ANALYSIS OF FUTURES

LONG FUTURES
When The Market Is in Bullish, We Will Take Futures as Long It Means That When the
Market Is Going Up Future Price Will Also Become Bullish in This Way, We Will Gain Returns
on That Particular Future
Example
The Following Table Consist of The Future Values of Adani Enterprises From 01-01-2024 To
20-01-2024 Contract Size Was 300
Date Expiry Price Open High Low Close Volume
01-01-2024 25-01-2024 2941.00 2880.00 2977.05 2867.10 2941.00 4.41M
02-01-2024 25-01-2024 2952.00 2942.50 2974.80 2863.75 2955.55 4.18M
03-01-2024 25-01-2024 3020.60 3040.55 3220.40 2969.00 3020.00 21.50M
04-01-2024 25-01-2024 3015.10 3044.55 3057.60 3002.70 3015.10 3.52M
05-01-2024 25-01-2024 3024.65 3020.00 3086.10 2994.75 3024.65 4.47M
08-01-2024 25-01-2024 2975.25 3034.15 3042.45 2963.25 2975.25 2.29M
09-01-2024 25-01-2024 3033.30 2997.60 3087.75 2990.00 3033.30 4.50M
10-01-2024 25-01-2024 3117.35 3044.75 3130.00 3035.00 3177.35 5.56M
11-01-2024 25-01-2024 3090.35 3129.75 3145.00 3073.35 3090.35 2.31M
12-01-2024 25-01-2024 3120.20 3097.70 3142.80 3076.85 3120.20 3.12M
15-01-2024 25-01-2024 3104.15 3140.00 3142.00 3074.70 3104.15 1.93M
16-01-2024 25-01-2024 3061.10 3110.00 3117.55 3036.00 3061.10 2.22M
17-01-2024 25-01-2024 2973.00 3024.60 3054.75 2947.65 2973.00 3.44M
18-01-2024 25-01-2024 2930.15 2970.60 2988.25 2884.45 2930.15 2.96M
19-01-2024 25-01-2024 2928.30 2957.35 2957.35 2916.80 2928.30 2.26M
20-01-2024 25-01-2024 2908.65 2928.65 2947.15 2898.00 2904.30 425.70K

On 1st Jan 2024 when the future price is at ₹ 2941.00, as a found that the price of underlying
and future is getting bullish, a have decided to enter into a future contract. The lot size was
300. Later on, 10th Jan 2024 as a found that the market reached its high (resistance) and
having a possibility for bearishness due to profit booking of other investors, a have decided
to square off my position before expiry for pocketing the current profit safe because the
market was volatile because of the upcoming events like upcoming union budget in February
2024 and other political factors, in this volatile market Adani enterprises was the most
volatile stock .so on 10th Jan 2024 is squared of my position for the price ₹3177.35 .let’s see
how was the buyers payoff and sellers payoff for this trade
BUYERS PAYOFF
On 1st Jan 2024:
Bought the futures contract for price ₹2941.00
Contract size was 300
On 10th Jan 2024:
Sold the contract for ₹3177.35

Calculating return
3177.35 – 2941.00 = 236.35
300 x 236.35 = ₹70905.00
So, the buyer here made a profit of ₹70905.00
SELLERS PAYOFF
Bought price is 3177.35
Sold price is 2941.00
Calculating return
-236.35 x 300 = -₹70905.00
So, the seller here made a loss of -₹70905.00

Here is a chart which shows the difference between spot price and future price from
01-01-2024 to 10-01-2024

Difference between underlying price and spot price from 01-01-2024 to 10-
01-2024

