Average P/E Ratio

Average P/E Ratio

Average price/earnings ratio of stocks owned by a mutual fund.

Average Daily Volume

Average Daily Volume

Average number of shares traded per day over a specified period.

At-The-Open

At-The-Open

This is a stock's trading price when a stock begins trading for the day. It may gap up, gap down, or open where it closed the previous session. Where a stock opens can be deceptive, especially if the stock gaps up or down significantly from the closing price.

At The Close

At The Close

This is the price of the last trade of a stock when the market closes for the day. This price is of primary importance in our trading as where a stock closes in its range tells us much about the direction and momentum of the stock.

Assets

Assets

Everything a company or person owns, including money, securities, equipment and real estate. Assets include everything that is owed to the company or person. Assets are listed on a company's balance sheet or an individual's net worth statement.

Asset Allocation

Asset Allocation

The process of dividing your funds among different classes of investments such as stock, bond, or real estate. You could further allocate your stock funds into value, growth, foreign, etc.

Ask Size

Ask Size

The aggregate size in board lots of the most recent ask to sell a particular security.

Ask Price

Ask Price

The price you are asked to pay when you buy a stock (see 'Bid Price').

Ask or Offer

Ask or Offer

The lowest price at which someone is willing to sell the security. When combined with the bid price information, it forms the basis of a stock quote.

Anonymous Trading

Anonymous Trading

Permits Participating Organizations to voluntarily withhold their true broker identities when entering orders and trades on TSX trading systems.

Annual Report

Annual Report

A publication, including financial statements and a report on operations, issued by a company to its shareholders at the company's fiscal year-end.

Analyst

Analyst

Someone typically working for a brokerage house, who publishes buy/hold/sell recommendations and earnings forecasts for a stock. Buy side analysts work for institutional buyers, and sell side analysts work for brokerages. 

American-Style Options

American-Style Options

Options that can be exercised any time during their lifetime. These are also known as open options.

American Depositary Receipt (ADR)

American Depositary Receipt (ADR)

A certificate trading on a U.S. stock exchange that represents shares of a foreign corporation. 

All-or-None Order

All-or-None Order
An order that must be filled completely or the trade will not take place.

All or None instruction

All or None
This is an instruction you can give your broker when placing a buy or a sell order. This instruction ensures that your order will be filled in its entirety or not at all. This prevents having a partial execution of your trade.

After-Hours Trading

After-Hours Trading
stock trading when the major stock exchanges are closed. 

Accrued Expenses

Accrued Expenses

Expenses shown on the income statement but not yet paid. 

Whom should I contact for my Stock Market related transactions?

You can contact a broker or a sub broker registered with SEBI for carrying out your transactions pertaining to the capital market.

Who is a sub broker?

A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

Who is a broker?

A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.

What recourses are available to me for redressing my grievances?

You have following recourses available:•Office of Investor Assistance and Education (OIAE) : You can lodge a complaint with OIAE Department of SEBI against companies for delay, non-receipt of shares, refund orders, etc., and with Stock Exchanges against brokers on certain trade disputes or non receipt of payment/securities.

Arbitration: If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock Exchange.

Court of Law

What kind of details do I have to provide in Client Registration form?

The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information:


•Permanent Account Number (PAN), which has been made mandatory for all the investors participating in the securities market.
•Your name, date of birth, photograph, address, educational qualifications, occupation, residential status(Resident Indian/ NRI/others)
•Bank and depository account details
•If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.

For proof of address (any one of the following):

•Passport
•Voter ID
•Driving license
•Bank Passbook
•Rent Agreement
•Ration Card
•Flat Maintenance Bill
•Telephone Bill
•Electricity Bill
•Insurance Policy

Each client has to use one registration form. In case of joint names /family members, a separate form has to be submitted for each person.

In case of Corporate Client, following information has to be provided:
•Name, address of the Company/Firm
•Date of incorporation and date of commencement of business.
•Registration number(with ROC, SEBI or any government authority)
•Details of PAN
•Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in specified format.
•Bank and Depository Account Details
•Copies of the balance sheet for the last 2 financial years (copies of annual balance sheet to be submitted every year)
•Copy of latest share holding pattern including list of all those holding more than 5% in the share capital of the company, duly certified by the Company Secretary / Whole time Director/MD. (copy of updated shareholding pattern to be submitted every year)
•Copies of the Memorandum and Articles of Association in case of a company / body corporate, partnership deed in case of a partnership firm
•Copy of the Resolution of board of directors' approving participation in equity / derivatives / debt trading and naming authorized persons for dealing in securities.
•Photographs of Partners/Whole time directors, individual promoters holding 5% or more, either directly or indirectly, in the shareholding of the company and of persons authorized to deal in securities.
•If registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.

