FAQs
Stock Market FAQs | Expert Answers for Smart Traders
Clear answers to help you trade smarter and learn with confidence
Why do most beginners lose money in F&O trading in India?
Most Beginners In India Lose Money in F&O trading because they don’t educate themselves before starting their trading journey and because they don’t do proper risk management.
Is F&O trading actually profitable or just hype in 2026?
It is said that 90% F&O traders lose money, but the 10% actually make money. That tells us that making money with F&O is possible but only if you educate yourself and follow proper risk management and trading strategies.
How much money do I realistically need to survive in F&O trading?
In case of Options trading you need ₹25,000 to 100,000 whereas in futures trading you need ₹200,000 to ₹500,000.
Can I make consistent monthly income using options trading in India?
You might not be able to make consistent monthly income as some months might be highly profitable and some months might give you small losses but you can definitely become profitable year on year.
Why does option buying fail even when market direction is correct?
Option buying fails even if the market goes in your direction because time value or theta is against you. So if the movement is not very quick it leads to theta decay and you start making losses.
Is F&O trading safer than intraday trading in India?
Both are equally safe if proper position sizing and risk management is followed.
What is the biggest mistake beginners make in F&O trading?
There are two primary mistakes which people make
- No hedging their position and do naked trading
- Not learning before trading with real money.
Can I start F&O trading with ₹10,000 in India?
Yes, but you can do only Option Buying.
Why do 90% of traders lose money in options trading?
The primary reason why they lose money is because they think it is a quick rich scheme and don’t work hard enough to learn it before diving into the market.
Is F&O trading a skill or just luck?
It’s a pure skillset. It’s an art as well as math. It needs practice, discipline and persistence.
How does leverage silently destroy capital in F&O trading?
Leverage destroys your capital if you don’t do pepper risk management and expose your account to excess leverage without understanding the math behind it.
Why is time decay the biggest enemy for option buyers?
Time decay is the biggest enemy of option buyers because it eats away the option premium if the move is not quick.
How does implied volatility trick beginner traders?
Implied Volatility or IV leads to spike in option premium for no reason and leads to unnecessary hitting of stop losses.
What actually happens behind the scenes in an F&O trade?
The derivative contract follows the underlying asset and moves according to its moneyness.
Why do option sellers have higher win rates than buyers?
Option sellers have higher win rates because theta favors the option seller, which increases their accuracy to 66% as they end up making money even if the market is sideways.
How do institutions use F&O to trap retail traders?
Not all institutions follow a pump and dump scheme to exploit the retail investors.
What is the real difference between speculation and hedging in F&O?
Speculation is taking trades randomly without any logic whereas hedging is a method by which you protect yourself from extreme losses even if the position goes against you.
Why is F&O considered a zero-sum game?
F&O is a zero sum game because in F&O trading, if one makes money the other party loses the exact same amount.
How do market makers make money in options trading?
Market makers make money by F&O trading by mostly doing non direction option selling on indices and stocks.
What is the psychology behind F&O trading losses?
The psychology behind losses in F&O trading is realistic expectations and lack of risk management.
When should I choose futures instead of options?
You should choose futures instead of options mainly for direction positional trading because even if futures remain stagnant it will not see any theta decay.
When is option buying better than option selling?
Option buying is better when option selling in the following scenarios :
- When the capital is less than 100,000.
- When India Vix is between 10 and 18.
How to decide between weekly and monthly expiry trading?
You can swap between monthly and weekly expiry according to your strategy for example, you found out a strategy where you the theta’s impact to be less on your positions so in that case you should prefer monthly contracts, whereas if you are doing a non direction strategy where you main profit comes from theta decay you can prefer the weekly expiry.
Which strategy works best in sideways markets in India?
Non-directional option selling strategies work best in the sideways market. For e.g. – Strangle, Iron Condor.
How to trade F&O during high volatility events like Budget or RBI policy?
As a new bee you should avoid trading on such days.
What is the safest F&O strategy for beginners?
Bull Call Spread and Bear Put Spread can be considered as the safest strategies for beginners.
How to identify trending vs range-bound markets in F&O?
An increase in price accompanied by an increase in OI suggests a bullish trend; decreasing price and increasing OI suggest a bearish trend.
When should I avoid trading options completely?
When the markets are too volatile and India vix is very high (greater than 30).
