Page 137 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Long positions 100 [1 – exp (3s )]
t
(s ) = l(s )2 + (1 – l)(r )
2
2
t t-1 t
Where,
s is today’s volatility estimates.
t
s is the volatility estimates on the previous trading day.
t-1
I is decay factor which determines how rapidly volatility estimates change and is
taken as 0.94 by Prof. J. R. Verma committee Report, 1988.

r is the return on the trading day [log(I /I )]
t t t-1
Because volatility estimate s changes everyday, Initial margin on open position
t
will change every day (for first 6 months of futures trading, minimum initial margin
on naked positions shall be 5%)
 Spread Positions
 Flat rate of 0.5% per month of spread on the far month contract.

 Minimum margin of 1% and maximum margin of 3% on spread positions.
 A calendar spread would be treated as open position in the far month contract
as the near month contract approaches maturity.

 Over the last five days of trading of the near month contract, the following
percentages of the spread shall be treated as naked position in the far month
contract:
 100% on the day of expiry
 80% one day before the expiry
 60% two days before the expiry

 40% three days before the expiry
 20% four days before the expiry
Margins on the calendar spread are to be reviewed after six months of futures
trading.
 Striking an intelligent balance between safety and liquidity while determining
margins is a million dollar point.

L
s i
a q
f u
e i
t d
it
y y
Margins Margins

Task Prepare a short story on trading strategies on future contracts.

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