I apologise to all those boarders who happen to visit this PAGE looking for my usual F n O operatives and strategies etc. Sorry, MoneyControl feels that I should post here only the 'personal profile' type of info about myself. Fair enough. I stand chastised. My current/proposed stock holdings are as follows :

01. IFCI 05% [Futures]
02. IDBI 05% [Futures]
03. ABAN 20% [Futures]
04. ONGC 05% [Cash]
05. BOSCH 05% [Cash]
06. Larsen 20% [Cash + Futures]
07. GMRinfra 05% [Futures]
08. Educomp 20% [Cash]
09. UCOBANK 05% [Futures]
10. Tata Steel 05% [Cash]
11. FINANTECH 05% [Cash]

Equities on my BACKBURNER :

01. RPL
02. BHEL
03. SBIN
04. HDFC
05. Reliance
06. Divis Lab
07. Punj Lloyd
08. Infosystch
09. IndiaInfoline
10. Praj Industries
11. Alstom Projects


My favoured FnO OPERATIVES :

01. COVERED futures SHORTING - an exciting operative ! NOT FOR NEWBIES !!
02. Writing COVERED OTM Call/Put OPTIONS in ICICI, IDBI, IFCI & RNRL
03. CASH-COVERED, bi-directional FUTURES-play

FnO is a PANACEA or a POISON for Equity Investors ?

POISON at the hand of quack traders (over-leveraging, gross speculators), and surely a PANACEA (or an ELIXIR) at the hands of genuinely experienced, qualified practitioners (more appropriately, risk-managers).

I am a Delhi-based F n O investor, specialising in using F n O operatives towards equity management. F n O is indeed an interesting and rewarding segment, IF played sensibly, seriously, and systematically, rather than in a grossly speculative manner. I enjoy SHARING my F n O knowledge with newbies eager to learn or with investors seeking to risk-manage their portfolios. I assure you it is all VERY EASY if you are a keen & sincere student with a genuine desire to learn the basics and the finer nuances of F n O play. If you wish to recoup your losses without the agony of an inordinately long wait, then F n O is indeed the way to go. You will NEVER regret going the F n O way, IF you care to learn and practise it PROPERLY in the first place. My GMAIL ID too is DUSTOCKS.

Thanks for visiting this page, and my REGRETS if this somewhat plain-looking, almost white-washed HomePage disappoints you !

------------------------------
If you THINK, You can DO it !
------------------------------

If you think your are BEATEN, you ARE.
If you think you DARE NOT, you CAN'T !
If you like to WIN, but think you CAN'T
It's almost a cinch you WON'T.

If you think, you'll LOSE, you are LOST;
For out in the world we find
SUCCESS begins with a fellow's WILL;
It's all in the state of the MIND.

If you think you are OUTCLASSED, you ARE,
You have got to think HIGH to RISE,
You`ve got to be SURE of yourself before
You can ever win a PRIZE.

Life's battles don't always go
To the STRONGER and FASTER man
But sooner or later the man who WINS
is the man WHO thinks he CAN !

Anonymous


DERIVATIVES : A Historical Perspective

Some say that derivatives rank right up there with antibiotics and the microprocessor chip as one of the great innovations of the modern era.

Derivatives are financial instruments that are used to reduce financial risk, just as a fire insurance policy is used to reduce the risk of a fire by compensating possible damage in the event of one.

Why did, then, Warren Buffett, whose financial acumen is legendary, describe them recently as "weapons of mass destruction" ? Where did they come from and how did they become such objects of veneration as well as hate ?

In downtown Chicago stands the 45-storey building that houses the Chicago Board of Trade, the institution that gave birth to the derivatives business. Beautiful as its art deco architecture is, there is nothing much to set it apart from the many other tall buildings that surround it. Except for one thing. Right at its very top there is a two-storey tall statue of a Greek goddess. This is Ceres, the Greek goddess of grain from who the word "cereal" comes.

This is where it all started. A group of merchants trading in the food grains grown in the surrounding Midwest came up with the ingenious and useful idea of offering farmers a firm "future" price for their crop many months before it came to the market reducing the risks that farmers took during their long season of labour. Grain "futures" prospered for decades till the US government, in the 1960s, started offering a minimum price for the crop.

This considerably slowed down the grain futures trade. The Chicago grain future traders sat around their trading pits for a while, smoking cigars and reading newspapers with nothing much to do till one of them thought of the idea of starting trading in another kind of futures: using the Dow Jones Industrial Average of equity shares in the New York Stock Exchange as the "underlier" instead of grain.

But, before starting off this new line of business, they had to solve a problem: how to put a price on this new form of "future". An out-of-the-box thinker among them, Mathew Gladstein, asked for help from a group of local Chicago economists, Merton, Black and Scholes.

The mathematical model they came up with, the Black-Scholes model, did its job of pricing options so well that Gladstein made tons of money using it, Merton and Scholes won the Nobel Prize in Economics for it, and started the rush of mathematicians to the stock market.

Soon, other enterprising people thought up other "derived" financial instruments based on many other "underliers": bonds issued by companies and municipalities, mortgages that people took out on their homes.

It is not hard to see why such "derived" securities or "derivatives" have become so popular. A bank that makes a loan, for example, for a house, faces many different types of risk. The borrower, for instance, may not be able to return the loan on due date. Or, he may not be able to keep up with interest payments.

Or, the market interest rate may rise far above the rate the bank has given the loan, leaving the bank stuck with a loan at a low interest rate. Or an earthquake might hit the area demolishing the borrower`s business. Or, high inflation may reduce the value of the loan by the time it gets repaid. Derivatives are a way to "hedge" against these risks. For example, a housing loan to a borrower in, say, Cochin can be combined with a housing loan in Mumbai and another one in Bangalore under one common instrument and this combined "derivative" can be sold to an investor.

This combination reduces the risk of disparate housing markets such as Cochin, Mumbai and Bangalore all suffering downturns at the same time. The investor in this derivative rightly believes that the instrument he holds has a balanced risk.

If derivatives can diversify risk, as just described, what can go wrong? For one, the borrowers may have mis-represented their income. Or, the loan issuer may not have verified their incomes. Or, they may have borrowed 95 per cent of the value of their houses such that if property prices decline by, say, 20 per cent, the asset cover may become inadequate.

In all of these cases, should interest rates rise sharply, from say, 6 per cent to 10 per cent, these borrowers may no longer be able to meet their monthly payments. When Greenspan, who was chairman of the US Federal Reserve Board, was told about similar issues developing in the US mortgage securities market he believed that such problems in the housing sector would be restricted to a city and could never become a national, let alone an international problem.

This would normally have been true, but mortgaged-backed securities were sold not only nationally in the United States but also throughout Europe and Asia. When the US housing bubble burst and borrowers started defaulting on their mortgage payments, the value of the mortgage securities fell precipitously.