The spread can be closed out at any time by taking positions that reverse what was done earlier - sell the call with a lower strike price and buy the call with higher strike price. The trading system allows such combination-spread transactions to be carried out.

Alternatively, if you wait till the exercise date, the in-the-money call option - with the lower strike price - will be automatically exercised; you would have made a profit. Similarly, the option with the higher strike price will also be exercised, in which you would have suffered a loss. Your broker would pay you the difference.

What are the brokerage charges for F&O transactions on stocks and the index? I feel the sub-brokers are charging more what has been prescribed.

The maximum brokerage has been fixed at 2.5 per cent of the contract value in case of index futures and index options. This is without including statutory levies. Some brokers may be charging more. You would have to scout around for a good broker or opt for Internet-trading offered by a few bank-sponsored brokerages.

Can I buy a stock in cash and sell a futures contract at the same time? If so, then when can I square off my position?

As I understand, cash settlement is squared off in T+2 manner and F&O settlement is squared off daily.

Then can I buy in cash and at the same time, sell the futures and settle both my transactions on T+2 day?

There is a difference between squaring your transactions and settlement. When you do an offsetting trade, which is the reverse of the trade that you executed earlier, then that would square the earlier transaction.

Settlement of futures contract is different. At the end of each day, the positions are marked to market and you would have to pay your losses, if any, by the next day (T+1). Similarly, you would receive your profits, if any, on the next day. The final settlement happens on the day of the expiry of the contract.

So, if you buy a stock, you would have to make your payment in T+2 days.

You can set up a short-futures position by paying an initial margin, which will be marked to market each day.

So, in the case of futures position, if you are required to pay in additional margin you would have to do it on T+1 days and will not have the opportunity to wait another day to pay in.

Queries relating to futures/options may be mailed to

fno@thehindu.co.in

or to Futures & Options, Kasturi & sons, 859-860, Anna Salai, Chennai 600 002.

Suresh Krishnamurthy

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