How to build a low-risk options strategy for consistent income?
There is no fixed formula for creating a strategy but you can keep the following parameters in mind while building a strategy
- Good Risk Reward
- Limited Risk
- 55-60 % minimum accuracy
- Identify Maximum drawdown
- 3 Years of backtested data proving the results.
What is the best time of day to trade F&O in India?
For Option Buying the first and the last hour is considered best whereas for selling the middle hours are the best suitable. (It might differ from strategy to strategy).
Why does my option premium decrease even when the price moves in my favor?
Even if the price moves in your favor, the option premium decreases because time value leads to theta decay.
Why do my trades hit stop-loss and then reverse?
This is a common mistake which beginners make, that they set their stop-loss right at the low of the candle because of which their stop loss gets triggered again and again. It’s always wiser to keep the stop loss with a little buffer from the low of the candle.
Why do options lose value faster near expiry?
Options lose value faster near expiry because the impact of theta is maximum when we go close to the expiry.
Why does the market move opposite after I enter a trade?
Even after doing everything right, following the right risk management and technical analysis also your trade might go wrong because you can’t be 100% right in the market.
Why do I lose money despite using technical analysis in F&O?
Technical Analysis help you to understand where to buy and where to sell but you can not be right all the time because technical analysis runs on probability, so even if you do everything right you will be wrong 4/10 time but the catch is you can still be profitable if you follow a good risk reward ratio.
Why does IV crush destroy my profits after news events?
IV crash is sudden as well as inevitable so because of IV crash the premium drastically drops in very short notice and no trade can completely safeguard himself or herself from losses by IV crash.
Why do weekly options feel like gambling?
Weekly options are not gambling they are exactly the same as monthly ones but as they have very limited time to expire, theta decay is very fast in them, especially close to expiry.
Why do option sellers lose big in rare events?
Option Sellers lose big in rare events only if they have not hedged their positions properly. As an option sell if you are planning to take your positions overnight you should always consider hedging them.
Why does margin suddenly increase in my F&O trades?
The margin in F&O trading increases when it is too volatile; it is done to safeguard small traders.
Why do brokers square off my positions automatically?
Brokers will automatically square off your position in either of the two scenarios:
- You have an open intraday position and you forget to square off your positions before market close
- As an F&O trader auto square-off if you fall short of your margin.
How does open interest confirm trend strength in F&O?
Rising Price + Rising OI – Bullish strength.
Falling Price + Rising OI – Bearish Strength.
Price Rise / Price Fall + Decreasing AI = Weak Strength.
How to read OI buildup for intraday trading decisions?
To read OI for intraday trading one can follow the following: –
Long Build-up: Price Increases + OI Increases
Bullish signal, strong buying conviction.
Short Build-up: Price Decreases + OI Increases
Bearish signal, aggressive selling.
Short Covering: Price Increases + OI Decreases
Bearish traders closing positions; likely temporary upmove.
Long Unwinding: Price Decreases + OI Decreases
Bullish traders closing positions; indicates weakening
What is the hidden meaning behind PCR ratio in options?
- PCR Above 1.0 (High): Suggests bearish sentiment; traders are buying more puts. However, as a contrarian indicator, it can mean the market is oversold, setting the stage for a potential upward reversal.
- PCR Below 0.7 – 0.5 (Low): Suggests bullish sentiment; traders are buying more calls. Contrarily, this can indicate an overbought market, often signaling a potential downside reversal.
- PCR Between 0.5 and 1.0: Generally represents balanced, normal market activity without extreme sentiment.
How does Max Pain theory actually influence expiry price?
Max Pain theory suggests that the underlying asset price tends to gravitate toward the strike price with the highest open interest (calls + puts) as expiration approaches. It influences expiry by driving the stock toward a price that minimizes losses for option writers and maximizes losses for option buyers, often causing a “pinning” effect
What is the relationship between India VIX and option premiums?
India Vix denotes volatility, There is a direct relationship between premiums and wix i.e. if the vix increases the prices of the premium increase and vice versa.
How do FIIs use derivatives to control market direction?
FIIs use index futures to create instant market moves. Large net-long positions signal a bullish outlook and drive up market sentiment, while substantial short-selling in index futures can force a market correction.
What is smart money activity in F&O trading?
