Some Important Banking Concept which always have an Impact on Market..............06.04.2013

Some Important Banking Concept which always have an Impact on  Market :-

1. Bank Rate :- Bank Rate is the rate at which central bank of the country (in India it is  RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for  short-term purposes. Any upward revision in Bank Rate by central bank is an indication that  banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.  Thus any revision in the Bank rate indicates that it is likely that interest rates on your  deposits are likely to either go up or go down, and it can also indicate an increase or  decrease in your EMI.  

This is the rate at which central bank (RBI) lends money to other banks or financial  institutions. If the bank rate goes up, long-term interest rates also tend to move up, and  vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood banks will  hikes their own lending rates to ensure that they continue to make profit.  

Remember Bank Rate is not the same thing as Deposit Rates offered by banks for fixed deposits  and recurring deposits.   

2. Repo Rate :- Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to  the banks against securities. When the repo rate increases borrowing from RBI becomes more  expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the  banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper  for banks to borrow money, it reduces the repo rate.

3. Reverse Repo rate is the rate at which banks park their short-term excess liquidity with  the RBI. The banks use this tool when they feel that they are stuck with excess funds and are  not able to invest anywhere for reasonable returns. An increase in the reverse repo rate  means that the RBI is ready to borrow money from the banks at a higher rate of interest. As a  result, banks would prefer to keep more and more surplus funds with RBI.  

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the  banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank  absorbs liquidity from the banks.  

3. Marginal Standing Facility Rate : Under this scheme, Banks will be able to borrow upto 1%  of their respective Net Demand and Time Liabilities". The rate of interest on the amount  accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This  scheme is likely to reduce volatility in the overnight rates and improve monetary  transmission.

ALERT :- NOW FIIs ARE INCREASING SHORT POSITIONS IN NIFTY FUTURE SLOWLY SLOWLY IN 2013.........BE ALERT................22.03.2013

Earlier, it had alerted that "FIIs are Booking Profits in 2013 in their Long Position in NIFTY Future Rs. +9022.47 Cr @ 5351.04 at NIFTY Spot levels created in 2012.........Be Alert FIIs Selling Huge in NIFTY Future on 12 March 2013". See the full report :- "http://nifty-analysis.blogspot.in/2013/03/alert-fiis-are-booking-profits-in-2013.html" 

Again alerted that "NOW FIIs HAS BOOKED FULL PROFIT IN THEIR LONG POSITION IN NIFTY FUTURE RS. +9022.47 @ 5351.04 NIFTY SPOT LEVELS WHICH HAD CREATED IN 2012 AND HAVE CREATED FRESH SHORT POSITION NOW BE ALERT  ON 20.03.2013" See the full report: - "http://nifty-analysis.blogspot.in/2013/03/alert-now-fiis-has-booked-full-profit.html".

Now FIIs are creating short position in NIFTY Future slowly slowly........Be alert.

After analyzing the above table it is clear that, till now FIIs have sold in NIFTY Future Rs. -9761.47 Cr @ 5911.11 NIFTY Spot Level.

In March 2013 (Till 21 March 2013) :- FIIs Net Sell in NIFTY Future Rs. -980.70 Cr @ 5818.45 NIFTY Spot Level

Long Position was Rs. +9022.47 Cr @ 5351.04 NIFTY Spot Level in 2012 (Check Report 12 March 2013)

Booked Full Profit in Long Position Rs. -9022.47 Cr. @ 5917.70 NIFTY Spot Level till 19 March 2013.

Means, FIIs booked +566.66 (5917.70 - 5351.04) Points Profit in their Long Position in NIFTY Future.

Fresh Short Position Created Rs. -247.01 Cr @ 5838.22 NIFTY Spot Levels on 19 March 2013.

