You have to deposit a margin to buy or sell futures or to sell an option. To buy an option, you only deposit a premium," says Shomesh Kumar, head derivatives , Karvy Stock Broking. You can, however, close the deal before maturity by entering into an equal and opposite transaction called 'squaring off'.
In contrast, an options contract is more flexible as it grants the holder the right to buy or sell shares on or before a specific date but does not make it mandatory. The buyer enters into a contract with the options writer or the seller, a deal is done at a strike price or the price at which the two parties agree to buy or sell the asset in the future. The contract-holder can choose to exercise the 'call' option for buying or the 'put' option for selling the shares.
But the options writer is obliged to sell or buy the stock if the option is exercised. Futures and options contracts are traded through clearing corporations such as National Securities Clearing Corporation NSCCL , which provide a guarantee in case there is a breach of contract.
Click here to Enlarge Options can also be traded directly on the over-the-counter OTC exchange, but this is seen as risky. So, you do not get delivery of any stocks, and the deal is settled through cash on the expiry date.
Here's how index futures operate. Assume that you are bullish on the market, while the Nifty is trading at 5, points, and you buy 50 units of Nifty futures at a strike rate of Rs 5, This means you are betting that the Nifty will cross 5, by the expiry date of your contract.
If on that date, the Nifty is trading at 5, points, you have made a profit of Rs on each unit or Rs 5, on your investment. If, however, the Nifty falls to 5,, you lose Rs 2, Rs 50 x 50 units.
For index options, let's assume the Nifty is at 5, and you expect it to decline. You buy 50 units of Nifty put option to sell and pay a premium of, say, Rs at the strike rate of Rs 5, On the day of settlement, if the Nifty is trading at 5, points, you gain Rs 50 per unit or Rs 2, If you deduct the premium paid, it comes to Rs 2, In case, the index rises to 5, points, you can choose not to exercise the option. You lose just Rs In the futures market, it is trading at Rs Follow us on :.
Vivek Iyer Senior Research Analyst. Updated Feb 10, IST. Top trading tips today from the experts High Risk Low Risk. Nazara tech becomes the first gaming company to list in india.
Top 20 Contracts, Stock Futures, +, Stock Options · Top 20 Spread Contracts · Nifty 50 Option Chain | Trade Statistics. as on Mar 26, IST. Instrument Type, Underlying, Expiry Date, Option Type, Strike Price, Prev Close, Open Index Options, BANKNIFTY, 01APR, CE, 34,, , , NSE commenced trading in index futures on June 12, The permitted lot size for futures contracts & options contracts shall be the same.
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