Equity derivatives
Futures and options, understood before they are traded
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Explore the derivatives market with access to Futures and Options across eligible market segments.
Read this before you trade derivatives. SEBI's study of individual traders in the equity derivatives segment found that roughly nine out of ten incurred net losses over the period studied, and that transaction costs were a significant share of those losses. Leverage works in both directions, a written option can lose far more than the premium it earned, and an expiry deadline removes the option of simply waiting for a recovery. Trade only with money you can afford to lose, size every position for the loss you can absorb, and read the Risk Disclosure Document before you begin. Nothing on this page is a recommendation to trade or to take any position.
Four ideas that everything else rests on
A derivative has no value of its own. It derives all of it from something else, and from a date. Both of those facts have consequences that surprise people.
A future is an obligation
Buying a future commits you to buy the underlying at a fixed price on a fixed date; selling one commits you to sell. Neither side pays the contract value upfront, and neither side can walk away. The commitment is what makes it powerful and what makes it dangerous.
Consequence: a future has no premium to lose and no ceiling on what it can cost you.
An option is a right, for one side only
The buyer pays a premium for the right to do something and can simply decline. The seller receives that premium and carries the matching obligation, with no right to decline. The two sides of the same contract are not mirror images of each other in risk.
Consequence: a buyer can lose only the premium; a writer's loss is open ended and is why writing needs margin.
Leverage is the whole point, and the whole problem
You control a large contract value with a much smaller margin, so a small move in the underlying is a large move on your money. The percentage that flatters you on a good day is the same percentage on a bad one.
Consequence: size the position by the loss you can absorb, never by the margin you happen to have.
The deadline changes everything
An equity investor who is early can wait. A derivatives trader who is early is simply wrong, because the contract expires whether or not the view eventually proves correct. Time is a cost to the buyer and an income to the writer, and it never stops running.
Consequence: being right about direction and wrong about timing produces a total loss.
Futures, options, or just buy the shares?
The same opinion about a company can be expressed three ways, with completely different obligations attached. Answer two questions and the column that matches gets highlighted.
Two questions
This compares how three instrument structures behave. It is a general orientation, not a recommendation of any security or position, and not investment advice.
You want a loss you can name in advance and you have no deadline, which is the plain case for owning the asset itself. There is no margin to maintain, no daily settlement, nothing expires, and a view that takes three years to be right is still allowed to be right. Derivatives add leverage and a clock, and you have asked for neither.
This matches a stated risk tolerance and time frame to an instrument structure. It takes no view on any security, price or direction, does not consider your circumstances, and is not investment advice. Derivatives can produce losses greater than the amount you put up.
Attribute Buying the shares Buying an option Futures or writing options
| What you hold | The shares themselves | A right that expires | An obligation that expires |
| Paid upfront | The full value | The premium only | Margin, not the contract value |
| Most you can lose | What you invested | The premium paid | More than the margin you put up |
| Most you can gain | Unlimited, over time | Unlimited for a call, large for a put | Unlimited on a long future, capped when writing |
| Deadline | None | Expiry date | Expiry date |
| Daily settlement | None | None, the premium is paid once | Marked to market every day |
| Can you be asked for more money | No | No | Yes, whenever margin falls short |
| Time working against you | No | Yes, every day | In your favour when you have written |
| Dividends and votes | Yours | No | No |
| Usually suits | Anyone building a holding | A defined-risk view with a time frame | An experienced trader who monitors margin daily |
The comparison describes instrument structures in general terms. Contract specifications, eligibility and margin requirements are set by the exchanges and the clearing corporations and are revised from time to time. Nothing here is a recommendation to buy, sell or write any contract.
Every position has a shape. Learn the shape first
These diagrams are schematic. They show the form of the profit and loss at expiry against the price of the underlying, which is the part that never changes, rather than numbers from any particular day.
Profit regionLoss regionBreak-even
Long future
Buy 1 futureA commitment to buy the underlying at a fixed price on a fixed date. The profit and loss move one for one with the underlying, in both directions, with no premium paid and no cap in either direction.
There is no floor. A gap move against you is debited the same evening through the daily mark to market, and it can exceed the margin you posted. Nothing about this position limits the loss except your own exit.
Diagrams are schematic and not drawn to any scale. They show the position at expiry and ignore brokerage, statutory charges and the effect of early assignment or of margin being called before expiry. A structure described here is an illustration of a payoff shape, not a recommendation to enter it.
The five Greeks, and the question each one answers
An option price moves for five reasons at once. The Greeks separate them, so that a loss can be attributed rather than merely regretted.
How much the option price moves for a one-unit move in the underlying. A deep in-the-money option behaves almost like the underlying itself; a far out-of-the-money one barely reacts at all.