FIIs have sold more NIFTY Future after 19 March 2013 :-

On 20 March 2013 :- Rs. -362.44 Cr @ 5694.40
On 21 March 2013 :- RS. -129.55 Cr @ 5658.75

Now Total Fresh Short Created in NIFTY Future Rs. -739 Cr @ 5730.45 NIFTY Spot Level or Total Long Position Rs. +9022.47 Cr in 2012 - Total Sell Position Rs. -9761.47 Cr in 2013).

After analyzing the above the chart it clear that how NIFTY Spot is following the FIIs Selling.

On 11 March 2013, FIIs sold NIFTY Future Rs. -68.07 Cr and that day NIFTY Spot Day's High @ 5971.20 Closed @ 5942.35.

On 12 March 2013, FIIs sold NIFTY Future Rs. -517.56  Cr and that day NIFTY Spot Day's High @ 5952, Day's Low @ 5893.65 and Closed @ 5914.10.

On 13 March 2013, FIIs sold NIFTY Future Rs. -223.24 Cr and that day NIFTY Spot Day's Low @ 5842.35 and Closed @ 5851.20.

On 18 March 2013, FIIs sold NIFTY Future Rs. -699.0 Cr and that day NIFTY Spot Day's Low @ 5814.35 and closed @ 5835.25.

On 19 March 2013, FIIs sold NIFTY Future Rs. -805.54 Cr. and that day NIFTY Spot Day's Low @ 5724.30 and Closed @ 5745.95.

On 20 March 2013, FIIs sold NIFTY Future Rs. -362.44 Cr and that day NIFTY Spot Day's Low @ 5682.30 and Closed @ 5694.40.

on 21 March 2013, FIIs sold NIFTY Future Rs. -129.55 Cr and that day NIFTY Spot Day's Low @ 5647.95 and Closed @ 5658.75.

After analyzing above thing, it is clear that when FIIs started selling from 11 March 2013 then NIFTY Spot became down -323.25 Points (Day's High @ 5971.20 on 11 March 2013 - Day's Low @ 5647.95 on 21 March 2013).

Conclusion :- "FIIs are giving clear signal in the market that Market is not Bullish and Every up side will be selling Opportunity in the Market. As FIIs have sold huge Position in NIFTY Future as well as created Fresh Short position, Total Sell Amount is Rs. -9761.47 Cr (in 2013 till 21 March 2013) @ 5911.11 NIFTY Spot Level in which Rs. -739 Cr is Fresh Short Position in NIFTY Future created @ 5730.45 NIFTY Spot Level. In Short run NIFTy Spot is not looking above @ 5950 in any condition. And any upside in NIFTY will be sure selling opportunity in the market."

ALERT :- NOW FIIs HAS BOOKED FULL PROFIT IN THEIR LONG POSITION IN NIFTY FUTURE RS. +9022.47 @ 5351.04 NIFTY SPOT LEVELS WHICH HAD CREATED IN 2012 AND HAVE CREATED FRESH SHORT POSITION NOW.......BE ALERT.........20.03.2013

FIIs Exposure in NIFTY future @ NIFTY Spot Level Basis on Month basis from Jan 2013 to till 11Th March 2013

As it had said earlier that FIIs ""As FIIs are selling huge in NIFTY Future near 6050 - 5890 , means to say booking profits very fast in their long position of Rs. +9022.47 Cr created in 2012. Already Booked 81.65% of long Position and remaining long position will be booked further and short position will be created very soon. So, overall trend is weak as FIIs are giving clear signal. So go always with FIIs and safe in this market."

Check the Earlier Post :- http://nifty-analysis.blogspot.in/2013/03/alert-fiis-are-booking-profits-in-2013.html on "FIIs Exposure in NIFTY future @ NIFTY Spot Level Basis on Month basis from Jan 2013 to till 11th March 2013"

FIIs Exposure in NIFTY future @ NIFTY Spot Level Basis on Month basis from Jan 2013 to till 19Th March 2013

Now FIIs has booked full profit in their long position in NIFTY Future Rs. 9022.47 Cr @ 5351.04 NIFTY Spot Level which had created in 2012.

Till 11th March 2013, FIIs sold Rs. -7367.64 Cr.  @ 5913.80 NIFTY Spot Level.

