How to Get Rich quickly using Derivatives (Part 2)

Futures
So in this post lets understand more on futures.

So who decides the price of the future & how?

Future price is decided by the exchange on which they are traded. For e.g. if Future of Infosys is traded in National Stock Exchange (NSE), India then NSE acts as a counter party to each trade and guarantees settlement.

The price of this future contract is the spot price (current traded price of the actual share) of the underlying plus the cost of carry.

Cost to carry is nothing but the cost incurred (e.g. interest on the money traded) if the stock was purchased in cash instead of future and held till the expiry of future date less the income earned on the asset (e.g. dividend)

Expiry date is the date specified in the future contract. This is the last date on which the contract will be traded, at the end of which it will cease to exist. Hence these contracts should be closed on or before future expiry date by entering into an equal and opposite transaction (sell if you have bought, or buy if have sold it earlier). Thus you gain a profit if the settlement price is above your initial traded price else it will be a loss.

Cost to carry includes interest cost in case of financial futures (like index or stock futures), whereas commodity futures may include insurance and storage costs as well.

This is just a theoretical price, and then actual cost may be different depending on the demand and supply of the underlying asset.

Lot size or the contract size is the amount of assets that has to be delivered in one contract. For e.g. the Lot size of Infosys in NSE is 200. Hence a trader has to deal in minimum of 200 or in the multiples of 200.

In India, the futures are traded for max of 3 months. Generally the expiry date is the last Thursday of the month, so if you want to trade a Infosys future today (16th July 2006), you can choose following expiry dates: 27th June 2006, 31st August 2006 or 28th Sep 2006.

Hence if for e.g. the interest rate is about 12% per annum and the current prices (spot price) of Infosys share is Rs. 1650, then the cost to carry for one month would be Rs. 198/12 = 16.5. Hence Infosys future with one-month maturity should quote at nearly 1650 + 16.5 = Rs 1666.5.

This is just a simple example of the calculation. The actual formula used is

F= Se^(rT)

Where

F is future market price
S = Spot Market Price
e = 2.71828
r = cost of financing ( using continuously compounded interest)
T = Time till expiration in years.

E.g. for the example mentioned above F = 1650*e^(0.12*1/12)
= 1666.58

This cost to carry approaches to zero as the expiry dates comes near. In short the future price would be equal to cash market price (the actual price of the share) on the expiry date.

As indicated above, the future price quotes at a discount (less than 1848 in above case) or at a premium (above Rs 1848 in above case) due to demand-supply pressures.

In case the price quotes at a premium, then arbitragers would take this opportunity to buy in cash market and sell the equal amount in futures. Hence creating a risk free arbitrage, vice-versa for the discount. This would in turn push the future price back to its fair price.

Futures can also be traded on Nify or Sensex. These are called index shares.

Binocular with LCD Camera (Gadgets)

Gadgets

Gadgets are my weakness & I think it sure is for many of you. So I thought why not write about it here. All of us have used a binocular some time, but how many times while watching a bird or a match did we wish that we had captured that movement, so that we could share it with others. Many a times before you hand over your binocular to your colleagues to show that you have found a rare bird or a whale, it just disappears and your partner tells you that you are a liar. Yes I have faced this many a times. But with this gadget I can prove it too.

I am talking of a new Gadget. Binocular with a Digital Camera and LCD screen too. Now you can take a close shot at your favorite footballer head butting or your favorite cricketer taking the catch at the other end of the boundary. Then you can show it to your colleagues who missed the other part of the game on your LCD screen immediately.

It doesn’t just stop here, you can have a SD cards up to 1GB RAM inserted to store the pictures and AVI clippings too. This can be connected to a PC using a USB port for sharing your pictures and movies by email.

Average it weighs about 1 to 2 pounds and is supported by most of the Windows version. This binocular with a magnification of about 8x and Focus range between 18 m to infinity along with auto focus and 1.5” TFD Color LCD screen can cost some where around $150 to $200. Isn’t that much economical than your normal 3x Digital zoom Camera?

I am sure you must be thinking of many other ways to use it right now.

How to Get Rich Quickly using Derivatives (Part 1)

Another post for "Instrument of Wealth"

What is Derivative?

It is a product whose value is derived from the value of underlying assets. The underlying asset can be equity, forex, commodity or any other asset. For e.g. if a dealer thinks that government may increase the rate of vehicles, he may wish to sell the vehicle on future date to eliminate the risk of a change in prices by that date. This is an example of derivative. The price of grain is derived from the underlying which is the spot price of vehicle.

I will try to explain 2 types of Derivatives viz. Futures & Options.

