Hi, suppose i make a trade that includes :
Buy one lot nifty futures at 8600 and buy one put option of 8600 at a premium of 150.
suppose nifty falls by 200 points and future value comes to 8400. And put option premium increases to 300.
How will the MTM be calculated. Will i have to pay 200*25= 5000 Rs or the profit i am making on the put option be considered i.e., (200-150)*25 = 1250 will be my obligation. Or something else. Thnx in advance.
The profit made on the long puts doesn’t make up for the MTM loss on your futures positions. When an option premium gains value, as a buyer of option this is just a notional profit and doesn’t get credited to your account until you exit them.
So yes, you will have to bring in Rs 5000 to continue holding your position.
I wanted to know how MTM is calculated and how to reconcile the MTM figures shown in Admin and
Cash Positions
Thnx a lot for response nitin.
One more question if u dont mind:)
What if square off position arises due to lack of funds in above example. Will only future be squared off or both i.e., option as well.
Only future will be squared off. When you buy options, you are giving entire premium upfront, there is no risk of that being squared off.