PM with FUTURES

Futures
• A futures contract is an
agreement between two parties
to buy or sell an asset at a certain
time in the future at a certain
price.
 Terms
• Long position
• Short position
• Contract size
• Basis
• Backwardation
• Contango
• Cost of carry
• Floor brokers
• Floor traders
• Scalpers (locals)
• Hedgers
• Speculators
• Arbitrageurs
• Clearing house
• Marking to market
• Initial margin
• Maintenance margin
 Settlement
• Physical delivery
• Cash settlement
• Offsetting
 Applications
• Hedging
• Speculation
• Arbitraging
 Types (Underlying Assets)
• Currency
• Index
• Commodity
• Interest rate
 Trading in Index Futures
• Stock of Carrier Aircon has beta 1.3
• Investor has taken a long position of Rs.
200,000 on the share
• Nifty Index futures contract trading at 1300
• Market lot 200 (?) quoting at 1270
• Long Carrier Rs.200,000
• Short Nifty Rs.2,60,000
10 days later nifty drops by 10% and the investor unwinds
his position. Calculate the payoff.
• Loss on Carrier long position
Rs.200,000X0.10X1.3 =Rs.26,000
• Gain on short position
Rs.2,60,000-1270X0.90X 200 = Rs.31,400
• Stock of Zee Telefilm has a beta of 1.2, Nifty
quoting at 960 and the nearest futures contract
1000, market lot 200
• Investor takes short position of Rs.500,000 on
the Zee’s stock
• Index exposure to be taken 1.2X 500,000=
Rs.6,00,000 bought three lots
• Nifty rises by 15% after 20days and investor
unwinds his position. What is the payoff?
• Short in Zee loss =5,00,000X1.2X0.15=
Rs.90,000
• Long position in Nifty earning=
(200X3X960X1.15) – 6,00,000 = Rs.62,500
Long Portfolio Short Nifty