Cost of futures and options
What holding a futures or options position actually costs, as the workbook frames it when comparing derivatives to a direct index or gold investment — largely an interest cost, plus a premium for options.
In plain language
A futures contract and an options contract both let an investor get exposure to an index or a commodity like gold without buying the underlying outright. The workbook's comparison tables put a number on what that convenience costs, alongside a fund or ETF that actually owns the asset.
For a futures position, the cost is described as being basically the interest cost of the delayed purchase — the futures price already builds in the cost of funding the purchase to a later date. For an options position, there is that same interest-style cost, plus something extra: a premium, paid up front, for the choice of whether to exercise the option at all.
How it works
The workbook runs this comparison twice — once for Index Futures vs Index Options vs Index Funds (section 19.2.10), and again for Gold Futures vs Gold Options vs Gold ETFs vs Gold Funds (section 19.2.11) — and the cost row is structured the same way both times:
| Futures | Options | Fund/ETF | |
|---|---|---|---|
| Cost | Basically interest cost for the delayed purchase | Interest cost, plus a premium — implementing the option is at the buyer's discretion | Actual market cost at purchase, plus ongoing management or holding costs paid to the AMC |
| Time horizon | A few days to a maximum of 3 months (index); up to 12 months (gold) | Similar, though long-dated options are also available | Can run for a very long tenure, even a lifetime, since it is an actual investment |
| Risk | Same as buying the underlying (index fund/gold) | Capped for the buyer, at the premium paid | The risk of holding the underlying asset itself |
The practical read: a futures or options position is a short-horizon, funding-cost trade, capped at a few months for index derivatives and around 12 months for gold futures, while a fund or ETF is an actual holding with no such time limit and a running management cost instead of a funding cost.
A worked example
Illustrative figures.
Mr Trivedi wants Nifty exposure of Rs 10,00,000 for the next two months.
Route 1 — Nifty futures. He pays a margin, and the futures price already carries an implied interest cost for the funding period — say, roughly Rs 12,000 over two months at prevailing short-term rates, baked into the futures-versus-spot price difference, with no separate premium.
Route 2 — Nifty index options. He instead buys a call option for the same notional exposure, paying an upfront premium of, say, Rs 35,000. This premium is his maximum possible loss, unlike the futures position, but it costs him more than the pure interest-style cost of the futures route if the market simply stays flat.
Route 3 — an index fund. He instead buys Rs 10,00,000 of an index fund outright, paying only the fund's ongoing management cost — a small percentage per year — but he has locked up the full Rs 10,00,000 and can hold the position for as long as he likes, not just a few months.
Why NISM asks about it
Chapter 19 (Comparison of Products across categories), sections 19.2.10 and 19.2.11, run the futures-versus-options-versus-fund comparison for both index products and gold products, with cost as the second parameter in each table. Expect a question asking which structure — futures, options or the underlying fund — has a given cost profile or time horizon.
Common exam traps
- Futures cost is essentially a funding (interest) cost; options add a premium on top of that. Do not describe them as costing the same thing.
- An option premium is the buyer's maximum loss — futures carry no such cap.
- Index derivatives max out around 3 months in the workbook's comparison (barring long-dated options); gold futures run closer to 12 months — do not treat the two comparison tables as identical on time horizon.
- A fund or ETF is an actual holding with a running cost, not a funding cost — the nature of the cost, not just its size, differs from a derivative position.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Direct real estate exposureOwning physical property outright — a large, concentrated, lump-sum investment in one or a few properties, managed by the investor and hard to sell quickly, unlike a REIT or InvIT.
- Stock Lending and BorrowingA screen-based scheme under which an investor lends securities to a borrower through an Authorized Intermediary for a fee — and, under section 47(xv), it is not a transfer.
- Option buyer maximum riskThe workbook's comparison-table rule that an option buyer's maximum possible loss is capped at the premium paid, unlike a futures position, whose risk equals the full swing in the underlying.