Option Trading - Pricing, Greeks, Softwares (India), Open Interest, PCR, Implied Volatility, Cost of Carry

Option prices can change due to directional price shifts in the underlying asset, changes in the implied volatility, time decay, and even changes in interest rates. Understanding and quantifying an option's sensitivity to these various factors is not only helpful -- it can be the difference between boom and bust.

The Greeks are risk measures that can help you choose which options to buy and which to sell. With options trading you must have an idea of the direction of the underlying as well as a view of the direction of implied volatility, and then factor in the timing.

The Greeks help you tailor your strategy to your outlook. Spreads, for instance, can help option buyers reduce theta and vega risk. Understanding the Greeks gives you even more of an edge in this zero sum game of options trading

Delta

Delta is a measure that can be used in evaluating buying and selling opportunities. Delta is the option's sensitivity to changes in the underlying stock price. It measures the expected price change of the option given a $1 change in the underlying.

Calls have positive deltas and puts have negative deltas. For example, with the stock price of XYZ at $21.48, let's say the XYZ Feb 22.5 call has a delta of .35. If XYZ goes up to $22.48, the option should increase by $0.35.

The delta also gives a measure of the probability that an option will expire in the money. In the above example, the 22.5 call has a 35 percent probability of expiring in the money (based on the assumptions of the Black-Scholes model). 

But note: This does not give us the probability that the stock price will be above the strike price any time during the options life, only at expiration.

Delta can be used to evaluate alternatives when buying options. At-the-money options have deltas of roughly .50. This is sensible, as statistically they have a 50 percent chance of going up or down. 

Deep in-the-money options have very high deltas, and can be as high as 1.00, which means that they will essentially trade dollar for dollar with the stock. Some traders use these as stock substitutes, though there are clearly different risks involved.

Deep out-of-the-money options have very low deltas and therefore change very little with a $1 move in the underlying. Factoring in commissions and the bid/ask spread, low delta options may not make a profit even despite large moves in the underlying. Thus we see that comparing the delta to the options price across different strikes is one way of measuring the potential returns on a trade.

Option sellers also can use the delta as a way to estimate the probability that they will be assigned. Covered call writers usually do not want to be assigned and so can use the delta to compare the probability with the potential return from selling the call.

Advanced traders often use "delta neutral" strategies, creating positions where the total delta is close to zero. The idea is these positions should profit regardless of moves up or down in the underlying. This approach has its own risks, however, and generally requires frequent adjustments to remain delta-neutral.

To review, delta is the option's sensitivity to the underlying price. The delta tells us how much an options price will change with a $1 move in the underlying. At-the-money options have a delta of roughly .50 and therefore will change roughly $.50 for every $1 change - up or down - in the underlying stock.



Theta

Theta is the option's sensitivity to time. It is a direct measure of time decay, giving us the dollar decay per day. This amount increases rapidly, at least in terms of a percentage of the value of the option, as the option approaches expiration. The greatest loss to time decay is in the last month of the options life. The more theta you have, the more risk you have if the underlying price does not move in the direction that you want.

Option sellers use theta to their advantage, collecting time decay every day. The same is true of credit spreads, which are really selling strategies. Calendar spreads involve buying a longer-dated option and selling a nearer-dated option, taking advantage of the fact that options expire faster as they approach expiration.

We can look at JDS Uniphase (JDSU) as an example. Going into earnings, the implied volatility was highest for the May options, up at 64 percent. Theta for the at-the-money calls was -.04 and for out-of-the-money calls was -.03. June options had an implied volatility of 50 percent and the theta the ATM calls was -.02 and for OTM calls was -.01.

Thus a calendar spread consisting of buying a June call and selling the May call would give you a positive theta of +.02. Whereas simply buying a May ATM call would give you a theta of -.04.

A JDSU May ATM call spread against an OTM call (a vertical spread: buying ATM, selling OTM) would gives you a theta of -.01, still negative, but much reduced.


