Nifty Index Vs Futures contract

F&O
1

I currently have a trend-following system on NIFTY, where my entry, exit and trailing stop-loss levels are based on the NIFTY Futures price.

I am considering changing the system so that entry, exit and TSL are based on the NIFTY 50 Index (Spot) instead of NIFTY Futures.

My main question is about how to construct the synthetic futures position and whether it will actually capture the movement of the NIFTY Index.

Example

Suppose at the time of entry:

  • NIFTY Spot = 24,500
  • NIFTY Futures = 24,600

If I want to trade a synthetic long position based on the NIFTY Index ATM, I would:

  • Buy 24,500 CE
  • Sell 24,500 PE
  • Same expiry
  • I will not roll/shift the strikes during the trade.

Now suppose NIFTY moves in my favour and eventually reaches:

  • NIFTY Spot = 24,900
  • NIFTY Futures = 24,800

At this point, I close the original:

  • 24,500 CE
  • 24,500 PE

So, the NIFTY Index has moved:

24,500 → 24,900 = +400 points

But NIFTY Futures has moved:

24,600 → 24,800 = +200 points

My question

Since the 24,500 CE and 24,500 PE are options on the NIFTY Index, will the fixed-strike synthetic position:

Long 24,500 CE + Short 24,500 PE

capture approximately the +400-point movement of NIFTY Spot, even though NIFTY Futures moved only +200 points?

In other words, should I expect:

Synthetic P&L ≈ NIFTY Spot movement = +400 points

or would the changing NIFTY Futures basis cause the synthetic to capture something closer to the futures movement?

Additional clarification

I am not rolling the strike as NIFTY moves.

The position remains:

«Buy 24,500 CE + Sell 24,500 PE»

from entry at 24,500 until exit at 24,900.

I understand that the actual P&L may differ slightly because of bid-ask spread, slippage, IV changes, carry, interest, dividends, etc.

What I specifically want to understand is the fundamental relationship between the fixed-strike CE−PE synthetic and NIFTY Spot when the Futures–Spot basis changes during the trade.

Would appreciate an explanation from anyone who has actually traded/backtested this type of synthetic position.

2

This is how I understand it:

I think of it simply as Options follow Futures and Futures follow Spot. .

When we buy an ATM Call and sell an ATM Put of the same strike and expiry, we are basically creating a synthetic futures/forward position.

So, if before expiry the Spot moves up by 400 points but the Futures moves only 200 points, I would expect the synthetic position to be closer to the 200-point futures move , rather than the full 400-point spot move.

It may not be exactly 200 because of carry, time to expiry, etc.

At expiry, futures and spot converge, so then the synthetic position will reflect the spot movement.