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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures

A trader sells one lot of 500 shares of a stock futures at Rs 800. Initial margin is 10% of contract value. The settlement price on day 1 is Rs 812, and on day 2 is Rs 790. Ignoring other margins, what is the cumulative MTM position at the end of day 2 and the initial margin blocked at entry?

The short seller has a cumulative gain of Rs 5,000 and initial margin of Rs 40,000. Price fell from 800 to 790, so the short gains 10 times 500 units, and margin is 10 percent of 800 times 500, which equals Rs 40,000.

  1. AGain Rs 5,000; margin Rs 40,000Correct
  2. BLoss Rs 6,000; margin Rs 40,000
  3. CGain Rs 5,000; margin Rs 41,200
  4. DLoss Rs 5,000; margin Rs 40,000

Explanation

Short at 800. Day 1 MTM = (800-812) x 500 = -6,000. Day 2 MTM = (812-790) x 500 = +11,000. Net = +5,000, which matches (800-790) x 500. Initial margin = 10% x 800 x 500 = 40,000 at entry price. Loss of 6,000 is only the day-1 figure.

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