After analyzing the above table regarding "FIIs Exposure in NIFTY future @ NIFTY Spot Level Basis on Month basis from Jan 2013 to till 19Th March 2013", it is clear that now FIIs have sold Rs. -9269.48 Cr. @ 5917.70 NIFTY Spot Level, Means clear indicating that FIIs have booked full profit in their long position in NIFTY Future.

Long Position was Rs. +9022.47 Cr @ 5351.04 MIFTY Spot Level in 2012

Booked Full Profit in Long Position Rs. -9022.47 Cr. @ 5917.70 NIFTY Spot Level

Means, FIIs booked +566.66 (5917.70 - 5351.04) Points Profit in their Long Position in NIFTY Future.

Fresh Short Position Created Rs. -247.01 Cr @ 5838.22 NIFTY Spot Levels. 

Alerted all this things in advance on 12 March 2013.

NIFTY Spot Movement after alerting from 12 March 2013 to 20 March 2013 :- 

When altered on 12 March 2013, NIFTY Spot High @ 5952. After alerted NIFTY Spot Day's Low @ 5724.30 on 19 March 2013.

After Alerted NIFTY Spot became down -227.30 Points, and FIIs net Selling was Rs. -1901.84 Cr. @ 5863.69 NIFTY Spot Level from 12 March 2013 to 19 March 2013.

Conclusion :- Overall indication is that FIIs has started to creat fresh Short Position in NIFTY Future and this will increase more in coming session.

FIIs Investment in Indian Financial Markets (Equity + Debt) from 1992 to 2013............12 March 2013

FIIs Investment in Indian Financial Market in Equity/ Debt from 1992 - 2013

FIIs Investment in Indian Financial Market Equity / Debt % from 1992 - 2013

ALERT :- FIIs are Booking Profits in 2013 in their Long Position in NIFTY Future Rs. +9022.47 Cr @ 5351.04 at NIFTY Spot levels created in 2012.........Be Alert FIIs Selling Huge in NIFTY Future.............12 March 2013

FIIs Exposure in NIFTY future and Cash Segment @ NIFTY Spot Level Basis on Month basis from Jan 2012 to Dec 2012

FIIs Exposure in NIFTY future @ NIFTY Spot Level Basis on Month basis from Jan 2013 to till 11th March 2013

"After Analyzing the above table, it is clear that how FIIs have traded in NIFTY over the year in 2012. And a clear Picture is showing that FIIs took Net Long Position in NIFTY Future Rs. +9022.47 Cr @ 5351.04 at NIFTY Spot Level basis and bought Rs. 127736.47 Cr. @ 5393.13 at NIFTY Spot Level in cash segment. Means FIIs took heavy buying exposure in market but they sold Rs. -7367.64 Cr @ 5913.80 at NIFTY Spot Levels in 2013 (From Jan 2013 to till 11th March 2013). Means FIIs booked the profit Rs. -7367.64 Cr @ 5913.80 at NIFTY Spot levels out of their long position Rs. +9022.47 Cr which had taken @ 5351.04 and long position of +1654.83 Cr @ 5351.04 at NIFTY Spot levels has remained and will be booked further . Means FIIs booked profit of +562.76 Points (5913.80 - 5351.04) of 81.65% of their Net long Position taken in 2012 which was Rs. +9022.47 Cr."

FIIs are booking profits in their Long Position which had taken in 2012. FIIs booked most of the portion in Feb 2013 that is Rs. -8198.37Cr @ 5893.24 at NIFTY Spot Levels. FIIs are selling continuously from near 6050 to 5693 (Jan 2013 to 28 Feb 2013).

