I have a query regarding the futures prices of any script, why is the future price of the stock say for example reliance is different for different months, like it is say 1000 for current month, then say it is 1100 for near month and then say 1200 for far month. and also who decides these prices for these months and also on what basis?
There is a Futures pricing formula that determines the futures price with respect to the spot price of a scrip.
This is the formula:
Futures Price = Spot price * [1+ rf*(x/365) – d]
rf = Risk free rate per annum
d – Dividend
x = number of days to expiry
If a scrip is at 500, rf = 8.35%, x =30 days and d = 0.
Now, the Futures price = 500 * [1 + 0.0835(30/365)-0] = 500 * 1.00686 = 503.43
This is the fair value of the Futures. The market value of the Future could be different due to transaction charges, taxes etc.
To know more about the pricing formula and a practical application of how to benefit from a calendar spread, this Varsity Chapter on Futures Pricing is a must read.
Difference in the Futures Contract price for the same underlying scrip, but expiring across different months is called THE PREMIUM.
This a difficult concept to understand, not if you take things one at a time.
Refer Zerodha Varsity.