What is the pay-in day and pay- out day?

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.

What is the maximum brokerage that a broker can charge?

The maximum brokerage that can be charged by a broker has been specified in the Stock Exchange Regulations and hence, it may differ from across various exchanges. As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5% brokerage from his clients.

What is the difference between 'Block deal' and 'Bulk deal'?

Block deal is a trade, with a minimum quantity of 5,00,000 shares or minimum value of Rs. 5 crores, executed through a single transaction, on the special "Block Deal window".

Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity shares of the company.

The orders in a block deal are not shown to the people who trade from normal trade window. Bulk orders, on the other hand, are visible to everyone.

What is the difference between the primary market and the secondary market?

In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

What is the difference between rights and bonus shares?

Bonus shares means new shares given free of cost to all the existing shareholders of the company, in proportion to their holdings. For example, a company announcing bonus issue of 1:5, is issuing one (new) bonus share for every five shares held by the shareholders of the company.

Rights issues are a proportionate number of shares available to all the existing shareholders of the company, which can be bought at a given price (usually at a discount to current market price) for a fixed period of time. For example, a company announcing rights issue of 2:3 at Rs. 100 per share (current share price Rs. 130 per share), is issuing two (new) rights shares for every three shares held by the shareholders of the company at Rs. 100 per share. The rights shares can also be sold in the open market. If not subscribed to, the rights shares lapse on closure of the offer.

What is the difference between cash EPS and EPS?

Cash EPS takes into account the cash flow generated by a company on a per share basis, while EPS looks at the net income generated on a per share basis, for a given period. Like EPS, higher the cash EPS, better it is considered.

Cash EPS = Operating cash flow for the period

Weighted average number of equity shares outstanding

Cash EPS can be computed from EPS by adjusting for depreciation, amortization of goodwill and other non-cash items such as deferred tax and intangibles.

What is T2T segment on BSE?

Trade-to-trade (T2T) or T segment on BSE is segment in which no intra-day trading is allowed for shares falling in that segment, as each trade results in delivery. Transactions placed in this segment have to be mandatorily settled on gross basis i.e. by taking or giving delivery even if you have bought and sold the shares during the same settlement cycle.

If you buy shares, you must pay the money and take delivery.

If you sell shares, you must give the delivery of shares and you will get money.

If you buy today and sell today and don't have delivery, then the sell position will go in to auction and you will have to pay heavy penalty.

What is swap ratio?

Swap ratio is an exchange ratio used in case of mergers and acquisitions. It is the ratio in which the acquiring company offers its own shares in exchange for the target company's shares. To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share, profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the merger or acquisition and so on.

For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share of its own company (company A) for every 5 shares of the company B being acquired. In other words, if company B has 10 crore outstanding equity shares and 100% of it is being acquired by company A, then company A will issue 2 crore new equity shares of company A to the shareholders of company B, proportionately.

What is STT?

Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004.

What is Short Selling and Securities Lending & Borrowing?

Short Selling means selling of a stock that the seller does not own at the time of trade. Short selling can be done by borrowing the stock through Clearing Corporation/Clearing House of a stock exchange which is registered as Approved Intermediaries (AIs). Short selling can be done by retail as well as institutional investors. Naked short sale is not permitted in India, all short sales must result in delivery, and information on short sale has to be disclosed to the exchange by end of day by retail investors, and at the time of trade for institutional investors. The Securities Lending and Borrowing mechanism allows short sellers to borrow securities for making delivery. Securities in the F&O segment are eligible for short selling.

Securities Lending and Borrowing (SLB) is a scheme that has been launched to enable settlement of securities sold short. SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same. For securities lending and borrowing system, clearing corporations/clearing house of the stock exchange would be the nodal agency and would be registered as the "Approved Intermediaries"(AIs) under the Securities Lending Scheme, 1997.

Under SLB, securities can be borrowed for a period of 7 days through a screen based order matching mechanism. Securities in the F&O segment are eligible for SLB.

What is Return on Equity (RoE)?

Return on Equity, also known as Return on Networth or Return on Shareholders Funds, indicates profitability of a company by measuring how much the shareholders earned for their investment in the company. The higher the percentage, the more efficiently equity base has been utilized, indicating better return to investors.


RoE is ratio of net income (available for equity shareholders) to average shareholders' equity.


RoE = __________________Profit After Tax__________________

Equity Share capital + Free Reserves - Miscellaneous Expd.