Smart money activity in F&O trading refers to large-scale, informed transactions by institutional investors—banks, hedge funds, and market makers—that drive market trends and influence prices. They leave “footprints” like Order Blocks, Liquidity Sweeps, and Fair Value Gaps, which technical traders track to align with institutional direction rather than against it.
How to identify fake breakouts using OI data?
Identify fake breakouts (fakeouts) using Open Interest (OI) by looking for price breakouts that occur while OI decreases or remains stagnant, signaling a lack of institutional conviction. A genuine, strong breakout is validated by a significant rise in both price and OI, whereas a rise in price with falling OI indicates a high-probability reversal.
How does volatility skew impact option pricing?
Volatility skew, the difference in implied volatility (IV) across different strike prices, causes options to be priced asymmetrically rather than equally, with higher-IV options costing more. It generally makes out-of-the-money (OTM) puts more expensive than OTM calls (negative skew) for equity markets, reflecting fear of a downside drop, thus driving higher premiums for downside protection.
What is the difference between IV expansion and IV contraction strategies?
IV expansion strategies involve buying options when implied volatility (IV) is low and expected to rise, increasing option premiums, favored during high uncertainty. IV contraction strategies (or “IV crush”) involve selling expensive options when IV is high, aiming to profit as premiums shrink when volatility stabilizes, often used in market neutral strategies.
How can I avoid blowing my account in F&O trading?
To avoid blowing your account should always do position sizing before making an entry and should not risk more than 1% of their capital per trade.
What is the safest way to manage risk in options trading?
One should always do position sizing before making an entry and should not risk more than 1% of their capital per trade.
How much should I risk per trade in F&O?
One should always do position sizing before making an entry and should not risk more than 1% of their capital per trade.
Why is position sizing more important than strategy?
In trading it’s said that the most important thing is not the technical analysis but its risk management and hence if you follow proper risk management and position sizing you can be profitable with 50% accuracy also.
What is the biggest risk in selling options?
The biggest risk in options trading is executing naked overnight options could lead to wiping off your capital if the market goes against you.
How to handle margin calls in F&O trading?
You can handle margin calls in F&O trading in either of the two ways:
- Reduce your position size so that there is no forced liquidation of your positions.
- Keep extra funds in your bank account so that you can instantly add the extra amount using UPI.
What happens if I hold stock options till expiry without funds?
Holding stock options until expiry without funds leads to different outcomes based on whether they are in-the-money (ITM) or out-of-the-money (OTM). OTM options expire worthless, losing the premium. However, if ITM, stock options are physically settled, requiring full funds for delivery, resulting in massive penalties if funds are unavailable.
Can F&O trading lead to debt in India?
You might or might not get into debt with F&O trading because these days we have limited leverage in the stock market. We also have an auto square feature from the brokers which will not make you lose beyond your capital. However one should refrain from trading in futures and options with borrowed money.
What is the worst-case scenario in futures trading?
The worst case scenario could be trading in futures without having prior knowledge and understanding about futures and derivatives markets.
How to protect capital during market crashes using options?
To protect capital during market crashes in options trading one should always stick to trading with hedged strategies only. You should avoid naked options trading.
How to place a futures trade step-by-step in India?
Open a demat & trading account, add funds, select a futures contract, choose quantity & margin, place a buy/sell order, and monitor/exit before expiry.
How to select the right strike price in options trading?
There is no fixed strike price; it depends upon strategy to strategy.
How to calculate lot size before entering a trade?
Follow the 1% rule. I.e. if the loss should not exceed 1% per trade and you can decide your quantity accordingly.
How to check margin requirements before trading F&O?
To check margin requirements before entering in the trade you can create a basket order on your broker terminal. It will give you an estimated margin, then you can take the final call whether you would want to go ahead with execution or not.
How to read option chain data like a pro?
To read an option chain like a pro, focus on Open Interest (OI) to identify key support/resistance, Volume to gauge liquidity, and Implied Volatility (IV) to measure premium expense. Center your analysis on the At-the-Money (ATM) strike, using Call OI for resistance and Put OI for support to predict market direction.
How to identify support and resistance using OI?
To identify support and resistance using Open Interest (OI), locate the strike prices with the highest accumulated OI in the option chain. The strike with the highest Put OI indicates strong support, while the highest Call OI indicates strong resistance, as these represent the largest positions built by market participant.
How to choose expiry based on trading strategy?
