All modern stock exchanges have highly developed online surveillance sytems to monitor the volumes / position and prices of all listed products and also check any unusual activity etc. in them.

Price of a future contract is generally the spot price plus interest for the time period.

Yearly Interest Rate is 12%.   Full year's interest = 12% of 200 ie. Rs 24 (200 x 12 / 100)

So for 3 months the cost of interest is Rs 6.  ( 24/12 x 3)

Therefore the 3 month future contract will have an price of appx. Rs 206. (200 + 6)

Derivatives market and mainly the options market are difficult to understand when compared to cash markets.

Higher volatility means higher risk and higher risk means one has to pay a higher premium.

Buyers of Options pay the premium and that is the maximum loss they can suffer - so they need not pay any margin.

A seller of options receives the premium but he can suffer infinte losses - so margins are collected both from sellers of Call and Put options.

Initial margin requirements are based on 99% value at risk over a one day time horizon.

In January, the contracts available are:

• January (near month)
• February (next month)
• March (far month)

On the last Thursday of January, the January contract expires.

On the next trading day (usually Friday), the April contract is introduced to maintain the 3-month cycle:

Now we have February (near), March (next), and April (far) contracts.

European option: The owner (buyer/holder) of a European option can exercise his right only on the expiry date/day of the contract. In India, all index and stock options are European style options.

American option: The owner (buyer/holder) of an American option can exercise his right at any time on or before the expiry date/day of the contract.

Impact cost is the cost that a buyer or seller of stocks incurs while executing a transaction due to the prevailing liquidity condition on the counter. Lower the liquidity, higher will be the impact cost.

The impact cost is not reflected in the contract notes.