Futures and Options Outlook

The transactions in the derivatives market will be much cheaper in the new year as the National Stock Exchange (NSE) has proposed to revise the contract sizes of 105 futures from December 28. The NSE will reduce the contract sizes of 15 futures to one fourth, 74 futures to half and double the contract sizes for 14 futures.

The revised lot sizes would be applicable for all contracts initiated after December 28. The existing contracts with maturities of January 2008 and February 2008 would continue to have the same lot sizes. However, the new contract sizes for 23 futures will be revised only from the far month contract, i.e. March 2008, as there are issues that need to be sorted out.

The reduction in contract sizes will enable the small investors to buy blue chip futures with a three months horizon, by paying 25 per cent margins (and mark-to-market in case of a price reduction), rather than taking delivery and paying the entire amount.

The derivatives players could thus calls on scrips such as Larsen & Toubro, Aban Lloyd, BHEL, Educomp, Reliance Industries and even Bank Nifty by paying margins of around Rs 50,000. The contract value of these blue chips, which is over Rs 5 lakh currently, will come down to around Rs 2 lakh from December 28.

The NSE has reduced the contract sizes as most of these futures have exceeded the stipulated contracts value of Rs 2 lakh each. After the reduction, the contracts value will come down from Rs 609 crore to Rs 297 crore.

The total margin money will thus come down from Rs 152.2 crore to Rs 74.3 crore, assuming that upfront margins of 25 per cent will be applicable to all contracts.