If you are doing a buying / directional option, stick to monthly options to avoid profit erosion because of theta decay. Whereas if you get a fresh entry in a positional trade after 3rd week always stick to the next month expiry.
How to exit options trade at the right time?
The best way to exit your trade is when either your SL is hit or your target is it. To remain in the trade for a long run without stress you can follow the trailing method of profit booking.
How to avoid overtrading in F&O?
To avoid over trading in F&O follow the 1% rule i,e. Keep your max risk at 1% per day and also once your target or SL is hit close your trading system.
How to backtest an options strategy?
You can do backtesting in two ways: –
- You can backtest it manually by using softwares like opstra options or stock mock.
- You can also do the backtesting with the help of algo.
Can I earn ₹1 lakh per month from options trading?
It won’t be wise to look for a fixed number as markets are dynamic. It’s not really practical to make the same money every month. It’s just like a business. But yes, you can definitely earn 1 lakh or even more than the stock market.
Is options trading better than stock investing in India?
2Just like we can’t compare apples with oranges similarly options trading and stock investing are two different things. While options trading can be used to generate recurring income stock investing can be used to generate wealth in the long term.
Which is more profitable - intraday or F&O trading?
Both can be equally rewarding if you educate yourself and follow proper risk management and discipline.
Can I do F&O trading part-time?
Yes you can do F&O trading part time. (though its better off doing it fulltime)
How long does it take to become profitable in F&O?
It’s subjective, the more disciplined and emotionally mature a trader becomes the sooner is the chance of him or her becoming profitable.
What is the easiest way to learn F&O trading?
Easiest way to learn F&O trading is to refer to the free detailed course Market Udaan By Trendy Traders on youtube.
Which indicator works best for options trading?
In options trading data is more important than Indicators. So one must focus on data over finding indicators.
Is Bank Nifty better than Nifty for options trading?
No, Nifty is better than Bank Nifty for options trading because Bank Nifty is a high beta index which means its more volatile which makes it difficult for traders to trade with peace.
Can I trade options without technical analysis?
No, one must know stock market technical analysis course in order to trade the markets.
What is the success rate of option sellers in India?
Options sellers in India or across the globe have higher accuracy compared to option buyers as they make money in both directional or non directional markets. In percentage their accuracy is somewhere between 60-70%.
What do professional traders know about F&O that beginners don’t?
F&O trading is not about knowing that one strategy but it is about being disciplined & consistent.
Why do retail traders lose and institutions win in derivatives?
Retail traders lose, whereas institutions make money in the derivatives market because institutions have huge cash, and they are the market makers, so they have the authority to take the market wherever they want.
What is the hidden cost of trading options frequently?
A trader might earn or might not earn from options but there is someone who earns throughout the year from options trading. I.e., broker; hence, the brokerage becomes the biggest hidden cost of a trader.
Why is option selling considered a “slow money” strategy?
Option selling is considered a slow money strategy because in option selling you make the most amount of money in the non-direction market and there is not much movement. Also in option selling the profits are small but are more consistent compared to option buying.
What is the biggest myth about F&O trading in India?
The biggest myth about F&O trading in India is it is a complete gambling whereas if learnt and done with discipline it’s a skill.
Why do traders prefer index options over stock options?
Traders prefer index over stocks for options trading because Index is relatively much less volatile compared to stocks.
What really happens on expiry day manipulation?
On expiry day, large traders may push prices toward levels where most options expire worthless (max pain), causing short-term volatility, but strict oversight by SEBI limits outright manipulation.
Why do most traders fail despite learning strategies?
Most traders fail even after learning trading strategies because trading strategy or price action is a very small part of trading. Trading is more about ideal risk management and discipline.
What separates profitable traders from losing traders in F&O?
Risk management and ideal trading mindset are the two most important factors that decide whether one is going to become a profitable or loss making trader.
What is the truth about “easy money” in options trading?
It’s a complete myth. One needs to devote at least 1-2 years of time to make consistent money from options trading.
How to learn F&O trading from scratch in India?
You should take the Trade Like A Pro Combo Course By Trendy Traders Academy, wherein you will be taught by India’s number 1 stock market mentor over the course of two months from basics to advanced.
Which is the best stock market institute for F&O trading in India?
Trendy Traders Academy – Best Stock Market Training Institute in Bangalore, India, is the best stock market institute for F&O trading in India. As the institute has successfully trained more than 45,000+ learners with 15+ years of experience. Also the classes in the academy are taken by the leading stock market mentor of India Mr. Abhishek Jha.
