – cost cutting and other income have contributed towards it,” said Thunuguntla.

🙂

MCX Stock Exchange Targets Bottom of the Pyramid

MCX Stock Exchange drawn up a strategy to lower costs significantly to take on established players :)

MCX Stock Exchange drawn up a strategy to lower costs significantly to take on established players 🙂

The MCX Stock Exchange (MCX-SX), which is still some distance away from launching trade in equities, has already drawn up a strategy to lower costs significantly to take on established players.

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Exchange, promoted by the Financial Technologies group, is waiting for approval from the market regulator.

But the blueprint is aimed at doing what the National Stock Exchange (NSE) did to the capital markets 15 years ago.

MCX-SX is planning to significantly lower :

1) the Entry Cost,

2) the Cost of Transaction, and

3) the Cost of Technology.

Under the plan, there will be many more segments to trade.

Mutual funds and Initial Public Offers might also be distributed.

🙂

In Other major Agri Updates :

FMC open to debate on extended trading hours:

The Forward Markets Commission (FMC), the commodity markets regulator, says it is willing to discuss the issue of extending trading hours, in line with what the equity markets regulator, the Securities andExchange Board of India (Sebi), did last week.

Sebi has allowed trade timing in equities to be extended, from 9 am to 5 pm; the current hours are 9:55 am to 3:30 pm.

Currently, agri commodities are traded on the exchanges between 10 am and 5 pm.

Market participants have urged the regulator on various occasions to extend trading time till at least 7.30 pm, to capture the sentiment of late evening trades.

🙂

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