A FINAL REPORT

ON

PORTFOLIO MANAGEMENT, LIVE TRADING, EQUITY

RESEARCH, FUNDAMENTAL AND TECHNICAL ANALYSIS, AND
OPTIONS STRATEGIES

Aditya Birla Sunlife Insurance Pvt. Ltd

SUBMITTED TO: SUBMITTED BY:

FACULTY GUIDE:

Padmavathi V Pragya Brar

18BSPHH01C0872
COMPANY GUIDE:

Nikesh Ruparel

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CONTENTS
1. ACKNOWLEDGEMENT……………………………………………………………………………4

2. ABSTRACT……………………………………………………………………………………………..5

3. ABOUT THE COMPANY………………………………………………………………………….6

3.1 GROUP’S BUSINESSESS………………..……………………….………………….….8

4. INSURANCE……………………………………………………………………………………….….8

4.1 PRODUCTS…………………………………………………………………………….…..12

5. LIVE TRADING……………………………………………………………………………………..14

6. MUTUAL FUNDS………………………………………………………………………………….17

7. FUNDAMENTAL ANALYSIS…………………………………………………………………..22

7.1 STEPS TO FIND SECTORAL FUNDAMENTAL ANALYSIS……………….24

8. ABOUT FERTILIZERS SECTOR………………………………………………………………26

9. EQUITY RESEARCH……………………………………………………………………………..27

10. TECHNICAL ANALYSIS……………………………………………………………………….32

10.1 INTRODUCTION TO CANDLESTICKS……………………………………….34

10.2 UNDERSTANDNG CHART PATTERNS……………………………………..39

10.3 IDENTIFYING PATTERNS ON FERTILIZERS SECTOR…………………41

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11. OPTIONS STRATEGIES………………………………………………………………….44

11.1 OPTIONS TYPES……………………………………………………………….45

11.2 EXECUTION OF STRATEGIES EXAMPLES…………………………..51

12 SOURCES……………………………………………………………………………………..53

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ACKNOWLEDGEMENT
I would like to take this opportunity to thank all those who have made working on this
project feasible for me. I would first like to thank Aditya Birla Sun Life Insurance Pvt. Ltd.,
New Delhi for providing me with the opportunity to work and giving me the taste of the
real corporate and professional world. It gave me an opportunity to understand the real
life situations and implement all those things which I had earlier only come across in
textbooks as part of my course.

I would also like to extend my sincere thanks and gratitude to Mr Nikesh Ruparel for
allowing me to work under his able guidance. Without their guidance, help and support
this project would not have been possible.

I would like to sincerely thank my Faculty guide, Prof Padmavathi V for providing
guidance and support for my project.

I also thank all the other employees of Aditya Birla Sunlife Insurance Pvt Ltd, New Delhi
for their co-operation and support.

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ABSTRACT:

Stock Market is one of the most versatile sectors in the financial system, and Stock
Market plays an important role in economic development. Stock Market is a hub where
facilities are provided to the investors to purchase and sell their Shares, Bonds and
Debenture etc. In other words, Stock Market is a platform for trading various securities
and derivatives without any barriers. In Stock Market various companies are listed to their
business venture through public issues.

A Mutual Fund is an investment vehicle made up of a pool of money collected from many
investors for the purpose of investing in securities such as stocks, bonds, money market
instruments and other assets. A mutual fund’s portfolio is structured and maintained to
match the investment objectives stated in its prospectus.

A stock option is a contract between two parties which gives the buyer the right to buy or
sell underlying stocks at a predetermined price and within a specified time period. A seller
of the stock option is called an option writer, where the seller is paid a premium from the
contract purchased by the stock option buyer.

Learning about the company i.e. Aditya Birla Sunlife Insurance has been done and also
the research on its products and its sales has been done. Learned about the mutual funds
and its types. Also, the main business i.e. insurance is learnt during the training.

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ABOUT THE COMPANY:
Aditya Birla Sun Life Insurance Company Limited is a joint venture between the Indian
conglomerate Aditya Birla Group, and Sun Life Financial Inc., an international financial
services organizations from Canada. BSLI has a customer base of over two and half
million policy holders.

History

Aditya Birla Sun Life Insurance Company Limited was founded in 2000. The company is
based in Mumbai, India. It is a joint venture between Indian Aditya Birla Group and
Canadian Sun Life Financial Inc. In April 2016, Sun Life Financial increased their stake in
Birla Sun Life Insurance to 49%.

The Aditya Birla Group

The Aditya Birla Group is an Indian multinational conglomerate named after Aditya Vikram
Birla, headquartered in the Aditya Birla Centre in Worli, Mumbai, India. It operates in 40
countries with more than 120,000 employees worldwide. The group was founded by Seth
Shiv Narayan Birla in 1857. The group interests in sectors such as viscose staple fiber,
metals, cement (largest in India), viscose filament yarn, branded apparel, carbon black,
chemicals, fertilizers, insulators, financial services, telecom (third largest in India), BPO
and IT services. The group had a revenue of approximately US$41 billion in year 2015.

Sun Life Financial

Sun Life Financial, Inc. is a Canada-based financial services company known primarily as a
life insurance company. It is one of the largest life insurance companies in the world, and
also one of the oldest with the history spanning back to 1865. Sun Life Financial has a
strong presence in investment management with over CAD$734 billion in assets under
management operating in a number of countries. Sun Life had about $734 billion of assets
under management as of Dec. 31 2014 including mutual funds and insurance-unit
holdings.

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Awards and recognition

'Gold Trophy' for Financial Reporting by the Institute of Chartered Accountants of India
(ICAI) in 2012.
Media Abby Awards at Goa Fest Advertising Agencies Association of India & Advertising
Club Bombay (2011)
Grand Midas at the Midas Awards 2013 in Public Service Category for work titles as 'Death
Track'.
Gold Midas Awards 2013 in Direct Mail/Collateral competition for work titled as 'Karva
Chauth'

Key peoples of organization

• Mr. Pankaj Razdan, Chief Executive Officer & MD, Birla Sun Life Insurance & Dy.
Chief Executive – Financial Services, Aditya Birla Group
• Mr. Anil Kumar Singh, Chief Actuarial Officer & Appointed Actuary
• Mr. Amit Jain, Chief Financial Officer (CFO) & Head – Group Business
• Mr. Ashok Suvarna - Chief Operations Officer
• Ms. Shobha Ratna - Head HR & Training
• Mr. Amber Gupta - Head - Legal & Company Secretary
• Mr. Deven Sangoi, Chief Investment Officer – Equity
• Mr. Devendra Singhvi, Chief Investment Officer – Debt
• Mr. Shailendra Kothavale, Chief Compliance & Risk Officer
• Mr. Parag Raja, Chief Distribution Officer (CDO)
• Mr. Ashim Chatterjee, Head- Marketing & Digital
• Mr. Ajay Vernekar – Chief Technology Officer

Board of Directors

• Mr. Pankaj Razdan

• Mr. Bishwanath Puranmalka
• Mr. Ajay Srinivasan
• Mr. Claude A. Accum
• Mr. Arun Adhikari
• Mr. Sandeep Asthana
• Mr. Colm Freyne
• Mr. Haigreve Khaitan
• Mrs. Pinky Atul Mehta
• Mr. Shobhan Thakore

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Competitors:-

• Life insurance corporation

• ING life insurance
• Max network life insurance
• MetLife insurance
• Aviva life insurance
• Bharathi Axa life insurance
• Bajaj Allianz life insurance
• Tata AIG life insurance1
• ICICI Prudential Life Insurance
• Reliance life insurance
• Kotak Mahindra life insurance

Vision:

To be a world class provider of financial security to individuals and corporates and to be

amongst the top three private sector life insurance companies in India.

