Knowledge Base

Futures and Options commonly known as F&O are contracts that let you take a position on a stock or index at a specific price on a future date. They are traded on NSE and BSE just like regular stocks, but they work differently from simply buying or selling shares.

Futures

A futures contract is an agreement to buy or sell something at a fixed price on a specific date. Once you enter a futures contract, both you and the other party are obligated to honour it on expiry.

For example, say Nifty is trading at 22,000 and you believe it will go up. You buy a Nifty futures contract at 22,000. If Nifty rises to 22,500 before expiry, you make a profit. If it falls to 21,500, you make a loss. Either way, the contract must be settled on expiry.

Options

An options contract gives you the right but not the obligation  to buy or sell something at a fixed price before or on the expiry date. You pay a small amount called a premium to enter the contract.

For example, say Nifty is at 22,000 and you think it will rise. You buy a call option at a strike price of 22,200 by paying a premium of ₹100. If Nifty rises above 22,200, your option gains value. If it doesn’t, you simply let the contract expire and your loss is limited to the ₹100 premium you paid.

When do F&O contracts expire?

All F&O contracts have an expiry date. Stock and index futures typically expire on the last Thursday of every month. Index options like Nifty and Bank Nifty also have weekly expiries every Thursday, giving traders more flexibility to take short-term positions.

How is this different from buying stocks?

When you buy a stock, you own a part of that company and can hold it for as long as you want. With F&O, you are trading a contract based on the stock’s price you don’t own the actual shares, and the contract expires on a fixed date. F&O also requires you to maintain a margin in your account rather than paying the full value of the trade.