Answers: if the underlying moves one rupee, how much do I make or lose?How fast delta itself changes. It is largest near the strike and close to expiry, which is exactly when a position that looked stable starts behaving violently.
Answers: how quickly will my exposure change as the price moves?The value lost simply because a day has passed. It is negative for a buyer and positive for a writer, and it accelerates as expiry approaches rather than running evenly.
Answers: what does doing nothing for one more day cost me?Sensitivity to the market's expectation of future movement. Implied volatility can collapse after an event even when the price goes the way you predicted, and the option still loses money.
Answers: what happens to me if the market simply becomes calmer?Sensitivity to interest rates. It is the least important Greek for short-dated contracts, which is most of what trades here, and it matters mainly for longer-dated positions.
Answers: does a change in rates affect this position at all?Not a Greek but the number that drives them. It is the market's estimate of future movement, backed out of the option price itself. A high implied volatility makes every option expensive, which is why buying before an event and selling after it so often disappoints.
Answers: am I paying for movement that is already expected?The life of a contract, and where people get caught
Almost every unpleasant surprise in this segment happens at stage three or stage four, and both of them arrive on a schedule that is published in advance.
How margin actually works
Margin is not a fee and not a deposit with us. It is collateral held against an obligation, recalculated daily by the clearing corporation, and its level is not something any broker can negotiate.
Two components, one number
The initial requirement is built from a risk-based component that simulates how the portfolio would behave under a range of price and volatility shocks, plus an additional exposure component. The platform shows the combined figure before you send the order.
Set by: the clearing corporation, in files published through the day.
Collected before, not after
Regulation requires the full applicable margin to be available before an order reaches the exchange, and margin availability is checked at random snapshots through the session. A shortfall at any snapshot attracts a penalty levied on us and passed on to you.
Practical effect: keep a buffer. Funds in transit are not funds available.
Marked to market every evening
Futures positions are settled in cash daily against the day's settlement price, so a loss is debited that evening rather than when you exit. Your total loss may therefore arrive in instalments, each of which must be funded.
Practical effect: a position can be perfectly sound and still need cash tomorrow morning.
Hedged positions need less
A recognised spread or a defined-risk structure requires far less margin than its legs would separately, because the clearing corporation nets the risk. This is the single strongest mechanical argument for buying the protective wing rather than writing naked.
Practical effect: send multi-leg structures as one basket so the benefit is applied before the order goes out.
It rises before expiry on stock contracts
Because an open stock contract turns into a delivery obligation, the exchange increases the requirement in stages over the final days. A position that was comfortable can trigger a shortfall without the price moving at all.
Practical effect: the most common unpleasant surprise in the segment. Plan the exit before that window opens.
Pledged securities as collateral
Shares in your demat can be pledged to raise margin, subject to a haircut and to the rule that a part of the requirement must be met in cash. Every pledge needs an authorisation sent to you by the depository, never by us.
Practical effect: collateral reduces the cash you must keep idle, but it does not reduce the risk you carry.
Margin rates, haircuts, the cash component requirement, pre-expiry margin stages and penalty rates are set by SEBI, the exchanges and the clearing corporations and are revised from time to time. This page describes how the mechanism works rather than its current settings, which the platform shows for your own positions.
Twelve structures, filtered by what you are trying to do
Each one is a way of shaping risk, not a signal. Filter by intention, open the ones that match, and read the failure mode before the payoff.
Showing all 12 structures.
Long call
BUY CALLclick to know when to use it
Long put
BUY PUTclick to know when to use it
Protective put
STOCK + PUTclick to know when to use it
Covered call
STOCK + SELL CALLclick to know when to use it
Bull call spread
SPREADclick to know when to use it
Bear put spread
SPREADclick to know when to use it
Bull put spread
CREDITclick to know when to use it
Bear call spread
CREDITclick to know when to use it
Long straddle
BUY BOTHclick to know when to use it
Long strangle
BUY BOTHclick to know when to use it
Short straddle
WRITE BOTHclick to know when to use it
Iron condor
FOUR LEGSclick to know when to use it
Understanding a structure is not the same as being ready to run it
If you want a rule-based approach with the entry, the hedge, the position size and the daily loss limit written down before anything is sent, QuanteX lets you build and test one without writing code. Every basket still goes out on your approval.