Vega

Vega is the option's sensitivity to changes in implied volatility. A rise in implied volatility is a rise in option premiums, and so will increase the value of long calls and long puts. Vega increases with each expiration further out in time.


Gamma

The gamma metric is the sensitivity of the delta to changes in price of the underlying asset. Gamma measures the change in the delta for a $1 change in the underlying. This is really the rate of change of the options price, and is most closely watched by those who sell options, as the gamma gives an indication of potential risk exposure if the stock price moves against the position.



Rho

Rho is the option's sensitivity to changes in interest rates. Most traders have little interest in this measurement. An increase in interest rates decreases an options value because it costs more to carry the position.


Using the Greeks to Buy a Call

Buying stock is a relatively easy process. If you think it is going up, you buy it. But when using options, there are several additional layers of complexity and decisions to be made - what strike?, which expiration? We can use the Greeks to help us make these decisions.

First we can look at the delta. The at-the-money call will have a delta of .50. This tells us two things. One, the option will increase (or decrease) by $.50 for every $1 move in the underlying stock. If a stock is trading for $25 and the 25 strike call (delta of .50) is trading for $2, then if the stock goes to $26, then the option should be worth roughly $2.50.

Out-of-the-money calls will have a delta of less than .50 and in-the-money calls have a delta greater than .50 and less than 1.

Two, the delta tells the probability of expiring in the money. A deep-in-the-money call will have an option close to 1, meaning that the probability that it will expire in the money is almost 100 percent and that it will basically trade dollar for dollar with the stock.

Theta is greatest for the near-term options and increases exponentially as the call approaches expiration. This works against us in buying short-dated options. It also gives us the least amount of time for our position to work out. Buying longer-term options - at least two to three months longer than we plan on holding the option - usually makes sense from this perspective.

We must balance this out with the Vega of the call. The further out in time you go out, the higher the Vega. The practical import of this is that if you are buying options with higher implied volatility (often the case before earnings, or when professional money managers are purchasing in big blocks), you have more exposure using those longer-dated options.

So, we are still left with the question of which option to buy. The answer, as with most things, is which one will give you the most bang for the buck. First, for any given underlying, look for the option with the lowest implied volatility. This will have the lowest relative theta and Vega exposure, and will be the best return on investment.

The next step is to do a comparison of the delta, theta and Vega relative to the actual options price. Deep-in-the-money calls have the highest delta and lowest theta and Vega, but they are probably not the best compared to the price of the option. They also have the most total capital tied up and thus at risk.

Far out-of-the-money options, on the other hand, can also have low Vega and theta, and always have a low delta, but again, those values may not be the best relative to the price of the option. And their probability of profit is very low.

"Near the money" options, two to three months out (depending on how long you want to hold the option) usually provide the best relative delta, theta, and vega compared to the price of the option - the most bang for the buck.

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List of Software for Trading

Amibroker :- Live Chart (Data Vandor GDFL )

Trend Following System
MetaStock :- EOD Data stock-based analysis
Ninja Trader:- GDFL Intraday Option Trading

Trading View: Web based platform for stock based analysis (real time feed is 1 minute delayed)

Based on VWAP & Order Flow
Fox Trader
Trade Tiger:- Trade D&S Setup

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THE TALE OF OPEN INTEREST

As the name suggests, Open Interest (OI) is the INTEREST that is OPEN. What is INTEREST? INTEREST is the POSITIONS of TRADERS. And What is OPEN? OPEN means OUTSTANDING. So, OPEN INTEREST means POSITIONS of TRADERS which are OUTSTANDING and not yet squared off. There are only two type of positions that a trader can take in the market. LONG & SHORT. Now, since for every LONG there is a SHORT and for every SHORT there is a LONG, so we don't count OI as LONG + SHORT but either TOTAL LONGS or TOTAL SHORTS. They both would always be equal. So, as I said OI is a number that tells you how many futures (or Options) contracts are currently outstanding (open) in the market. So, Let us say the seller sells 1 contract to the buyer. The buyer is said to be LONG on the contract and the seller is said to be SHORT on the same contract.  The open interest in this case is said to be 1 not 2.

