Hedging Dilemma in Volatile Markets |
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EXCERPTS |
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Silver Oak was established in the year 1962 in Mumbai by Raja P Bansal. It was a member of the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), the Multi Commodity Exchange (MCX), and the National Commodity and Derivative Exchange (NCDEX). With an employee strength of 65, it had a daily trading volume of more than Rs. 3 billion in December 2014... |
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| PORTFOLIO MANAGEMENT SERVICES DEPARTMENT AT SILVER OAK |
| This department was unique in terms of the services it provided to its clients. In order to make an investment through the PMS department, clients had to invest a minimum of Rs. 5 million and in multiples of Rs. half million thereafter with a lock-in period of three years. With 100% investment in the equity market.. |
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| RISK MANAGEMENT AND DERIVATIVE STRATEGY (RMDS) DEPARTMENT AT SILVER OAK |
| The RMDS department advised clients on various aspects including giving recommendations on speculative positions, guiding clients on portfolio risk management through hedging or insurance, managing commodity price risk for manufacturers,..
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| POSITION TAKEN BY NANDITA |
| During December 2014, all the departments of Silver Oak held numerous meetings to discuss their research and predictions about the market for 2015. There was clearly a positive sentiment shared by all the departments owing to the fall in oil prices, easing of inflation, reduction in policy rate by the RBI, and the Modi effect...
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| NANDITA’S DILEMMA |
| After experiencing the downside volatility of prices soon after the purchase, Nandita grew worried about her investments (Refer Exhibit III and Exhibit IV (a) and (b). In just four days – at the end of the day on January 6, 2015 – DLF shares generated a negative cumulative return of 4%..
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| EXHIBITS |
Exhibit I: BSE Sensex Movement during January 2007 to December 2014
Exhibit II : Stock purchased by Nandita as of January 2, 2015
Exhibit III : Shares Prices of DLF and Infosys from January 2 to January 30, 2015
Exhibit IV(a) :Closing Share Price of DLF for the month of January 2015
Exhibit IV(b) : Closing Share Price of Infosys in January 2015
Exhibit V : Prices of Futures and Options having January 2015 Expiry as on January 7, 2015*
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