Mission:

To be the first preference of our customers by providing innovative, need based life
insurance and retirement solutions to individuals as well as corporates.

Group’s businesses:

Life insurance
Life insurance (Life Assurance in British English) is a type of insurance. As in all insurance,
the insured transfers a risk to the insurer. The insured pays a premium and receives a
policy in exchange. The risk assumed by the insurer is the risk of death of the insured.

INSURANCE - A THRIVING SECTOR

Insurance is a contract, drawn by a policy, during which a person or entity
receives money protection or compensation against losses from a non-depository financial
institution.
The company pools clients' risks to create payments more cost-effective for the insured.

Insurance policies hedge against the chance of monetary losses, each massive and
little, which will result from injury to the insured or her property, or from liability
for injury or injury caused to a 3rd party.

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The insurance industry of India consists of 57 insurance companies of which 24 are in life
insurance business and 33 are non-life insurers. Among the life insurers, Life Insurance
Corporation (LIC) is the sole public sector company. Apart from that, among the non-life
insurers there are six public sector insurers. In addition to these, there is sole national re-
insurer, namely, General Insurance Corporation of India (GIC Re). Other stakeholders in
Indian Insurance market include agents (individual and corporate), brokers, surveyors
and third party administrators servicing health insurance claims.

Market Size

Government's policy of insuring the uninsured has gradually pushed insurance penetration
in the country and proliferation of insurance schemes.

Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with
Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38
billion) from non-life insurance. Overall insurance penetration (premiums as % of GDP) in
India reached 3.69 per cent in 2017 from 2.71 per cent in 2001.

In FY19 (up to October 2018), premium from new life insurance business increased 3.66
per cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to October
2018), gross direct premiums of non-life insurers reached Rs 962.05 billion (US$ 13.71
billion), showing a year-on-year growth rate of 12.40 per cent.

Investments and Recent Developments

The following are some of the major investments and developments in the Indian
insurance sector.

As of November 2018, HDFC Ergo is in advanced talks to acquire Apollo Munich Health
Insurance at a valuation of around Rs 2,600 crore (US$ 370.05 million).

In October 2018, Indian e-commerce major Flipkart entered the insurance space in
partnership with Bajaj Allianz to offer mobile insurance.

In August 2018, a consortium of West Bridge Capital, billionaire investor Mr Rakesh

Jhunjunwala announced that it would acquire India’s largest health insurer Star Health
and Allied Insurance in a deal estimated at around US$ 1 billion.

In September 2018, HDFC Ergo launched ‘E@Secure’ a cyber insurance policy for
individuals.

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Insurance sector companies in India raised around Rs 434.3 billion (US$ 6.7 billion)
through public issues in 2017.

In 2017, insurance sector in India saw 10 merger and acquisition (M&A) deals worth US$
903 million.

India's leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix
Inc to build a robust insurance distribution network in the country through a new
distribution exchange platform.

Government Initiatives

The Government of India has taken a number of initiatives to boost the insurance
industry. Some of them are as follows:

In September 2018, National Health Protection Scheme was launched under Ayushman
Bharat to provide coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million
vulnerable families. The scheme is expected to increase penetration of health insurance in
India from 34 per cent to 50 per cent.

Over 47.9 million famers were benefitted under Pradhan Mantri Fasal Bima Yojana
(PMFBY) in 2017-18.

The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue
redesigned initial public offering (IPO) guidelines for insurance companies in India, which
are to looking to divest equity through the IPO route.

IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds
that are issued by banks to augment their tier 1 capital, in order to expand the pool of
eligible investors for the banks.

Different Types of Life Insurance Policies in India:

Term Plan – pure risk cover

Unit linked insurance plan (ULIP) – Insurance + Investment opportunity

Endowment Plan – Insurance + Savings

Money Back – Periodic returns with insurance cover

Whole Life Insurance – Life coverage to the life assured for whole life

Child’s Plan – For fulfilling your child’s life goals like education, marriage, etc.

Retirement Plan - Plan your retirement and retire gracefully

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At present there are 28 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating in the country.
The insurance sector is a massive one and is thriving at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the country’s GDP. A
well-developed and evolved insurance sector is a boon for economic development as it
provides long- term funds for infrastructure development at the same time strengthening
the risk-taking ability of the country.

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In general, there are two types of Insurance policies:

General Insurance and Life Insurance

General Insurance can be further categorized as:

• Personal Insurance
• Rural Insurance
• Industrial Insurance
• Commercial Insurance

Life Insurance can be categorized into:

• Whole Life Plan

• Endowment Plan
• Money Back
• Term Plan
• Commercial Insurance

There are other types of Insurance also which asset of the Individualsv like

• Home Insurance
• Travel Insurance
• Car Insurance

PRODUCTS:

Life is unpredictable. But in face of adversity, our responsibilities towards our parents,
children and loved ones need not be compromised. Insurance planning equips you to
smooth out the uncertainties and adversities that life might send your way, so that the
best that life has to offer, secure in the knowledge that your beloved ones are well
provided for. BSLI offers a complete range of insurance products.
1. Protection Plans
2. Savings Plans
3. Child Plans
4. Investment Plans
5. Retirement Plans
6. Group Plans
7. Rural Plans

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Road Ahead
The future looks promising for the life insurance industry with several changes in
regulatory framework which will lead to further change in the way the industry conducts
its business and engages with its customers.

The overall insurance industry is expected to reach US$ 280 billion by 2020. Life
insurance industry in the country is expected grow by 12-15 per cent annually for the next
three to five years.

Demographic factors such as growing middle class, young insurable population and
growing awareness of the need for protection and retirement planning will support the
growth of Indian life insurance.

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 LIVE TRADING

Live trading is simply buying and selling assets through a brokerage's internet-
based proprietary trading platforms. These platforms are normally provided by
internet based brokers and are available to every single person who wishes to try to
make money from the market. Stocks, bonds, mutual funds, ETFs, options, futures,
and currencies can all be traded online.

TYPES OF LIVE TRADING:

1) Intra Day trading: Day trading is all about buying and selling on the same
day, without holding positions overnight. And micro trading (scalping) is
about trading that lasts from seconds to minutes. Both scalping and day trading
require strong discipline; the time and ability to learn how to trade a tested and
profitable strategy rapidly; and enough capital to withstand sudden and,
possibly, larger-than-expected losses. Both scalping and day trading are what is
known as intraday trading.

2) BTST (Buy Today Sell Tomorrow): It also follows the short term trend. We buy
the share on the particular day and can hold it upto (t+2) period.

