Premium and Discount

reji

New member
#1
Dear Alchemist,:)

Thank you very much for your immense help you have given me in the past. I have a very basic query. In fact a stupid one :) Whenever we switch on the CNBC channel during market hours, one can notice that Nifty future is at certain level, say 4300 with 7.00 premium/ 4.85 discount.

What are these premiums and discounts? I don't have much idea about Futures. Does it mean one can take a position of NF by paying the premium/ discount? Or when the market in an uptrend, one has to pay the premium {for longs} and discount when market falls {for shorting}?

Or these premiums and discounts are applicable for Options only?

Kindly respond when time permits

Regards

Reji
 

Alchemist

Administrator
Staff member
#2
Premium and discount are used to describe futures prices with respect to the cash prices.

If the futures price is more than the underlying stock/index, it is said to be at a premium.

If the futures price is less than the underlying stock/index, it is said to be at a discount.
 
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