How to become a professional options trader in India?
You should take the Trade Like A Pro Best stock market course By Trendy Traders Academy, wherein you will be taught by India’s trusted stock market mentor over the course of two months from basics to advanced.
What course should I take to master options trading?
You should take the Trade Like A Pro stock market course in India By Trendy Traders Academy, wherein you will be taught by the Leading stock market mentor in India over the course of two months from basics to advanced.
How long does it take to learn derivatives trading properly?
People might claim that you can become a pro trader within a month or two but it needs hardwork, discipline and consistency for 1 year.
Is mentorship necessary to succeed in F&O trading?
It is not necessary, but it gives you an edge over your competitors because you can avoid making the same mistakes your mentors made.
What skills are required to become a full-time trader?
Patience, Discipline, Hardwork.
Can I learn F&O trading online with live market practice?
Yes, In fact learning F&O in live marketing is the best way to learn it.
What is the best way to practice trading without losing money?
Loss in trading is inevitable. So there is no way you can completely forego your losses but you can limit your losses with proper risk management.
How to build a career in stock market trading in India?
Get yourself enrolled in the Trade Like A Pro Courses by Trendy Traders Academy, in which you get hand-holding in live market classes and you get to learn from basics to advanced about both the equity and derivatives markets.
Stock Market FAQs for Beginners
What is F&O trading in India?
F&O i,e, Futures and Options trading in India is a form of derivatives trading where contracts are bought and sold between buyers and sellers.
What are futures and options in simple terms?
Futures and options, in simple terms, can be defined as derivative contracts of underlying assets.
How does F&O differ from equity trading?
In case of F&O trading one can avail leverage and shorting facility only in intraday trading whereas in F&O trading one can avail both these features in swing trading as well.
Is F&O trading legal in India?
Yes, F&O trading is absolutely legal in India and the same is done over the exchange by a larger number of traders everyday.
Who regulates F&O trading in India?
F&O trading in India is regulated by SEBI (Securities Exchange Board Of India).
What is the purpose of derivatives trading?
The actual purpose of Derivatives is not to make money but it is to hedge your existing positions and save yourself from market risk.
Why is F&O trading popular in India?
F&O trading specifically options buying is quite popular in India because it can be started with very less capital.
Can beginners trade in F&O?
No, beginners should refrain from directly trading in F&O. The ideal way to start F&O trading should be to begin with equity, get your hands on it and then begin with F&O eventually.
Is F&O trading risky for beginners?
Yes, if done without proper education, F&O trading can be very risky for beginners and one might end up losing all your capital, but if done after learning can turn out to be a great career or a secondary source of income for you.
What is the minimum capital required for F&O?
One can start options buying with as little as ₹10,000 but for options selling and futures trading one must have a minimum of 2,5 lakhs capital.
What is the difference between futures and options?
Though there are many differences between futures and options but main difference lies in settlement . In case of futures, there are only 3 contracts (monthly) whereas in case of options there are many contracts of a single asset (week & monthly).
Which is better: futures or options?
Futures and options both are great tools for hedging your positions and for doing trading. You can really compare both as they both have separate use cases.
What is the obligation in futures contracts?
Futures contracts compel both parties to trade at the future date.
What is the right but not obligation in options?
Options provide the buyer the flexibility to walk away, while only the seller is bound to execute.
Are futures more risky than options?
Both futures and options could be equally risky if not done with prior education. If you educate yourself there is no risk associated with either options or futures.
Why do traders prefer options over futures?
Not all, but some traders might prefer options above futures in the following scenario :
1. One might prefer options buying if they have limited capital
2. Whereas one might prefer options selling if they want to make money from the non directional market. (because options is the only instrument where one can also make money in a non-directional market).
Can I switch between futures and options?
Yes, one can switch from futures to options in the following scenarios.
1. One might prefer options buying if they have limited capital
2. Whereas one might prefer options selling if they want to make money from the non directional market. (because options is the only instrument where one can also make money in a non-directional market).
What is the main advantage of options trading?
In case of options trading, you have the following advantages:
For futures one needs at least ₹250,000 to get started but one can start with options buying with only ₹10,000.
Whereas, options selling is the only form of trading where one can make money in the sideways or non directional markets.