HOW CAN YOU JUDGE BULLISHNESS OR BEARISHNESS WITH OI DATA

1.) If PRICE is rising and OI is rising, it means market is STRONGLY BULLISH.

DESCRIPTION: If PRICE and OI both are rising, it means that ever new contract that is being added is dominated by bulls, that's why PRICE is rising with every new contract addition. Never think that since PRICE is rising, more LONGS are being created than SHORTS. LONGS will always be equal to SHORTS just that LONGS are dominating SHORTS in the transaction, that is why PRICE is rising. See, it's like a normal share transaction. Number of shares bought is ALWAYS EQUAL to number of shares sold. Then why PRICE rises or falls? It does so because of buying pressure or selling pressure. So, if buyers of a share are dominating the sellers, PRICE will rise and if sellers are dominating the buyers, PRICE will fall. But BUYERS will always be equal to SELLERS. So,, OI is rising, means new contracts are being added. But since PRICE is rising with it, it means that LONGS are DOMINATING the transactions. Thus, market/share is STRONGLY BULLISH.

2.) If PRICE is rising but OI is falling, it means market is WEAKLY BULLISH.

DESCRIPTION: If PRICE is rising but OI is falling, it means that the rise in price is due to SHORT COVERING and not bullishness. See why is OI falling? It's falling because positions are being squared off and number of open contracts in the market are reducing. But since PRICE is rising with it, it means that SHORTS are SQUARING OFF and dominating LONGS in the transaction. See, how would SHORTS square off? They will square off by BUYING. That is why PRICE is rising. So, PRICE is not rising because LONGS are dominating. It is rising because SHORTS are dominating the squaring off process. Thus, it can not be called BULLISH. It is WEAKLY BULLISH. It can be a TRAP for new LONGS.

3.) If PRICE is falling, OI is rising, market is STRONGLY BEARISH.

DESCRIPTION: If price is falling and OI is rising, it means that SHORTS are dominating the LONGS. And since OI is rising, it means that new contracts are being added. But, since price is falling, it means the new contracts which are being added are dominated by SHORTS not LONGS. Hence, it is STRONGLY BEARISH.

4.) If PRICE is falling and OI is falling, market is WEAKLY BEARISH.

DESCRIPTION: If PRICE is falling and OI is falling, it means that the fall in price is due to LONG COVERING or also called LONG UNWINDING. See why is OI falling? It's falling because positions are being squared off and number of open contracts in the market are reducing. But since PRICE is falling with it, it means that LONGS are SQUARING OFF & dominating SHORTS in the transaction. See, how would LONGS square off? They will square off by SELLING. That is why PRICE is falling. So, PRICE is not falling because SHORTS are dominating and creating new positions. It is falling because LONGS are dominating the squaring off process. Thus, it can not be called BEARISH. It is WEAKLY BEARISH. It can be a TRAP for new SHORTS.

DISTINCTION BETWEEN VOLUME & OI

Just remember, volume is number of contracts traded and OI is number of outstanding contracts which are not squared off.

Let's summarize these with an easy-to-read chart:

Price                       Volume                   Open Interest                 Market

1.Rising                   Up                            Up                                   Strong

2.Rising                   Down                       Down                               Weak

3.Declining               Up                           Up                                   Weak

4.Declining               Down                      Down                               Strong


In other words,

Relationship between Price and Open interest

Price	OI	Position
UP	UP	Long
Down	UP	Short
UP	Down	Short Covering
Down	Down	Long Unwinding

 
Cumulative Open Interest - (COI) - OI of near month Future + OI of mid month Future + OI of far month Future

RULES OF OPEN INTEREST::

1. If prices are rising and open interest is increasing at a rate faster than its five-year seasonal average, this is a bullish sign. More participants are entering the market, involving additional buying, and any purchases are generally aggressive in nature.

