Contract value
Contract value = number of lots x lot size x price of the underlying
Any futures or options question. This is the exposure, not the cash required, and single units cannot be traded because the lot size is standardised.
- lot size
- Standardised quantity of the underlying that one contract represents
- price
- Price of the underlying, or the index level
Margin, leverage and the wipe-out move
Initial margin = margin % x contract value
Leverage = contract value / margin = 1 / margin %
Adverse move that erases the margin = margin %
To turn a contract value into the cash actually at stake, and to say how far the underlying can move before the position is in trouble.
- margin %
- Initial margin as a percentage of the entire contract value
Compound annual growth rate
CAGR = (Final / Initial)^(1/n) - 1
Reading the turnover and volume statistics on the India derivative-boom slides. Never divide total growth by the number of years.
- n
- Number of years between the two figures