Scheme 

‘Smart Futures & Options’ is a scheme with a difference.

Stress is provided more on ‘Stock Futures’ than ‘Index Futures’. We strongly believe that the future of a company can be      predicted with more accuracy and precision than the direction of stock market

Two to Three Future Calls are provided in a week. Total about 125 Calls in a year.

Stress is provided more on ‘Positional Calls’. Holding period varies from 1 day to one month.

‘Stop Loss’ and ‘Target’ are indicated in advance and investors are expected to strictly follow these parameters.

Calls only for the stock which command reasonable liquidity

All the calls in trading hours only. No pre market calls

It is ensured that the ‘underlying’ companies are fundamentally sound. So as to reduce the downslide chances.     (Underlying – Every Stock-Future is a derivative of the company shares traded on stock exchange)

Due to high margin money deposit with the broker (about Rs 75,000 per Call), a typical retail investor holds only 2 – 3 Calls.      This exposes him to high risks.  For a meaningful Systematic Risk reduction, it is advisable to keep at least double the      exposure in cash segment.

The associated Risks as well as Returns involved in Futures trading are comparatively much higher than that involved in      Cash trading. The volatility in Futures prices is almost same as the underlying stock in cash market. But the volatility in      returns is much higher, due to the ‘Leverage’ factor.

The below picture clearly distinguishes the risk and returns characteristics in case of buying a stock in cash market and      buying the Future of same stock at same price. Profit as well as losses are multiplied by a factor of 4. This is near to      actuals in most of the stocks listed in Futures category

Learning corner

Leverage
Since this financial instrument is quite often mis-used in Stock and Commodities Market, it is better to get a clear understanding of the term ‘Leverage’.

Dictionary Meaning of Leverage: Force, Power, Influence

Meaning of Leverage in Finance: Any technique used to multiply returns.

From here-on we shall restrict our discussion to Leverage in stock market.

The two most commonly used methods to attain leverage in stock returns are borrowing money and using derivatives.

The more you leverage your investments, the more riskier the returns.

Consider this : There are two Investors (investor 1 and Investor 2) who individually invest a sum of Rs 30,000 and buy 100 shares of Biocon @ Rs 300 per share.

Case 1 : After one year they sell their holding for a sum of Rs 40,000 (@ Rs 400 per share).

Case 2 : After one year they sell their holding for a sum of Rs 20,000 (@ Rs 200 per share).

Thus despite same amount of investment in same stock, the RoI (Return on Investment) varies widely. This is due to different financing patterns. The higher the leverage, higher the variations in returns, hence higher the risk.

Thus if the stock moves up, the leverage works in your favour but if the stock moves down it drains away your money equally faster. Also, higher the leverage higher the variability of returns.

Returns from Futures Contract if used for speculation purpose, varies in similar fashion as explained above.  Yes, investment required is low but gains and losses are several times magnified.

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