Learn contract specs, lot size, expiry

5.1.2 · Stock-Market › Futures

Standardization kyun? Kyunki exchanges ko liquidity chahiye — hazaron traders ek HI contract buy aur sell karte hain. Agar sab apni custom terms negotiate karte, tum buyers aur sellers ko quickly match nahi kar sakte.

Core Components of Contract Specifications

Ye specs exchange dwara publish ki jaati hain (India mein NSE, BSE; US mein CME, CBOE) aur retail traders ke liye non-negotiable hoti hain.

###1. Lot Size: The Building Block

$\text{Position Value}=\text{Number of Contracts}\times \text{Lot Size}\times \text{Current Price}$

First principles se derivation:

• Lot size kyun exist karta hai? Liquidity aur margin calculation ke liye contract size standardize karne ke liye.
• Ise kaise set kiya jaata hai? Exchanges ka aim hota hai ki Indian equity futures ke liye ek contract ki value (notional) ₹5-15 lakhs ho. Agar Reliance ₹2,500/share pe trade kare, toh lot size 250 shares ho sakti hai taaki ₹6.25 lakh notional mile.

Example: Nifty 50 Futures

• Underlying: Nifty 50 Index (e.g., 18,500)
• Lot Size: 50 units
• Agar tum 1 contract kharidoge: Tum 50 × 18,500 = ₹9,25,000 ke index ko control karte ho
• Agar tum 2 contracts kharidoge: 2 × 50 × 18,500 = ₹18,50,000 exposure

Ye step kyun? Contracts × lot size × price multiply karna tumhe total market exposure deta hai — margin requirements aur P&L calculate karne ke liye critical hai.

Step-by-step:

1. Exposure per contract = 25 × 43,000 = ₹10,75,000
   • Kyun? Lot size (25) ka current index level se product.
2. 3 contracts ke liye total exposure = 3 × ₹10,75,000 = ₹32,25,000
   • Kyun? Tum index ke 75 units (3 × 25) control kar rahe ho.
3. Required margin ≈ 15% of ₹32,25,000 = ₹4,83,750 (SPAN + Exposure)
   • Kyun? Tum poore ₹32L upfront nahi dete; tum collateral ke roop mein margin deposit karte ho.

Agar Bank Nifty 43,500 (+500 points) tak badhta hai:

• P&L per contract = 25 × 500 = ₹12,500
• Total P&L = 3 × ₹12,500 = ₹37,500 profit
• Kyun? Bank Nifty mein har 1-point move = ₹25 profit/loss per contract (lot size 25).

2. Expiry Date: The Contract's Deadline

Expiry pe, contract cash-settled hota hai (indices ke liye) ya physically settled hota hai (stocks ke liye).

Last Thursday kyun? Monthly expiry ke liye historical convention, month-end accounting se pehle time allow karta hai. Agar Thursday holiday ho, toh expiry previous trading day pe shift ho jaati hai.

Contract Months:

• Near Month: Current month (e.g., July 2026)
• Next Month: Agla month (August 2026)
• Far Month: Uske baad wala month (September 2026)

Sabse zyada liquidity near-month contract mein hoti hai (volume ka >80%).

$\text{Basis}=\text{Futures Price}-\text{Spot Price}$

Expiry ke paas aate waqt, basis → 0 (convergence). Expiry day pe:

${\text{Futures Price}}_{\text{expiry}}={\text{Spot Price}}_{\text{expiry}}$

Derivation:

• Kyun? Expiry pe, ek futures contract underlying ko spot price pe hold karne ke equivalent hota hai. Koi bhi time premium nahi bachta.
• Kaise? Agar expiry pe futures > spot ho, toh arbitrageurs futures sell karte hain aur spot buy karte hain, difference pocket karte hain. Ye trading convergence force karti hai.

Agar tumne 1 long July Nifty futures 18,510 se hold kiya expiry pe 18,550 tak:

• P&L = 50 points × 50 (lot size) = ₹100 profit
• 50 points kyun? 18,550 (settlement) - 18,510 (tumhari entry).

3. Tick Size: The Minimum Price Movement

$\text{Tick Value}=\text{Tick Size}\times \text{Lot Size}$

Example: Nifty Futures

• Tick size = 0.05 points
• Lot size = 50
• Tick value = 0.05 × 50 = ₹2.50

Toh minimum profit/loss per contract ₹2.50 per tick hai.

