---
title: "Conversions and reversals: locking the parity gap"
description: "How a conversion and a reversal lock the put call parity gap with three legs, on NSE settle prices for three days in Jun 2026, and why costs decide the rest."
source_url: "https://www.rupeecase.com/learn/path-18/module-18-2-conversions-and-reversals"
---

[Path 18 2 of 14](/learn/path-18/)Conversions and reversals[Next 18.3](/learn/path-18/module-18-3-pair-trading-intuition)

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

1. Name the legs of a conversion and a reversal and show why the index drops out at expiry.
2. Work out the lock from the strike, the future, the call and the put, in points and in rupees a lot.
3. List what a settle price file cannot show, from closing charges to the price each leg fills at.

Watch in the terminal: why do the hero, key figure and XIRR differ? A short tutorial on sample data.

## 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

Three legs on one strike and one expiry. In a conversion the options are the rich side, in a reversal the cheap side. Illustration of the logic, with no prices. Source: RupeeCase illustration of the conversion and reversal. As of 17 Oct 2026.
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](/learn/path-14/module-14-10-put-call-parity), 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](/learn/questions/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](/learn/path-14/module-14-6-expiry-and-settlement) 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

One lot of the 10 Jun 2026 conversion at the 23,250 strike. The June future was bought at 23,240.10 a unit, and the put was bought and the call sold at their settle prices. The flat line sits at Rs 618 at expiry before costs. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
A reversal locks the other sign: flat again, and positive on 29 Jun

One lot of the 29 Jun 2026 reversal at the 24,000 strike. The June future was sold at 23,972.90 a unit. The put was sold at 96.45 a unit and the call bought at 64.30 a unit. The flat line sits at Rs 328 at expiry before costs. Source: NSE end of day data, computed by RupeeCase. As of 29 Jun 2026.

* 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.

Settlement prices around the strike nearest the future on 29 Jun 2026, one day before the 30 Jun expiry. At the 24,000 strike the call settled at 64.30 a unit and the put at 96.45 a unit, so the call less the put was −32.15 a unit. Source: NSE end of day data, computed by RupeeCase. As of 29 Jun 2026.
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](/learn/path-12/module-12-5-fo-margins-explained). 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](/learn/path-12/module-12-6-cost-of-an-fo-trade).

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](/learn/path-18/module-18-5-box-spreads) and module [A17](/learn/path-18/module-18-6-parity-deviations) take the same arithmetic further.

2 terms this section turns on

From the module glossary; every term is in the Learn glossary too. Source: Module 18.2, Conversions and reversals.

## 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.

Watch in the terminal: what does "Same money in NIFTY 50" mean? A short tutorial on sample data.
**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](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html)

What does Conversions and reversals cover?Three legs on one strike lock the gap between options and the future. What a file shows is a paper lock, not a profit. It works through The idea, plainly, Worked example: three days, one check, The common mistake, Key takeaways. It is module 18.2 of Path 18, Arbitrage and Relative Value, about 9 minutes of reading, free.

TTry it

## Payoff builder, on the same example.
Legs from a dated chain, the expiry and before expiry curves, breakevens and the charges. Dated NSE end of day data, nothing live, no orders.

**Payoff builder**, Nifty, 10 Jun 2026, 30 Jun 2026 expiry.

[Open the payoff builder](/learn/tools/payoff-builder?chain=NIFTY_2026-06-10_2026-06-30)

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## Hedging only, in development
F&O at RupeeCase will do one job: protect a portfolio you already own, by a rule published before it runs. No speculation, no naked option selling, no leveraged bets. It is not available yet.

  [How hedging will work](/hedging)[Sign up for RupeeCase](https://invest.rupeecase.com/signup)

  [No hedgeFalls with the marketWith a putA floor, for a premiumIllustration with made up numbers, not a product and not a recommendation.](/hedging)

QQuick check

## 10 questions, 7 to pass.
Each attempt draws 10 of the 15 questions in this module's bank, and a retake draws a fresh set. A pass gives this module's Certificate of Completion. Your result stays on this device and counts towards the Path 18 certificate.

7 of 10 correct passes module 18.2

Every answer is explained when you check; a retake is always free. Source: RupeeCase Learn quiz rules (70% to pass).

  Passed

###

  Certificate ID

Download PNGPrint or save as PDF[Check the ID](/learn/certificates/verify)
Self paced and unproctored. A record of completing free education by RupeeCase; not a NISM certificate and not endorsed by NISM, NSE, BSE or SEBI. It qualifies no one to deal, advise or publish research.

CCheck yourself

## Path 18 so far.
Your quick check results on this device, stop by stop.

Stop 2 of 14 on Path 18

Arbitrage and Relative Value: every live stop, this module ringed. Source: RupeeCase Learn, Path 18.