E.g. If net profit is Rs.100 crore, Equity share capital is Rs.100 crore, Reserves and Surplus is Rs.900 crore, Miscellaneous Expd. Nil


RoE = 100___

100 + 900


Return on Equity is 10%.

What is repo rate and reverse repo rate?

Repo or repurchase option is a means of short-term borrowing, wherein banks sell approved government securities to RBI and get funds in exchange. In other words, in a repo transaction, RBI repurchases government securities from banks, depending on the level of money supply it decides to maintain in the country's monetary system.

Repo rate is the discount rate at which banks borrow from RBI. Reduction in repo rate will help banks to get money at a cheaper rate, while increase in repo rate will make bank borrowings from RBI more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator, thus earning interest. Reverse repo rate is the rate at which RBI borrows money from banks. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest.

Thus, repo rate is always higher than the reverse repo rate

What is Record Date?

Date set by a company on which the investor must own shares, to be eligible for dividend, share split, bonus, rights issue or other capital gains as declared / announced by the company. It is the date established by the company for determining the shareholders who are entitled to receive dividend, bonus or rights shares of the company.

In this case, it is also important to know what an ex-date is. Ex-date is the date on which the seller, and not the buyer, of a stock will be entitled to a recently announced dividend, bonus or other corporate action. The ex-date is usually a business day prior to the record date, since T+2 trading cycle is followed for clearing and settlement of trades in India.

Example:

If record date for dividend is set by a company as 4th March, then those investors, whose names appear on the shareholder list of 4th March, as received by the company form the depository will be entitled to the dividend. Doing a back-calculation, for an investors name to feature in the 4th March shareholder list, he should be holding the shares two days prior to that date i.e. on 2nd March (due to T+2 cycle). Thus, those shareholders holding shares at end of day 2nd March, will be entitled to the dividend. The ex-date, in this case, will be 3rd March, a date on which the buyer will not be entitled to the dividend declared.

What is Member -Client Agreement Form?

This form is an agreement entered between client and broker in the presence of witness where the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of brokers capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of his (broker's) liability for the business to be conducted.

What is meant by 'Stoploss'?

Stoploss is a buy or sell order which gets triggered automatically, once the stock reaches a certain price. The aim here is to limit the loss on a security (buy or sell) position.

A stop order to sell becomes a market order when the item is offered at or below the specified price. E.g.: If you have bought 1 share of RIL at Rs. 1,050, you will enter stoploss order at a price below Rs. 1,050, say Rs. 1,020. If RIL share price falls to Rs. 1,020, a sell stoploss order will get triggered, which limits your loss on account of purchase to Rs. 30.

Similarly, a stop order to buy becomes a market order when the item is bid at or above the specified price. E.g.: If you have short-sold 1 share of RIL at Rs. 1,050, you will enter stoploss order at a price above Rs. 1,050, say Rs. 1,070. If RIL share price rises to Rs. 1,070, a buy stoploss order will get triggered, which will limit your loss on account of sale to Rs. 20.

There are no set rules for stoploss orders. Traders deploy very tight stoploss orders, while investors may not need it also. Advantage of stoploss is it avoids the need for constant monitoring of share price. Its disadvantage is that short-term price fluctuations could trigger stoploss orders very frequently. Also, setting very narrow stoploss for shares historically having wide price fluctuations could lead to unnecessary triggers of stoploss.

E.g.: If you bought 1 share of RIL at Rs. 1050 with stoploss of Rs. 1020. This means that if the stock falls below 1020, your stoploss order will automatically become a market order and share will be sold at the then prevailing market price, not necessarily the stoploss price. Thus setting a stoploss order below the purchase price will limit the loss, but in a very fast-moving market, losses may be higher than expected.

What is meant by 'Right of first refusal'?

Right of first refusal, abbreviated as ROFR, is the right of a person (investor) or company to purchase something before the offering is made available to others. If an investor /PE fund plans to exit the company, it is obliged to give the promoters or existing shareholders, an opportunity to buy the shares held by the PE before selling the same to a third party.

There are other rights for minority shareholders, such as:

Tag along right - contractual obligation which protects a minority shareholder in case the majority / promoter is selling out. Minority shareholder can compel stake sale of his stake along with the majority / promoter.

Drag along right - contractual right with minority shareholder to force the majority shareholder / promoter to join in the sale of the company. If minority shareholder is selling-out, it can compel majority shareholder / promoter to compulsorily offer their stake as well.

What is meant by Unique Client Code?