2. If the open-interest numbers flatten following a rising trend in both price and open interest, take this as a warning sign of an impending top.

3. High open interest at market tops is a bearish signal if the price drop is sudden, since this will force many 'weak' longs to liquidate. Occasionally, such conditions set off a self-feeding, downward spiral.

4. An unusually high or record open interest in a bull market is a danger signal. When a rising trend of open interest begins to reverse, expect a bear trend to get underway.

5. A breakout from a trading range will be much stronger if open interest rises during the consolidation. This is because many traders will be caught on the wrong side of the market when the breakout finally takes place. When the price moves out of the trading range, these traders are forced to abandon their positions. It is possible to take this rule one step further and say the greater the rise in open interest during the consolidation, the greater the potential for the subsequent move.

6. Rising prices and a decline in open interest at a rate greater than the seasonal norm is bearish. This market condition develops because short covering and not fundamental demand is fueling the rising price trend. In these circumstances money is flowing out of the market. Consequently, when the short covering has run its course, prices will decline.

7. If prices are declining and the open interest rises more than the seasonal average, this indicates that new short positions are being opened. As long as this process continues it is a bearish factor, but once the shorts begin to cover it turns bullish.

8. A decline in both price and open interest indicates liquidation by discouraged traders with long positions. As long as this trend continues, it is a bearish sign. Once open interest stabilizes at a low level, the liquidation is over and prices are then in a position to rally again.

 REFERENCE

1. On Momentum - Martin Pring

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1   Open Interest

This is the total number of outstanding positions in the futures and options market, or the unsettled contracts, at the end of the day. It is the most widely tracked indicator and is reported in real time. When seen in conjunction with the stock price, it can be a good indicator for buying or selling.

Put to Call Ratio

It is a useful indicator to gauge the market sentiment and is calculated by dividing the volume of all puts traded on a given day by the volume of calls traded on that day.

3Implied Volatility

It is the expected volatility of a stock (or index) and is derived using the option price or option premium. It is expressed as a percentage of the stock price and is calculated on an annualized basis. Typically, the higher the implied volatility, the higher the option premium, and vice versa. So, if you are an option writer, the options with rising implied volatility will be beneficial as they will command a higher premium. If you are an option buyer, you should look for options with falling implied volatility.

4 Cost of Carry

It's the cost of holding a position. A rising cost of carry indicates buying pressure, whereas a falling cost of carry signals bearishness. For a stock, it's calculated by using the risk-free rate. So, if one pays Rs 50,000 to buy a futures contract for three months, the carrying cost will be the interest one would have earned if this sum were to be deposited at risk-free rate.

Taking this rate, or 10-year government bond yield rate, at 8% per annum, the carrying cost for holding futures for three months is Rs. 875 (50,000 X 8%) x (3/12). The futures price is calculated by adding the cost of carry to the spot price

Types of Exchange Orders - GTD

Good Till Date Order

A Good till Date (GTD) order allows you to place an order that remains in the queue in the exchange up to a specified date, until it is fully filled, specifically cancelled, or when the stock is delisted or expired. GTD orders can be specified up to a maximum of 30 calendar days from the day the GTD order is placed.

Types of Netting - Contra Netting, Amalgamation Netting

Contra Netting in Asian Markets

For Singapore and Malaysia markets, buy positions have to be paid or sold off (Contra) latest by the due date (Settlement Date), failing which the company shall at its discretion force-sell the unpaid purchases. 

You should not sell any unpaid purchases after the due date. If you are selling off your outstanding purchases after the due date results in a short position that is bought in by stock exchange authorities, any losses arising will be debited to your account.

