1. What is the underlying for S&P BSE SENSEX® Futures ?
The underlying for the S&P BSE SENSEX® Futures is the BSE Sensitive Index of 30 scrips, popularly called the S&P BSE SENSEX®.
2. What is the contract multiplier?
The contract multiplier is 15. This means that the Rupees notional value of a S&P BSE SENSEX® Futures contract would be 15 times the contracted value. The following table gives a few examples of this notional value.
3.What is the ticker symbol and trading hours
The ticker symbol is BSX. The trading timings for the Derivatives
Segment of BSE are from 9:15 am to 3:30 pm (except in cases of Sun
outage when the timings are extended on account of a halt in trading
during the day). Trading session's timings can be viewed at the Calendars
4. What is the maturity of the Futures contract?
Presently, SEBI has permitted futures products of 1 month, 2 months
and 3 months maturity only on a rolling basis- for example, for May,
June and July months. When the May contract expires, there will be
a fresh contract month available for trading viz. the August contract.
These months are called the Near Month, Middle Month and Far Month
On 9th June 2000, when the Equity Derivatives were first introduced
in India at BSE, it was with the three monthly series for June, July
and August 2000.
5. What is the tick size?
This means that the minimum price fluctuation in the value of a contract.
The tick size is presently "0.05" or 5 paisa. In Rupee terms,
this translates to a minimum price fluctuation of Rs. 0.75 for a single
transaction of S&P BSE SENSEX® Futures contract (Tick size X Contract
Multiplier = 0.05 X Rs. 15).
6. How is the final settlement price determined?
The closing value of S&P BSE SENSEX® in the cash market is taken as the
final settlement price of the Futures contract on the last trading
day of the contract for settlement purpose.
7. What is margin money?
The aim of collecting margin money from the client / broker is to
minimize the risk of settlement default by either counterparty. The
payment of margin ensures that the risk is limited to the previous
day's price movement on each outstanding position. However, even this
exposure is offset by the initial margin holdings.
Margin money is like a security deposit or insurance against a possible
Future loss of value. Once the transaction is successfully settled,
the margin money held by BSE is released / adjusted against the settlement
8. Are there different type of margins?
There are different types of margins like Initial Margin, Variation
Margin (commonly called Mark-to-market or M-T-M), Exposure Margin
and Additional Margin.
9. What is the objective of the Initial Margin?
The basic objective of the Initial Margin is to cover the largest
potential loss in one day. Both buyer and seller have to deposit the
margins. The Initial Margin is deposited before the opening of the
position in the Futures transaction. This margin is calculated by
SPAN by considering the worst case scenario.
10. What is Variation or Mark-to-Market Margin?
Variation or Mark-to-Market Margin is the daily profit or loss obtained
by marking the Member's outstanding position to the market (closing
price of the day.)
11. What are long/ short positions?
Long and short positions indicate whether you have a net purchase position (long) or a sell position (short).
12. Is there a theoretical way of pricing
the Index Futures?
The theoretical way of pricing any Future is to factor in the current
price and holding costs or cost of carry.
In general, the Futures Price = Spot Price + Cost of Carry.
13. What is the concept of Basis?
Theoretically, the cost of carry is the sum of all costs incurred
if a similar position is taken in cash market and carried to maturity
of the futures contract less any revenue which may result in this
period. The costs typically include interest in case of financial
futures (also insurance and storage costs in case of commodity futures).
The revenue may be dividends in the case of Index Futures.
Apart from the theoretical value, the actual value may vary depending
on demand and supply of the underlying at present and expectations
about the future. These factors play a much more important role
in commodities, especially perishable commodities, than in financial
In general, the Futures price is greater than the spot price. In
special cases, when cost of carry is negative, the Futures price
may be lower than the spot prices.
The difference between Spot price and Futures price is known as the
Basis. Although the Spot price and Futures prices generally move in
line with each other, the Basis is not constant. Generally, the Basis
will decrease with time. And on expiry, the basis is zero as the Futures
price equals Spot price.
14. What are the profits and losses in case of a Futures position?
The profits and losses would depend upon the difference between the price at which the position is opened and the price at which it is closed. Let us take some examples.
Position : Long -Buy June S&P BSE SENSEX® Futures @ 19500
Payoff :Profit - if the Futures price goes up ; Loss - if
the Futures price goes down
Calculation : The profit or loss would be equal to 25 times
the difference in the two rates.
If June S&P BSE SENSEX® Futures is sold @ 19600, there would be a profit
of 100 points which is equal to Rs. 2,500 (100 X 25).
However, if the June S&P BSE SENSEX® Futures is sold @ 19450, there would
be a loss of 50 points which is equal to Rs. 1,250 (50 X 25).
15. What happens to the profit or loss due to daily settlement?
Position : Short Sell June S&P BSE SENSEX® Futures @ 19500
Payoff :Profit -if the Futures price goes down ; Loss - if
the Futures price goes up
Calculation :The profit or loss would be equal to 25 times
the difference in the two rates.
If June S&P BSE SENSEX® Futures is bought @ 19700, there would be a loss
of 200 points which is equal to Rs. 5,000 (200 X 25).
However, if the June S&P BSE SENSEX® Futures is bought @ 19400, there would
be a profit of 100 points which is equal to Rs. 2,500 (100 X 25).
In case the position is not closed the same day, the daily settlement would alter the cash flows depending on the settlement price fixed by BSE every day. However, the net total of all the flows every day would always be equal to the profit or loss calculated above. Profit or loss would only depend upon the opening and closing price of the position, irrespective of how the rates have moved in the intervening days.
Let us take the illustration given in example 1 where a long position is opened at 19500 and closed at 19600 resulting in a profit of 100 points or Rs. 2,500.
Let us assume that the daily closing settlement prices as shown.
Daily Closing Settlement Prices
|Position Opened - Long @ 5550
||15500 - 15550
||15580 - 15500
||15560 - 15580
||15600 - 15560
|Position Closed - Short @ 15650
||15650 - 15600
|Profit / (Loss)
In all cases, the net result is a profit of 100 points, which is the difference between the closing and opening price, irrespective of the daily settlement price and different MTM flows.
16. How does the Initial Margin affect the above profit or loss?
The Initial Margin is only a security provided by the client through the Clearing Member to BSE. It can be withdrawn in full after the position is closed. As such, it does not affect the above calculation of profit or loss. However, there would be a funding cost / transaction cost in providing the security. This cost must be added to your total transaction costs to arrive at the true picture. Other items in transaction costs would include brokerage, stamp duty etc.
17. What is a spread position?
A calendar spread is created by taking simultaneously two positions
Examples of Calendar Spreads
- A long position in a Futures series expiring in any calendar
- A short position in the same Futures as 1 above but for a series
expiring in any month other than the 1 above.
- Long June S&P BSE SENSEX® Futures Short July S&P BSE SENSEX® Futures
- Short July S&P BSE SENSEX® Futures Long August S&P BSE SENSEX® Futures
A spread position must be closed by reversing both the legs simultaneously. The
reversal of 1 above would be a sale of June S&P BSE SENSEX® Futures while
simultaneously buying the July S&P BSE SENSEX® Futures.