What is the main disadvantage of futures trading?
The main disadvantage of futures trading is that one needs a good amount of capital that is at least ₹2,50,000 to ₹500,000 to get started.
Which is safer for beginners: futures or options?
Both futures and options can be equally safer if done post proper education.
What is the F&O segment in NSE?
The Futures & Options (F&O) segment on the National Stock Exchange (NSE) is a derivative market where traders buy and sell contracts based on underlying assets like stocks or indices.
What is the F&O segment in BSE?
The Futures & Options (F&O) segment on the Bombay Stock Exchange (BSE) is a derivative market where traders buy and sell contracts based on underlying assets like stocks or indices.
Which exchange is better for F&O trading in India?
One can consider trading in either of the exchanges, as both are equally good. However most of the derivative trading in India happens over NSE.
What are index derivatives?
Index derivatives are Futures and Options contacts of the Index. Index Derivatives derive their values from the Index.
Example :
Nifty 50 MAR FUT
22000 Nifty 30th March CE
22000 Nifty 30th March PE
What are stock derivatives?
Stock derivatives are Futures and Options contacts of the Index. Index stocks derive their values from the particular.
Example :
RELIANCE MAR FUT
2000 ASIANPAINTS 30th March CE
2200 TCS 30th March PE
What is Nifty F&O?
Nifty F&O are the derivative contracts of nifty. They can be of three types
1. Nifty Futures
2. Call Option
3. Put Option
What is Bank Nifty F&O?
Bank Nifty Nifty F&O are the derivative contracts of nifty. They can be of three types
1. Bank Nifty Futures
2. Call Option
3. Put Option
How does trading happen in the F&O segment?
F&O (Futures and Options) trading allows investors to speculate on price movements of underlying assets (stocks/indices) without owning them, using leverage to control large positions with smaller capital.
What are trading hours for F&O in India?
Stock Market timings (Trading hours) of F&O trading in India is 09:15 am to 03:30 pm.
What is liquidity in F&O?
Liquidity in Futures & Options (F&O) trading refers to the ease of buying and selling of F&O contracts. A tight bid ask spread is often considered as high liquidity in any trading instrument.
Who can trade in F&O in India?
Anyone who is 18 years of age or above and has a demat account & bank account is eligible to trade in Futures and Option in India.
Can NRIs trade in F&O?
Yes, NRIs can trade in Futures and Options segment (F&O) in India, but one must have an NRO account.
What documents are required for F&O trading?
You will need the following documents for F&O trading in India
1. Aadhaar Card
2. Pan Card
Why do brokers ask for income proof?
Brokers ask for income proof primarily to comply with regulatory guidelines, assess financial risk for high-leverage trading, and prevent money laundering. By reviewing salary slips, bank statements, or tax returns.
How to activate the F&O segment in a trading account?
For some brokers the F & O segment is activated by default. Others can get in touch with their relationship manager assigned by the brokerage company and get the segment activated.
Is a Demat account mandatory for F&O?
Yes, a demat is account is mandatory for Futures and Options Trading (F&O)
What is a trading account?
A trading account often called a demat account is a mandatory brokerage account a trader must have to be able to trade in the stock market.
Can students trade in F&O?
Yes, students can trade in Futures and Options (F&O) if they are 18 or above.
What is the age limit for F&O trading?
The age limit for F&O trading is 18 years.
Can beginners start F&O without experience?
Yes, beginners can start F&O without experience, but they should educate themselves before diving into F&O trading.
What is the strike price in options?
A strike price (or exercise price) is the fixed, predetermined price at which an options contract holder can buy (call option) or sell (put option) the underlying asset.
What is premium in options trading?
Premium is that price in options trading which a trader must have in their account to be able to buy or sell one or more options contracts.
What is the lot size in F&O?
In the stock market one can buy as little as 1 share. But in the case of Future and Options the minimum quantity is 1 lot. (1 lot will have multiple shares) THe lot size can be different from stock to stock.
For e,g, In case of Nifty the lot is 65 / lot
Why is lot size fixed?
Lot size is fixed in derivative trading primarily to standardize contracts, ensure market liquidity, and manage risk by controlling speculative activity
What is the contract value?
Contract value means the total monetary worth of a contract from initiation to completion, representing the full revenue a company expects to earn.
What is expiry in F&O?
