Capital Ship Etiquette

The captain goes down with the ship” is an idiom and maritime tradition that a sea captain holds ultimate responsibility for both his ship and everyone embarked on it, and he will die trying to save either of them. Although often associated with the sinking of the RMS Titanic in 1912 and its captain, Edward J. Smith, the phrase predates the Titanic by at least 11 years.[1] In most instances the captain of the ship forgoes his own rapid departure of a ship in distress, and concentrates instead on saving other people. It often results in either the death or belated rescue of the captain as the last person on board.
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The concept is closely related to another protocol from the nineteenth century, “women and children first.” Both reflect the Victorian ideal of chivalry in which the upper classes were expected to emulate a morality tied to sacred honour, service, and respect for the disadvantaged. The actions of the captain and men during the sinking of HMS Birkenhead in 1852 prompted praise from many due to the sacrifice of the men who saved the women and children by evacuating them first. Rudyard Kipling‘s poem “Soldier an’ Sailor Too” and Samuel SmilesSelf-Help both highlighted the valour of the men who stood at attention and played in the band as their ship was sinking.

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Social and legal responsibility

The idiom literally means that a captain will be the last person to leave a ship alive prior to its sinking or utter destruction, and if unable to evacuate the crew and passengers, the captain will not evacuate himself.[2] In a social context, especially as a mariner, the captain will feel compelled to take this responsibility as a type of social norm. Shirking this responsibility in a crisis would go against societal mores because of the offender’s lack of ethics.

In maritime law the responsibility of the ship’s master for his ship is paramount no matter what its condition, so abandoning a ship has legal consequences, including the nature of salvage rights. So even if a captain abandons his ship in distress, he is generally responsible for it in his absence and would be compelled to return to the ship until danger to the vessel has relented. If a naval captain evacuates a vessel in wartime, it may be considered a capital offence similar to desertion unless he subsequently returns to the ship at his first opportunity to prevent its capture and rescue the crew.

Abandoning a ship in distress may be considered a crime that can lead to imprisonment.[2] Captain Francesco Schettino, who left his ship in the midst of the Costa Concordia disaster, was not only widely reviled for his actions, but was arrested by Italian authorities on criminal charges.[3] Abandoning ship is a maritime crime that has been on the books for centuries in Spain, Greece and Italy.[4] South Korean law may also require the captain to rescue himself last.[5] In Finland the Maritime Law (Merilaki) states that the captain must do everything in his power to save everyone on board the ship in distress and that unless his life is in immediate danger, he shall not leave the vessel as long as there is reasonable hope that it can be saved.[6] In the United States, abandoning the ship is not explicitly illegal, but the captain could be charged with other crimes, such as manslaughter, which encompass common law precedent passed down through centuries. It is not illegal under international maritime law.

Capital Market – Derivatives


What are derivatives?
Derivatives are financial contracts, which derive their value off a spot price time-series, which is called “the underlying”. The underlying asset can be equity, index, commodity or any other asset. Some common examples of derivatives are Forwards, Futures, Options and Swaps.

Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. From a market-oriented perspective, derivatives offer the free trading of financial risks.

What is the importance of derivatives?
There are several risks inherent in financial transactions. Derivatives are used to separate risks from traditional instruments and transfer these risks to parties willing to bear these risks. The fundamental risks involved in derivative business includes:

  • Credit Risk

This is the risk of failure of a counterparty to perform its obligation as per the contract. Also known as default or counterparty risk, it differs with different instruments.

  • Market Risk

Market risk is a risk of financial loss as a result of adverse movements of prices of the underlying asset/instrument.

  • Liquidity Risk

The inability of a firm to arrange a transaction at prevailing market prices is termed as liquidity risk. A firm faces two types of liquidity risks

  1. Related to liquidity of separate products
  2. Related to the funding of activities of the firm including derivatives.

  • Legal Risk

Derivatives cut across judicial boundaries, therefore the legal aspects associated with the deal should be looked into carefully.