Auto-Contra policy

If you have selected cash as the payment mode for your sell orders and at the same time, there is a corresponding outstanding buy contract, the broker will auto-contra against your outstanding buy contract regardless of quantity, on a “first-in-first-out” basis. 

The Setoff will be reflected in the settlement currency of the buy contract.

Contra / setoff will be applied on trades in foreign securities exchanges will only apply to intra-day trades of the same securities (i.e. buy and sell on the same trade date).

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What is Amalgamation Netting?

The amalgamation option allows you to combine your orders based on your average traded price. Instead of incurring a minimum brokerage charge for each order, you can save on your brokerage fee by combining all your trades.

The following conditions apply when using amalgamation option:

You must have indicated “Yes” flag for amalgamation on all contracts
The amalgamated trades must be of the same trading day
The amalgamated trades must be of the same stock
The amalgamated trades must be of the same settlement currency
The amalgamated trades must be of the same action (e.g. buy action amalgamates with another buy action)
The amalgamated trades must be the same payment mode

Trading - Notes of various facets

I had written this piece long time back. Was going through and found it very relevant for the times. As such putting it up with some changes.

We have, in general heard of a large number of successful investors who have made lot of money by investing right over long periods of time. However we rarely hear of very successful traders. Some of the successful ones have done very well but that has been out of discipline and taking positions that they can afford to take.

Historically I have not been a very good trader myself as I have focused on long term investing and have found it easier to pick out long term winners. However over the last few years I have also been trading and out of my empirical experience the key features to be successful in trading are the follows.

1. Every trader needs to put a limit or value on the amount of trading that he or she will do per call. Now trading being very different from investing requires that emotions or long term view of a stock or commodity not being attached to a trading position. Since that is the perspective with which one starts operating I normally recommend that every trading position should be take with an equal value. What this essentially means is that you are totally taking out any biases from your trading position. For example for the long run one might be more positive on ICICI Bank rather than Reliance Industries. As such in the investment book one should buy more of ICICI and less of Reliance. However when one is trading on the two the positions should be equal.

2. Now once a position has been taken Trading requires one to be disciplined on the STOP LOSS most of all. The reasons for this are that Trading essentially is impact by several short term factors which Long Term Investing can ignore. An example of this was seen last week when RBI unexpectedly cut interest rates. This created a huge rally in interest rate sensitive stocks. Now as a Trader if this event led to your stop loss getting triggered then please honour that stop loss. The other factor here is that even a very successful Trader will atmost have 70-75% of right calls. Now if there are disciplined stop loss levels which are adhered to then in a majority of cases you are making money and overall will make money. Stop Loss levels in trading normally should be a fraction of the Profit Booking levels. As such if a trading position is taken at Rs 100 and the profit booking level is 120 then the Stop Loss has to be 95 and not 80. The logic here is simple; in trading you will go wrong several times due to unexpected events. These could be domestic, international, macro or micro. Under the circumstances it’s important that you exit the losing positions fast and ride the profit.
We have seen how markets have reacted to developments that unfolded after China decided to devalue the Yuan. This was unexpected and as such such an event required a trader to stick to basics.

3. So then how to operate on the profit side. Even on profits discipline is required. The reasons for this are simple. In the stock markets the more the price moves up the more confident are market participants on the direction of the move. Here again a trader needs to keep emotions away. Take the profits when they come. In some circumstances where you really do not want to do that and want to try to ride the move further it’s important to have a trailing stop loss. For example if a stock was bought at Rs 100 with a target of Rs 120 and the price moves above Rs 120 very fast and reaches Rs 125 then the trader needs to keep a trailing stop loss at Rs 120. Now if the stock rises further then it is great. However if the move falters that original profit level of Rs 120 is protected.

4. Do not try to recover the losses by taking excessive risks; Now there will be lot of circumstances where a few trading calls would have gone wrong one after the other. This can happen in both trending markets (where calls are taken against the trend) and whipsawing markets (where the trend keeps on changing). In these circumstances when a trader has made losses one after the other the tendency is to take bigger positions, higher risk to immediately recover the losses. However this is the worst thing to do. It’s best to step back in such a situation, let things settle down and come back to trading with discipline.

