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Suresh Krishnamurthy

What is the `minimum lot size' and how does it affect retail future/option writers? — R. Ganesan.

The minimum lot size is the permitted market lot for trading in the futures and options segment. The futures & options segment of NSE's Web site provides information on the permitted lot size for each of the contract.

The minimum lot size along with exposure limit set for a particular futures contract will decide the initial margin in the case of futures contract. In the case of option contracts, the minimum lot size along with option premium will be the deciding factors.

The minimum lot size is relevant for both buyers and writers since you cannot trade below this level. Otherwise what is relevant is the margin charges for short positions and any other margin requirements that may be imposed in addition by your broker.

I want to know the fund requirements to write a call/put option. Also, I want to know how the trend of the market can be known with the help of F&O? — Ankit

A) The potential losses for an option writer are practically unlimited. It is highly likely that your broker will insist on a higher level of deposits to be maintained with him for commencing option writing than for option buying. This may vary from Rs 50,000 to a few lakhs depending upon your relationship with your broker.

As far as margins set by NSE, the minimum charge for short options is 3 per cent of the notional value of the all short index option positions and 7.5 per cent of the notional value of all short option positions on individual securities. The actual margins may be higher than this minimal charge depending on the particular security, the trading volatility then and a few other parameters.

With respect to discerning the trend of the market with the help of futures & options, our daily column `on the hedge' and the weekly market round-up on futures and option carried on the Market Watch page should help you to start with. The Web sites of a number of brokerages also provide commentaries on trading activity in futures and options. Following these reports and comparing the recommendations with actual developments in future may help you grasp the state of the markets better.

I trade in stock derivatives - mainly options, though I am facing difficulties in constructing the profitable strategies. Can you let me know if there is any software in Indian market that can help me building the option strategies? — Siddharta Bhadury

Liquidity in the Indian derivatives market is restricted to a few counters. This alone is a severe debilitating factor in constructing profitable strategies based on a software program. As for specific software program, a number of them may be available in the market place but are quite likely to be forbidding in terms of their costs for an individual trader. Such software has also not been actively marketed till now.

Your best bet would probably be your broker. Many brokerages now suggest trading strategies that may be followed by an investor like you. Some of the larger brokerages are also likely to have capable people handling this activity. So if your outlay involves substantial sums of money, taking such professional advice would be better.

Our column `on the hedge' published in the market watch page every day does give out recommendations. Newsletters of a number of large brokers regularly suggest strategies that can be followed by an investor. Experience with such trading strategies can be a good starting point too.

Queries relating to futures/options may be mailed to fno@thehindu.co.in or to Futures & Options, Kasturi & sons, 859-860, Anna Salai, Chennai 600 002.

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