What is the Contract Specification for Futures and Options?
The contract period for both Futures and Options are 1 month, 2 month and 3 months, each contract ending on the last Thursday of the contract month. If it is holiday, then the immediately preceding business day (Business day is a day during which the underlying stock market is open for trading). On the last trading day, the closing value of the underlying stock is the final settlement price of expiring futures contract. In Options, apart from normal contract period, there’s also 1, 2 weeks contract periods. What is the margining system in the derivative markets? Two type of margins have been specified – a) Initial Margin – Based on 99% VaR and worst case loss over a specified horizon, which depends on the time in which Mark to Market margin is collected. b) Mark to Market Margin (MTM) – Collected in cash for all Futures contracts and adjusted against the available Liquid Networth for option positions. In the case of Futures Contracts MTM may be considered as Mark to Market Settlement.