3200.00

3150.00

3100.00

3050.00

3000.00

2950.00

2900.00

2850.00

2800.00

2750.00

Underlying price Future price

SHORT FUTURES
When the market is expecting to be bearish, the investors would go for a short future, so
when the price go down investors would make a profit out of it, simply means selling when
price is high and buying at price is low. Now let’s look at an example of short futures on the
same month after making profit on long futures
Date Expiry Price Open High Low Close Volume
01-01-2024 25-01-2024 2941.00 2880.00 2977.05 2867.10 2941.00 4.41M
02-01-2024 25-01-2024 2952.00 2942.50 2974.80 2863.75 2955.55 4.18M
03-01-2024 25-01-2024 3020.60 3040.55 3220.40 2969.00 3020.00 21.50M
04-01-2024 25-01-2024 3015.10 3044.55 3057.60 3002.70 3015.10 3.52M
05-01-2024 25-01-2024 3024.65 3020.00 3086.10 2994.75 3024.65 4.47M
08-01-2024 25-01-2024 2975.25 3034.15 3042.45 2963.25 2975.25 2.29M
09-01-2024 25-01-2024 3033.30 2997.60 3087.75 2990.00 3033.30 4.50M
10-01-2024 25-01-2024 3117.35 3044.75 3130.00 3035.00 3177.35 5.56M
11-01-2024 25-01-2024 3090.35 3129.75 3145.00 3073.35 3090.35 2.31M
12-01-2024 25-01-2024 3120.20 3097.70 3142.80 3076.85 3120.20 3.12M
15-01-2024 25-01-2024 3104.15 3140.00 3142.00 3074.70 3104.15 1.93M
16-01-2024 25-01-2024 3061.10 3110.00 3117.55 3036.00 3061.10 2.22M
17-01-2024 25-01-2024 2973.00 3024.60 3054.75 2947.65 2973.00 3.44M
18-01-2024 25-01-2024 2930.15 2970.60 2988.25 2884.45 2930.15 2.96M
19-01-2024 25-01-2024 2928.30 2957.35 2957.35 2916.80 2928.30 2.26M
20-01-2024 25-01-2024 2908.65 2928.65 2947.15 2898.00 2904.30 425.70K

After Hitting a High Of 3177 Adel Is at A Supply Zone So It Is Expected That the Price Will Go
Down to Demand Zone So in The View of Bearishness I Decided to Enter into A Short Futures
Trade. On Jan 12 When Future Price Is At 3120.20 & Later Before Expiry When Price Reached
at A Low Of, I Decided to Square Off My Position on Jan 20 ,2024 At Price 2904 So Let’s See
the Buyers Payoff and Sellers Payoff
BUYERS PAYOFF
Entered into contract on 12 Jan 2024 for ₹3120.20
Position was squared off on 2904.30
2904.30 - 3120.20 = -215.9
Calculating return
The lot size was 300
-215.9 x 300 = ₹-64770 (loss) here buyer made a loss
SELLERS PAYOFF
Sell price 3120.20
Buy price 2904.30
3120.20-2904.30 = -215.9
Calculating returns = 215.90 x 300 = ₹64,770(profit) here seller made a profit
The chart shows the difference between the spot price and futures price from 12th
January 2024 to 20th January 2024

Difference between the spot price and futures price from 12th january 2024
to 20th january 2024

3150.00
3100.00
3050.00
3000.00
2950.00
2900.00
2850.00
2800.00
2750.00

Underlying price Future price

By the study on long futures and short futures it’s clear that a buyer’s profit is the
seller’s loss and a seller’s profit would be buyers’ loss

Relation Between Future Price and Spot Price

The relationship between future and spot prices is fundamental in financial markets,
particularly in commodities and securities trading. Spot prices refer to the current
market price of a security or commodity for immediate delivery or settlement. Future
prices, on the other hand, represent the price agreed upon today for the delivery of a
security or commodity at a specified future date. These prices are interlinked through
arbitrage mechanisms, market expectations, and supply-demand dynamics.
Generally, future prices converge towards spot prices as the delivery date
approaches, a phenomenon known as convergence. Factors such as storage costs,
interest rates, market sentiment, and expectations of future supply and demand
conditions influence the relationship between future and spot prices. Traders and
investors closely monitor this relationship to make informed decisions about buying,
selling, or holding assets in financial markets.
ANALYSIS OF OPTIONS
Here we are discussing 4 basic option strategies of a fictional stock option

1.Bull call spread

A bull call spread involves buying a call option and simultaneously selling another call
option with a higher strike price. This strategy profits from a moderate rise in the
underlying asset's price. The premium received from selling the higher strike call
partially offsets the premium paid for buying the lower strike call, reducing the overall
cost. It offers limited risk, as the maximum loss is the initial cost of the spread.
Maximum profit is capped at the difference between the strike prices, achieved if the
asset's price exceeds the higher strike price at expiration. It's a popular strategy for
investors expecting modest upward movements in the underlying asset's price.

