What are Futures and Options?

Let’s simplify Futures and Options for our understanding


Futures market has its vision set for future price fluctuations and aims to counter them by creating contracts that allow traders to buy and sell securities at a specified future date and pre-set price. Traders are obligated to adhere to the expiry date of the contract.


Options are contracts like futures, they are also used as a hedging technique to protect investments against market volatility. The only difference is that an options trader is not obligated to execute the contract.

Options are Derivatives

Options are known as derivatives as they derive their value from an underlying security. For example, the NIFTY Options chain derives its value from the NIFTY Index. As the value of the underlying share increases or decreases the options contract value also adheres to this.

Options Types

There are two types of Options

Call Option: This gives the options trader the right, and not the obligation to buy the securities at a pre-set price on a future date. Put Option: This gives the options trader the right, and not the obligation to sell the securities at a pre-set price on a future date.


Option Premium is the upfront amount an option buyer pays to the seller (also known as ‘writer’) to initiate the contract. If the buyer chooses not to exercise the right of buying or selling shares, the option writer keeps the premium amount.

Futures Offers True Hedge

As futures contracts come with an obligation, the contract is settled without fail on the expiry date. Futures trading is believed to offer a true hedge as both buyers and sellers have equal opportunity. In options trading seller’s gains are limited while losses can be substantially high.

Options Spread

Options spread is a specific strategy where a trader buys and sells the options of the same underlying asset with different strike prices and/or expiry dates.

F&O Segment

F&O Segment is the futures and options market where trading happens in futures and options contracts. The value of these contracts is based on the value of the underlying assets that trade in the cash/spot market.

F&O Players

F&O players are participants who trade in the futures and options segment. Hedge funds, investment management firms, banks, and retail investors like you participate in the F&O segment.

F&O Advantage

Trading in F&O has several advantages. It allows investors to hedge against market volatility, diversify their portfolios, and generate profits by speculating on price trends.