3) Delivery: In delivery trades, the stocks you buy are added to your demat
account. They remain in your possession until you decide to sell them, which can
be in days, weeks, months or years. You enjoy complete ownership of your
stocks.

Most of the trading in the Indian stock market takes place on its two stock exchanges: the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been
in existence since 1875. The NSE, on the other hand, was founded in 1992 and started
trading in 1994. However, both exchanges follow the same trading mechanism, trading
hours, settlement process, etc. At the last count, the BSE had more than 5,000 listed
firms, whereas the rival NSE had about 1,600. Out of all the listed firms on the BSE, only

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about 500 firms constitute more than 90% of its market capitalization; the rest of the
crowd consists of highly illiquid shares.

Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a
dominant share in spot trading, with about 70% of the market share, as of 2009, and
almost a complete monopoly in derivatives trading, with about a 98% share in this
market, also as of 2009. Both exchanges compete for the order flow that leads to reduced
costs, market efficiency and innovation. The presence of arbitrageurs keeps the prices on
the two stock exchanges within a very tight range.

INDEX:

An index is an indicator or measure of something, and in finance, it typically refers to a

statistical measure of change in a securities market. In the case of financial markets,
stock and bond market indices consist of a hypothetical portfolio of securities representing
a particular market or a segment of it. (You cannot invest directly in an index.) The S&P
500 and the US Aggregate Bond Index are common benchmarks for the American stock
and bond markets, respectively. In reference to mortgages, it refers to a benchmark
interest rate created by a third party. Each index related to the stock and bond markets
has its own calculation methodology. In most cases, the relative change of an index is
more important than the actual numeric value representing the index. For example, if the
Financial Times Stock Exchange (FTSE) 100 is at 6,670.40, that number tells investors the
index is nearly seven times its base level of 1,000.

Some of the important indices in India are:

Benchmark indices – BSE Sensex and NSE Nifty
Sectoral indices like BSE Bankex and CNX IT
Market capitalization-based indices like the BSE Small cap and BSE Midcap
Broad-market indices like BSE 100 and BSE 500.

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We traded through the Sharekhan app.

Sharekhan is the largest standalone retail brokerage in the country and the third largest
in terms of customer base after ICICI Direct and HDFC Securities. Sharekhan is one of
the pioneers of online trading in India. It offers a broad range of financial products and
services including securities brokerage, mutual fund distribution, loan against shares,
ESOP financing, IPO financing and wealth management.

Sharekhan was founded by Mumbai-based entrepreneur Shripal Morakhia in 2000.

Sharekhan pioneered the online retail broking industry and leveraged on the first wave of
digitization, when dematerialization (demat) of securities came into effect and electronic
trading was introduced in the stock exchanges.
In India, Sharekhan has over 4800+ employees, and is present in over 575 cities through
153 branches, more than 2,500 business partners. The company has 1.4 million customer
base and on an average, executes more than 4 lakh trades per day.

WAYS OF MAKING PROFIT IN STOCK MARKET:-

1. First way is a basic Buy sell situation in which we buy the stock at a lower pricing
predicting that its price will increase in future and sell it at a higher price to make profit.

2. In second case we do SHORT SELLING. Short selling is the sale of a security that is
not owned by the seller or that the seller has borrowed. Short selling is motivated by the
belief that a security's price will decline, enabling it to be bought back at a lower price to
make a profit. In simple words we sell the share at a higher price predicting that it will
decline in the future and buy it at a lower price to make profit.

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MUTUAL FUNDS

Mutual fund is an asset class made up of pool of money collected from various investors to
form a fund for the purpose of investing in securities such as stocks, bonds, money
market instruments which yield competitive and satisfactory returns to the investors.
These funds are subject to market risk i.e. if there any volatility in the market scenario, it
will directly impact the investors fund value and their prospective gains from those funds.
Mutual funds are regulated by the Security and Exchange Board of India (SEBI).

• Types of Mutual Funds Based on Asset Class:

a. Equity Funds

Primarily investing in stocks, they also go by the name stock funds. They invest the
money amassed from investors from diverse backgrounds into shares of different
companies. The returns or losses are determined by how these shares perform (price-
hikes or price-drops) in the stock market. As equity funds come with a quick growth, the
risk of losing money is comparatively higher.

b. Debt Funds

Debt funds invest in fixed-income securities like bonds, securities and treasury bills –
Fixed Maturity Plans (FMPs), Gilt Fund, Liquid Funds, Short Term Plans, Long Term Bonds
and Monthly Income Plans among others – with fixed interest rate and maturity date. Go
for it, only if you are a passive investor looking for a small but regular income (interest
and capital appreciation) with minimal risks.

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c. Money Market Funds

Just as some investors trade stocks in the stock market, some trade money in the money
market, also known as capital market or cash market. It is usually run by the
government, banks or corporations by issuing money market securities like bonds, T-bills,
dated securities and certificate of deposits among others. The fund manager invests your
money and disburses regular dividends to you in return. If you opt for a short-term plan
(13 months max), the risk is relatively less.

d. Hybrid Funds

As the name implies, Hybrid Funds (also go by the name Balanced Funds) is an optimum
mix of bonds and stocks, thereby bridging the gap between equity funds and debt funds.
The ratio can be variable or fixed. In short, it takes the best of two mutual funds by
distributing, say, 60% of assets in stocks and the rest in bonds or vice versa. This is
suitable for investors willing to take more risks for ‘debt plus returns’ benefit rather than
sticking to lower but steady income schemes.

• Types of Mutual Funds Based On Structure:

Mutual funds can be categorized based on different attributes (like risk profile, asset class
etc.). Structural classification – open-ended funds, close-ended funds, and interval funds
– is broad in nature and the difference depends on how flexible is the purchase and sales
of individual mutual fund units.

a. Open-Ended Funds

These funds don’t have any constraints in a time period or number of units – an investor
can trade funds at their convenience and exit when they like at the current NAV (Net
Asset Value). This is why its unit capital changes constantly with new entries and exits. An
open-ended fund may also decide to stop taking in new investors if they do not want to
(or cannot manage large funds).

b. Closed-Ended Funds

Here, the unit capital to invest is fixed beforehand, and hence they cannot sell a more
than a pre-agreed number of units. Some funds also come with an NFO period, wherein
there is a deadline to buy units. It has a specific maturity tenure and fund managers are
open to any fund size, however large. SEBI mandates investors to be given either
repurchase option or listing on stock exchanges to exit the scheme.

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c. Interval Funds

This has traits of both open-ended and closed-ended funds. Interval funds can be
purchased or exited only at specific intervals (decided by the fund house) and are closed
the rest of the time. No transactions will be permitted for at least 2 years. This is suitable
for those who want to save a lump sum for an immediate goal (3-12 months).

