Save Transaction Cost using Synthetic Future - FIST
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Greetings from FinIdeas !!!
Transaction Cost is a significant cost in Trading. Lower transaction cost leads to higher ROI for trader. Let us see how a synthetic future can save the transaction cost.
For Example :
Nifty Price = 8000 || Lot Size = 50 || 8000 Call Option = Rs. 120 || 8000 Put Option = Rs. 120
Formula for Synthetic Future
- Synthetic Long Future = Buy Call + Sell Put(of same Strike)
- Synthetic Short Future = Sell Call + Buy Put (of same Strike)
Cost Calculation
- Transaction Cost for buying and selling Future = Rs 1.45 (approx.) per Lot
- Transaction Cost for buying and selling Synthetic Future = .27 paise (approx.) per Lot
- Cost saving is around 81 %. Saving improves further, as when days approaches expiry Option Cost reduces but Future Cost remains the same
- A trader trading around 50000 Qnty in future in a month will save him Rs. 50000 (approx.) as transaction cost per month.
- Remember for a trader even cost saving is also his profit.
- Synthetic Future is recommended to be used only for Nifty Trading because of high liquidity and lower impact cost.
This article is for education purpose only. Kindly consult with your financial advisor before doing any kind of investment.
Strategies in which we can use Synthetic Future
- Volatility Spread Trading
- Volatility Trading
- ITM Options Trading
- PCP Trading
- Volatility Difference Butterfly
- Any Auto-Delta Neutral Strategy