Tick size kyun? Infinitesimal price differences ko rokta hai jo order book jam kar dete. Ye waise hi hai jaise currency mein paisa (0.01) sabse chhoti unit hoti hai.

4. Rolling Over Contracts

Roll over kyun karte hain? Kyunki current contract expire ho jaata hai aur exist karna band kar deta hai. Agar tum trade mein rehna chahte ho, tumhe naya contract chahiye.

Roll over kaise karte hain:

1. Apna July contract sell (close) karo
2. August contract buy (open) karo
3. Rollover cost pay/receive karo (July aur August ke price ka difference)

Rollover steps:

1. 2 July contracts 18,500 pe sell karo: Position close karo
2. 2 August contracts 18,520 pe buy karo: Nayi position open karo
3. Rollover cost = (18,520 - 18,500) × 50 × 2 = 20 × 50 × 2 = ₹2,000 paid

Cost kyun? August contract ki expiry zyada door hai, isliye ye premium pe trade karta hai (carry cost). Tum apni position extend karne ke liye ye pay karte ho.

Common Mistakes and Steel-Manning

Ye sahi kyun lagta hai: Intuition kehti hai tumhe ek unit ki price chahiye.

Fix: Tum 50 units ka contract trade kar rahe ho, 1 unit nahi. Exposure = 50 × 18,000 = ₹9,00,000. Margin ≈ 12-15% of this = ₹1,08,000 - ₹1,35,000.

Mistake ko steel-man karo: Confusion isliye hoti hai kyunki stocks mein tum exact shares kharidete ho (10 shares = 10 × price). Futures tumhe standardized lots mein force karte hain, exposure ko bada aur kam intuitive banate hain.

Ye sahi kyun lagta hai: Stocks indefinitely hold kiye ja sakte hain, toh futures bhi same hone chahiye.

Fix: Futures contracts expire aur settle hote hain. Cash-settled index futures ke liye, tumhari position settlement price pe close ho jaati hai. Stock futures ke liye, tumhe physical delivery face karni pad sakti hai (underlying stock buy/deliver karne ke liye forced), jiske liye poora cash chahiye, sirf margin nahi.

Mistake ko steel-man karo: "Futures" word sunne mein "future indefinitely" lagta hai, na ki "ek specific future date wala contract." Expiry mechanism counter-intuitive hai agar tum equity investing se aa rahe ho.

Ye sahi kyun lagta hai: Ek baar seekhne ke baad, specs permanent lagti hain.

Fix: Exchanges lot sizes revise karte hain jab underlying prices significantly change hote hain. Bank Nifty 2018 mein 40 units tha, 2022 mein 25 kar diya gaya jab index badha. Trade karne se pehle hamesha current specs check karo.

Active Recall Practice

Saath hi, ye bet finals day pe expire hoti hai (ye hai expiry date). Us din, agar tumhari team jeeti, tumhe tumhari bet ke hisaab se pay kiya jaata hai. Tum bet ko hamesha ke liye open nahi rakh sakte — ye finals day pe khatam hoti hai, aur bookie tumhe difference pay karta hai.

Ab imagine karo bookie har 5 rupaye mein bet price update karta hai, har ek rupaye mein nahi (ye hai tick size). Toh prices 1,000, 1,005, 1,010 jaati hain, 1,000, 1,001, 1,002 nahi.

Futures contracts usi tarah kaam karte hain: tum ek stock/index pe fixed-size chunks (lot size) mein bet lagate ho, bet ek fixed date pe expire hoti hai, aur prices chhote fixed steps mein move karti hain. Apni bet lagane se pehle tumhe ye rules jaanne chahiye!

Connections

• Introduction to Futures Contracts — futures conceptually kya hote hain
• Margin Requirements in Futures — lot size margin ko kaise affect karta hai
• Futures Pricing and Carry Cost — far-month contracts premium pe kyun trade karte hain
• Physical vs Cash Settlement — expiry pe kya hota hai
• Rolling Over Futures Positions — long-term trades mein expiry manage karna
• Options Contract Specifications — options ke liye similar standardization
• Index Construction (Nifty 50) — index futures mein underlying kya hota hai

Flashcards

#flashcards/stock-market

What is a futures contract lot size? :: Ek contract mein units (shares, index points, barrels) ki fixed number, jo exchange dwara standardized trading ke liye set ki jaati hai. Example: Nifty futures ka lot size 50 hota hai.

Concept Map