Previously in this column, we discussed how delivery margins impact your trading strategy for equity options. This week, we extend this discussion to include long futures position. Specifically, given the delivery margins, we look at the factors you should consider while choosing between futures and options if you were to set up a long trade as a contract approaches expiry.

Futures vs options

Long positions on single-stock futures and in-the-money (ITM) equity calls require holders to take delivery of the underlying shares at contract expiry. Previously, we discussed why breakeven price (strike price plus option premium) is an important reference price if you want to close your position four days before expiry to avoid delivery margins. But what if you want to initiate a position before contract expiry? 

Consider initiating a long position on an immediate out-of-the-money (OTM) call to bet on a positive view on an underlying. If the underlying moves up as you expected, the immediate OTM call is likely to become ITM. Because you hold the position as the contract approaches expiry, your broker will levy delivery margins, which progressively increases to 100 per cent of the contract amount on the expiry day. Similar delivery margins will apply if you initiate long position on single-stock futures before the expiry of the contract. Note that this is in addition to the initial margin you must make when you initiate the futures position. If cash outflows relating to margins are similar for futures and options closer to expiry, potential gains should drive your decision to choose one over the other.

We know that futures contract moves nearly one-to-one with the underlying. That is, futures contract has a delta close to one. Calls have a delta less than one. This is because calls lose value each passing day because of time decay. The upshot is that if your view on the underlying materialises, potential gain on futures will be more than that on call options. While there could be a bias towards futures among active traders who are disciplined at taking their stop-losses, this does not mean that you should always prefer long futures over long call if you were to initiate a position four days before expiry. But it is important to be mindful of the delivery margins and take that into consideration in your decision process.

Optional reading

Futures have symmetrical payoff while options have asymmetric payoff. This means that if price moves adversely, you are likely to lose more in futures compared to options on the same underlying. It is, therefore, important that you trade your futures positions with strict stop-loss. Note that buying put options to protect your long futures position is not an optimal way to protect your losses. Finally, note that your long futures position will always attract delivery margins closer to expiry. Your long call position will attract delivery margins only if the strike is ITM as it approaches expiry.

(The author offers training programmes for individuals to manage their personal investments)

Published on May 2, 2026