Point to be Focus :- "There is two Intraday Highest Selling in NIFTY Future (From Jan 2013 to 11th March 2013), 1st selling Rs. -1271.04 Cr @ 5761.35 at NIFTY Spot level on 26-Feb-2013 which is before Union Budget 2013 - 2014 and 2nd selling Rs. -1498.33 Cr. @ 5693.05 at NIFTY Spot levels on 28-Feb-2013 on Union Budget 2013 - 2014, a big Indian Economic Event. " Means to say FIIs have not seen any positive action in Union Budget 2013 - 2014 which can give right direction to Indian Economy and growth and did not see any step to control Fisical Deficit also. It is very shocking that the highest selling in 2013 is on Budget Event on 28-Feb-2013."

Conclusion :- "As FIIs are selling huge in NIFTY Future near 6050 - 5890 , means to say booking profits very fast in their long position of Rs. +9022.47 Cr created in 2012. Already Booked 81.65% of long Position and remaining long position will be booked further and short position will be created very soon. So, overall trend is weak as FIIs are giving clear signal. So go always with FIIs and safe in this market."

Know about Who is eligible, Where to invest, Is there any lock-in, Next Step, & How to invest in Rajiv Gandhi Equity Saving Scheme (RGESS), 2012..........15.02.2013

Calculation Methodology of International Price Based Commodities traded on MCX/NCDEX...........15.02.2013

Calculation Methodology of International Price Based Commodities traded on MCX/NCDEX :-

OPTION BASIC :- PROFIT & LOSS IN CASE OF TAKING LONG POSITION IN CALL OPTION........14.02.2013

OPTION BASIC :- PROFIT & LOSS IN CASE OF TAKING LONG POSITION IN CALL OPTION :-

A CALL OPTION GIVES THE RIGHT TO THE BUYER TO BUY THE UNDERLYING ASSETS (STOCK, INDEX ETC.) AT A STRIKE PRICE SPECIFIED IN THE OPTION.

TAKING LONG POSITION IN THE CALL OPTION MEANS YOU ARE BULLISH ON THE PARTICULAR LEVEL OF THE STOCK OR INDEX. 

FOR EXAMPLE: - IF YOU BUY OR LONG NIFTY 5900 CALL MAY EXPIRY 2011 @ RS. 35/- AND NIFTY SPOT IS AT 5785 CURRENT LEVEL ON 28 APRIL 2011, IT MEANS YOU ARE BULLISH IN NIFTY AT 5900 MEANS TO SAY NIFTY SPOT CAN GO UP TO 5900 AND CAN ALSO CROSS THIS LEVEL FROM THE CURRENT LEVEL THAT IS 5785.

SO BUYING A CALL OR TAKING LONG POSITION IN CALL MEANS YOU ARE VERY BULLISH AND EXPECT THE UNDERLYING STOCK / INDEX TO RISE IN THE FUTURE AT PARTICULAR STRIKE PRICE THAT YOU HAVE DECIDED. IN THE CASE OF ABOVE EXAMPLE YOU ARE BULLISH ON NIFTY AT 5900 MEANS TO SAY NIFTY SPOT WILL RISE IN THE FUTURE UP TO 5900 AND CAN CROSS ALSO THIS LEVEL FROM ITS CURRENT LEVEL WHICH IS 5785 ON 28 APRIL 2011 AND TIME IS ALSO DECIDED FOR THAT WHICH IS MAY EXPIRY.

PROFIT IN CASE OF TAKING LONG POSITION IN CALL OPTION :- PROFIT IS UNLIMITED IN CASE OF BUYING THE CALL OPTION. AS IT IS EARLIER EXPLAINED THAT WHEN THE OPTION IS IN -THE- MONEY THEN THERE WILL BE PROFIT, MEANS TO SAY "IN CASE OF LONG CALL THE PROFIT WILL BE SPOT PRICE > STRIKE PRICE ON EXPIRY"

IN CASE OF ABOVE EXAMPLE LONG POSITION HAS TAKEN IN NIFTY 5900 CALL AND THE CURRENT LEVEL OF NIFTY SPOT IS 5785, MEANS YOU WILL BE IN PROFIT IF NIFTY SPOT WILL BE GREATER THAN FROM YOUR STRIKE PRICE THAT YOU HAVE SELECTED TO BUY THE CALL OPTION.