1. [18.1Cash futures arbitrage and the Nifty 50 Arbitrage indexNot yet](/learn/path-18/module-18-1-cash-futures-arbitrage)
2. [18.2Conversions and reversalsNot yet](/learn/path-18/module-18-2-conversions-and-reversals#quiz)
3. [18.3Pair trading intuition: correlation is not cointegrationNot yet](/learn/path-18/module-18-3-pair-trading-intuition)
4. [18.4Futures calendar arbitrage and roll dynamicsNot yet](/learn/path-18/module-18-4-futures-calendar-arbitrage)
5. [18.5Box spreads with European index optionsNot yet](/learn/path-18/module-18-5-box-spreads)
6. [18.6Parity deviations in practice: what the frictions costNot yet](/learn/path-18/module-18-6-parity-deviations)
7. [18.7Cointegration toolkit: Engle Granger, ADF, half life and z scoreNot yet](/learn/path-18/module-18-7-cointegration-toolkit)
8. [18.8Pair trading with Indian stock futuresNot yet](/learn/path-18/module-18-8-pair-trading-with-stock-futures)
9. [18.9Mean reversion against momentumNot yet](/learn/path-18/module-18-9-mean-reversion-vs-momentum)
10. [18.10Implied correlationNot yet](/learn/path-18/module-18-10-implied-correlation)
11. [18.11Dispersion trades: construction and risksNot yet](/learn/path-18/module-18-11-dispersion-trades)
12. [18.12The correlation risk premiumNot yet](/learn/path-18/module-18-12-correlation-risk-premium)
13. [18.13Baskets, PCA stat arb and Johansen testsNot yet](/learn/path-18/module-18-13-pca-stat-arb)
14. [18.14Kalman filter hedge ratiosNot yet](/learn/path-18/module-18-14-kalman-filter-hedge-ratios)
15. [TPath test, 30 questionsNot yet](/learn/path-18/module-18-14-kalman-filter-hedge-ratios#pathTestSection)

Path 18 in reading time: 143 minutes over 14 modules

Minutes of reading per module, this one in amber. Source: RupeeCase Learn, Path 18.

    Explore next

## Put the module to work.

* [Free module 14.10Put call parity and synthetic positions9 min read](/learn/path-14/module-14-10-put-call-parity)
* [Free module 12.5Margins without jargon: SPAN, exposure, expiry day margin and upfront premium8 min read](/learn/path-12/module-12-5-fo-margins-explained)
* [Free module 12.6The real cost of a trade: STT, exchange fees, SEBI fee, GST and stamp duty7 min read](/learn/path-12/module-12-6-cost-of-an-fo-trade)
* [Free module 14.6Expiry and settlement: cash, physical, exercise and STT8 min read](/learn/path-14/module-14-6-expiry-and-settlement)
* [Free module 18.5Box spreads with European index options11 min read](/learn/path-18/module-18-5-box-spreads)
* [Free module 18.6Parity deviations in practice: what the frictions cost10 min read](/learn/path-18/module-18-6-parity-deviations)

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SSources

## Go to the source.
9 sources, NSE the most cited

The publisher of each source listed below. Source: Module 18.2 source list.
1. [NSE, equity derivatives contract specifications (index options are European and cash settled)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE
2. [NSE Clearing, settlement mechanism for futures and options](https://www.nseclearing.in/clearing-settlement/equity-derivatives/settlement-mechanism) NSE
3. [NSE, securities transaction tax on equity derivatives](https://www.nseindia.com/static/products-services/equity-derivatives-securities-transaction-tax) NSE
4. [NSE circular NSE/FATAX/73524, STT rates from 1 Apr 2026](https://nsearchives.nseindia.com/content/circulars/FATAX73524.pdf) NSE
5. [NSE circular NSE/FA/73061, transaction charges from 1 Mar 2026](https://nsearchives.nseindia.com/content/circulars/FA73061.pdf) NSE
6. [NSE, stamp duty, charges and taxes for first time investors](https://www.nseindia.com/invest/first-time-investor-stamp-duty-charges-taxes) NSE
7. [SEBI Investor, Understanding derivatives](https://investor.sebi.gov.in/understanding_derivatives.html) SEBI
8. [NISM, Series VIII Equity Derivatives certification examination](https://www.nism.ac.in/revamp-nism/equity-derivatives/) NISM
9. Natenberg, S., Option Volatility and Pricing, McGraw-Hill Book

GTerms

## 5 terms from this module.
ConversionA future bought, a put bought and a call sold on one strike and expiry. It locks the strike less the future price, plus the net premium.
ReversalThe opposite of a conversion: the future sold, a put sold and a call bought. It locks the same number with the sign reversed.
Parity gapHow far the call less the put sits from the discounted future less the strike. A conversion or reversal locks it.
Paper lockA lock worked out from settle prices. It ignores closing charges, brokerage, margin and the price each leg actually fills at.
Cash settledSettled in rupees against the index close, with no delivery of shares. Nifty index options and futures settle this way.
[All 230 terms in the glossary](/learn/glossary)

[Question people askWhat are conversion and reversal arbitrage?A short answer with a dated chart](/learn/questions/conversion-and-reversal)[Related module14.10 Put call parity and synthetic positions9 min, Intermediate](/learn/path-14/module-14-10-put-call-parity)[Related module12.5 Margins without jargon: SPAN, exposure, expiry day margin and upfront premium8 min, Beginner](/learn/path-12/module-12-5-fo-margins-explained)[Pillar guideDerivatives and Quant115 modules across paths 12 to 19](/learn/derivatives)

Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.