Futures and Options Trading
Futures – The Futures are financial agreements obligating the purchaser to buy an asset or the seller to sell an asset, such as a physical commodity or a financial instrument at a determined future time and cost.
Options – An option provides the right to the buyer but not the obligation to purchase (or sell) the particular assets on the particular time period and definite cost.
The F&O section offers trading services for the following derivative mechanisms:
- Index based futures
- Index-based options
- Individual stock options
- Individual stock futures
1.Index Futures or Index based Futures – Futures contracts on a stock or financial index are called Index Futures. For all index, there may be several multiples for deciding the cost of the futures contract. In simple word, futures contracts are the legal contract, commonly made in the trading market of the futures exchanges to purchase and sell the definite commodity and financial instrument at a specified rate and time period in the futures. Futures contracts are applicable to allow trading on the futures exchange. It entirely depends on particulars being traded, details of quality and quantity of the commodity.
2.Index-based options – An index option is a financial derivative that provides the holder the right, but not the obligation to purchase and sell the value of an underlying index.
3.Individual Stock Options – A stock option is an opportunity, sold by one party to another that provides the purchaser the right, but not the obligation to purchase or sell a stock at a determined cost within a definite era of time. In simple word, if you purchase or hold a stock option contract it provides you the “right”, but not the “obligation”, to purchase or sell shares or stock at a “predefined price” on or before a specified “date” (time duration). After this date, contract expires and your option finishes existing.
There are two types of options
- Call Options
- Put Options
Call Option – Put options provides its buyer the right but not the obligation to “buy” shares at the specified price on or before a defined date.
Put Options – Call options provides its buyer the right but not the obligation to “sell” shares at the specified price on or before a defined date.
4.Individual stock futures – Single-Stock Future (SSF)is a sort of futures contract among two people to exchange a particular quantity of shares in an organization for a price agreed nowadays (the futures charge or the strike price) with delivering occurring at a selected future date, the delivery date.
Different kinds of Equity Futures & Options existing in India
In the Futures and Options segment at NSE and BSE; trading is accessible in mainly two kinds of contracts:
1.Index Futures and Options
At NSE; Index F&O are obtainable for 6 indices. This comprises; CNX Nifty Index, CNX IT index, Bank Nifty Index and Nifty Midcap 50 index.
CNX Nifty Index (based on the Nifty index.)
BANK Nifty Index (based on the BANK NIFTY index)
CNXIT Index (based on the CNX IT index)
Nifty Midcap 50 Index (based on the Nifty Midcap 50 index)
CNX Infrastructure Index (based on the CNX Infrastructure index)
CNX PSE Index (based on the CNX PSE index)
Alike way BSE offers trading in future for fundamental assets as following indexes:
2.Futures and Options on Individual Securities
Stock exchanges present F&O contracts for individual scripts (i.e. Reliance, TCS etc.); which are buying and selling in the Capital Market sector of the Exchange.
NSE offers F&O trading in 135 securities predetermined by the SEBI. The stock exchange describes the characteristics of the futures contract like as the underlying security, market lot and the maturity date of the contract.
Few reasons for investing in futures and options trading with brokers –
- Price Availability