A calendar unfold is a buying and selling technique that helps a dealer to hedge in opposition to the worth volatility of a selected commodity. Right here the dealer takes a place on two or extra contracts on the identical underlying asset however with completely different supply or expiration dates. The technique will be utilized to each futures and inventory choices in addition to commodity derivatives.
In commodity buying and selling, a dealer has to pay an preliminary margin for each place taken, whether or not it’s futures or choices. However market regulator SEBI has granted a margin benefit over the calendar unfold in commodity futures, the place 75% of the preliminary margin will be offset. For instance, for those who took a place in (lengthy) gold futures (September contract), say 1 lot and also you additionally took an equal quick place in gold at a distinct maturity (say October contract), then this calendar unfold benefit applies. Suppose in case your margin is 1 lakh, then your margin requirement for the mixed place goes right down to ₹ 25,000.
Presently, within the case of calendar spreads or spreads consisting of two contracts with the identical underlying product, the preliminary margin advantages will solely be allowed when every particular person contract of the unfold is a part of the primary three contracts to run out. Not too long ago, in August of this 12 months, SEBI prolonged this profit to 6 expiring contracts. The round will enter into power inside one month of its date of difficulty (August 9, 2021). The calendar unfold margin not solely helps to reduce losses, but additionally helps enhance the liquidity of long-month contracts, facilitating hedging and lowering buying and selling prices.
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