Equity Derivatives

SMIFS Limited caters equity broking services to niche clients, corporate and HNI’s. We are a strong proponent of research-based decision making for equity investments, future trading and options trading. Our Equity sales and dealers are trained to help investors take informed decisions in the derivatives market. Day traders and positional traders are given online and offline technical support to generate alpha returns over a period.

Derivative strategists at SMIFS Limited generally help clients to protect their portfolio through numerous hedging and option strategies. Event-related support is imparted to derivative traders/arbitrageurs which can have direct impact on their returns.

The derivatives trading segment is a highly lucrative market that allows investors to earn superlative profits (or losses) by paying a nominal amount of margin. Over the past few years, the Future & Options segment has emerged as a popular medium for trading in financial markets. Future contracts are available on Equities, Indices, Currency and Commodities. Financial derivatives do away with the need to invest a large amount of capital upfront and allow you to benefit from market movements. This gives you greater liquidity than most other assets. They are an excellent avenue to help you leverage on anticipated market movements and an effective tool to hedge your risks, speculate and earn returns in a relatively shorter duration. You can trade in Futures – contracts or an agreement between two parties to either buy or sell a fixed quantity of assets at a particular time in future trading for a fixed price OR Options – A similar contract, except the parties are not obligated to fulfil the terms of the agreement. These contracts are then traded in the market. Derivatives are also very efficient risk management instruments offering benefits such as:

 

  • Enables you to get higher trading exposure with a low margin amount
  • Allows you to safeguard yourself against potential losses, by hedging your positions. As a part of this, you buy in the cash segment and agree to sell in the derivatives market or vice versa
  • Allows you to choose between conservative or high-risk strategies based on the expected rise and fall of stock prices
  • Possibility to garner returns irrespective of market moving up, down or sideways

SMIFS Limited with its membership as a Trading Member of NSE and BSE in Derivatives Segment provides you with a gateway to the exciting world of the derivatives market. Our experienced trading consultants and advanced trading tools will provide the support you need to achieve your long-term and medium terms profits via the stock markets. Whether you are an active trader who believes in making the most of market opportunities or a new trader seeking information on futures, options trading and derivatives market, our dedicated research and advisory team is well equipped to keep you informed and well-timed on price movement. Our unique range of customized products, are designed to help you leverage your intraday and long term positions.

 

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    Why Invest with SMIFS Limited?

    We, at SMIFS, are committed to elevate your trading experience and be the one-stop solution for all your equity, derivative and other investment needs with reliable recommendations by our credible research team.

    We have been serving a diverse customer base of retail and institutional customers for more than 30 years now. Further, we are also providing free demat account to all our clients.

    • The SMIFS Legacy!

      A reputed brand with over 30 years of existence, We offer both online and offline facilities to our client.

      The latest technology helps our clients work anytime, anywhere on their investment with ease.

    • Credible Research

      A team of research analysts delivering short-term, long-term and derivatives trading calls.

      Research is the backbone for outperformance in financial services products over a period of time.

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      The latest technology helps our clients trade on their free Demat account anytime, anywhere on their investment with ease.

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    • All in One Account for Investment Goals

      Invest in equities, futures & options, IPOs (Initial Public Offering), mutual funds, commodities, etc consistently at one spot and accomplish your monetary goals.

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      SMIFS offers tailor made portfolio management services based on your risk
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    Frequently Asked Questions ( FAQ’s)

    WHAT ARE DERIVATIVES?

    Derivatives, such as futures or options, are financial contracts which derive their value from a spot price, which is called the “underlying”. The term “contracts” is often applied to denote the specific traded instrument, whether it is a derivative contract in commodities, gold or equity shares. The world over, derivatives are a key part of the financial system. The most important contract types are futures and options, and the most important underlying markets are equity, treasury bills, commodities, foreign exchange, real estate etc.

    WHAT ARE VARIOUS TYPES OF DERIVATIVE INSTRUMENTS TRADED AT EXCHANGES?

    There are two types of derivatives instruments traded on Exchanges; namely Futures and Options: Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

    Options: An Option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price. While a buyer of an option pays the premium and buys the right to exercise his option, the writer of an option is the one who receives

    the option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. Options are of two types – Calls and Puts options:

    “Calls” give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date.

    “Puts” give the buyer the right, but not the obligation to sell a given quantity of underlying asset at a given price on or before a given future date. All the options contracts are settled in cash.

    Further the Options are classified based on type of exercise. At present the Exercise style can be European or American.

    American Option – American options are options contracts that can be exercised at any time upto the expiration date. Options on individual securities available at NSE are American type of options.

    European Options – European options are options that can be exercised only on the expiration date. All index options traded at NSE are European Options.

    WHY SHOULD I TRADE IN DERIVATIVES?

    FUTURES TRADING WILL BE OF INTEREST TO THOSE WHO WISH TO:

    a. Invest – take a view on the market and buy or sell accordingly.

    b. Price Risk Transfer- Hedging – Hedging is buying and selling futures contracts to offset the risks of changing underlying market prices. Thus it helps in reducing the risk associated with exposures in underlying market by taking a counter- positions in the futures market

    c. Leverage- Since the investor is required to pay a small fraction of the value of the total contract as margins, trading in Futures is a leveraged activity since the investor is able to control the total value of the contract with a relatively small amount of margin.

