On Wednesday 10 Jun 2026 I could read three prices that belong together: the June Nifty future at 23,240.10, the 23,250 call at Rs 321.65 and the 23,250 put at Rs 322.05. Buy the future, buy the put and sell the call, and the index stops mattering. On 30 Jun you will have sold Nifty at 23,250 through the options after buying it at 23,240.10 through the future, whatever it did in between. On paper that locks in 9.50 points, which is Rs 618 on a lot of 65 units. The trade is called a conversion, and its mirror is a reversal. This lesson shows how the lock works, what the same check read on two other days, and why a gap in a file is not a profit in an account. Every figure comes from NSE end of day files, dated and not live.
3By the end you can
- Name the legs of a conversion and a reversal and show why the index drops out at expiry.
- Work out the lock from the strike, the future, the call and the put, in points and in rupees a lot.
- List what a settle price file cannot show, from closing charges to the price each leg fills at.
The idea, plainly
A conversion has three legs, all on one strike and one expiry. Buy the future, buy a put and sell a call. Now walk to expiry. If the index ends below the strike, the put pays the strike less the index, the call lapses, and the future has lost the index's fall. The sum is the strike less the price paid for the future. If the index ends above the strike, the sold call costs the index less the strike, the put lapses, and the future has gained the index's rise. The sum is the same. The index cancels out of the answer.
Locked at expiry
= (K − F) + (C − P)
A conversion and a reversal are one lock, bought from either side
Read 5 more paragraphs, 403 words
K is the strike, F the price paid for the future, C the call and P the put, per unit. The first bracket is the strike over the future. The second is the net premium. Interest on it over a few weeks is a few paise, and I leave it out. This is the put call parity gap of module I05, with a trade attached. When the call less the put is larger than parity says, the options side is rich and the conversion locks the difference.
Walk the 10 Jun trade to expiry at two levels. If Nifty ends at 23,050, the future bought at 23,240.10 has lost 190.10, the put pays two hundred points and the call lapses. If Nifty ends at 23,450, the future has gained 209.90, the sold call costs two hundred points and the put lapses. The strike sat 9.90 over the future, and the net premium paid was 0.40. Either way the total is the same, and it matches the lock above.
A reversal runs the other way: sell the future, sell the put and buy the call. It locks the same number with the sign reversed, so it pays when the options side is cheap. Both need the same thing from the market, three prices at one moment that disagree by more than the cost of trading them.
Who does this? Desks that trade it all day, with low costs and netted margin. Each conversion sells a call and buys a put, which pushes the call less the put back toward the future less the strike. That quiet work is a large part of why the check in module I05 comes out close on a busy day. A retail trader's costs are higher, which is the point of the example below. Nothing here is a suggestion to trade. It is how the market ties options to futures, and the short answer is on the conversion and reversal question page.
Two details matter for Nifty. Its options are European and cash settled, so there is no early assignment and no delivery of shares, and the three legs settle against the same index close for expiries before 7 Dec 2026, as module F16 sets out. A stock version swaps the future for shares. Stock options settle in delivery of shares, which adds funding and delivery costs the index version does not have.
Worked example: three days, one check
I read the lock in the file on three days. The strike, the day and the days left changed. The method did not.
- 10 Jun, strike 23,250: the conversion locks 9.50 points.
- 16 Jun, strike 24,000: the conversion locks −0.20 points.
- 29 Jun, strike 24,000: the conversion locks −5.05 points.
A conversion pays the same at every index level: a flat line, on paper
A reversal locks the other sign: flat again, and positive on 29 Jun
- STT on the sold call: Rs 31.36
- NSE charges on options and future: Rs 42.51
- SEBI fee: Rs 1.55
- Stamp duty on the buy side: Rs 30.84
- GST on the NSE charges: Rs 7.65
- Total to open, brokerage left out: Rs 114
The reversal day: one day to expiry, call and put at the same strike
| Calls | Strike | Puts |
|---|---|---|
| Settle | Settle | |
| 192.35 | 23,800 | 24.25 |
| 152.00 | 23,850 | 35.25 |
| 117.90 | 23,900 | 50.35 |
| Spot 23,946.25 | ||
| 87.65 | 23,950ATM | 71.15 |
| 64.30 | 24,000 | 96.45 |
| 45.55 | 24,050 | 128.45 |
| 32.35 | 24,100 | 164.40 |
Shaded cells are in the money. Prices are settlement prices in rupees per unit.
Read 5 more paragraphs, 345 words
Points a unit, from settle prices, before any cost. A minus sign means the conversion would lock a loss, so the reversal is the side that pays, by the same amount. On 10 Jun the options side was rich by 9.50 points. On 16 Jun, with 14 days to run, the three prices sat within a fraction of a point of each other and nothing was left to lock. On Monday 29 Jun, with 1 day left, the future settled at 23,972.90 against 23,946.25 for the index, and the options said the future was dear: the reversal side showed 5.05 points, which is Rs 328 on a lot.
The payoff builder below opens on this chain. Add a bought future, a bought put and a sold call at the 23,250 strike and the line goes flat.
Now the part the flat lines leave out. I priced the statutory charges of opening the 10 Jun conversion at the rates in force from 1 Apr 2026.
The charges to open take 18% of the Rs 618 lock, leaving Rs 504 on paper. That is before four things the file cannot show. Closing charges come first. Brokerage, which is not statutory, is next. After that comes the margin blocked on the short call and the long future, as in module F05. Last is the price each leg actually fills at, because the file holds settle prices and not bids and asks. If the put finishes in the money, exercise STT of 0.15% of its intrinsic value adds Rs 9.75 for each hundred points of intrinsic value. The full cost stack for a trade is in module F06.
The three day table shows something else too. The gap came and went. It was large on 10 Jun, near zero on 16 Jun and reversed on 29 Jun. A lock that exists for a few sessions at a time, in a file read after the close, is a description of the market and not a promise of anything. Module A16 and module A17 take the same arithmetic further.
2 terms this section turns on
The common mistake
The belief: A conversion locks in a profit whatever the index does, so it is risk free.
The lock is real arithmetic at expiry. What is not certain is that you can open it at the file's prices. On 10 Jun the lock was Rs 618 a lot on paper and the statutory charges to open were Rs 114, before closing, brokerage, margin and the spread on three legs. A gap of a few points can vanish in one wide quote. The risk that remains is in the execution and the costs, not in the index. Read the lock as a measure of how far the options sit from the future, and ask what it would cost to trade it.
Key takeaways
- A conversion buys the future, buys a put and sells a call at one strike.
- The lock is the strike less the future, plus the net premium.
- A reversal is the mirror: the same lock with the sign reversed.
- For expiries before 7 Dec 2026 all three Nifty legs settle on the index close.
- Statutory charges to open took nearly a fifth of the lock on 10 Jun 2026.
- A settle price is not a quote, so a paper lock is not a profit.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study