5. Profits made out of trading ideally should not be used to increase the quantum of trading positions but ideally to deploy the profits in longer term investments which will grow over time. I have seen several traders who have done well in short periods of time, increased their trading and as a result not only lost out the profits but also gone into losses. If your net worth increases over a period of time the quantum of trading can be increased but with the same discipline which was there earlier.

I will now conclude this piece by adding that most of the people who ask questions from me or come for advice tend to veer towards doing more trading. Under the circumstances it’s difficult for me to build up discipline in everyone. As such the above mentioned rules could be helpful. Ideally the money deployed towards trading should be a smaller part versus that deployed in long term investing where, with the right picks it’s difficult to go wrong. For the trader the following saying is most relevant

When facts change, I change my mind . What do you do sir? - J M Keynes

--- Article by Sandeep Sabarwal and shared on Facebook. Additions made to the article are based on my experience.

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Right Mental Models - Investors greatest asset

A study in their investment pattern shows that Mutual Fund investors generally increase inflows after observing periods of strong performance. They buy at high prices when future expected returns are lower, and they sell after observing periods of poor performance when future expected returns are now higher.
This results in what author Carl Richards called the “Behavior Gap,” in which investor returns are well below the returns of the funds in which they invest. 

Perhaps with this observation in mind, Warren Buffett once remarked, “The most important quality for an investor is temperament, not intellect.” 

In his wonderful book “The Behavior Gap,” Richards recommends asking three questions before you make investment decisions based on your own or someone else’s forecast:

1. If I make this change and I am right, what impact will it have on my life?

2. What impact will it have if I am wrong?

3. Have I been wrong before?

Asking and honestly answering those questions should have you acting more like Buffett (who recommends against trying to time the market, but tells those who do it to buy when others are panicked sellers) and less like the majority of investors who are engaging in behavior, destructive to their portfolios.

When Carl talks about the behavior gap what he is referring to is the difference between Investment returns and Investor returns. The difference between these two is where our actions, behaviour and emotions come into play.

In fact, according to Vanguard founder John Bogle, the average equity mutual fund investment gained 173% from 1997 to 2011, but the average equity mutual fund investor earned only 110%. This is because we let our emotions control our investment decisions. This is our Behavior Gap.

Few lessons mentioned below would be helpful for anyone who wishes to deal with this 'Behaviour Aspect' in case of making Investment.

Lesson 1: Be honest with yourself.

We must be able to admit which emotion we succumb to more often, fear or greed. If you are nervous anytime the stock market corrects, it’s fear. If you can’t stand to sit out of a rising market and you are an aggressive investor, it’s greed. Make sure you know which one affects you more and develop an investment plan accordingly because using them both can cause you to sell at the bottom when you are scared and buy at the top when you are greedy.You also need to understand that there are countless unknowns in the markets and economies you invest in. Knowing that factors are out of your control will help you make corrections to your process and adapt when your circumstances change.

We also must admit that there is no perfect investment out there. Coming to this realization can relieve a lot of stress from trying to be right all of the time. One of the reasons Money Managers constantly try to beat the market through active investing is the fact that they cannot be honest with themselves 
about the alternatives. This is even though countless studies show that over the long-term the majority of active managers don’t beat simple index funds.


Lesson 2: The beauty of simplicity.

We’ve all heard the phrase that less is more. But no one likes to use the simple choice. We assume that the complex investment strategy will work over the simple one because the really smart investment managers must have a good reason for charging such high fees for their investment ideas. Try not to over-think your finances. Simple is better for your long-term results and much easier to understand.

Here are some great lines from the book about keeping things simple:

“Being slow and steady means you’re willing to exchange the opportunity of making a killing for the assurance of never getting killed.”