Expiry in F&O trading is that day when all the OTM options become worthless. In Futures we have only monthly expiry, whereas in case of options we have both weekly and monthly expiries.
What is open interest (OI)?
Open interest (OI) is the total number of outstanding derivative contracts (futures and options) that have not been settled or closed out in the market. It acts as a key indicator of liquidity and money flow; rising OI signals new capital entering the market, while falling OI indicates positions being closed.
What is volume in F&O?
Volume in F&O trading is the number of contracts being bought and sold in a particular time period.
What is intrinsic value?
Intrinsic Value is that value in futures and options which a derivative contract takes from its underlying asset.
What is the time value in options?
Options premium is made with the combination of Intrinsic Value and Time Value. Time Value is the time / theta component in an option contract; it is max at the beginning of the contract and least at the end of the contract or at expiry.
What happens on F&O expiry day?
On F&O expiry all OTM options become worthless and time value in ATM and ITM contracts become 0.
What is weekly expiry?
In options, weekly expiry is basically a kind of contract which is valid for one week and expires in 7 days. For e.g weekly contracts of nifty expires on every tuesday.
What is monthly expiry?
In futures and options, monthly expiry is basically a kind of contract that is valid for one month and expires in 4 weeks. For e.g monthly contracts of nifty expires on every last tuesday of the month.
Why are expiry days volatile?
Expiry days are more volatile than other trading days because there is maximum trading activity going on expiry, Traders usually consider squaring off or rolling over their positions on the day of expiry.
What is rollover in futures?
Rollover in futures is the process of extending a trading position beyond the current contract’s expiration date by closing the near-month contract and opening a similar position in a further month contract.
What is cash settlement?
Cash settlement in futures is a mechanism where contracts are closed at expiration by exchanging the net cash difference between the contract price and the final settlement price, rather than delivering the actual underlying asset.
What is physical settlement?
Physical settlement is the process in derivatives trading (futures and options) where, upon contract expiry, the actual underlying asset such as stocks or commodities is delivered, rather than settling the profit or loss in cash. Generally happens in the case of commodities.
What happens if I don’t square off?
If you don’t square off your position in intraday trading, The broker will auto square off your position at the market closing
How to avoid physical delivery in options?
To avoid physical delivery in stock options, you must square off (close) all in-the-money (ITM) option positions before the market closes on expiry day.
What is a settlement price?
A settlement price is the official, exchange-determined price used to calculate daily profits/losses (mark-to-market), margin requirements, and final contract values for derivatives like futures and options.
What is a futures contract?
A futures contract is a type of derivative contract which is widely traded across the globe in different asset classes. The value and price of the contract depends upon the underlying asset.
How does futures trading work?
When one is bullish on an asset one goes long on the future contract of that asset whereas when one is bearish on an asset they go short on the future contract of that particular asset.
What is a long position in the future?
Long Position in futures is when one buys a future contract and expects it to go up.
What is a short position in futures?
Short position in futures is when one sells a future contract today with an expectation of it falling down in future.
How is P&L calculated in futures?
P&L in calculated by multiplying the number of points captured with the number of lots which is further multiplied by the quantity per lot.
For e.g. = Points Captured = 50
Lot Size = 65
Number of lots = 5
Profit = 50 * 65 * 5 = ₹15250
What is contango?
Contango is a market condition where the futures price of a commodity or asset is higher than the current spot price, creating an upward-sloping forward curve.
What is backwardation?
Backwardation is a market condition where the current spot price of a commodity is higher than its futures prices, causing a downward-sloping futures curve.
Can futures be held till expiry?
Yes, futures can be held till expiry.
What is an options contract?
An options contract is a type of derivative contract which does not have its own value; it derives its value from the underlying asset.
What is a call option (CE)?
Call option also known as CE (Call European) is a type of options which is bought by a trader when he or she is bullish and sold when he or she has a bearish or sideways view.
What is a put option (PE)?
Put option also known as PE (Put European) is a type of option that is bought by a trader when he or she is bearish and sold when he or she has a bullish or sideways view.
What is the option buyer vs seller?
Option buyers pay a premium to purchase the right to buy/sell assets, risking only that premium for potentially unlimited profits, while option sellers (writers) receive the premium but take on high-risk obligations with capped profit potential.
Why do most options expire worthless?
Most options, especially OTM options expire worthless at expiry because at expiry the time value becomes 0.
