What is Basis (Futures vs Spot)?
Basis is the difference between the futures price and the spot (or fair) price of the same underlying — typically futures minus spot. Positive basis (futures above spot) is common in index futures when financing and dividend expectations embed in pricing.
What basis measures
Basis links cash and derivatives markets. Arbitrage and roll activity tend to pull extreme basis toward fair bands, but events, dividends, and expiry proximity widen it temporarily. Basis is not direction — it is relative pricing.
Indian market context
Nifty/Bank Nifty futures often trade at premium to spot in calm uptrends (contango-like). Near expiry, basis converges as futures and spot align. Roll traders compare near vs next month basis to estimate roll cost.
Calendar-spread and roll traders should snapshot basis at the same clock time each session — opening versus closing basis can differ by 20–40 points on volatile Nifty days. Consistent timing makes your roll-cost history comparable in TradeLyser notes.
Worked example
| Field | Value |
|---|---|
| Spot Nifty | 24,200 |
| Near futures | 24,260 |
| Basis | +60 pts |
| Interpretation | Premium — note for roll/arbitrage context |
Common mistakes
- Confusing basis with directional edge.
- Ignoring roll cost in multi-month futures P&L.
- Not logging basis at entry on calendar spread trades.
- Using spot indicators on futures chart without adjustment.
How to validate
- Validate Basis (Futures vs Spot) separately for index weeklies vs stock options.
- Stress-test with expiry-week and event-week subsets (RBI, budget, results).
- Confirm margin and tail-loss scenarios are logged for short premium books.
- Discard readings polluted by untagged discretionary adjustments.
How to track in TradeLyser
- Tag every leg: structure, DTE, moneyness, and whether Basis (Futures vs Spot) was a primary driver.
- Log planned max loss ₹ on entry for short premium strategies.
- Weekly: list open short ITM/ATM legs before expiry with a written roll/close rule.
- Separate F&O account tags from cash equity for Basis (Futures vs Spot) statistics.
Best practices
- Size Basis (Futures vs Spot) trades with margin headroom for gaps and assignment.
- Prefer defined-risk structures when learning a new options concept.
- Roll or close based on written DTE rules, not convenience.
- Keep weekly index and monthly stock books in separate tags.
Common pitfalls
- Short premium without defined max loss while Basis (Futures vs Spot) risk builds.
- Holding illiquid stock options into expiry without a plan.
- Blending index and stock gamma exposure in one tag.
- Ignoring margin spikes on gap opens.
How to use this in TradeLyser
On roll days, add basis snapshot to TradeLyser daily note — build a small table of roll costs over quarters to see drag on strategy.
Reference guide
| Context | Value | Reading |
|---|---|---|
| Roll logging | Record old vs new contract basis at roll | Rolling blindly on expiry without cost check |
| Hedge | Track basis when hedging portfolio with index futures | Assuming futures P&L equals spot P&L one-for-one |
Related terms
Backwardation is the opposite curve shape to contango: nearer futures trade below further ones, or futures trade below fair spot. Long positions rolling in backwardation may capture positive roll yield — common in some stress or tight supply narratives (more typical in commodities than indices).
Contango describes a forward curve where later futures prices are higher than nearer ones — or futures trade above expected spot fair value. Rolling long positions in contango often means buying higher and selling lower across tenors, creating negative roll yield.
A futures contract obligates parties to transact the underlying at settlement per NSE rules, with daily mark-to-market and margin.
Index futures are standardized NSE F&O contracts on benchmark indices (notably Nifty 50 and Nifty Bank) that cash-settle against official closing prices. They offer leveraged exposure to broad market direction with transparent lot sizes and deep liquidity relative to most stock futures.
Mark to market (MTM) is the daily revaluation of open derivatives positions against the exchange settlement or closing price, with profits credited and losses debited to your ledger. On NSE F&O, MTM runs on open futures and options positions so capital reflects current risk, not just entry price.
Rollover closes or shifts positions from near-expiry contracts to the next series, avoiding delivery or illiquid last days.
FAQ
What is fair basis for Nifty futures?
Fair basis moves with rates, dividends, and days to expiry — there is no fixed number. Compare to historical basis for the same DTE rather than a static rule.
Does basis predict next day direction?
Not reliably for retail samples. Use basis for roll and hedge economics, not standalone direction signals.
How does basis relate to contango?
Persistent positive basis across tenors resembles contango; inverted relationship is backwardation — see those terms for curve context.
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