“Slow and steady capital is short-term boring.  But it’s long-term exciting.”

“We often resist simple solutions because they require us to change our behavior.”

Most people look for the complex investments or solutions to their problems because it is easier than making meaningful behavioral choices. That’s why there are new fad diets and infomercial exercise equipment every year that offer to solve our health problems without mentioning that eating right and consistent exercise is the simple way to go about losing weight.


Lesson 3: Happiness is the key emotion.

We often talk about fear and greed being the investor’s two biggest enemies when investing. They cause you to buy high and sell low. But how do you combat these two irrational decision-makers? After reading this book it would seem to be happiness.

The book discusses a study that shows that having a good family life leads to more personal happiness than professional success does. Another study shows that money has a diminishing return on happiness up to around $75,000 a year in salary. So while money can buy some happiness, it only does so up to a certain point.

Carl goes on to discuss how most financial decisions are really just life decisions. Thinking in those terms could really change the way you view your money and your life. It helps to decide what it is that you really want to accomplish to make you happy by setting goals and focusing on why you would like to achieve them.


Lesson 4: We all make mistakes.

When dealing with complex investments and markets we are bound to make mistakes. Even the best investors do so on a regular basis. One of the most refreshing lessons I have picked up from reading Warren Buffett books and annual shareholder letters over the years is the fact that he admits to his mistakes and doesn’t shy away from them. He tries to learn from them.

Carl admits to some of his biggest financial mistakes in this book. He talks about having the discipline of staying out of technology stocks in the late- 1990s tech bubble right up until 1999 when he finally capitulated. The stock he bought shot up immediately but within months came back down to Earth and he 
suffered a large loss. But he learned from the experience and uses it as a teaching point to this day.

Don’t trust advisors that never admit their mistakes and are always blaming others either. It’s not investments that make mistakes but investors. It feels good to take credit for good investments but blame someone else when they go bad. Admit that mistakes happen and move on.


But What About Tactics?

You will eventually need the correct tactics to actually implement your process so I don’t want you to think I am downplaying that part of your investment plan. You need to open the correct accounts, set your asset allocation based on a number of factors, choose funds or securities to invest in and monitor your performance along the way.

But without the correct perspective on your finances and emotions it will be much harder to implement any of those tactics without committing mistakes that the majority of investors make on a regular basis (letting fear and greed take over, making decisions based on those emotions and not having a plan in place to aid in the decision-making process).

The Behavior Gap tells us that financial plans are worthless but the process of financial planning is extremely important. A plan assumes you know what’s going to happen in the future. Which we all know is next to impossible. But consistent planning assumes you admit things will be unpredictable and act accordingly.

A financial crisis can be hard to predict, let alone prevent. Just ask the Federal Reserve. Yet we all spend countless hours worrying about the next economic or stock market meltdown. We don’t spend quite as much time preparing for a personal financial crisis that you have much more control over.

Focus on the slow and steady long-term and avoid making decisions based on short-term emotions. Specific financial advice could be obsolete in a matter of hours, days or weeks while the correct perspective can last you a lifetime.

Here are some other questions you should ask yourself if you believe that you’re best served by being your own advisor.

1. Do I have the temperament and the emotional discipline needed to adhere to a plan in the face of the many crises I will almost certainly face?

2. Am I confident that I have the fortitude to withstand a severe drop in the value of my portfolio without panicking?

3. Will I be able to re-balance back to my target allocations (keeping my head while most others are losing theirs), buying more stocks when the light at the end of the tunnel seems to be a truck coming the other way?


As you consider these questions, think back to how you felt and acted after the events of Sept. 11, 2001, and during the financial crisis that began in 2007. 

Experience demonstrates that fear often leads to paralysis, or even worse, panicked selling and the abandonment of well-developed plans. When subjected to the pain of a bear market, even knowledgeable investors fail to do the right thing because they allow emotions to take over, overriding the brain.