SO PROFIT = DIFFERENCE BETWEEN THE SPOT PRICE AND STRIKE PRICE - PREMIUM PAID FOR BUYING THE CALL OPTION

LOSS IN CASE OF TAKING LONG POSITION IN CALL OPTION :- LOSS IS LIMITED TO PREMIUM PAID FOR BUYING THE CALL OPTION IN LONG CALL OPTION. MEANS IF NIFTY SPOT CLOSES BELOW FROM YOUR STRIKE PRICE THAT YOU HAVE CHOSEN TO BUY THE OPTION THEN YOU WILL LOSE YOUR WHOLE PREMIUM THAT YOU HAVE PAID FOR BUYING THE OPTION.

IN CASE OF ABOVE EXAMPLE LONG POSITION HAS TAKEN IN  NIFTY 5900 CALL  MAY EXPIRY @ RS. 35/- . IF NIFTY SPOT CLOSES BELOW 5900 OR AT 5900 ALSO THEN YOU WILL LOSE WHOLE PREMIUM OF THE OPTION THAT IS RS. 35/-.

THE FOLLOWING TABLE WILL CLEAR THE PROFIT & LOSS IN CASE OF TAKING LONG POSITION IN CALL OPTION ON THE BASIS OF ABOVE EXAMPLE :- 

FROM THE ABOVE TABLE IT IS CLEAR THAT IF NIFTY SPOT CLOSES AT 5900 TO 5500 ON EXPIRY MEANS AT STRIKE PRICE OR BELOW THE STRIKE PRICE OF LONG CALL THEN LOSS IS SAME AT EACH LEVEL WHICH IS RS. -35/- PREMIUM THAT HAS PAID FOR BUYING THE CALL OPTION AND IF NIFTY SPOT CLOSES ABOVE THE STRIKE PRICE WHICH IS 5900 ON EXPIRY THEN PROFIT INCREASES AS THE NIFTY SPOT INCREASES.

SO PROFIT & LOSS IN CASE OF TAKING LONG POSITION IN CALL OPTION :-

PROFIT :- UNLIMITED

LOSS :- LIMITED TO AMOUNT OF PREMIUM PAID FOR BUYING THE CALL OPTION

NOTE :- ALL THE DIGITS ARE ASSUMED AND NOT BASED ON ACTUAL FIGURE.

OPTION BASIC :- UNDERSTANDING THE CONCEPT OF TIME VALUE OF MONEY IN OPTION TRADING...........14.03.2013

OPTION BASIC :- UNDERSTANDING THE CONCEPT OF TIME VALUE OF MONEY IN OPTION TRADING

Money has Time Value. The idea behind Time Value of Money is that a rupee now is worth more than rupee in the future. The relationship between Value of a Rupee today and Value of a Rupee in future is known as ‘Time Value of Money".

In Option Trading Time Value of Money is simply difference on Option Value or Option Premium and Intrinsic Value of the Option. Time Value also known as extrinsic value or instrumental value.

Means, 

Time Value of an Option = Option Premium - Intrinsic Value of an Option

Option Premium :- Option Premium is the premium which the Option Buyer pays to the Option Seller. It is also referred to as the Option Price.

Intrinsic Value of an Option :-

Cleared in the post on 14th Feb 2013  under"Understanding the Concept of Intrinsic Value in Option Trading" . See the post for details.

But For Revision remember this :- 

Intrinsic value of a call option = Spot Price - Strike Price (In case of Buying the Option)
Intrinsic value of a put option = strike price - Spot Price (In Case of Buying the Option) 


"since the longer the option has to go until expiry, the more opportunity there is for the Spot Price to move to a level such that the Option becomes In-the-Money. Generally, the longer the time to expiry, the Higher the Option’s time value. As expiry approaches, the value of an option tends to zero, and the rate of time decay accelerates."