• Types of Mutual Funds Based on Investment Goals

a. Growth Funds

Growth funds usually put a huge portion in shares and growth sectors, suitable for
investors (mostly Millennials) who have a surplus of idle money to be distributed in riskier
plans (albeit with possibly high returns) or are positive about the scheme.

b. Income Funds

This belongs to the family of debt mutual funds that distribute their money in a mix of
bonds, certificate of deposits and securities among others. Helmed by skilled fund
managers who keep the portfolio in tandem with the rate fluctuations without
compromising on the portfolio’s creditworthiness, Income Funds have historically.

c. Liquid Funds

Liquid funds are simply debt mutual funds that invest your money in very short-term
market instruments such as treasury bills, government securities and call money that hold
least amount of risk. These funds can invest in instruments up to a maturity of 91 days.
The maturity is mostly much lower than that.

d. Tax Saving Mutual Funds

Sec 80C of the Income Tax Act allows you to claim deductions from your taxable income
by investing in certain investments. One of the most popular Sec 80C investments is in
tax saving mutual funds or Equity Linked Savings Scheme (ELSS). This is an equity
diversified fund and investors enjoy both the benefits of capital appreciation, as well as
tax benefits.

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e. Aggressive Growth Funds

Slightly on the riskier side when choosing where to invest in, Aggressive Growth Fund is
designed to make steep monetary gains. Though susceptible to market volatility, you may
choose one as per the beta (the tool to gauge the fund’s movement in comparison with
the market). Example, if the market shows a beta of 1, an aggressive growth fund will
reflect a higher beta, say, 1.10 or above.

f. Capital Protection Funds

If protecting your principal is your priority, Capital Protection Funds can serve the purpose
while earning relatively smaller returns (12% at best). The fund manager invests a
portion of your money in bonds or CDs and the rest in equities. You will not incur any loss.
However, you need a least 3 years (closed-ended) to safeguard your money and the
returns are taxable.

g. Fixed Maturity Funds

Investors choose as the FY ends to take advantage of triple indexation, thereby bringing
down tax burden. If uncomfortable with the debt market trends and related risks, Fixed
Maturity Plans (FMP) – investing in bonds, securities, money market etc. – present a great
opportunity. As a close-ended plan, FMP functions on a fixed maturity period, which could
range from 1 month to 5 years (like FDs). The Fund Manager makes sure to put the
money in an investment with the same tenure, to reap accrual interest at the time of FMP
maturity.

h. Pension Funds

Putting away a portion of your income in a chosen Pension Fund to accrue over a long
period to secure you and your family’s financial future after retiring from regular
employment – it can take care of most contingencies (like a medical emergency or
children’s wedding). Relying solely on savings to get through your golden years is not
recommended as savings (no matter how big) get used up. EPF is an example, but there
are many lucrative schemes offered by banks, insurance firms etc.

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 BENEFITS OF MUTUAL FUNDS:

▪ Professional Money Management

▪ Diversified Portfolio
▪ Tax Saving
▪ Liquidity
▪ Affordability

LIMITATIONS OF MUTUAL FUNDS:

▪ Lack of Portfolio Customization

▪ Dilution
▪ Choice overload
▪ Size
▪ No control over costs

Why invest in Mutual Funds & SIP

• Professionally managed - funds are managed by qualified fund managers

• Tax saving - Save up to Rs.1.5 lakh under section 80C of the Income Tax Act through
investment into Equity Linked Saving Schemes
• Affordability - can start with small amount of investment as low as INR 500 in SIP
• Diversification - invest in a basket of stocks or debt instruments
• Liquidity - investments can be liquidated in 24 hours
• Convenience - transactions are completely online
• Low cost of investment - no brokerage, no commission, no entry load and minimal fund
management fee

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FUNDAMENTAL ANALYSIS
Fundamental analysis is a stock valuation methodology that
uses financial and economic analysis to envisage the movement of stock prices. The
fundamental data that is analysed could include a company’s financial reports and non-
financial information such as estimates of its growth, demand for products sold by the
company, industry comparisons, economy-wide changes, changes in government policies
etc.
The outcome of fundamental analysis is a value (or a range of values) of the stock of
the company called its ‘intrinsic value’ (often called ‘price target’ in fundamental analysts’
parlance). To a fundamental investor, the market price of a stock tends to revert towards
its intrinsic value. If the intrinsic value of a stock is above the current market price, the
investor would purchase the stock because he believes that the stock price would rise and
move towards its
intrinsic value. If the intrinsic value of a stock is below the market price, the investor
would sell the stock because he believes that the stock price is going to fall and come
closer to its intrinsic value.
To find the intrinsic value of a company, the fundamental analyst initially takes a top-
down view of the economic environment; the current and future overall health of the
economy as a whole. After the analysis of the macro-economy, the next step is to analyse
the industry environment which the firm is operating in. One should analyse all the factors
that give the firm a competitive advantage in its sector, such as, management experience,
history
of performance, growth potential, low cost of production, brand name etc. This step of the
analysis entails finding out as much as possible about the industry and the inter-
relationships of the companies operating in the industry. The next step is to study the
company and its products.

Some of the questions that should be asked while taking up fundamental analysis of a
company
would include:
1. What is the general economic environment in which the company is operating? Is it
conducive or obstructive to the growth of the company and the industry in which the
company is operating?

For companies operating in emerging markets like India, the economic environment is one
of growth, growing incomes, high business confidence etc. As opposed to this a company
may be operating in a developed but saturated market with stagnant incomes, high
competition and lower relative expectations of incremental growth.
2. How is the political environment of the countries/markets in which the company is
operating or based?
A stable political environment, supported by law and order in society leads to
companies being able to operate without threats such as frequent changes to laws,
political disturbances, terrorism, nationalization etc. Stable political environment also

22
means that the government can carry on with progressive policies which would make
doing business in the country easy and profitable.
3. Does the company have any core competency that puts it ahead of all the
other competing firms?
Some companies have patented technologies or leadership position in a
particular segment of the business that puts them ahead of the industry in general. For
example, Reliance Industries’ core competency is its low-cost production model whereas
Apple’s competency is its design and engineering capabilities adaptable to music players,
mobile
phones, tablets, computers etc.
4. What advantage do they have over their competing firms?
Some companies have strong brands; some have assured raw material supplies
while others get government subsidies. All of these may help firms gain a competitive
advantage over others by making their businesses more attractive in comparison to
competitors. For example, a steel company that has its own captive mines (of iron ore,
coal) is less dependent and affected by the raw material price fluctuations in the
marketplace. Similarly, a power generation company that has entered into power
purchase agreements is assured of the sale of the power that it produces and has the
advantage of being perceived as a less risky business.

5. Does the company have a strong market presence and market share? Or does
it constantly have to employ a large part of its profits and resources in marketing and
finding new customers and fighting for market share?
Competition generally makes companies spend large amounts on advertising, engage in
price wars by reducing prices to increase market shares which may in turn erode margins
and profitability in general. The Indian telecom industry is an example of cut throat
competition eating into companies’ profitability and a vigorous fight for market
share. On the other hand there are very large, established companies which have
a leadership position on account of established, large market share. Some of them
have near-monopoly power which lets them set prices leading to constant profitability.

