What Are Futures and Options (F&O)?
Futures and Options are derivative financial instruments — their value is "derived" from an underlying asset such as a stock, index, or commodity. In India, F&O trading on NSE is centred primarily around Nifty 50 and Bank Nifty index contracts, though individual stock futures and options are also actively traded.
Derivatives serve two primary purposes: hedging (protecting an existing portfolio from adverse price moves) and speculation (attempting to profit from price movements with leverage). The leverage available in F&O means both gains and losses are amplified significantly compared to the cash segment.
Options: Calls and Puts Explained
A Call Option gives the buyer the right (but not the obligation) to buy the underlying asset at a fixed price (strike price) before or on the expiry date. Call buyers profit when the underlying price rises above the strike price plus premium paid.
A Put Option gives the buyer the right to sell the underlying at the strike price before expiry. Put buyers profit when the underlying falls below the strike price minus premium paid.
The Options Greeks: Essential Knowledge
| Greek | What It Measures | Practical Use |
|---|---|---|
| Delta (Δ) | Rate of change of option price per ₹1 move in underlying | ATM options have ~0.5 delta — they gain ₹0.50 per ₹1 rise in Nifty |
| Gamma (Γ) | Rate of change of Delta | Highest near expiry and ATM — danger zone for option sellers |
| Theta (Θ) | Time decay — premium lost per day | Option sellers benefit from Theta; buyers lose Theta daily |
| Vega (ν) | Sensitivity to implied volatility change | High VIX inflates option premiums; option sellers prefer low VIX |
Option Buying vs Option Selling: Which is Better?
Option Buying: Lower capital requirement, unlimited profit potential, defined maximum loss (premium paid). However, Theta works against buyers — time decay erodes premium daily even if the underlying moves sideways. Most retail traders default to option buying, which is why the majority lose money.
Option Selling (Writing): Higher capital requirement (margin), limited profit (premium collected), theoretically unlimited loss risk. However, Theta works in the seller's favour — time decay generates income as long as the underlying stays within a range. Professional traders predominantly sell options rather than buy them.
Nifty F&O Expiry Calendar
- Nifty Monthly: Last Thursday of each month
- Nifty Weekly: Every Thursday
- Bank Nifty Weekly: Every Wednesday
- Bank Nifty Monthly: Last Wednesday of each month
- MidCap Nifty Weekly: Every Monday
- Fin Nifty Weekly: Every Tuesday