What are the various types of derivatives?
Derivatives can be classified into four types:

  • Forwards
  • Futures
  • Options
  • Swaps

Who are the operators in the derivatives market?

  • Hedgers – Operators, who want to transfer a risk component of their portfolio.
  • Speculators – Operators, who intentionally take the risk from hedgers in pursuit of profit.
  • Arbitrageurs – Operators who operate in the different markets simultaneously, in pursuit of profit and eliminate mis-pricing.

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Definition of ‘Credit Rating’


Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity.
Definition: Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. It is a rating given to a particular entity based on the credentials and the extent to which the financial statements of the entity are sound, in terms of borrowing and lending that has been done in the past.

Description: Usually, is in the form of a detailed report based on the financial history of borrowing or lending and credit worthiness of the entity or the person obtained from the statements of its assets and liabilities with an aim to determine their ability to meet the debt obligations. It helps in assessment of the solvency of the particular entity. These ratings based on detailed analysis are published by various credit rating agencies like Standard & Poor’s, Moody’s Investors Service, and ICRA, to name a few.


Performance  & Credit Rating Scheme


Need of a Performance and Credit Rating Mechanism for SSIs (now Micro and Small Enterprises) was highlighted in Union Budget’04-05. A scheme for SSIs (now Micro and Small Enterprises) has been formulated in consultation with Indian Banks’ Association(IBA) and Rating Agencies. NSIC has been appointed the nodal agency for implementation of this scheme through empanelled agencies.

Benefits of Performance and Credit Rating

  • An independent, trusted third party opinion on capabilities and credit-worthiness of SSIs
  • Availability of credit at attractive interest
  • Recognition in global trade
  • Prompt sanctions of Credit from Banks and Financial Institutions
  • Subsidized rating fee structure for SSIs
  • Facilitate vendors/buyers in capability and capacity assessment of SSIs
  • Enable SSIs to ascertain the strengths and weaknesses of their existing operations and take corrective measures.

Benefits to Banks and Financial Institutions

Availability of an independent evaluation of the strength and weaknesses of an SSI unit seeking credit and thereby enabling banks and financial institutions manage their credit risk

Salient Features

  • A combination of credit and performance factors including operations, finance, business and management risk
  • Uniform Rating Scale for all empanelled rating agencies.
  • SSIs have the liberty to choose among the empanelled Rating Agencies.
  • Turn-Over based Fee structure
  • Partial Reimbursement of Rating Fee through NSIC

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Long Put

The investor buys a put contract that is compatible with the expected timing and size of a downturn. Although a put usually doesn’t appreciate $1 for every $1 that the stock declines, the percentage gains can be significant. the put holder is willing to forfeit 100% of the premium paid and is convinced a decline is imminent, one choice is to wait until the last trading day. If the stock falls, the put might generate a nice profit after all. However, if a quick correction looks unlikely, it might make sense to sell the put while it still has some time value. A timely decision might recover part or even all of the investment.


The investor is looking for a sharp decline in the stock’s price during the life of the option.

This strategy is compatible with a variety of long-term forecasts for the underlying stock, from very bearish to neutral. However, if the investor is firmly bullish on the underlying stock in the long run, other strategy alternatives might be more suitable.


This strategy consists of buying puts as a means to profit if the stock price moves lower. It is a candidate for bearish investors who want to participate in an anticipated downturn, but without the risk and inconveniences of selling the stock short.

The time horizon is limited to the life of the option.


A put buyer has the opportunity to profit from a fall in the stock’s price, without risking an unlimited amount of capital, as a short stock seller does. What’s more, the leverage involved in a long put strategy can generate attractive percentage returns if the forecast is right.

Another common use for puts is hedging a long stock position. It is described separately under protective put.


These remarks are targeted toward the investor who buys puts as a standalone strategy. See the discussion on protective puts for a discussion on using long puts as a way to hedge or exit a long stock position.

