ASSIGNMENT on Derivative Market

SUBMITTED TO: Prof. H.R. Soni

SUBMITTED By: Abhisek Sarkar (16021141002)
1. Mr. Abhisek Sarkar holds 400 shares of ACC Limited. He feels that ACC shares are
overpriced and wants to sell them immediately but he has pledged 400 shares with
NBFC. He believes that these shares will be revoked by the end of July. What
should he do? Mention the entire process of how it is to be done? Find out its Gross
Profit as well as Net Profit? If the contract is trading at a discount(12%), what it
means?

Solution: ACC Limited

Market Lot Size 400 shares
Future Price - Rs. 1582.60 (as on 28.6.2017)

I should sell the futures in Day 1.

Upon expiry, I should buyback in Futures market and sell the same in spot
market.
Now, I calculated basis risk based on the averaging the difference between
settlement price and Closing price for last 4 months.

Date Closing Price Settlement Price Difference

25.5.2017 1619.90 1619.70 (0.20)
27.4.2017 1632.55 1636.00 3.45
30.3.2017 1418.70 1418.95 0.25
23.2.2017 1436.00 1438.10 2.1

Basis Risk = 5.6/4=1.4

Then I calculated margin % by dividing total margin by traded value as given on

NSE India.
Margin Money= 82150/657200 =12.5%.

Transaction Cost 0.0035% (as per www.inditraders.com)

Interest Cost 1% (Assumed)

M-M= Rs. (1582.60* 400*17.5%) [Taking 5% extra for M-M settlement]

= Rs. 110782
M-M per share= Rs. 276.955
Interest cost on M-M = Rs. 276.955*1%
= Rs.2.76955

Transaction Cost= Rs. 1582.60*0.0035%

= Rs. 0.055391
Gross Price = Rs. (1582.60-1.4)
= Rs.1581.20

Net Price= Rs. (1581.2-2.76955-0.055391)

= Rs.1578.375

If the contract is trading at a discount, it means that a company is expected to give

dividend. After paying the dividend, the share usually trades at a lower value ex
dividend. In such a scenario, the stock future trades at a discount to the spot price.
When multiple companies are expected to pay a dividend, the stock futures also
trades in discount to the index spot price.