23
STEPS FOR DOING SECTORAL FUNDAMENTAL ANALYSIS:-

1. Select a sector for doing the analysis (for e.g. FERTILISERS).

2. As the investment in mutual funds is long term, therefore take large cap (<5000cr. Mkt
value) stocks from that sector and some mid cap (>5000cr. Mkt value) stocks also if
there’s less stocks.
3. Check the last closing share price of every stock in the list and note it down.
4. Get the P/E value of every stock. It can be calculated or can be seen in the company
details.

[P/E = Price / EPS (earnings per share)]

5. Calculate Industrial P/E by taking the average of the P/E’s of the stocks in the list.
6. Calculate EPS by multiplying P/E by Price of the stock.
7. By comparing the P/E value of the stock by the Industrial P/E we can see if the stock is
overvalued or undervalued.
8. If the value is above Industrial P/E then it’s overvalued and If below then Undervalued.
9. Overvalued stock shows that its value will decrease in future and undervalued shows
that its price will increase. So it’s obvious to buy the U.V. stock and sell O.V. stock.
10. We can calculate the future price i.e. LTPT (long term price target) by multiplying the
industrial P/E by EPS of that particular stock.

Finding the value pick stocks:

1. Next step is to take all the undervalued stocks and analyzing their revenue and
profit. The motive is to see weather both of them are increasing or decreasing.
2. Also we’ll see the topline factors on the company according to the sector in which it’s
lying.
3. If both revenue and profit is increasing then we will definitely take that stock. If both
have decreased then it will be rejected.
4. If one is increasing and the other is decreasing then it will be considered by seeing
topline factors.
5. We will reject some stocks after this analysis and the left one will be value pick stocks.

Therefore, growth picks are: Coromandel Int and Deepak Fert

24
Finding the growth pick stocks:
1. We will take all the Overvalued stocks and calculate their PEG value.

[PEG = P/E / EPS growth]

2. The EPS growth is the percentage growth in the EPS of the company compared to last
financial year.
3. The value that we will put in the EPS growth should be the percentage value. For e.g. If
the EPS has increased by 20% then we will right the value 20, not 0.2.
4. If the EPS has decreased then the stock is removed. And we will take the stocks whose
PEG value is 1 or below that. 1.1 can be considered but not above that,
5. We will be having the list of growth pick stocks after this analysis.

Value picks in our example: GNFC, GSFC, NFL, SPIC

RANKING:
Now when we have value pick and growth pick stocks list, we’ll see how much investment
should be done in which stock and for that we have to rank them. The highest ranked will
get the maximum allocation of the fund and the lowest ranked will have minimum. The
ranking is done by comparing the important financial ratios of the sector in which the
companies are lying. And we also see the factors of the companies. Ranking is given to all
the value pick stocks separately and the growth pick stocks separately. The highest
ranked stock will get the highest investment in value pick stocks and growth pick stocks.
As a mutual fund manager, we will allocate the fund according to the ranking of the
stocks. After the allocation of the funds, the daily NAV (net asset value) is calculated of
the portfolio according to the change in the price of the stocks.

NAV= AUM / NUMBER OF SHARES ,

AUM = asset under management.

25
The sector chosen:

FERTILISERS INDUSTRY

ABOUT THE SECTOR:

26
EQUITY RESEARCH

Equity research professionals are responsible for producing analysis, recommendations,

and reports on investment opportunities that investment banks, institutions, or their
clients may be interested in. The Equity Research Division is a group of analysts and
associates at an investment banking (sell side), an institution (buy side), or an
independent organization.

The main purpose of equity research is to provide investors with detailed financial analysis
and recommendations on whether to buy, hold, or sell a particular investment. Banks
often use equity research as a way of “supporting” their investment banking and sales &
trading clients, by providing timely, high-quality information and analysis.

The person who carries out this analysis is called an equity researcher, and his job
includes carrying out detail analysis of a company, entity or sector. The information
provided by equity researcher is used by investors (to decide how to allocate their funds),
by Private Equity firms, investment bank (to value companies for mergers, LBOs
(Leveraged Buyout), IPOs (Initial Public Offering) etc).
Generally an equity research department is divided into departments, to cover the various
sectors of market eg. The Fertilisers sector.

The team/ individuals are delegated with the work of covering different sectors in a
market for performing research activity. The work consists of research, reporting and
projections.
Research work consists of analysis of company, competitors and the industry. Also
Forecasting or Projections for finding out future value of companies will be carried out.

Equity Research Methods

To carry out Equity Research analysis two methods are used namely:
Fundamental Analysis
Technical Analysis

Fundamental Analysis – Fundamental Analysis deals with finding out intrinsic worth of a
company stock, financial strength and comparing it with the market price to identify
whether that stock is more or less in weight age as compared to the market value. In
technical language whether the stock is overpriced or under priced.

27
For better results, analyst would suggest buying financial security if it is underpriced and
sell if it is overpriced because there is a possibility that the market price will be equal to
intrinsic worth of the stock.

Technical Analysis – Technical Analysis is the study of past price changes in the hope of
forecasting future price changes. It is mainly considered by carrying out two factors which
is price and volume. It is generally observing the trend that how the stock price is moving
i.e. whether it is going upwards, downwards or in the same limit range. This is very simple
technique of predicting the price movement as per the past performance.

Steps in Equity Research Process

Equity research process comprises of multiple steps:
• Economic Analysis
• Understanding Industry or sector analysis
• Company Analysis for investment purpose
• Financial Statement Analysis of a Company
• Performing Financial and Valuation
• Writing Report showing the result of analysis
• Presentation or recommendation

This is the excel sheet that is being updated daily since three months to find out our own
Index for the sector.

The base Index taken is 1000.

28
Next are the screenshots of the index found at the end of every month till date.

29
TECHNICAL ANALYSIS:
Technical analysis is the examination of past price movements to forecast future price
movements. Technical analysts are sometimes referred to as chartists because they rely
almost exclusively on charts for their analysis.

Technical analysis is built on the assumption that prices trend. Trendlines are an
important tool in technical analysis for both trend identification and confirmation. A
trendline is a straight line that connects two or more price points and then extends into
the future to act as a line of support or resistance.

1. Up Trendline

An up trendline has a positive slope and is formed by connecting two of more low
points. The second low must be higher than the first for the line to have a positive
slope. Up trendlines act as support and indicate that net-demand (demand less supply)
is increasing even as the price rises. A rising price combined with increasing demand is
very bullish and shows a strong determination on the part of the buyers.

2. Down Trendline

A down trendline has a negative slope and is formed by connecting two or more high
points. The second high must be lower than the first for the line to have a negative
slope. Down trendlines act as resistance and indicate that net-supply (supply less
demand) is increasing even as the price declines. A declining price combined with
increasing supply is very bearish and shows the strong resolve of the sellers.

30
LONG TERM AND SHORT TERM TRENDS:

LONG TERM : CHART PATTERNS

SHORT TERM : CANDLE STICKS

31
INTRODUCTION TO CANDLESTICKS:

Candlesticks are formed using the open, high, low and close. Without opening prices,
candlestick charts are impossible to draw. If the close is above the open, then a hollow
candlestick (usually displayed as white) is drawn. If the close is below the open, then a
filled candlestick (usually displayed as black) is drawn. The hollow or filled portion of the
candlestick is called the body (also referred to as the "real body"). The long thin lines
above and below the body represent the high/low range and are called shadows (also
referred to as wicks and tails). The high is marked by the top of the upper shadow and
the low by the bottom of the lower shadow.

