Posts

Why the price change in future and option differs?

Future price is based on a future delivery date of an instrument. Accordingly a dealer who's selling a future, can hedge his position by buying the underlying equity position. He has to borrow money at the risk free rate in order to do this. So the cost of hedging is generally just the interest rate charged for the period of the future position. On the other hand, an option's pay off is based on the price of the underlying stock. Hence you will see that the underlying price for an option will be different compared to the price of the future. One has to be aware that an option can be based off of a future, in which case both the future, and the option will be pointing to the same instrument for settlement. Although in general the future price should be higher than the spot price, there are cases where it will be lower than the spot. This generally happens due to supply-demand mismatch, and when there's serious issue with the viability of a company. Especially in the Ind...
Post a Comment
Read more

INVITs and REITs as an alternative to Equities in India

Image
SEBI has been generous enough to allow some new asset classes compete for investors' money in India. Many people are aware of REITs, but has anyone heard of INVITs? Well, they are very similar except they focus on other infrastructure asset classes like roads, power grids, transmission lines, and any other large scale assets with long term contracts. The INVIT managers are mandated to return at least 90% of their free cash flow to the investors on at least a bi-annual basis; most Indian INVITs have been distributing on a quarterly basis. For the uninformed, you could think about these instruments as annuities. Their cash flows are guaranteed by cash flows from toll collection, or transmission line payments. The first public INVIT was launched on May 18th, 2017 by IRB. The second public INVIT was launched by Sterlite just a couple of weeks later. And about a year back the first REIT was launched by EMBASSY. So, we thought it was a good time to do some analyses of these instruments....
Post a Comment
Read more

Is Yes Bank worth a nibble?

Yes bank is one of the most talked about financial institution in India. Only the bravest of them could put up with this kind of volatility. But, is it worth your money now? That’s a million dollar question. What with so many head fakes and so much speculation around capital raise, this might just be the investment of the year for the patient investor for several reasons: Much of NPA has already been recognized. If anything many of the legacy NPA’s are getting closer to resolution (Essel Group, CCD to name a few), which would mean money coming in. The old management is gone, replaced with professionals with global experience. Ex-Deutsche Bank CEO (Anshu Jain) is helping with the fund raising. RBI is completely aware of the inner workings of the group with an RBI appointed board member. Indian economy seems to be in the mend with early signs of growth shoots. Yes has a fairly strong retail franchise, and management was clear in its previous conf call that additional capital is ...
Read more