The big picture
The source title groups options with deliverable futures, but they are different contracts. A futures position creates contractual obligations; an option buyer acquires a right for a premium. This topic teaches PSX deliverable futures and uses options only as a conceptual comparison. At the 22 October 2026 review, the official PSX derivatives page describes stock options as under development; this lesson does not assume they are available for trading. Verify current listings and your broker’s permissions before considering any derivative.
Core concepts
Learning objectives
- Distinguish futures, call options and put options.
- Read a DFC contract specification and dated contract notice.
- Calculate notional exposure, price sensitivity and collateral pressure.
- Explain expiry delivery, close-out and imperfect hedging.
1. Separate a future from an option
1.1 Two-sided obligations
A futures contract binds its long and short sides to the contract’s settlement obligations. A long position gains when its settlement price rises relative to the entry basis and loses when it falls; the short has the opposite price exposure. Exchange clearing, margin and daily settlement manage counterparty exposure but do not remove investment risk. A futures contract is not an option simply because it provides leveraged exposure.
1.2 Premium-paid rights and writer obligations
A call option buyer has a contractual right to buy and a put buyer a right to sell under specified terms. The buyer pays a premium; the writer has contingent obligations if exercised or assigned. For a simple purchased option held without other liabilities, the premium defines the option position’s maximum loss, while a written option can have much larger losses. These theoretical payoffs must not be presented as currently enabled PSX products.
Step-by-step method
- Identify whether the contract imposes an obligation or grants a purchased right.
- Separate the buyer’s premium from futures margin collateral.
- Verify actual product availability in official listings.
In an invented comparison, a 100-share future at PKR 50 loses PKR 1,000 if its relevant price falls to 40. A separately purchased hypothetical call costing PKR 200 can expire worthless; its buyer loses that premium, not the same futures payoff.
2. Read the deliverable futures specification
2.1 Underlying, quantity and permitted market
PSX describes DFCs as standardised futures on eligible securities with actual delivery at expiry. Before any position, identify the exact underlying, contract symbol, contract quantity or market lot, tick size, trading hours, eligibility and applicable position limits. Do not import a multiplier from an index future or assume that an ordinary-market symbol alone identifies the intended expiry contract.
2.2 Contract month and final settlement
The exchange’s current specification and dated notices govern the last trading day, settlement calendar, corporate-action adjustments and exceptional arrangements. A generic statement such as “last Friday every month” is insufficient when a holiday, special notice or contract variation applies. Confirm obligations with both broker and clearing documentation. Cash-settled futures, where listed, are distinct: their final settlement does not require the same share delivery as DFCs.
Step-by-step method
- Read the current product specification and exact contract-month notice.
- Confirm quantity units, expiry date and settlement method.
- Check eligibility, permissions and current broker conditions.
A learner finds two symbols referring to the same company but different months. Recording the full contract identifier and final settlement dates prevents treating them as interchangeable positions.
3. Calculate leverage and collateral pressure
3.1 Notional versus initial margin
Notional exposure equals the underlying price basis multiplied by the contract’s share-equivalent quantity. Margin is collateral against this exposure, not a discounted purchase price and not a loss ceiling. Requirements can change with risk conditions and include additional broker requirements. Use actual current percentages only from authorised documentation; this topic’s collateral percentage is an invented arithmetic assumption.
3.2 Daily losses and funding needs
Assume exposure of 1,000 share-equivalents at PKR 50: notional is PKR 50,000. With a hypothetical 20% initial collateral requirement, PKR 10,000 is posted. A PKR 5 adverse price move represents PKR 5,000 gross loss, or 50% of that initial collateral, before charges. Additional cash may be required before expiry, and forced closure can crystallise a loss. A favourable eventual price does not rescue an account unable to meet interim calls.
Step-by-step method
- Calculate exposure using the verified contract quantity.
- Stress adverse price moves and changing collateral requirements.
- Reserve funding separately from money needed for delivery.
A hypothetical trader has exactly PKR 10,000 collateral and no reserve. A PKR 5 fall creates a PKR 5,000 mark-to-market loss. The original small cash commitment did not make the exposure small or the loss tolerable.
4. Plan close-out, rollover or delivery
4.1 Expiry obligations and operational preparation
A position that remains open into final settlement must meet the applicable deliverable obligations: a buyer needs the required funds and the seller needs acceptable deliverable securities under the rules. Do not assume a broker will automatically close it at a desired price or finance a shortfall. Trading restrictions, missing liquidity and price movements can make a last-minute exit unavailable.
4.2 Rollover is a new economic transaction
Closing a position requires the correct opposite trade in the same contract and confirmed net position. Rolling normally involves closing one expiry and opening another; it creates two transactions, charges and exposure to the price difference between months. A completed order acknowledgement is not proof of a completed close-out. Reconcile fills, open obligations and the broker’s expiry instructions well before deadlines.