TRADING BASED ON SUPPLY AND DEMAND ZONE :-

After opening the chart of a stock in any brokerage interface, we use the following steps
to see the demand zone :-

STEPS TO IDENTIFY DEMAND ZONE :-

1. Start with the current price on the chart.
2. Look left and down until you find origin of a strong rally in the prices.
3. Draw proximal and distal lines and extend them forward.
4. Proximal line is drawn at the top of the candle body.
5. Distal line is drawn at the bottom of the candle body.
6. Time period will be set for 30 days, 5 minutes for long term investment trading and
daily, 5 minutes for intraday trading.
7. In demand zone we buy the stock and sell it further at a higher price for making profit.

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INTRODUCTION TO JAPANESE CANDLE STICKS THROUGH GRAPHS:

1) DOJI: Doji are important candlesticks that provide information on their own and also
feature in a number of important patterns. Doji form when a security's open and close are
virtually equal. The length of the upper and lower shadows can vary and the resulting
candlestick looks like a cross, inverted cross or plus sign. Alone, doji are neutral
patterns.

2) STAR POSITION: A candlestick that gaps away from the previous candlestick is said to
be in star position. The first candlestick usually has a large real body, but not always, and
the second candlestick in star position has a small real body. Depending on the previous
candlestick, the star position candlestick gaps up or down and appears isolated from
previous price action. The two candlesticks can be any combination of white and black.

3) HARAMI POSITION: A candlestick that forms within the real body of the previous
candlestick is in Harami position. Harami means pregnant in Japanese and the second
candlestick is nestled inside the first. The first candlestick usually has a large real body
and the second a smaller real body than the first.

33
4) HAMMER HANGING MAN: The hammer is a bullish reversal pattern that forms after a
decline. In addition to a potential trend reversal, hammers can mark bottoms or support
levels. After a decline, hammers signal a bullish revival.
The hanging man is a bearish reversal pattern that can also mark a top or resistance
level. Forming after an advance, a hanging man signals that selling pressure is starting
to increase.

INVERTED HAMMER SHOOTING STAR: The shooting star is a bearish reversal pattern that
forms after an advance and in the star position, hence its name. A shooting star can mark
a potential trend reversal or Resistance level.
The inverted hammer looks exactly like a shooting star, but forms after a decline or
downtrend. Inverted hammers represent a potential trend reversal or support levels.
After a decline, the long upper shadow indicates buying pressure during the session.

34
BLENDED CANDLES: Candlestick patterns are made up of one or more candlesticks and
these can be blended
together to form one candlestick. This blended candlestick captures the essence of the
pattern and can be formed using the following:
• The open of first candlestick
• The close of the last candlestick
• The high and low of the pattern

35
BULLISH VS BEARISH:

36
UNDERSTANDING CHART PATTERNS:

1. ROUNDING BOTTOM:

The rounding bottom is a long-term reversal pattern that is best suited for weekly charts.
It is also referred to as a saucer bottom, and represents a long consolidation period that
turns from a bearish bias to a bullish bias.

2. CUP WITH HANDLE:

As its name implies, there are two parts to the pattern: the cup and the handle. The cup
forms after an advance and looks like a bowl or rounding bottom. As the cup is
completed, a trading range develops on the right hand side and the handle is formed. A
subsequent breakout from the handle's trading range signals a continuation of the prior
advance.

3. BUMP AND RUN REVERSAL:

As the name implies, the Bump and Run Reversal (BARR) is a reversal pattern that
forms after excessive speculation drives prices up too far, too fast. The Bump and Run
Reversal pattern can be applied to daily, weekly or monthly charts. The pattern is
designed to identify speculative advances that are unsustainable for a long period.

4. DOUBLE TOP:

The double top is a major reversal pattern that forms after an extended uptrend. As its
name implies, the pattern is made up of two consecutive peaks that are roughly equal,
with a moderate trough in between.

37
 5. DOUBLE BOTTOM:

The double bottom is a major reversal pattern that forms after an extended downtrend.
As its name implies, the pattern is made up of two consecutive troughs that are roughly
equal, with a moderate peak in between.

6. HEAD AND SHOULDERS TOP:

A head and shoulders reversal pattern forms after an uptrend, and its completion marks
a trend reversal. The pattern contains three successive peaks with the middle peak
(head) being the highest and the two outside peaks (shoulders) being low and roughly
equal. The reaction lows of each peak can be connected to form support, or a neckline.
As its name implies, the head and shoulders reversal pattern is made up of a left
shoulder, head, right shoulder and neckline.

7. HEAD AND SHOULDERS BOTTOM:

The head and shoulders bottom is sometimes referred to as an inverse head and
shoulders. The pattern shares many common characteristics with its comparable
partner, but relies more on volume patterns for confirmation.
As a major reversal pattern, the head and shoulders bottom forms after a downtrend,
and its completion marks a change in trend. The pattern contains three successive
troughs with the middle trough (head) being the deepest and the two outside troughs
(shoulders) being shallower. Ideally, the two shoulders would be equal in height and
width. The reaction highs in the middle of the pattern can be connected to form
resistance, or a neckline.
The price action forming both head and shoulders top and head and shoulders bottom
patterns remains roughly the same, but reversed.

38
 8. ASCENDING TRIANGLE:

The ascending triangle is a bullish formation that usually forms during an uptrend as a
continuation pattern. There are instances when ascending triangles form as reversal
patterns at the end of a downtrend, but they are typically continuation patterns.
Regardless of where they form, ascending triangles are bullish patterns that indicate
accumulation.

9. DESCENDING TRIANGLE:

The descending triangle is a bearish formation that usually forms during a downtrend as
a continuation pattern. There are instances when descending triangles form as reversal
patterns at the end of an uptrend, but they are typically continuation patterns.
Regardless of where they form, descending triangles are bearish patterns that indicate
distribution.

39
 10. SYMMETRIC TRIANGLE:

The symmetrical triangle, which can also be referred to as a coil, usually forms during a
trend as a continuation pattern. The pattern contains at least two lower highs and two
higher lows. When these points are connected, the lines converge as they are extended
and the symmetrical triangle takes shape.

40
As I was assigned the Fertilizers Industry, later I took out the 5 YEAR CANDLESTICK
CHARTS, of all the value picks and growth picks that we analyzed in the fundamental
analysis, from the moneycontrol app. And figured out what chart pattern every graph was
following.