In order to facilitate maintaining database of their clients and to strengthen the know your client (KYC) norms; all brokers have been mandated to use unique client code linked to the PAN details of the respective client which will act as an exclusive identification for the client.

What is Margin Trading Facility?

Margin Trading is trading with borrowed funds/securities. It is essentially a leveraging mechanism which enables investors to take exposure in the market over and above what is possible with their own resources. SEBI has been prescribing eligibility conditions and procedural details for allowing the Margin Trading Facility from time to time.

Corporate brokers with net worth of at least Rs.3 crore are eligible for providing Margin trading facility to their clients subject to their entering into an agreement to that effect. Before providing margin trading facility to a client, the member and the client have been mandated to sign an agreement for this purpose in the format specified by SEBI. It has also been specified that the client shall not avail the facility from more than one broker at any time.

The facility of margin trading is available for Group 1 securities and those securities which are offered in the initial public offers and meet the conditions for inclusion in the derivatives segment of the stock exchanges.

For providing the margin trading facility, a broker may use his own funds or borrow from scheduled commercial banks or NBFCs regulated by the RBI. A broker is not allowed to borrow funds from any other source.

The "total exposure" of the broker towards the margin trading facility should not exceed the borrowed funds and 50 per cent of his "net worth". While providing the margin trading facility, the broker has to ensure that the exposure to a single client does not exceed 10 per cent of the "total exposure" of the broker.

Initial margin has been prescribed as 50% and the maintenance margin has been prescribed as 40%.

In addition, a broker has to disclose to the stock exchange details on gross exposure including name of the client, unique identification number under the SEBI (Central Database of Market Participants) Regulations, 2003, and name of the scrip.

If the broker has borrowed funds for the purpose of providing margin trading facility, the name of the lender and amount borrowed should be disclosed latest by the next day.

The stock exchange, in turn, has to disclose the scrip-wise gross outstanding in margin accounts with all brokers to the market. Such disclosure regarding margin-trading done on any day shall be made available after the trading hours on the following day.

The arbitration mechanism of the exchange would not be available for settlement of disputes, if any, between the client and broker, arising out of the margin trading facility. However, all transactions done on the exchange, whether normal or through margin trading facility, shall be covered under the arbitration mechanism of the exchange.

What is free-float?

Free-float refers to those shares which are readily available for trading in the stock market. It generally excludes promoters' holding, government / strategic holding and other locked-in shares, which will not come to the market for trading in the normal course.

E.g.: MMTC has Rs. 5 crore outstanding shares, of which 4.97 crore shares are held by the Government under promoter category. Only the balance 3.34 lakh shares comprise the free float of the company.

What is EPS?

EPS or Earnings per share, is the net profit earned by the company divided by the number of outstanding equity shares. If any preference dividend is declared, it is subtracted from the net profit.

Eg: A company earned net profit of Rs. 100 crore for FY10. It has 5 crore outstanding equity shares. No fresh issue of equity shares was made during the year, implying that the weighted average number of equity shares outstanding during the period is 5 crore.

EPS = Net profit earned during the period

Weighted average number of equity shares outstanding during the period

EPS = 100 / 5

EPS = Rs. 20

What is enterprise value?

Enterprise value (EV) is the total value of the firm, reflecting the market value of the entire business. EV is calculated as under:

Market Capitalisation

Add: Debt (secured and unsecured)

Add: Minority Interest

Add: Preference share capital

Less: Cash and cash equivalents

E.g.: If the market cap of company is Rs. 100 crore, it had debt of Rs. 40 crore and cash and bank balance of Rs. 10 crore, then the enterprise value is calculated as:

EV = 100 + 40 - 10 crore

= Rs. 130 crore

What is dividend yield?

Dividend yield is dividend to price ratio. It is the percentage calculated by dividing dividend per share by price per share. Dividend yield is used to calculate the earning on investment (shares) considering only the returns in the form of total dividends declared by the company during the year.

Dividend Yield = Interim + Final Dividend X 100

Market Price of the share

E.g.: For a company for FY10,

Interim dividend = Rs. 2 per share

Final dividend = Rs. 3 per share

Share price = Rs. 50

Dividend yield = 2 + 3

50

Dividend yield =10%

What is dividend payout ratio?

Dividend Payout ratio, or simply payout ratio, is the percentage of a company's earnings paid as dividends to the shareholders. It indicates how well the company's earnings support the dividend payment.

Dividend Payout ratio = Dividend per equity share X 100

Earnings per share (EPS)

E.g.: For FY10, a company had EPS of Rs. 10. It paid dividend of 20% (Rs. 2 per equity share of Rs. 10 each) for the year.