"Means to say that At the beginning or starting of the expiry the Option has maximum Time Value of Money means, whatever the rupee is invested to buy an option now can worth more than rupee in the future. As soon as when the expiry date comes to near the option then then Time Value of Money decreases so the value of an option tends to zero at the end of the expiry."


"Both Calls and Puts have Time Value. An Option that is Out of -the- Money and At -the- Money has only Time Value. Usually the maximum Time Value exists when then Option is At -the- Money. The longer the time to expiration, the greater is an Option's Time Value, all also equal. At expiration doesn't have Time Value." 

Note :- Concept of In -the- Money, Out of -the- Money and At -the- Money have cleared on 14th Feb 2013 post under "UNDERSTANDING THE CONCEPT OF "IN -THE- MONEY OPTION", "OUT OF -THE- MONEY OPTION" & AT -THE- MONEY OPTION" IN OPTION TRADING". See the Post for Details.

But For Memory remember this :-

FOR CALL OPTION IS SAID TO BE IN -THE- MONEY OPTION WHEN SPOT PRICE > STRIKE PRICE MEANS,
POSITIVE CASH FLOW TO THE OPTION HOLDER IN CALL OPTION = SPOT PRICE - STRIKE PRICE

FOR PUT OPTION IS SAID TO BE IN -THE- MONEY OPTION WHEN STRIKE PRICE > SPOT PRICE MEANS,
POSITIVE CASH FLOW TO THE OPTION HOLDER IN PUT OPTION = STRIKE PRICE - SPOT PRICE  

See this graph :-

See the above graph. After the analyzing the above graph it is clear that in the starting of month to expiry Option has maximum Time Value of money but, when the month to expiry is coming the Time Value is decreasing or sloping down. And on the expiry it has become zero value.

So It has cleared that there is no Time Value of Money on the expiry date, so the value or premium of an option becomes zero.

OPTION BASIC :- UNDERSTANDING THE CONCEPT OF INTRINSIC VALUE IN OPTION TRADING...........14.02.2013

OPTION BASIC :- UNDERSTANDING THE CONCEPT OF INTRINSIC VALUE IN OPTION TRADING :-

The intrinsic value of an option is the amount an option holder can realize by exercising the option immediately. Intrinsic value is always positive or zero. An out-of-the-money option has zero intrinsic value.   

Intrinsic value of a call option = Spot Price - Strike Price 

Intrinsic value of a put option = strike price - Spot Price 

Note:- 

Spot Price :- The Price at which underlying assets (shares, stocks, index etc.) trades in the Spot Market or Cash Market. 

Strike Price: - The Price specified in the Option Contract is known as Strike Price or the Exercise Price. 

Example: - 

Intrinsic Value of Call Option :-  

If you Buy NIFTY 6000 Call April Expiry @ RS. 63 on 04 April 2011 and if NIFTY Spot closes at 6150 on April Expiry date, Then in this case...........

Strike Price = 6000 
Option Contract = April Expiry 
Spot Price on the date of April Expiry = 6150 
Option Premium =  Rs.63

Intrinsic Value of Call Option = Spot Price - Strike Price means, 6150 - 6000 = +150 

So the Intrinsic Value of the Call Option in this case is +150 means this call option is In the Money Call Option. In  "In the Money Call Option" Spot Price > Strike Price and there will be positive cash flow to the option holder which is Rs. 150 per lot. 

Intrinsic Value of Put Option :- 

If you Buy NIFTY 5700 Put April Expiry @ Rs. 60 and if NIFTY Spot closes at 5600 on April Expiry Date, then in this case.... 

Strike Price = 5700 
Option Contract = April Expiry 
Spot Price on the date of April Expiry = 5600 
Option Premium =  Rs.60 
Intrinsic Value of Put Option = Strike Price - Spot Price means, 5700 - 5600 = +100 

So the Intrinsic Value of the Put Option in this case is +100 means, this put option is In the Money Put Option. In  "In the Money Put Option" Strike Price > Spot Price and there will be positive cash flow to the option holder which is Rs. 100 per lot.