Charges, and the turnover they are calculated on
The rates are set elsewhere and change; the structure does not. What trips people up here is not the rate but the base it is applied to, which differs between futures and options.
| Line on the contract note | Calculated on | Levied by | Where the current rate is published |
|---|---|---|---|
| Brokerage | Nothing. It is a flat amount per executed order. | Yukti | ₹20 per executed order |
| Securities transaction tax | Futures: the sell-side contract value. Options: the sell-side premium, and the settlement value on options that are exercised. | Government | Notified rate, in the Finance Act |
| Exchange transaction charge | Futures: contract value. Options: premium turnover, which is far smaller. | NSE or BSE | Exchange circular, revised periodically |
| SEBI turnover fee | Turnover, on the same basis as above. | SEBI | SEBI circular |
| Stamp duty | The buy side, at rates that differ between futures and options. | State | Uniform rates notified under the Stamp Act |
| Goods and services tax | Brokerage plus the transaction and regulatory charges, not the contract value. | Government | Prevailing GST rate |
| Physical delivery charges | Stock contracts that go to delivery, settled like an equity trade with its own charges. | Exchange and Yukti | Published tariff sheet |
| Margin shortfall penalty | The amount and duration of the shortfall. | Exchange | Exchange circular, passed on at actuals |
Premium turnover is not contract value
Buy one option and the money you risk is the premium, but the contract controls a much larger value. Some charges apply to the premium and some to the contract value, which is why two trades of the same size can carry very different costs.
Read it on: the contract note, where each base is shown separately.
Letting an option be exercised is expensive
An in-the-money option left to expire is exercised, and the transaction tax on exercise is charged on the settlement value rather than on the premium. Squaring off before expiry usually costs a fraction of that.
Practical effect: close a profitable option rather than letting it expire, unless you actively want the resulting position.
Costs are a large share of the outcome
A flat fee per order becomes significant when a structure has four legs and is adjusted repeatedly. The regulator's own study found transaction costs were a material part of what individual traders lost.
Practical effect: count the legs before you enter, and count them again before you adjust.
Statutory and exchange rates are set by the government, SEBI and the exchanges and are revised from time to time; the rate in force on your trade date applies. This page describes what each charge is applied to rather than quoting a rate that would go out of date. The published tariff sheet and your contract note are the authoritative record.
Derivatives are taxed as business income, not capital gains
This surprises almost everyone arriving from equity investing, and it changes which return you file, what you can deduct and whether an audit applies.
Non-speculative business income
Gains and losses from equity derivatives are generally treated as non-speculative business income and taxed at your slab rate, rather than as capital gains. Intraday equity, by contrast, is speculative business income, and the two are not interchangeable.
Look up: which return form applies to business income for the relevant year.
Turnover is computed differently
For tax purposes derivatives turnover is not the contract value. It is computed on a prescribed basis that uses the absolute profit and loss on each trade, with the treatment of option premium having changed in recent years. Getting this wrong changes whether an audit is triggered.
Look up: the current prescribed method of computing derivatives turnover.
Expenses can be claimed
Because it is business income, expenses incurred to earn it are deductible: brokerage, exchange and regulatory charges, data subscriptions, and a reasonable share of internet and device costs. Keep the evidence, because the deduction is only as good as the record.
Practical effect: the contract notes and the annual statement are the starting point, not an app's profit figure.
Losses can be carried forward
A non-speculative business loss can be set off against most other heads of income in the same year, with the exception of salary, and whatever remains is carried forward for a number of assessment years. The carry-forward is available only if the return is filed by the due date.
Practical effect: file on time even in a loss year. Especially in a loss year.
Advance tax and audit
Business income carries an obligation to pay tax in instalments through the year rather than at the end, and an audit requirement applies above a prescribed turnover or where profit is declared below a prescribed rate. Both thresholds change.
Look up: the current advance tax dates and the audit threshold for the relevant year.
We do not give tax advice
Whether your activity is a business, which form applies, how turnover is computed for you and whether an audit is required all depend on facts we cannot see. We are a stock broker, not a tax adviser.
Practical effect: engage a chartered accountant in your first year of trading derivatives, not in your third.
The controls specific to this segment
Six mechanisms that exist only in derivatives, all published by the exchanges in advance, and all of which will eventually affect a position you hold.
Position limits
There is a ceiling on how much open interest a single client, and a single member, may hold in a contract. Breaching it invites a penalty and a forced reduction, and the limits tighten near expiry.
What you see: an order refused because it would take you past the permitted position.
The ban period
When open interest in a stock's derivatives crosses a defined share of the market-wide limit, that stock enters a ban in which only position-reducing orders are accepted. You may close, but you may not open or add.
What you see: a stock you were trading suddenly refuses new positions, usually at the worst moment.
Operating ranges and price freeze
Derivative contracts have a dynamic price range around the theoretical or reference price rather than a fixed circuit. An order priced beyond it is rejected or held for confirmation, which protects you from a fat-finger entry.
What you see: a limit order rejected as outside the permitted range even though the market looks calm.
Physical settlement of stock contracts
All stock futures and in-the-money stock options go to physical delivery at expiry. The full contract value must be funded on the buy side and the shares delivered on the sell side, which is a different order of magnitude from the margin you posted.
