What are Futures and Options?
Futures are standardised contracts obligating the buyer to purchase (or the seller to sell) an asset at a predetermined price on a specific future date. Options give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset at a specific price before or on the expiry date. In India, F&O contracts expire on the last Thursday of the month (or the previous trading day if it is a holiday). Weekly expiry options are available for Nifty, Bank Nifty, and select stocks.
Popular F&O Strategies
Common strategies include Covered Call (owning stock + selling a call option), Protective Put (owning stock + buying a put option for downside protection), Straddle (buying both call and put at the same strike price for volatility plays), Iron Condor (selling call and put spreads for range-bound markets), and Bull/Bear Spreads (directional strategies with limited risk). The choice of strategy depends on market outlook, risk tolerance, and capital available.
Understanding the Greeks
Option Greeks measure the sensitivity of an option price to various factors. Delta measures price change relative to the underlying asset. Gamma measures the rate of change of Delta. Theta measures time decay (options lose value as expiry approaches). Vega measures sensitivity to volatility changes. Rho measures sensitivity to interest rate changes. Understanding Greeks is essential for options traders to manage positions effectively and assess risk-reward profiles.