    Thus the Leverage enables the traders to make a larger profit (or loss) with a comparatively small amount of capital.

    OPTIONS TRADING WILL BE OF INTEREST TO THOSE WHO WISH TO:

    • Participate in the market without trading or holding a large quantity of stock.
    • Protect their portfolio by paying small premium amount.

    BENEFITS OF TRADING IN FUTURES AND OPTIONS:

    • Able to transfer the risk to the person who is willing to accept them
    • Incentive to make profits with minimal amount of risk capital
    • Lower transaction costs
    • Provides liquidity, enables price discovery in underlying market
    • Derivatives market are lead economic indicators

    WHAT IS THE EXPIRATION DAY?

    It is the last day on which the contracts expire. Futures and Options contracts expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.

    IS THERE ANY MARGIN PAYABLE?

    Yes. Margins are computed and collected on-line, real time on a portfolio basis at the client level. Brokers are required to collect the margin upfront from the client & report the same to the Exchange.

    WHAT IS OPEN INTEREST?

    Open interest refers to the number of outstanding contracts in the exchange market.

    WHAT ARE THE OPTIONAL DOCUMENTS THAT CAN BE TAKEN AS FINANCIAL PROOF?

    Following are the applicable documents apart from bank statement as a valid financial proof, please provide any one of the following -* Copy of ITR Acknowledgement (for last financial year)* Copy of Annual Accounts (for last financial year)* Copy of Form 16 in case of salary income (for last financial year)* Net worth certificate (latest one, or at the end of last financial year)* Salary Slip (for one month in current financial year)* Copy of Demat account Holding statement (not more than 3 months old).

    WHAT IS A FUTURES CONTRACT?

    Futures markets are exactly like forward markets in terms of basic economics. However, contracts are standardized and trading is centralized (on a stock exchange). There is no counterparty In futures markets, unlike in forward markets, increasing the time to expiration does not increase the counter party risk. Futures markets are highly liquid as compared to the forward markets.

    WHAT ARE VARIOUS PRODUCTS AVAILABLE FOR TRADING IN FUTURES AND OPTIONS?

    Futures and options contracts are traded on Indices and on Single stocks.

    WHAT ARE THE BENEFITS OF TRADING IN INDEX FUTURES COMPARED TO ANY OTHER SECURITY?

    An investor can trade the ‘entire stock market’ by buying index futures instead of buying individual securities with the efficiency of a mutual fund. The advantages of trading in Index Futures are:

    • The contracts are highly liquid
    • Index Futures provide higher leverage than any other stocks
    • It requires low initial capital requirement
    • It has lower risk than buying and holding stocks
    • It is just as easy to trade the short side as the long side
    • Only have to study one index instead of 100s of stocks

    WHAT IS THE CONCEPT OF IN THE MONEY, AT THE MONEY AND OUT OF THE MONEY IN RESPECT OF OPTIONS?

    In- the- money options (ITM) – An in-the-money option is an option that would lead to positive cash flow to the holder if it were exercised immediately. A Call option is said to be in-the-money when the current price stands at a level higher than the strike price. If the Spot price is much higher than the strike price, a Call is said to be deep in-the-money option. In the case of a Put, the put is in-the-money if the Spot price is below the strike price.

    At-the-money-option (ATM) – An at-the money option is an option that would lead to zero cash flow if it were exercised immediately. An option on the index is said to be “at-the-money” when the current price equals the strike price.

    Out-of-the-money-option (OTM) – An out-of- the-money Option is an option that would lead to negative cash flow if it were exercised immediately. A Call option is out-of-the-money when the current price stands at a level which is less than the strike price. If the current price is much lower than the strike price the call is said to be deep out-of-the money. In case of a Put, the Put is said to be out-of-money if current price is above the strike price.

    WHAT ARE THE RISKS ASSOCIATED WITH TRADING IN DERIVATIVES?

    Investors must understand that investment in derivatives has an element of risk and is generally not an appropriate avenue for someone of limited resources/ limited investment and / or trading experience and low risk tolerance. An investor should therefore carefully consider whether such trading is suitable for him or her in the light of his or her financial condition. An investor must accept that there can be no guarantee of profits or no exception from losses while executing orders for purchase and / or sale of derivative contracts.

    Importance of Derivatives: Derivatives are very important financial instruments for risk management as they allow risks to be separated and more precisely controlled. Derivatives are used to shift elements of risk and therefore can act as a form of:OPENING PURCHASE TRANSACTION

    An opening purchase transaction is one that creates or increases a long position in a given option series.

    OPENING SALE TRANSACTION

    An opening sale transaction is one that creates or increases a short position in a given option series. Such a sale is also referred to as “writing” an option contract.

    CLOSING PURCHASE TRANSACTION

    A closing purchase transaction is one that eliminates or reduces a short position in a given option series. Such a purchase is commonly referred to as “covering” a short option position.

    CLOSING SALE TRANSACTION

    A closing sale transaction is one that eliminates or decreases a long position in a given option series.

    IS IT MANDOTORY TO SUBMIT FINANCIAL PROOF TO OPEN ACCOUNT IN DERIVATIVES SEGMENT?

    Yes. It is mandatory to provide valid financial proof to open any derivative segment.

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