Max Loss

The maximum loss is limited. The worst that can happen is for the stock price to be above the strike price at expiration with the put owner still holding the position. The put option expires worthless and the loss is the price paid for the put.

Max Gain

The profit potential is limited but substantial. The best that can happen is for the stock to become worthless. In that case, the investor can theoretically do one of two things: sell the put for its intrinsic value or exercise the put to sell the underlying stock at the strike price and simultaneously buy the equivalent amount of shares in the market at, theoretically, zero cost. The investor’s profit would be the difference between the strike price and zero, less the premium paid, commissions and fees.


The profit potential is significant, and the losses are limited to the premium paid.

Although a put option is unlikely to appreciate $1 for every $1 that the stock declines during most of the option’s life, the gains could be substantial if the stock falls sharply. Generally speaking, the earlier and more dramatic the drop in the stock’s value, the better for the long put strategy. Given that the premium investment can be small relative to the stock value it represents, the potential percentage gains and losses can be large, with the caveat that they must be realized by the time the option expires.

All other things being equal, an option typically loses time value premium with every passing day, and the rate of time value erosion tends to accelerate. That means the long put holder may not be able to re-sell the option at a profit unless at least one major pricing factor changes favorably. The most obvious would be an decline in the underlying stock’s price. A rise in volatility could also help significantly by boosting the put’s time value.

An option holder cannot lose more than the initial price paid for the option.


At expiration, the strategy breaks even if the stock price equals the strike price minus the cost of the option. Any stock price below that level produces a net profit. In other words:

Breakeven = strike – premium


An increase in implied volatility would have a positive impact on this strategy, all other things being equal. Volatility tends to boost the value of any long option strategy, because it indicates a greater mathematical probability that the stock will move enough to give the option intrinsic value (or add to its current intrinsic value) by expiration day.

By the same logic, a decline in volatility has a tendency to lower the long put strategy’s value, regardless of the overall stock price trend.

Time Decay

As with most long option strategies, the passage of time has a negative impact, all other things being equal. As time remaining until expiration disappears, the statistical chances of achieving further gains shrink. That tends to be reflected in eroding time premiums, which put downward pressure on the put’s market value.

Once time value disappears, all that remains is intrinsic value. For in-the-money options, that is the difference between the going stock price and the strike price. For at-the-money and out-of-the-money options, intrinsic value is zero.

Assignment Risk

None. The investor is in control.

Expiration Risk

Slight. If the option is in-the-money at expiration, it may be exercised on your behalf by your brokerage firm. Since this investor did not own the underlying stock, an unexpected exercise could require urgent measures to find the stock for delivery at settlement. A short stock position might be a problematic outcome for an individual investor.

Every investor carrying a long option position into expiration is urged to verify all related procedures with their brokerage firm: automatic exercise minimums, exercise notification deadlines, etc.


All option investors have reason to monitor the underlying stock and keep track of dividends. This applies to long put investors, too.

On an ex-dividend date, the amount of the dividend is deducted from the value of the underlying stock. Assuming nothing else has changed, a lower stock value typically boosts the put option’s value. The effect is foreseeable and usually gets factored more gradually, but dividend dates could nevertheless be one consideration in deciding when it might be optimal to close out the put position.

Exercising a put would result in the sale of the underlying stock. These comments focus on long puts as a standalone strategy, so exercising the option would result in a short stock position, something not all individuals would choose as a goal. The plan here is to resell the put at a profit before expiration. The investor is hoping for a dramatic downturn; the sooner, the better.

Timing is of the essence. Some put holders set price targets or re-evaluation dates; others ‘play it by ear.’ Either way, all value must be realized before the put expires. If the expected results have not materialized as expiration draws near, a careful investor is ready to re-evaluate.

Long Put

Net Position (at expiration)


Long 1 XYZ 60 put


Strike price – premium paid


Premium paid

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