Futures & Margin

Basis

Q: What does a positive basis mean?

The futures price is above the spot price. Some positive basis is normal and reflects the cost of carry (interest saved less dividends). Basis above the fair cost-of-carry level indicates buying pressure in futures; the raw figure should be annualised to compare it across dates.

Q: Why does the basis go to zero at expiry?

Because the future settles at the underlying’s closing value on expiry day, so the two prices are made equal by the settlement rule. In the final days the basis is already small because almost no carry remains.

Q: Is a negative basis bearish?

Often, but not always. A discount can reflect heavy hedging or selling in futures, which is bearish positioning. It can also reflect a dividend due before expiry, which reduces the fair futures price without any bearish reading; stock futures in dividend season frequently trade at a discount for that reason.

Q: How is fair basis calculated for Nifty futures?

Spot times e to the power of (financing rate minus dividend yield) times time to expiry, minus spot. With Nifty at 24,000, 30 days to go, 6.5% financing and 1.2% dividend yield, fair basis is about 105 points.

The gap between the Nifty and its future is not noise. It is the interest rate, the dividends, and the crowd’s eagerness, in points.

In short: basis is the futures price minus the spot price (some texts define it the other way round; on NSE the premium or discount is quoted as futures minus spot). Fair basis is set by the cost of carry: the interest earned on the money not spent buying the shares, less the dividends forgone. Basis above fair value indicates buying pressure in futures; basis below it, or negative, indicates selling or heavy dividends. At expiry the basis is zero by construction.

The intuition

Buying the Nifty’s fifty stocks today costs the full amount now and earns dividends. Buying the future costs almost nothing now and settles at expiry, so the cash stays in the bank earning interest. For the two routes to be equally attractive, the future must cost a little more than spot, by about the interest saved minus the dividends missed. That “little more” is the fair basis. Arbitrageurs with cheap funding hold the two together: if the future drifts far above fair value they sell it and buy the shares; if it drifts below, the reverse.

What makes basis worth watching is that retail and leveraged participants trade futures, not baskets of shares. When they are eager to be long, they push the future above fair value; when they are selling or hedging, they push it below. The basis is therefore a positioning gauge, read in points.

Formula

Basis = futures price − spot price

Fair futures price = spot × e^{(r − q) × T}, where r is the financing rate, q the dividend yield, T the time to expiry in years

Fair basis = fair futures price − spot; annualised basis = basis ÷ spot × 365 ÷ days to expiry

Worked example (illustrative numbers)

Suppose NIFTY is at 24,000 with 30 days to the monthly expiry, the financing rate is 6.5% and the dividend yield 1.2%. Fair futures value is 24,000 × e^{(0.065 − 0.012) × 30/365} = 24,104.8, so fair basis is about 105 points.

Futures trading at	Basis	Annualised	Reading
24,105	+105	5.3%	fair value: no information
24,160	+160	8.1%	above fair: leveraged buying, longs paying up
24,040	+40	2.0%	below fair: hedging or selling in futures
23,970	−30	−1.5%	discount: heavy selling, or a large dividend before expiry

The same 30 points of discount on the last day before expiry would be an enormous mispricing; a week earlier it is modest. That is why the annualised figure, not the raw points, is the one to compare across dates.

Basis decays toward zero as the carry runs out; what matters is where the actual line sits relative to the fair line.

Why it matters to an options trader

Options are priced off the future, not the spot. The synthetic forward implied by puts and calls at a strike equals the futures price; a wide basis shows up as calls dearer than puts at the same distance from spot.
It reads positioning. A basis stretched above fair value into an event is a crowded long; a discount near expiry is forced selling or hedging.
It sets the rollover cost. Rolling a long from the current month to the next pays the next month’s basis; a rich basis makes carrying longs expensive.
Convergence is a trade. Cash-and-carry and reverse arbitrage keep the basis near fair; an options trader selling a strike should know whether the future, not the spot, is at that strike.

Common mistakes

Reading raw points without annualising. 50 points with 25 days left and 50 points with 2 days left are entirely different readings.
Ignoring dividends. In dividend-heavy months the fair basis can be close to zero or negative for stock futures; a discount is not bearish positioning if a dividend falls before expiry.
Measuring against the wrong spot. Index futures should be compared with the index value, which is computed from constituent prices with a small lag during fast moves.
Treating basis as a direction forecast. It is a positioning and carry measure; a rich basis has preceded both rallies and reversals.

Indian-market specifics

NSE quotes futures in the same units as the underlying; the premium or discount shown on broker terminals is futures minus spot. Three monthly contracts trade at any time, expiring on the last Tuesday of each month (previous trading day if a holiday).
At expiry the final settlement price of the future is the closing value of the underlying, so basis is forced to zero on the last day; the convergence is mechanical, not a market outcome.
Nifty futures lot size is 65 (after the January 2026 revision); a basis of 100 points is ₹6,500 per lot of carry.
Stock futures carry dividend effects directly: a declared dividend before expiry lowers the fair futures price by roughly the dividend amount, and NSE adjusts contracts for extraordinary dividends above a threshold under its corporate-action rules.

FAQ

What does a positive basis mean?

Futures above spot; normal up to the cost of carry, bullish positioning beyond it.

Why does the basis go to zero at expiry?

The future settles at the underlying’s close, forcing equality.

Is a negative basis bearish?

Usually hedging or selling, but dividends also produce discounts.

How is fair basis calculated for Nifty futures?

Spot × e^((r − q)T) minus spot; about 105 points in the example.

Watch the basis through the month

The futures page shows Nifty and Bank Nifty futures against spot from the latest session, with the premium or discount. In the app, the Smart Money page reads futures and options positioning together across the session.

Futures overview Futures vs options guide

Related terms

Cost of Carry, what sets fair basis
Contango, a positive basis structure
Backwardation, a negative one
Rollover, where the basis is paid