Step-by-step method
- Choose a documented exit or delivery plan before opening a position.
- Confirm cut-offs, funding and acceptable share availability.
- After closing or rolling, reconcile each contract’s remaining quantity.
A holder intends to roll but only the new-month purchase fills. The old long remains open, so the account now has two exposures. Checking both order logs reveals the problem before assuming a successful rollover.
5. Use hedging logic and recognise residual risks
5.1 Matching the exposure
A short future can offset some price exposure in an existing eligible shareholding, subject to permitted selling rules and approvals. Match share-equivalent quantities and relevant timing; a hedge of a different company or index introduces correlation risk. The basis is the difference between futures and cash prices under a stated convention. Changes in basis mean cash and futures gains may not cancel perfectly before expiry.
5.2 Basis, costs and imperfect protection
Evaluate the combined position rather than the derivative alone. A cash holding might gain while the hedge loses, yet the combined risk reduction could still be the intended result. Include dividend and corporate-action treatment, charges, tax, liquidity and collateral funding. A hedge does not remove issuer default, operational error or every market risk. Obtain current permission and product-specific guidance rather than treating a theoretical short position as a universally available retail instruction.
Step-by-step method
- Write the exposure being hedged and the target quantity.
- Model combined cash and futures outcomes under several basis assumptions.
- Check permissions, costs, funding and residual risks.
An investor models a 1,000-share cash holding and a 1,000-share-equivalent short future. A PKR 4 cash fall and PKR 3 futures fall produce a PKR 4,000 cash loss and PKR 3,000 futures gain: protection is partial, with PKR 1,000 loss before costs.
Small collateral does not mean small exposure
| Measure | Value |
|---|---|
| Notional exposure | 50,000 PKR |
| Initial collateral | 10,000 PKR |
| Adverse-move loss | 5,000 PKR |
Reference table
| Feature | Deliverable future | Purchased option: theory |
|---|---|---|
| Position | Contractual settlement obligation | Purchased contractual right |
| Initial payment | Required collateral, not loss ceiling | Premium paid for the option |
| Adverse move | Losses and funding calls can exceed initial margin | Simple isolated buyer can lose premium |
| Expiry | Applicable physical delivery obligations | Exercise or expiry under option terms |
| PSX verification | Check eligible contract and month | Official page describes development; do not assume trading access |
Glossary of key terms
- Basis
- The difference between cash and futures prices, with the sign convention stated.
- Call option
- A contractual right for its buyer to buy under specified terms.
- Delivery
- Completion through transfer of the underlying securities and required funds.
- Initial margin
- Collateral required to establish a derivatives position.
- Mark-to-market
- Valuation and applicable settlement of a position as prices change.
- Notional exposure
- The price basis multiplied by the share-equivalent contract quantity.
- Put option
- A contractual right for its buyer to sell under specified terms.
- Rollover
- Closing one expiry and opening another, subject to actual fills.
Frequently asked questions
Is a DFC an option?
No. A future imposes settlement obligations; an option buyer purchases a right.
Is posted margin my maximum loss?
No. Losses and additional funding requirements can exceed initial collateral.
Are stock options assumed available on PSX?
No. The official product page reviewed describes them as under development; verify any later listing.
Does a hedge guarantee no loss?
No. Basis, correlation, funding, execution and other risks can remain.
Common pitfalls
| Common mistake | A better approach |
|---|---|
| Importing another product’s contract multiplier | Read the exact DFC specification and month notice. |
| Using all available cash as collateral | Stress interim funding and delivery obligations. |
| Relying on a remembered monthly expiry rule | Verify the dated calendar and exceptional notices. |
| Assuming rollover completed from one fill | Reconcile both contracts and all remaining quantities. |
Your learner task
On paper, compare a future and a purchased call, read a current DFC specification, and record its exact units, expiry and settlement method. Apply the hypothetical notional and margin calculation, stress a larger adverse move, and write separate close-out, funding and delivery checklists.
Sources & verification
Use the linked documents to check the factual and regulatory context. Source dates and limitations are stated where relevant. Educational examples and analytical frameworks are not personalised recommendations.
- JISPL · Knowledge curriculum ↗
Course identity and subject coverage; factual corrections are explained in this expanded lesson.
- PSX derivatives ↗
DFC obligations and contract specifications; options described as under development at review.
- PSX Rulebook ↗
Verify current eligibility, permitted selling, margin and contract notices.
- PSX cash-settled futures ↗
Distinguishes cash settlement from deliverable futures; verify actual listed contracts.
Editorial review: 22 October 2026