Futures

A future contract is an agreement between 2 parties to buy or sell an asset at future date at the mutually agreed price. These contracts can be closed earlier than the future date by entering into an equal and opposite transaction (sell if you have bought, or buy if have sold it earlier).

Options

An option gives the holder of the option the right to do something. The holder does not have to exercise this right. This is in contrast to Future, where the 2 parties have committed to themselves to doing something.


Note: There is a very high risk in this type. But also this can be considered as Get Rich Quick Scheme. I will take you through more concepts of Derivatives and tell you how to reduce this risk in coming posts.

Vedic Mathematics (Part 2)

Instrument of Calculation

Continued from Part 1.

4) Lets see how to multiply numbers close to 100.

a) 89 * 92 = 8188 (less than 100)

It is really easy.

Both 89 and 92 are close to 100. 89 is 11 less than 100 and 92 is 8 less than 100.

89 11
92 08

Subtract 89 – 08 or 92 – 11 = 81
Next multiply 11 * 8 = 88
Which is the answer 8188

Didn’t I say it was very simple. No need of a calculator or pen and paper.

b) 102 * 105 = 10710

This number is closer to 100 too, but above 100, so how do you solve it

Same way as above but subtract 102 – 100 and 105 – 100

102 2
105 5

Don’t subtract, instead add 102 + 5 or 105 + 2 = 107 and multipy 5 * 2 = 10
The answer : 10710


5) Lets see how to multiply numbers where the first digits are same and last figure adds upto 10


a) 54 * 56 = 3024 (here first digit 5 is same and 6+4 = 10)

Here we just need to add 5 * (5+1) = 5 * 6 = 30
Next multiply last digits (4 * 6 = 24).

Simple isn’t it. The answer is join above 2 = 3024

b) 49 * 41 = 2009

The only difference here is add 09 instead of just 9.


6) Lets see how to multiply 2digits number with 11

a) 32 * 11 = 352

Here you just need to separate 3 and 2 from 32 and put it in beginning and end of 3 digits.The middle number is just the sum of 3 & 2 from 32.

3(3+2)2 = 352.

b) 39 * 11 = 421

Here it is same as above but as there is one carry from 3+9 = 12, we need to add 1 to 3 = 4. Hence the answer = 421


7) Lets see how to multiply 2digits numbers

a) 32 * 21 = 672

Write it as follows.

3 2
2 1

Next multiply 2 *1 = 2 (which is the rightmost part of answer) Next multiply and add diagonally = 3*1 + 2*2 = 7 (which the middle part of answer)
Next multiply 3 * 2 = 6 (which is the leftmost of the answer)
i.e. 672


b) 45 * 67 = 3015

Here there are carry to the left, so keep on adding the additional numbers to left.

4 5
6 7

Multiply 7*5 = 35 (5 is rightmost of answer, carry 3 to left)
7*4 + 6*5 = 58 + 3(from above) = 61 (keep 1 and carry 6 to left)
Finally 6*4 = 24 + 6 (from above) = 30.
Hence the answer = 3015.

This may seem little difficult in the beginning, but once you start concentrating and using it, this will seem very simple and fun.

There are more to Vedic mathematic, all of which can’t be just put here. This posting was just to make you more curious into this instrument of Calculation.

Optical vs Digital Zoom (Photography)

Instrument of Capturing Golden Moments

To tell the truth, I don't really look forward to use Digital Camera, unless I don’t just intend to store the pictures in my PC or on the net alone, which is accessible only to me and few at my home.

I own a Pentax 738S 38mm-70mm Zoom Camera (approx 2X Zoom), which I had purchased in the year 2000, for 80 Pounds.

Even if technology has changed a lot since then, I still love to use the same camera (my first camera). Many a times I have felt that the pictures taken from this camera is much better than the Digital camera of 2X Optical Zoom & 5X Digital Zoom (not just in print, but even when I had got the prints converted to jpg from Kodak).

Why this difference? The difference lies in Digital and Optical Zoom, which I think would help those who plan to buy a Digital camera.

Optical Zoom is which many buyers don’t look at and are often hidden by sales person is a very important factor while buying a Digital camera. A digital camera that offers optical zoom is the same zoom in the normal camera; where as digital zoom is just scaling up the pixels in the final image after it is captured. This can even be done easily on a computer with some image editing software.

Simply doubling the size of pixels will not give a blurred picture as some approximate colored pixels are used to fill the vacant spaces. All this uses is some guess and hence is very different from natural photo.

Nowadays mostly all the cameras that are available has both Optical & Digital Zoom, but try to find a Digital camera which allows you to select among them while you take the pictures. The more the Optical Zoom the better the pictures.

And yes, don’t compare Optical Zoom with Resolution.