Contract specifications
The terms of an exchange-traded derivative that the exchange fixes in advance — underlying, lot size, contract cycle, expiry day, tick size, settlement prices, trading hours — everything except the price.
In plain language
In a futures or options market the exchange decides all the terms and conditions of the contract other than the price. Those terms are known as contract specifications.
That is the standardisation that makes exchange trading possible. Because every Nifty October futures contract is identical — same underlying, same quantity, same expiry, same tick size — any buyer can trade with any seller, and anyone can exit by trading the same contract the other way. Only the price is left to buyers and sellers to discover.
For options the rule is the same with one word changed: the exchange decides all terms except the option premium.
How it works
The workbook walks through the Nifty futures quote of 3 October 2025 (Chapter 3, section 3.3):
| Specification | What it is |
|---|---|
| Underlying instrument and price | The index or stock; the underlying price is the spot price (24,894.25) |
| Contract multiplier / contract size | Futures trade in lots set by the exchange, different for each stock and index, changed from time to time |
| Contract cycle | Three-month cycle on NSE — near (Oct 2025), next (Nov 2025), far (Dec 2025) |
| Expiration day | Last trading day; Nifty, Bank Nifty and NSE stock futures expire on the last Tuesday of the month |
| Tick size | Minimum price move — 5 paise for Nifty futures |
| Daily settlement price | Last half-hour weighted average price |
| Final settlement price | Closing price of the underlying in the cash segment on the last trading day |
| Trading hours | 9.15 am to 3.30 pm, Monday to Friday |
The BSE Sensex futures contract differs: contract size 20, tick size Rs 0.05, 7 serial weekly and 3 serial monthly contracts, monthly expiry on the last Thursday, weekly on Thursday, cash settled. Sensex options add 3 quarterly and 8 semi-annual contracts and are European.
Contract size rule. A SEBI master circular had required index derivative contracts to be worth Rs 5–10 lakh, a limit last set in 2015. From November 2024, a new contract must be worth at least Rs 15 lakh at introduction, and lot sizes are fixed so the value on the review day is within Rs 15–20 lakh.
Price band. Chapter 3 says the price band is clearly defined in the contract specifications. Chapter 6 says there are no price bands in the derivatives segment — only operating ranges to prevent erroneous orders, at 10% of the base price for index futures and stock futures, and a delta-based range for options. The workbook states both.
A closing transaction must be in a contract with the same terms — same strike, same expiry.
Corporate actions can change specifications: adjustments modify the strike price, position and market lot/multiplier so that the value of positions stays the same as far as possible.
A worked example
Contract value from the specifications. Using the workbook's assumed Nifty lot size of 65 and the October futures closing price of 25,006.60:
Contract value = 25,006.60 × 65 = Rs 16,25,429 → inside the Rs 15–20 lakh band
The workbook's own text multiplies the lot size by the underlying value instead — 65 × 24,894.25 = Rs 16,18,126.25 — while stating the rule as futures price × multiplier. Follow the rule.
Option premium per contract. With an assumed Nifty options lot size of 50, a call at a premium of Rs 124.50 costs 124.50 × 50 = Rs 6,225; a put at Rs 177.60 costs Rs 8,880.
A bonus changes the specifications, not the value (illustrative contract). A stock option has a strike of Rs 1,200 and a lot of 500. The company issues a 1:1 bonus. Using the workbook's rule, adjustment factor = (A + B) ÷ B = (1 + 1) ÷ 1 = 2.
New strike = 1,200 ÷ 2 = Rs 600
New lot = 500 × 2 = 1,000
New position = old position × 2
Value before = 1,200 × 500 = Rs 6,00,000
Value after = 600 × 1,000 = Rs 6,00,000
In-the-money stays in-the-money; nobody gains or loses from the bonus itself.
Why NISM asks about it
Chapter 3, section 3.3 (Contract specifications of futures contracts), is built around the Nifty quote and the Sensex table, including the SEBI contract size change. Chapter 4, section 4.2, repeats the exercise for options. Chapter 6, section 6.4, shows how corporate actions adjust strike, position and lot. Expect "which term does the exchange not fix", tick size, expiry day, contract size and contract value questions.
Common exam traps
- The exchange fixes everything except the price (futures) or premium (options).
- Contract value = futures price × lot size. The workbook's Rs 16,18,126.25 uses the spot value, contrary to its own rule.
- NSE expires on Tuesday; BSE on Thursday.
- Sensex contract size is 20; the Nifty lot sizes in the workbook (65, 50, 25) are assumptions at different dates, not constants.
- Rs 5–10 lakh is the old contract size range (set 2015); Rs 15–20 lakh applies from November 2024.
- The workbook says a new contract is introduced after the October expiry "in this example — January 2025"; on a 3 October 2025 cycle that would be January 2026 — a typo in the text.
- Final settlement price is a cash-market price, not the last futures price.
- Price band or operating range? Chapter 3 puts a price band in the contract specifications; Chapter 6 says derivatives have no price bands, only operating ranges.
Where this is taught
Free preparation for NISM Series V-DRelated terms
- Daily Settlement PriceThe price at which every open futures position is marked and reset at the end of each day — the last 30 minutes' volume weighted average price of that contract, computed separately for each expiry.
- Final Settlement PriceThe price at which a commodity derivative is finally settled at expiry — a simple average of the polled spot prices of the expiry day and the two days before it.
- Futures contractA standardised forward traded on an exchange, where the exchange fixes every term except the price and the clearing corporation guarantees settlement, so neither side carries the other's default risk.
- Tick sizeThe smallest price change a contract may be quoted in — prices move only in whole multiples of it, and it differs from one commodity to another.
- Contract cycleThe period over which a derivative contract trades, and the set of expiries available at once — for NSE stock and index futures, a three-month cycle of near, next and far months.
- Contract valuePrice or rate multiplied by the lot size or contract multiplier — the number margins, brokerage, transaction charges and regulatory fees are all computed from, and different for every contract.
- Expiration dayThe last trading day of a derivative contract, on which it ceases to exist and all open positions are compulsorily settled — the last Tuesday of the month for NSE contracts, the last Thursday for BSE.
- Lot sizeThe minimum quantity that must be traded and, on a delivery contract, actually delivered at expiry — equal to or higher than both the trading unit and the minimum order quantity.