NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

Long and Short Futures Payoffs for NISM Equity Derivatives

Updated 11 October 2026 · Fact-checked

A long futures position gains when the price rises and loses when it falls. A short futures position does the opposite. Profit or loss per unit = (price at close − entry price) for a long, and the reverse for a short. Multiply by the lot size to get the rupee amount.

Understand Futures Payoffs: Long and Short Futures

A futures contract is an agreement to buy or sell an underlying at a fixed price on a future date. You do not pay the full value upfront. You pay a margin. Your gain or loss still depends on the full contract value.

When you buy a futures contract, you take a long position. You expect the price to rise. If it does, you gain. If it falls, you lose.

When you sell a futures contract, you take a short position. You expect the price to fall. If it does, you gain. If it rises, you lose. You can sell without owning the underlying, because futures are settled in cash.

The payoff is linear. Each ₹1 move in the price changes your profit or loss by ₹1 per unit, in either direction. So the payoff chart is a straight line. The long line slopes upward and the short line slopes downward. Both cross zero at the entry price.

This makes futures a tool for speculation. The long side has limited loss (the price cannot fall below zero) but unlimited theoretical profit. The short side has limited profit (the price can only fall to zero) but unlimited theoretical loss. In practice, daily mark-to-market and margins force you to book losses as they occur.

Key formulas to remember

Long futures payoff per unit: Payoff = Price at close − Entry price; Price at close is the closing or settlement price, or the price at which you square off. Positive means profit.
Short futures payoff per unit: Payoff = Entry price − Price at close; This is the exact negative of the long payoff.
Total profit or loss: Total = Payoff per unit × Lot size × Number of lots; Always multiply by the market lot. Contract value = price × lot size.
Break-even: Break-even = Entry price (ignoring costs); Both long and short break even at the entry price. Brokerage, taxes and charges move the true break-even slightly.
Zero-sum property: Long profit = Short loss (same price, same quantity); Futures are a zero-sum game between the two counterparties, before costs.

How to solve Futures Payoffs: Long and Short Futures questions

Use this same method for any futures payoff question, whether it asks for profit, loss, break-even or the right view.

1Identify the position. Buy means long. Sell means short.
2Note the entry price and the exit or settlement price.
3Note the lot size and the number of lots, or the number of units.
4Find the price change per unit. For a long, use exit − entry. For a short, use entry − exit.
5Multiply the per-unit result by the total units.
6Check the sign. A positive number is a profit and a negative number is a loss.
7Check that the sign fits the market view: long wants a rise, short wants a fall.

Quickest way: Direction and multiply

When to use it: Use this when the question gives clean numbers and four options, and time is short.

Decide the direction first: did the price rise or fall?
Rise: long gains, short loses. Fall: short gains, long loses.
Take the absolute price move.
Multiply by the lot size and lots.
Attach the sign from step 2 and pick the option. Discard options with the wrong sign at once.

Common mistakes in Futures Payoffs: Long and Short Futures

Using the wrong sign for a short position.
Students apply exit − entry to every position without thinking.
Fix: For a short, always compute entry − exit. Or compute the long result and flip the sign.
Forgetting to multiply by the lot size.
The per-unit answer looks like a complete answer, and it often appears as a trap option.
Fix: Always finish with units × per-unit payoff. Check the lot size given in the question.
Thinking the loss of a long futures position is unlimited.
Students mix up long futures with short futures.
Fix: A long can lose at most the entry price per unit, as the price cannot go below zero. The short has the theoretically unlimited loss.
Treating the margin as the maximum loss.
Students think paying a margin caps the risk.
Fix: Margin is only a deposit. Losses depend on the price move and can exceed the margin, so you may face margin calls.
Calling the futures payoff non-linear like an option.
Option payoff charts with kinks are fresh in the mind.
Fix: Futures payoffs are straight lines with no premium and no kink. Both sides are obliged to perform.

Worked examples

Example 1

An investor buys 2 lots of a stock futures contract at ₹500. The lot size is 400 shares. At expiry the settlement price is ₹520. Find the profit or loss.

Show the solution

The position is long, as the investor bought.
Price change per unit = 520 − 500 = ₹20 gain.
Total units = 2 × 400 = 800.
Total profit = 20 × 800 = ₹16,000.

Answer: Profit of ₹16,000 (before costs).

Example 2

A trader sells 1 lot of index futures at 24,000. The lot size is 75. The trader squares off at 24,150. Find the profit or loss.

Show the solution

The position is short, as the trader sold.
Payoff per unit = entry − exit = 24,000 − 24,150 = −150.
The index rose, which hurts a short, so the sign is a loss.
Total loss = 150 × 75 = ₹11,250.

Answer: Loss of ₹11,250 (before costs).

Exam tips

Read the first word of the position carefully: bought or sold. Many wrong answers come from a sign error.
Look for the lot size in the question. Trap options often show the per-unit figure.
Questions often ask which position has unlimited loss or limited profit. Short futures has the unlimited loss. Long futures has the limited loss.
Know the shape of the chart: a straight line through the entry price, rising for long and falling for short.
In papers with negative marking, skip a payoff question only if you cannot fix the direction. Most are quick to solve.

Practice questions from Strategies using Equity Futures and Equity Options

Futures Payoffs: Long and Short Futures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

FRM Part IBasic Principles of Hedging with Futures

Futures Payoffs: Long and Short Futures: frequently asked questions

What is the payoff of a long futures position?

It is the price at close minus the entry price, per unit. You gain when the price rises and lose when it falls. Multiply by the lot size for the total.

What does the payoff chart of futures look like?

It is a straight line that crosses zero at the entry price. The long chart slopes up and the short chart slopes down. There is no kink, unlike options.

Why can a short futures position lose more than expected?

The price can rise without a fixed upper limit, so the loss is theoretically unlimited. Margin calls and daily mark-to-market make you pay these losses as they occur.

How do I calculate profit on a long futures position?

Subtract the entry price from the exit price, then multiply by the lot size and the number of lots. A negative answer is a loss.