1. GNFC (DOUBLE TOP ; BUMP AND RUN)

2. SPIC (TRIPLE TOP* ; BUMP AND RUN REVERSAL)

TOP

41
3. COROMANDEL INT ( ROUNDING BOTTOM ; BUMP AND RUN REVERSAL)

4. DEEPAK FERT (HEAD AND SHOULDER TOP)

42
5. GSFC (ROUNDING BOTTOM)

6. NFL ( HEAD AND SHOULDER TOP)

43
OPTIONS STRATEGIES:

An option is a contract written by a seller that conveys to the buyer the right — but not
the obligation — to buy (in the case of a call option) or to sell (in the case of a put option)
a particular asset, at a particular price (Strike price / Exercise price) in future. In return
for granting the option, the seller collects a payment (the premium) from the buyer.
Exchange traded options form an important class of options which have standardized
contract features and trade on public exchanges, facilitating trading among large number
of investors. They provide settlement guarantee by the Clearing Corporation thereby
reducing counterparty risk. Options can be used for hedging, taking a view on the future
direction of the market, for arbitrage or for implementing strategies which can help in
generating income for investors under various market conditions.

OPTION TERMINOLOGIES:

Index options: These options have the index as the underlying. In India, they have a
European style settlement. Eg. Nifty options, Mini Nifty options etc.
Stock options: Stock options are options on individual stocks. A stock option contract
gives the holder the right to buy or sell the underlying shares at the specified price. They
have an American style settlement.
Buyer of an option: The buyer of an option is the one who by paying the option
premium buys the right but not the obligation to exercise his option on the seller/writer.
Writer / seller of an option: The writer / seller of a call/put option is the one who
receives the option premium and is thereby obliged to sell/buy the asset if the buyer
exercises on him.
Call option: A call option gives the holder the right but not the obligation to buy an asset
by a certain date for a certain price.
Put option: A put option gives the holder the right but not the obligation to sell an asset
by a certain date for a certain price.
Option price/premium: Option price is the price which the option buyer pays to
the option seller. It is also referred to as the option premium.
Expiration date: The date specified in the options contract is known as the
expiration date, the exercise date, the strike date or the maturity.

44
Strike price: The price specified in the options contract is known as the strike price or
the exercise price.
American options: American options are options that can be exercised at any time upto
the expiration date.
European options: European options are options that can be exercised only on
the expiration date itself.
In-the-money option: An in-the-money (ITM) option is an option that would lead to
a positive cashflow to the holder if it were exercised immediately. A call option on the
index is said to be in-the-money when the current index stands at a level higher than the
strike price (i.e. spot price > strike price). If the index is much higher than the strike
price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is
below the strike price.
At-the-money option: An at-the-money (ATM) option is an option that would lead to
zero cashflow if it were exercised immediately. An option on the index is at-the-money
when the current index equals the strike price (i.e. spot price = strike price).
Out-of-the-money option: An out-of-the-money (OTM) option is an option that
would lead to a negative cashflow if it were exercised immediately. A call option on the
index is out-of-the-money when the current index stands at a level which is less than the
strike price (i.e. spot price < strike price). If the index is much lower than the strike price,
the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above
the strike price.

OPTION TYPES:

i) Call Option
ii) Put Option

An option which conveys the right to buy something at a specific price is called a
CALL option.
An option which conveys the right to sell something at a specific price is called a
PUT option.
The reference price at which the underlying asset may be traded is called the
strike price or exercise price.

45
 1. Long straddle

A long straddle options strategy is when an investor simultaneously purchases a call and
put option on the same underlying asset, with the same strike price and expiration date.
An investor will often use this strategy when he or she believes the price of the underlying
asset will move significantly out of a range, but is unsure of which direction the move will
take. This strategy allows the investor to have the opportunity for theoretically unlimited
gains, while the maximum loss is limited only to the cost of both options contracts
combined.

When to Use: The investor thinks that the underlying stock / index will experience
significant volatility in the near term.
Risk: Limited to the initial premium paid.
Reward: Unlimited
Breakeven:
· Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
· Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

2. Short straddle

A Short Straddle is the opposite of Long Straddle. It is a strategy to be adopted when the
investor feels the market will not show much movement. He sells a Call and a Put on the
same stock / index for the same maturity and strike price. It creates a net income for the
investor. If the stock / index does not move much in either direction, the investor retains
the Premium as neither the Call nor the Put will be exercised. However, in case the stock /
index moves in either direction, up or down significantly, the investor’s losses can be
significant. So this is a risky strategy and should be carefully adopted and only when the
expected volatility in the market is limited. If the stock / index value stays close to the
strike price on expiry of the contracts, maximum gain, which is the Premium received is
made.

46
When to Use: The investor thinks that the underlying stock / index will experience very
little volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:
· Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
· Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

3. Long strangle

In a long strangle options strategy, the investor purchases an out-of-the-money call

option and an out-of-the-money put option simultaneously on the same underlying asset
and expiration date. An investor who uses this strategy believes the underlying asset's
price will experience a very large movement, but is unsure of which direction the move
will take. This could, for example, be a wager on an earnings release for a company or an
FDA event for a health care stock. Losses are limited to the costs (or premium spent) for
both options. Strangles will almost always be less expensive than straddles because the
options purchased are out of the money. This strategy becomes profitable when the stock
makes a very large move in one direction or the other.

When to Use: The investor thinks that the underlying stock / index will experience very
high levels of volatility in the near term.
Risk: Limited to the initial premium paid
Reward: Unlimited
Breakeven:
· Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
· Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

4. Short strangle

A Short Strangle is a slight modification to the Short Straddle. It tries to improve the
profitability of the trade for the Seller of the options by widening the breakeven points so
that there is a much greater movement required in the underlying stock / index, for the
Call and Put option to be worth exercising. This strategy involves the simultaneous selling
of a slightly out-of-the-money (OTM) put and a slightly out-of-the-money (OTM) call of
the same underlying stock and expiration date. This typically means that since OTM call
and put are sold, the net credit received by the seller is less as compared to a Short
Straddle, but the breakeven points are also widened. The underlying stock has to move
significantly for the Call and the Put to be worth exercising. If the underlying stock does
not show much of a movement, the seller of the Strangle gets to keep the Premium.

When to Use: This options trading strategy is taken when the options investor thinks
that the underlying stock will experience little volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:

47
· Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
· Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

5. Bull Call Spread strategy

The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (long
call) strategy. The investor will benefit if the underlying stock rallies. However, the risk is
limited on the downside if the underlying stock makes a correction.

Investor view: Moderately, bullish on the stock/ Index.

Risk: Limited Bull Call Spread is a strategy that must be devised when the investor is
moderately bullish on the market direction going up in the short term.

A Bull Call Spread is formed by buying an “in the money call option” and selling an “out of
the money call option”. Both the call options must have the same underlying security and
expiration month.

Reward: Limited to the net premium paid.

Breakeven : Strike price of Buy Call + net premium paid

6. Bull Put Spread strategy

A bull put spread can be profitable when the stock / index is either range bound or rising.
The concept is to protect the downside of a Put sold by buying a lower strike Put, which
acts as an insurance for the Put sold. The lower strike Put purchased is further OTM than
the higher strike Put sold ensuring that the investor receives a net credit, because the Put
purchased (further OTM) is cheaper than the Put sold. This strategy is equivalent to the
Bull Call Spread but is done to earn a net credit (premium) and collect an income.
If the stock / index rises, both Puts expire worthless and the investor can retain the
Premium. If the stock / index falls, then the investor’s breakeven is the higher strike less
the net credit received. Provided the stock remains above that level, the investor makes a
profit. Otherwise he could make a loss. The maximum loss is the difference in strikes less
the net credit received. This strategy should be adopted when the stock / index trend is
upward or range bound.