What is option pricing?
Options pricing is deriving the value of an options contract and the black scholes model of option pricing is widely used for option pricing.
What affects option premium?
Two things primarily affect the option premium.
1. Fluctuations of price of the underlying asset.
2. Time Value
What is implied volatility (IV)?
Implied Volatility (IV) is a market-driven metric representing the expected future volatility of an underlying asset’s price, directly influencing option premiums.
What is IV crush?
IV crush (Implied Volatility crush) is the rapid decline in option premiums following a major event like earnings, mergers, or FDA approvals.
What is moneyness (ITM, ATM, OTM)?
Moneyness of options is a concept via which we categorise options on the basis of their delta. It explains to us the relation between the underlying and different option contracts. For e.g. If Nifty moves 100 points, ATM Option of nifty is going to move by 50 points.
What are option Greeks?
Option Greeks are just like the characteristics of an option contract. 5 greeks delta, vega, theta, gama, to have different impact on option prices.
What is Delta in options?
Delta is one among the 5 Greeks in options trading. It denotes the rate of change of price of option contract subject to the change in price of the underlying asset.
What is Gamma in options?
Gamma is one among the 5 Greeks in options. Gamma denotes the rate at which the delta is changing.
What is Theta (time decay)?
Theta is one among the 5 Greeks in options trading. Theta signifies the impact of time value in options pricing. Theta is favourable for option sellers.
What is Vega in options?
Vega is one among the 5 Greeks. It denotes volatility in the stock market. There is a direct correlation between option prices and vega.
What is Rho in options?
Rho is one among the 5 greeks it displays the impact of risk free rate of return on option prices.
How do Greeks impact option price?
As there are 5 different Greeks in options. Each have a different impact on option :
Delta – decides the rate of change of price
Vega – Impacts the volatility
Theta Impact the options premium with subject to time
Gamma – It impacts the rate at which the delta fluctuates
Rho – Rho leads to the fluctuations in options prices on basis of the risk free rate of return in the country
Why is Theta important for sellers?
Theta is the best friend of an option seller. As theta denotes time and as the time passes by it leads to reduction in options premium benefiting the sellers
How does Gamma affect expiry trading?
Gamma causes option premiums to skyrocket or crash in the final hours of expiry, as small underlying price changes trigger massive, accelerated shifts in Delta
Are Greeks important for beginners?
Yes, be it a beginner or pro trader having the knowledge of Greeks is non-negotiable for anyone who wants to do F&O trading.
What is the margin in F&O trading?
Margin in F&O trading is the minimum amount you should have in your account to sustain a trade.
What is SPAN margin?
Standard Portfolio Analysis of Risk (SPAN) margin is the minimum, risk-based collateral required by exchanges to hold Futures & Options (F&O) positions.
What is exposure margin?
An exposure margin is an additional, mandatory safety buffer charged by stock exchanges over and above the SPAN margin to cover risks not fully captured by volatility calculations, such as extreme market moves
What is the peak margin rule?
Peak margin rules, introduced by SEBI, mandate that traders must have 100% upfront margin available for all stock and derivative trades
What is the margin shortfall?
Margin shortfall is a situation where due to fluctuation in price the broker demands for either adding more funds or reducing position size. Failing which your positions get auto squared off by your broker.
What is leverage in F&O?
Leverage in F&O is a facility given to you by your broker where you can trade for much larger amount that you actually have in your account for example
If the leverage provided to you is 5x
Your Capital – 100,000
Leverage 5x
You will be allowed to trade with 100,000 x 5 = 500,000
Is high leverage dangerous?
Yes, leverage beyond a point can be very dangerous and over leveraging your account can lead to losing all your capital.
How to manage risk in F&O trading?
To manage the risk in F&O trading one should always follow the follow
- Position Sizing – 1% Rule
- Risk Reward Ratio Minimum 1:2
- Trailing : To safeguard your profit.
What is stop-loss in F&O?
Stop-Loss in F&O is a tool provided to you by your broker so that you can safeguard yourself from down side risk. For e.g. If you buy at ₹100 and you want to lose not more than ₹5 so you can set a stop loss at ₹95. When the contract reaches ₹95, your position will get auto squared off.
How much capital should I risk per trade?
One should stick to the 1% Rule of Risk management that is one should not risk more than 1% of their capital in one trade.
