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NSE Futures & Options Basics
A beginner-friendly guide to how index and stock derivatives work on the National Stock Exchange — what you are actually buying, how profit and loss is calculated, and the risks to understand before your first trade.
What is a derivative?
A derivative is a contract whose value comes from something else — the underlying. On the NSE F&O segment the underlying is either an index (Nifty 50, Bank Nifty, FinNifty) or a single stock (Reliance, HDFC Bank, Infosys and others).
You never take delivery of the index itself. You trade a contract that tracks it, and profit or loss is settled in cash. There are two main types: futures and options.
The index or stock the contract is based on, such as Nifty 50.
The fixed number of units in one contract. You trade in whole lots, set by the exchange.
The date the contract ends and is settled. Weekly and monthly expiries are available on major indices.
Price × lot size — the full exposure you control with one lot.
How futures work
A future is an agreement to buy or sell the underlying at a fixed price on the expiry date. If you buy (go long), you gain when the price rises. If you sell (go short), you gain when it falls.
Every point the price moves is multiplied by the lot size. That is why futures move quickly — a small change in the index becomes a meaningful amount in rupees.
Buying one lot of NIFTY futures
- Nifty futures trade at 22,600. Assume a lot size of 75 (illustrative).
- Contract value = 22,600 × 75 = ₹16,95,000.
- You buy one lot. Later the price rises to 22,700 — a move of 100 points.
- Profit = 100 points × 75 = ₹7,500 (before statutory charges).
If Nifty had fallen 100 points to 22,500 instead, the loss would be the same ₹7,500. Futures gains and losses are symmetrical.
Mark-to-market (MTM)
Open futures positions are revalued every day at the closing price. Gains are credited and losses are debited daily, so you see your running profit or loss — and need enough balance to cover it.
Calls and puts explained
An option gives the buyer the right, but not the obligation, to buy or sell the underlying at a fixed price — the strike — on expiry. The buyer pays a premium for that right.
| Call option (CE) | Put option (PE) | |
|---|---|---|
| You buy it when you expect | Price to go up | Price to go down |
| Gains when | Price ends above strike + premium | Price ends below strike − premium |
| Maximum loss for the buyer | Premium paid | Premium paid |
| Maximum loss for the seller | Unlimited | Large (strike − premium, × lot) |
Buying a NIFTY 22,600 CE
- Nifty is at 22,600. The 22,600 call trades at a premium of ₹120.
- Cost = ₹120 × 75 (lot) = ₹9,000. This is the most you can lose.
- Breakeven at expiry = strike + premium = 22,600 + 120 = 22,720.
- If Nifty expires at 22,800, the call is worth 200. Profit = (200 − 120) × 75 = ₹6,000.
- If Nifty expires at or below 22,600, the call expires worthless and you lose the ₹9,000 premium.
Option buyers have limited risk and need the move to happen before expiry. Option sellers collect the premium but carry much larger risk.
Payoff at expiry — buying the NIFTY 22,600 CE at ₹120
Reading the option chain
The option chain lists every strike for one expiry, with calls on one side and puts on the other. It is the main screen options traders use to pick a contract.
The fixed price in the contract. Strikes are listed in steps, e.g. 22,500 / 22,550 / 22,600.
Last traded price of that option — what one unit costs right now.
The number of contracts still open. Rising OI shows new positions being added.
How much movement the market is pricing in. Higher IV means more expensive options.
In, at and out of the money
With Nifty at 22,600: the 22,600 strike is at the money (ATM). A 22,500 call is in the money (ITM) because it already has 100 points of value. A 22,700 call is out of the money (OTM) — it has only time value. For puts it is the reverse: the 22,700 put is ITM and the 22,500 put is OTM.
Call strikes when Nifty is at 22,600 — for puts, ITM and OTM swap sides.
Time decay: an option loses time value every day as expiry approaches, and the drop speeds up in the final days. OTM options can lose value even if the index does not move against you.
Margin and leverage
To hold a futures position or sell an option you do not pay the full contract value. You keep a margin — a deposit set by the exchange based on the contract’s risk. Option buyers pay only the premium.
Because a small deposit controls a large contract, both profits and losses are magnified relative to the money in your account. On SigmaFX, the margin for every order is checked automatically and shown before you confirm, and leveraged positions are protected by automated risk controls and auto square-off.
Rule of thumb: size positions on the contract value, not on the margin. A ₹7,500 move on a single Nifty lot can be a large share of a small account.
What it costs to trade
SigmaFX charges zero brokerage on every F&O trade. The costs you still pay are statutory and exchange charges collected on behalf of the government and exchanges:
| Charge | What it is |
|---|---|
| STT | Securities Transaction Tax, on the sell side for futures and on the option premium for options. |
| Exchange transaction charge | Fee charged by the NSE on turnover. |
| SEBI turnover fee | Small regulatory fee on turnover. |
| Stamp duty | State levy on the buy side. |
| GST | Applied on exchange and SEBI charges. |
Rates are set by the government and exchanges and change from time to time. On SigmaFX every charge is itemised on screen before you confirm, and again on the contract note.
Expiry and settlement
On expiry day, open index F&O contracts are settled in cash at the final settlement price. Futures are settled on the difference between your entry and that price. In-the-money options are settled at their intrinsic value; out-of-the-money options expire worthless.
If you want to keep a futures view beyond expiry, you roll over — close the current contract and open the next month’s. The price difference between the two months is called the rollover cost.
Common mistakes to avoid
Sizing on margin instead of contract value. One lot of an index future already carries large exposure.
Futures losses have no floor. Decide your exit before you enter.
Low premium does not mean low risk — most far OTM options expire worthless.
Holding bought options into the last days of expiry without a move can erase most of the premium.
Option sellers can lose many times the premium they collect on a sharp move.
Key takeaways
- Futures and options are contracts on an index or stock, traded in fixed lots with an expiry.
- P&L = points moved × lot size — small index moves become meaningful rupee amounts.
- Option buyers risk only the premium; option sellers carry much larger risk.
- Margin magnifies both gains and losses — size on contract value.
- On SigmaFX brokerage is ₹0; only statutory charges apply, shown before you confirm.
Glossary
- Long / Short
- Buying expecting a rise / selling expecting a fall.
- Lot size
- Fixed number of units in one contract, set by the exchange.
- Strike
- The fixed price at which an option can be exercised.
- Premium
- The price paid by an option buyer to the seller.
- CE / PE
- Call European / Put European — call and put options.
- ITM / ATM / OTM
- In, at or out of the money, relative to the current price.
- Open interest
- Total number of contracts still open.
- MTM
- Mark-to-market — daily settlement of profit and loss on futures.
- Rollover
- Moving a position from the current expiry to the next one.
Check your understanding
Tap an answer to see whether you got it right.
You buy 1 lot of a future (lot size 75) at 22,600 and sell at 22,650. What is your gross profit?
Profit = 50 points × 75 units = ₹3,750, before statutory charges.
What is the maximum loss for someone who BUYS a call option?
An option buyer can lose at most the premium they paid. Option sellers carry the larger risk.
Nifty is at 22,600. Which call option is out of the money?
A call is OTM when its strike is above the current price, so the 22,700 CE has no intrinsic value yet.
Keep learning
All examples on this page are illustrative and use round numbers. Lot sizes, margins, charges and session timings are set by the exchanges and regulators and change from time to time — always check the live contract details on the platform. This guide is educational and is not investment advice.