Let's create an example for a bull call spread option strategy using an
imaginary company, "XYZ Ltd," with the expiration date set as January 2024.
Assuming the following details:
- Current stock price of XYZ Ltd: ₹100
- Strike price of the lower call option (buy): ₹105
- Strike price of the higher call option (sell): ₹110
- Premium paid for the lower call option: ₹3
- Premium received for the higher call option: ₹1
- Number of shares per option contract: 100
1. Buy 1 XYZ Ltd January 2024 ₹105 Call at ₹3:
- Initial cash outflow = ₹3 × 100 = ₹300
2. Sell 1 XYZ Ltd January 2024 ₹110 Call at ₹1:
- Initial cash inflow = ₹1 × 100 = ₹100
Total initial cash outflow = ₹300 - ₹100 = ₹200

Now, let's analyse the potential outcomes at expiration (January 2024):

- If XYZ Ltd.’s stock price is below ₹105, both options expire worthless, and the
maximum loss incurred is the initial cash outflow of ₹200.
- If XYZ Ltd.’s stock price is between ₹105 and ₹110, the lower call option (bought)
will be in the money, but the higher call option (sold) will expire worthless. The
maximum profit is capped at ₹110 - ₹105 - ₹2 (net premium paid) = ₹3 per share or
₹300 for the contract.
If XYZ Ltd.’s stock price is above ₹110, both options will be in the money. However,
the profit is capped at ₹110 - ₹105 - ₹2 (net premium paid) = ₹3 per share, and the
maximum profit remains ₹300 for the contract.
This bull call spread strategy limits both potential losses and gains, making it suitable
for investors who anticipate moderate upward movements in the stock price of XYZ
Ltd

2.Bear put spread

A bear put spread is an options strategy employed by investors who
anticipate a moderate decline or stagnation in the price of the underlying
asset. In this strategy, the investor simultaneously buys a put option with
a lower strike price and sells a put option with a higher strike price, both
with the same expiration date. The premium received from selling the
higher strike put partially offsets the premium paid for buying the lower
strike put, reducing the initial cost of the strategy. The goal is to profit
from the difference between the strike prices while limiting both potential
losses and gains. If the price of the underlying asset decreases or
remains stagnant, the strategy generates a profit.
an example for a bear put spread using imaginary digits.
Let's say we have a stock called XYZ currently trading at ₹50 per share.
We believe that XYZ is going to decrease in value in the near future, but
we also want to limit our potential losses. Here's how we could set up a
bear put spread:
1. Buy Put Option: First, we buy a put option with a strike price of ₹55
for ₹3 per share. This gives us the right to sell XYZ at ₹55, regardless of
how low the price drops. So, this costs us ₹300 (since options typically
represent 100 shares).
2. Sell Put Option: Simultaneously, we sell a put option with a strike
price of ₹45 for ₹1.50 per share. This obligates us to buy XYZ at ₹45 if
the price falls below that level, but we receive a premium of ₹150.
Let's break down the scenarios:
Scenario 1: XYZ price is above ₹55 at expiration: In this case, both
options expire worthless. We lose the premium we paid for the ₹55 put
option (₹300), but we keep the premium we received for the ₹45 put
option (₹150). So, our net loss is ₹150.
Scenario 2: XYZ price is between ₹55 and ₹45 at expiration: The ₹55
put option expires worthless, but we have to buy XYZ at the market price
if it's below ₹45 because of the short ₹45 put option. However, we still
keep the premium received from selling the ₹45 put option. So, our loss
is reduced by the premium received, making our net loss ₹150 - ₹150 =
₹0.
Scenario 3: XYZ price is below ₹45 at expiration: In this case, both
options are in the money. We exercise our right to sell XYZ at ₹55 using
the long-put option, and we're obligated to buy XYZ at ₹45 using the
short put option. So, our net profit is (₹55 - ₹45) - (₹3 - ₹1.5) = ₹7.50 per
share, or ₹750 for the entire options contract (excluding commissions
and fees).

This strategy limits our potential losses while still allowing us to profit if
the stock price declines.