Operating Market -- Not so Capital Intensive!!!

Its 13.43 on 9th july, 2007.

Here is the Jet Airways Futures info...

ymbol Code : Expiry Date : 26-Jul-200730-Aug-200727-Sep-2007 NSE Cost To Carry

F&O-GET QUOTE

CONTRACT : FUT-JETAIR-26-Jul-2007 EXCHANGE : NSE LAST TRADED DATE : 09-Jul-2007 LAST TRADED TIME : 13:43:52

LAST TRADE PRICE : 782.25 BEST BID PRICE : 781.10 DAY OPEN : 780.00 BEST OFFER PRICE : 782.70 DAY HIGH : 789.50 BEST BID QTY : 400 DAY LOW : 773.10 BEST OFFER QTY : 400 PREVIOUS DAY CLOSE : 778.10 HIGH PRICE RANGE : 933.75 % CHANGE : +0.53 LOW PRICE RANGE : 622.50 QUANTITY TRADED : 148400 Spot Price : 796.25

Total No of Contracts traded = 148400/400 --> 371...

Margin for a Single Contract is 40k Minimum.. average 50k..

So total margin with the brokers for all these 371 Contracts is 371*50k = 1.855 Cr..

Thats it ..1.855 Cr..is the amount needed to trade all the contracts.. now for someone to ensure that the price moves up today.. he would be just required to take a buy position in 50 -60% of the trades.

A question may arise, how did we decide that it has be 50%-60% of the trade?

Now this percentage may depend upon many things, Chiefly among them..

1. The movement of the share price that would have happened, in the absence of any manipulation
2. General Market movement on the day -- it woud be expensive to drive a stock price against both of these factors..

So on this day the global markets were up, the crude was also up.. so the operator had to fight just one factor and hence comes the no 50-60%..
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Now how do traders plan their trade that they don't become a victim of the operator?

The trader should participate only once he finds there is significant room for profit making.. i.e he should keep high margin of safety or not trade at all..

For eg. if the stock price is up the above case earlyin the morning.. then it would be a case of clear mispricing.. as the global oil prices have increased and exchange rate has been pretty stable..

so a trader who trades on Public info.. may resist from jumping to short it.. he may set a significantly higher price target for shorting so as to enhance his margin of safety against the operators. so he can wait untill his destined price target is achieved.

Also he may .. move with the operator on this front and come out and buy himself.. this would then be a classical case of "Greater Fool Theory". This would however be a poor strategy and can result in a loss.

So "Margin of Safety" is the priniciple to be followed.. whether one is trading or Investing.