Wednesday 10 Jun 2026. Buy the 23,000 call and the 23,500 put, sell the 23,500 call and the 23,000 put, all in the 30 Jun expiry. Whatever Nifty does, that package pays 500 points on 30 Jun, because the options cancel the index. The four settle prices added up to 497.35. Paying 497.35 today for 500 in 20 days is a loan, and it lends at 9.72% a year against a bill yield of 5.11%. On paper that is 2.65 points of interest. The statutory charges on the same four legs came to 2.58, and what was left was 0.07. This is a box spread. It reads like a bond and trades like four options, and the gap between the two is the lesson. Every figure is an NSE end of day settlement, dated, so nothing is live.
3By the end you can
- Name the four legs of a box and show why the index drops out at expiry.
- Work out the implied rate and compare it with the bill yield and the charges.
- Say why boxes of one width give scattered rates from settle prices, and why expiry makes it worse.
The idea, plainly
A box is a bull call spread and a bear put spread on the same two strikes. The calls gain when the index rises, the puts when it falls, and the two sums always add to the distance between the strikes.
What is a box spread, and why is it a loan?
Take two strikes, a lower one L and an upper one U. Buy the call at L and sell the call at U: that is the bull call spread. Buy the put at U and sell the put at L: that is the bear put spread. At expiry the index ends below L, between them, or above U. In each case the four legs together are worth U less L. The index drops out, as it does in the conversion of module I30.
Box price = C(L) − C(U)
+ P(U) − P(L)
Span = U − L
Rate = (span / price − 1)
× 365 / days
The maths: a box is two parity gaps
Put call parity says the call less the put at a strike equals the discounted future less the strike. Take it at L and at U and subtract.
(C − P) at L
− (C − P) at U
= discount × (U − L)
The left side is the box price. So a box is the conversion at one strike minus the conversion at the other, and a box rate that differs from the bill yield is the difference between two parity gaps, module A17. The continuous rate is the natural log of span over price, over the time in years. For short boxes it is within a rounding error of the simple rate used here.
A box is two spreads that add to a fixed payment, so its price is a discounted loan
A bought box pays the same at every index level: a flat line
Read 2 more paragraphs, 178 words
A fixed payment at a known date has a price today, and that price is the payment discounted at some rate. Pay less than the discounted amount and you have lent at a rate above the bill. Pay more and you lent below it. Selling the box is the other side: you receive the price today and owe the span at expiry, which is borrowing. Nifty options are European and cash settled, so no leg can be exercised early. That feature is what lets the payoff stay fixed, and it is why the box can be described this way for index options.
Researchers have used box rates from index options as a market read of the risk free rate, because a box needs no view on the index. That works where bid and ask quotes exist at many strikes and the options trade in size. An Indian end of day settle file is a weaker input. It has one end of day price per leg, not a quote, and the box turns four of them into a rate.
Why do boxes imply such different rates on one day?
If the market priced every box off one interest rate, boxes of the same width would show about the same rate. They do not. On 10 Jun I priced six boxes of 500 points, with the lower strike running from 23,000 to 23,500 in steps of one hundred, using only strikes where each of the four legs traded in at least two thousand contracts. The implied rates ran from 8.1 to 30.8 percent a year. The bill yield was 5.11%.
Six boxes of one width give six different rates, all above the bill yield
| Lower strike | Rate a year, % |
|---|---|
| 23,000 | 9.7 |
| 23,100 | 8.1 |
| 23,200 | 24.4 |
| 23,300 | 30.8 |
| 23,400 | 18.1 |
| 23,500 | 13.4 |
Read one more paragraph, 184 words
A real interest rate does not differ by that much between neighbouring strikes. What differs is the settle prices. Each one is that strike's own end of day price, set from its own trades, and a strike that traded little near the close gets a price by NSE's own method. They are four prices from four order books, not one moment's quote for the package. Tick rounding is the small part: one tick on each leg, in the same direction, moves the box by 0.20 points, which with 20 days left is only 0.73% a year. The 23,300 box sat 6.90 points under the discounted span, about 35 ticks on each of its four legs. With one day left the same tick is 14.6% a year, so near expiry even rounding swamps the rate. On 29 Jun the box between 24,500 and 25,000 was priced at 507.15, above its own 500 points, which implies a rate of −515%. The settle price is a record of the close and not a quote anyone offered. A box rate read from it is mostly noise.
