Types of Margin Open Interest Volume Open interest v/s Volume Put call ratio

Initial margin-money required to open a buy or sell position in a futures contract Maintenance margin-money required to maintain in his margin account to hold a futures position Example

Value at Risk It estimates the probability of loss of value of an asset or group of an asset It has three components: a.) a time period b.) a confidence level c.) a loss amount Example

Mark to Market loss can be calculated by marking each transaction in to security in the end of the day in the capital market segment. Mark to Market Margin shall be collected on the gross open position of the participants. Example.

This is a leading margin system which have been adopted by all future and options exchanges around the world. Short for standardized portfolio analysis of risk. Span is based on sophisticated algorithms that determine margin to the global assessmentof the one day risk of the trader account.

Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day. It can also be defined as the total number of futures contracts or option contracts that have not yet been exercised (squared off), expired, or fulfilled by delivery.

Each trade completed on the exchange has an impact upon the level of open interest for that day.
For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract. If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract.

The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change.

TIME JAN 1 JAN 2 JAN 3 JAN 4

TRADING ACTIVITY A buys 1 option and B sells 1 option contract. C buys 5 options and D sells 5 options contracts. A sells his 1 option and D buys 1 option contract. E buys 5 options from C who sells 5 options contracts. F buys 5 options and G sells 5 options contracts. F sells 5 options and G buys 5 options contracts.

OPEN INTEREST 1 6 5 5

JAN 5 JAN 6

10 5

Market price

Open interest

interpretation

rising

rising

Market is strong

falling

rising

Market is weak

rising

falling

Market is weakening

falling

falling

Market is strenthening

Volume is the number of contracts traded during a given period of time. Hence, volume reflects the number of contracts that changed hands from a seller to a buyer, regardless of whether it is a new contract being created or just an existing contract.

TIME JAN 1 JAN 2 JAN 3 JAN 4

TRADING ACTIVITY A buys 1 option and B sells 1 option contract. C buys 5 options and D sells 5 options contracts. A sells his 1 option and D buys 1 option contract. E buys 5 options from C who sells 5 options contracts.

VOLUME 1 5 1 5

TIME JAN 1 JAN 2 JAN 3 JAN 4

TRADING ACTIVITY A buys 2 option and B sells 2 option contract. C buys 7 options and D sells 7 options contracts. A sells his 2 option and D buys 2 option contract. E buys 3 options from C who sells 3 options contracts.

OPEN INTEREST 2 9 7 7

VOLUME 2 7 2 3

Formula Increase in ratio Decrease in ratio Investor can hold a direct view or a contrarian view Open interest based Volume based Relevance in the Indian context