The spot price of Rose Ltd. on 4 th June is ₹1,701 per share, and June future on this is being traded at a price of ₹1,740 per share. The lot size is 400 shares. Rohan takes long on this future for 6 lots. Subsequently,

Here Mr. Rohan has created long on June futures on ABC Ltd. at a strike price of ₹1,740 per share. His open interest on 4 th June is equal to six lots, i.e. a total open interest quantity of 2,400 shares (6 × 400) long position. As it is a futures transaction, therefore, he has the right as well as obligation to settle the transaction. Subsequent outcome is as follows: On 12 th June 2011 He has squared up two lots, i.e. sold June futures on ABC Ltd at a strike price of ₹1,798 resulting into a profit of ₹58 (1,798 - 1,740) per share a total profit of the ₹46,400 (58 × 2 × 400). Now his open interest after this squares up remains only four lots i.e. a quantity of 1,600 shares long on futures. On 23 rd June 2011 He has squared up three lots, i.e. sold June futures on ABC Ltd. at a strike price of ₹1,720 resulting into a loss of ₹20 (1,740 - 1,720) per share a total loss of the ₹24,000 (20 × 3 × 400). Now his open interest after this square up remains only one lot i.e. a quantity of 400 shares long on futures. (In case of square-up the difference between the strike price of the position and the current strike price at which square up is taken, the spot price is of no use.) On 28 th June 2011 (value date) The open long position equal to one lot, i.e. 400 shares is being settled through cash difference settlement. The difference will be taken between the settlement price of ABC Ltd. (closing spot price on the value date) and the strike price of open position. Here, the settlement price is ₹1,725 per share and the strike price is ₹1,740. The difference, ₹15 (1,740 - 1,725) per share is the loss for him as he is the buyer of the futures and the spot price has fallen below the strike price. The total cash difference to be paid by him is ₹6,000 (15 × 400). The net outcome is as follows: Date Cash flow (₹) 4 th June Nil 12 th June (+) 46,400 23 rd June (-) 24,000 28 th June (-) 6,000 Net Total 16,400