7. Bear Call Spread strategy

The Bear Call Spread strategy can be adopted when the investor feels that the stock /
index is either range bound or falling. The concept is to protect the downside of a Call
Sold by buying a Call of a higher strike price to insure the Call sold. In this strategy the
investor receives a net credit because the Call he buys is of a higher strike price than the
Call sold. The strategy requires the investor to buy out-of-the-money (OTM) call options
while simultaneously selling in-the-money (ITM) call options on the same underlying stock
index.
This strategy can also be done with both OTM calls with the Call purchased being higher
OTM strike than the Call sold. If the stock / index falls both Calls will expire worthless and

48
the investor can retain the net credit. If the stock / index rises then the breakeven is the
lower strike plus the net credit. Provided the stock remains below that level, the investor
makes a profit. Otherwise he could make a loss. The maximum loss is the difference in
strikes less the net credit received.

8. Bear Put Spread strategy

This strategy requires the investor to buy an in-the-money (higher) put option and sell an
out-of-the-money (lower) put option on the same stock with the same expiration date.
This strategy creates a net debit for the investor. The net effect of the strategy is to bring
down the cost and raise the breakeven on buying a Put (Long Put). The strategy needs a
Bearish outlook since the investor will make money only when the stoc k price / index
falls. The bought Puts will have the effect of capping the investor’s downside. While the
Puts sold will reduce the investors costs, risk and raise breakeven point (from Put exercise
point of view).
If the stock price closes below the out-of-the-money (lower) put option strike price on the
expiration date, then the investor reaches maximum profits. If the stock price increases
above the in-the-money (higher) put option strike price at the expiration date, then the
investor has a maximum loss potential of the net debit.

9. Long Call Butterfly

A Long Call Butterfly is to be adopted when the investor is expecting very little movement
in the stock price / index. The investor is looking to gain from low volatility at a low cost.
The strategy offers a good risk / reward ratio, together with low cost. A long butterfly is
similar to a Short Straddle except your losses are limited. The strategy can be done by
selling 2 ATM Calls, buying 1 ITM Call, and buying 1 OTM Call options (there should be
equidistance between the strike prices). The result is positive incase the stock / index
remains range bound. The maximum reward in this strategy is however restricted and
takes place when the stock / index is at the middle strike at expiration. The maximum
losses are also limited.

When to use: When the investor is neutral on market direction and bearish on volatility.
Risk Net debit paid.
Reward Difference between adjacent strikes minus net debit
Break Even Point:
Upper Breakeven Point = Strike Price of Higher Strike Long Call – Net Premium Paid
Lower Breakeven Point = Strike Price of Lower Strike Long Call + Net Premium Paid

10. Short Call Butterfly

A Short Call Butterfly is a strategy for volatile markets. It is the opposite of Long Call
Butterfly, which is a range bound strategy. The Short Call Butterfly can be constructed by
Selling one lower striking in-the-money Call, buying two at-the-money Calls and selling
another higher strike out-of-the-money Call, giving the investor a net credit (therefore it
is an income strategy). There should be equal distance between each strike. The resulting

49
position will be profitable in case there is a big move in the stock / index. The maximum
risk occurs if the stock / index is at the middle strike at expiration. The maximum profit
occurs if the stock finishes on either side of the upper and lower strike prices at
expiration. However, this strategy offers very small returns when compared to straddles,
strangles with only slightly less risk. Let us understand this with an example.

When to use: You are neutral on market direction and bullish on volatility. Neutral
means that you expect the market to move in either direction - i.e. bullish and bearish.
Risk Limited to the net difference between the adjacent strikes less the premium received
for the position.
Reward Limited to the net premium received for the option spread.
Break Even Point:
Upper Breakeven Point = Strike Price of Highest Strike Short Call - Net Premium Received

11. Long Call Condor

A Long Call Condor is very similar to a long butterfly strategy. The difference is that the
two middle sold options have different strikes. The profitable area of the pay off profile is
wider than that of the Long Butterfly (see pay-off diagram).
The strategy is suitable in a range bound market. The Long Call Condor involves buying 1
ITM Call (lower strike), selling 1 ITM Call (lower middle), selling 1 OTM call (higher
middle) and buying 1 OTM Call (higher strike). The long options at the outside strikes
ensure that the risk is capped on both the sides. The resulting position is profitable if the
stock remains range bound and shows very little volatility. The maximum profits occur if
the stock finishes between the middle strike prices at expiration.

When to Use: When an investor believes that the underlying market will trade in a range
with low volatility until the options expire.
Risk Limited to the minimum of the difference between the lower strike call spread less
the higher call spread less the total premium paid for the condor.
Reward Limited. The maximum profit of a long condor will be realized when the stock is
trading between the two middle strike prices.
Break Even Point:
Upper Breakeven Point = Highest Strike – Net Debit
Lower Breakeven Point = Lowest Strike + Net Debit

12. Short Call Condor

A Short Call Condor is very similar to a short butterfly strategy. The difference is that the
two middle bought options have different strikes. The strategy is suitable in a volatile
market. The Short Call Condor involves selling 1 ITM Call (lower strike), buying 1 ITM Call
(lower middle), buying 1 OTM call (higher middle) and selling 1 OTM Call (higher strike).
The resulting position is profitable if the stock / index shows very high volatility and there
is a big move in the stock / index. The maximum profits occur if the stock / index finishes
on either side of the upper or lower strike prices at expiration.

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When to Use: When an investor believes that the underlying market will break out of a
trading range but is not sure in which direction.
Risk Limited. The maximum loss of a short condor occurs at the center of the option
spread.
Reward Limited. The maximum profit of a short condor occurs when the underlying stock
is trading past the upper or lower strike prices.
Break Even Point:
Upper Breakeven Point = Highest Strike – Net Credit
Lower Breakeven Point = Lowest Strike + Net Credit

EXECUTION OF STRATEGIES WITH REAL EXAMPLE:

GSFC (GUJARAT STATE FERTILIZERS & CHEMICALS LTD)

RESULT DATE: 22 MAY 2019

VOLATILITY: 1.18 (high)
STRIKE PRICE: 90
SHARE PRICE; 101
LOT SIZE: 4700

• Long Strangle

51 151

(99,640) + 112,800

+112,800 (99,640)

(4465) (4465)

+8695 +8695

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• Long Straddle

91 111

(2350) +51,700

+42,300 (2350)

(2350) (2350)

+37,600 +47,000

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 SOURCES:

1. https://www.equitymaster.com/research
2. http://www.moneycontrol.com
3. http://www.moneycontrol.com/stocksmarketsindia/
4. https://lifeinsurance.adityabirlacapital.com/about-us/company-profile.aspx
5. www.tradingcampus.in
6. https://www.gsfclimited.com/
7. https://www.optiontradingtips.com/
8.https://www.moneycontrol.com/stocks/marketstats/sec_performance/bse/fertilisers
.html?classic=true
9. https://www.coverfox.com/life-insurance/articles/types-of-life-insurance-policies/

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