Dividend payout ratio = Rs. 2 X 100

Rs. 10

Dividend payout ratio = 20%

What is debt-equity ratio?

Debt-equity ratio is a measure of leverage, indicating proportion of company's total capital contributed by secured and unsecured debt. A high debt-equity ratio, generally 2:1 and above, is not considered favourable for companies. Also, this ratio varies from industry to industry.



Debt-equity ratio = Secured + Unsecured debt

Shareholders Funds


E.g.: As on 31st March 2010, company had secured loan of Rs. 70 crore, unsecured loan of Rs. 30 crore, shareholders funds (equity and reserves) of Rs. 200 crore.



Debt-equity ratio = 70 + 30

200



Debt-equity ratio = 0.5:1

What is Commercial Paper?

Commercial paper is a money market instrument issued normally for tenure of 90 days. It is a short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn't require any guarantee.

What is Capital Adequacy Ratio for banks?

Capital Adequacy Ratio (CAR), also known as Capital to Risk Weighted Assets Ratio (CRAR), is the measure of a bank's capital and is expressed as a percentage of a bank's risk weighted credit exposures.

CAR = Total Capital

Total Risk weighted assets

Total capital comprises of the bank's Tier I and Tier II capital

Total risk weighted assets takes into account credit risk, market risk and operational risk.

Currently, RBI mandates minimum CRAR of 9%, but the Government of India has mandated total CRAR of 12%, with 8% Tier I capital.

What is ASBA, with respect to IPOs?

ASBA stands for Application Supported by Blocked Amount. The facility was introduced by SEBI in July 2008 to help retail investors apply in IPOs, FPOs and rights issue of companies, with ease.

Earlier while making an application in an IPO, an investor had to pay full application money at the time of submission of the application form. In ASBA, one can make an application for shares without actually parting with the money immediately.

The amount for application money is only blocked in the account of the applicant. The money is debited from the bank account only when the basis of allotment is finalised and also only for number of shares that are finally allotted to the investor. Money blocked under ASBA is unblocked fully or partly as and when the shares are allotted or the issue is withdrawn.

Thus ASBA eliminates problems associated with delay or non-receipt of refunds. Moreover, banks continue to give interest on account as also the money blocked in the account is considered for calculating the average daily / quarterly balances. Thus, investors are saved of hassles on refund deposits while continuing to earn interest on the application money.

What is Arbitration?

Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.

What is an Auction?

The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client.

What is an Account Period Settlement?

An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday are settled together. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.

What is a 'Put' option?

Put option gives the buyer the right but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given future date.

For e.g.: Buying 1 put option of ONGC 1250 30Dec2010 comprising 250 equity shares for Rs. 15 per put, will give the buyer the right to sell 250 ONGC shares on or before 30th December 2010 at Rs. 1,250 per share, irrespective of the share price (in cash market). Since it is only a right and no obligation to sell, the buyer can let this right lapse, which will be the case when ONGC share price is more than Rs. 1,250 in cash market. In the above case, loss is limited to Rs. 15 while the gains are unlimited to the buyer.

Rs. 15 paid is termed as option premium or the cost of purchasing 1 put option containing the pre-determined quantity of the underlying i.e. 250 ONGC equity shares.

Selling a put option gives the seller the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date, when the right is exercised by the buyer. For a seller of put option, profit is limited to the premium earned while loss it unlimited, as the buyer can exercise his put option anytime till the expiry of contract.

What is a 'Call' option?

Call option gives 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.

For e.g.: Buying 1 call option of ONGC 1250 30Dec2010 comprising 250 equity shares for Rs. 80 per call will give the buyer the right to buy 250 ONGC shares on or before 30th December 2010 at Rs. 1,250 per share, irrespective of the share price (in cash market). Since it is only a right and no obligation to buy, the buyer can let this right lapse, which will be the case when ONGC share price is less than Rs. 1,250 in cash market. In the above case, loss is limited to Rs. 80 while the gains are unlimited to the buyer.

Rs. 80 paid is termed as option premium or the cost of purchasing 1 call option containing the pre-determined quantity of the underlying.

Selling a call option gives the seller the obligation to sell a given quantity of the underlying asset at a given price on or before a given future date, when the right is exercised by the buyer. For a seller of call option, profit is limited to the premium earned while loss it unlimited, as the buyer can exercise his call option anytime till the expiry of contract.

What is a Rolling Settlement?

In a Rolling Settlement, trades executed during the day are settled based on the net obligations for the day.

Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).

The funds and securities pay-in and pay-out are carried out on T+2 day.

What is a Money Market?

Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.