What do the charges leave?
Here are the statutory charges of the 23,000 to 23,500 box, the best traded of the six, at the rates in force from 1 Apr 2026. Brokerage and the margin on the sold legs are left out.
- STT on the sold options: 0.15% of the premium on the 23,500 call and the 23,000 put, which is 0.64 points a unit.
- STT on exercise: 0.15% of the intrinsic value of a long leg that finishes in the money. Nifty closed on 30 Jun at 23,865.75, above both strikes, so only the long 23,000 call is exercised: 1.30 points. Had the index closed between the strikes, both long legs would be in the money and the sum of the two intrinsic values is the span, which is 0.75 points of STT.
- Exchange charge, SEBI fee, GST and stamp duty: 0.64 points together. The SEBI fee is charged on the premium and again on the value of the call exercised and the call assigned at expiry.
The charges take almost all the interest a box pays
Read 2 more paragraphs, 158 words
Exercise STT depends on where Nifty closes, which you do not know when you open the box. Inside the strikes it is fixed at 0.75 points. Outside them only one bought leg is in the money, and its intrinsic value grows with the distance, so a close far below the lower strike or far above the upper one costs more than that.
Other frictions sit outside the file. The short call and the short put carry SPAN margin from NSE Clearing, so the cash is tied up on top of the box price, and lending through a box is not the same as lending the price alone. Four legs need four fills. One or two ticks of slippage across the four fills take what the charges leave. The box also has to be held to expiry for the span to be certain, and for index options that settlement is the index close for expiries before 7 Dec 2026.
Worked example: the 10 Jun box and one day before expiry
The legs are priced at the settlement prices of Wednesday 10 Jun 2026, expiry Tuesday 30 Jun. The lot is 65 units. The bill yield is the one NSE and FBIL data give for that chain.
| One unit | Side | Settle price |
|---|---|---|
| 23,000 call | Buy | 467.85 |
| 23,500 call | Sell | 206.25 |
| 23,500 put | Buy | 456.80 |
| 23,000 put | Sell | 221.05 |
| Box price | 497.35 | |
| Span, paid at expiry | 500 | |
| Span discounted at the bill yield | 498.60 |
Read 2 more paragraphs, 212 words
The box cost 497.35, which is 1.25 points under the discounted span. Lending 497.35 for 20 days at the bill yield would have earned 1.39 points. The box earned 2.65, or Rs 172 on a lot. That is the part of the story that reads well. The charges were 2.58 points, Rs 168 on a lot, which leaves 0.07 points, Rs 4, against 1.39 from the bill. After charges the box lent for less than the bill would have paid, and it needed four fills and the margin on two sold options to do it.
Now one day before expiry. On 29 Jun the same kind of box, 24,500 to 25,000, was priced at 507.15 for a payment of 500. A price above the payoff would be a loan at a negative rate of 515%. That is not a market rate. It is four settle prices that do not line up. The shorter the time to expiry, the more any price error is multiplied when scaled to a year, and a box rate near expiry is mostly a measure of that error. That is why the tool for this lesson shows the rate of every box of one width side by side, and not one rate.
The common mistake
The belief: A box spread is a risk free loan that pays more than a T-bill.
Three things stand in the way. The rate in the file is mostly an artefact of four settle prices that do not line up: six boxes of one width on 10 Jun gave rates from 8.1 to 30.8 percent a year. After the charges of the best traded box, 0.07 points were left against 1.39 from the bill on the same money. And what you would actually hold is four options with margin on two of them, filled at four separate prices. The fixed payoff at expiry is real arithmetic. The profit is not. SEBI's Aug 2026 study of individual equity derivatives traders found that 87.7% lost money in FY26. A payoff that cannot move still has to be bought at a price that can.
The term this section turns on: Box spread
Key takeaways
- A box is a bull call spread plus a bear put spread.
- It pays the span at expiry whatever the index does.
- The price is the span discounted, so the box is a loan.
- Unaligned settle prices make box rates scatter, most of all near expiry.
- After charges the 10 Jun box earned less than the bill.
- The payoff is fixed. The profit is not.
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