P.S - Acknowledge the various websites from where I have collected this Information and represented it.

How to download Employee Provident Fund Passbook (EPFO)

Please refer to this link to download your EPFO (Employee Provident Fund) passbook to check whether your organization is doing it as expected.

http://members.epfoservices.in/index.php

You have to register and then you can download the passbook. All links work well.

Please spread the word too.. 

Statuatory Reporting - Dodd-Frank Reporting

Dodd-Frank Reporting

Dodd-Frank Trade Reporting is used to ensure transparency, accuracy and accountability in reporting.


While Dodd-Frank is a U.S. regulation under the supervision of the Commodities Futures Trading Commission (CFTC), any financial institution doing business with a U.S. bank will need to comply.

Hot on the heels of Dodd-Frank is a regulation in Europe called EMIR, the European Market Infrastructure Regulation, which applies to members of the European Union. EMIR is phasing in during the latter half of 2014 and like Dodd-Frank will require trade reporting for Over the Counter (OTC) Derivatives. Although U.S. requirements specify same day reporting, the European version will be a T+1 implementation.

Regulation is being specified across many parts of the world by the countries that are members of the Group of 20 (G20) global economic and financial initiative.


There are four main themes associated with this regulation:
a. Market transparency
b. Systemic risk
c. Regulatory complexity
d. Straight-through processing.


Each of these four themes will have an impact on business and will require changes in technology to support them.

Market transparency improvements will be stressed by the expected migration of OTC trading relationships to electronic venues and increasing trade volumes. It will have a capacity planning challenge as it plans to handle vast data volumes at the same time as delivering the transparency required by the business.

Systemic risk reduction will require greater connectivity and aggregation of data from multiple locations by IT in order to support the business’ requirements for increased capital, clearing and margin.

Regulatory complexity will grow as more jurisdictions come into play and the onus will be on IT to implement a rule-based approach to ensure that the right dealers are cleared with the appropriate regulator.

Straight through processing will demand more efficiency from the business as IT handles the movement from batch to real-time at the same time the reporting windows continue to shrink.


It’s back to the three “R”s. 

The first “R” corresponds to real-time monitoring of trading activities. You will need to ensure that your firm complies with regulatory obligations and be able to follow up on all reporting errors and false positives, as fast as technologically possible. 

The second “R” is about reconciling positions across all legal entities. This means reporting and preventing problems such as over, under and misreporting.

The final “R” handles responding to requests for information from regulators about issues that impair operations, trading or other critical functions. This necessitates a real-time and historical query function for the business to search for swaps that meet certain criteria.

Swap dealers are required to report all Swaps to a Swap Data Repository (SDR) within 30 minutes of execution and when trades are rejected, they must be corrected and resubmitted within that same time span. The challenge for these organizations is to ensure compliance and detect potential breaches in responsibility before they happen. The situation increases in complexity as EMIR goes live. Multinational banks will need to comply with both sets of regulations. These banks will need real-time visibility in order to overcome these continuously evolving challenges.

As more jurisdictions come online such as the Depository Trust Clearing Corp. (DTCC), CME and international regulators, the trade reporting process will increase in complexity. When there are multiple Swap Data Repositories (SDRs) there will need to be logic to be sure the correct SWAP was sent to the appropriate SDR. And, then there is the issue of time zones and calendaring necessary to handle multiple reporting windows. You will need both time and event-based service level agreements (SLAs) along with understanding of country-specific holiday calendars in order to be sure reporting occurs within the required window

Anyone who believes they have completed their monitoring implementation for Dodd-Frank Trade Reporting must be mistaken as the rules are lacking in clarity and in flux. But, what is clear is the need for improved visibility and the capability to correlate in real-time each activity in the lifecycle of a reportable trade. Taking this approach will help ensure compliance and enable you to take the appropriate action to maintain it.

PS- This article has been reproduced from the various articles available.

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