What you see: a pre-expiry margin that keeps rising, then a delivery obligation you never intended.
Upfront and intraday margin checks
The full applicable margin must be available before the order is sent, and availability is verified at random snapshots through the session. A shortfall at any snapshot attracts a penalty, regardless of whether the position was profitable.
What you see: a penalty entry in your ledger for a shortfall that lasted minutes.
Eligibility and suitability
The derivatives segment is enabled separately and requires income proof and acceptance of the Risk Disclosure Document. The exchange also decides which stocks are eligible for derivatives at all, and removes them when criteria are no longer met.
What you see: a contract that existed last quarter no longer available to trade.
Limits, thresholds, ranges and penalty rates are notified by SEBI, the exchanges and the clearing corporations and are revised from time to time. This page describes how the mechanisms work rather than their current numerical settings, which should be read from the circular in force on the day.
The derivatives glossary
Every term you will meet on an option chain, an order pad or a margin statement, defined in one or two sentences. Type to search, or jump by letter.
All 60 terms.
An option that may be exercised on any day up to expiry. Indian equity options are European, so this term appears mainly in textbooks and in commodity contracts.
Being allocated the obligation on an option you wrote, because the buyer exercised. You do not choose when it happens; the exchange allocates it.
A strike that sits at or very close to the current price of the underlying. These options carry the most time value and the most gamma.
A state in which a stock's derivatives accept only position-reducing orders, triggered when open interest crosses a defined share of the market-wide limit.
The difference between the futures price and the price of the underlying. It narrows toward expiry and is the reason a futures position and a cash position do not move identically.
Writing a call and buying a higher-strike call. A net credit is received and both the gain and the loss are fixed before entry.
Buying a call and writing a higher-strike call. Cheaper than a plain call, with the gain capped at the upper strike.
A contract giving the buyer the right, but not the obligation, to buy the underlying at the strike price on expiry.
Settling a contract by paying the difference in money rather than delivering the underlying. Index derivatives in India are cash settled.
The lot size multiplied by the price of the underlying. It is what the contract controls, which is far larger than the margin you post.
Writing a call against shares you already hold. The premium is income; the upside above the strike is given away.
Any two-leg structure entered for a net premium received, where the bought leg limits the worst case.
Any two-leg structure entered for a net premium paid, where the written leg reduces the cost and caps the gain.
How much an option price moves for a one-unit move in the underlying. It also approximates the equivalent position in the underlying.
An in-the-money option turning into a position in the underlying at expiry, which then carries that instrument's margin and delivery rules.
An option that can be exercised only at expiry. All listed Indian equity options are European.
Using the right an option confers. In-the-money options are exercised automatically at expiry rather than on request.
The date on which a contract ceases to exist. Every derivative has one, which is the single biggest difference from owning shares.
An additional margin collected on top of the risk-based component, to cover risks the model does not capture.
The part of a premium that is not intrinsic value. It is made of time and expected volatility, and it decays to nothing by expiry.
How fast delta changes as the underlying moves. It is largest near the strike and close to expiry, when positions behave most violently.
A position taken to offset the risk of another. It exchanges an uncertain loss for a known cost, and it is what these instruments were created for.
The market's expectation of future movement, backed out of the option price. High implied volatility makes every option expensive.
A call whose strike is below the current price, or a put whose strike is above it. These carry intrinsic value.
The collateral required to open and hold a position, calculated by the clearing corporation from a risk model and collected before the order is sent.
The part of a premium that would be realised if the option expired right now. It is never negative.
Writing a call spread above and a put spread below the price, with both wings bought. A defined-risk income structure.
Holding a bought position, whether a future or an option. The opposite of short.
The number of units in one contract. You trade whole lots, and the exchange sets and revises the size.
A requirement to add funds because the margin available has fallen below what the position needs. Ignoring it leads to the position being closed.
The daily settlement of futures against the day's settlement price, so profit is credited and loss debited every evening rather than at exit.
The ceiling on total open interest permitted in a stock's derivatives. Crossing a defined share of it triggers the ban period.
A written option with no offsetting position. The loss is open ended, which is why it attracts the highest margin.
Another name for contract value: what the position controls, as distinct from what you paid or posted.
The number of contracts currently outstanding. Rising open interest with a rising price suggests new positions rather than closing ones.
The dynamic band around a reference price within which orders in a derivative contract are accepted. It protects against erroneous entries.
The table of all strikes for an expiry, with the call side on one side and the put side on the other.
A call whose strike is above the current price, or a put whose strike is below it. These have no intrinsic value at all.
The profit or loss of a position at expiry, expressed against the price of the underlying. Learning the shape matters more than learning the name.
A margin requirement measured at random snapshots through the session rather than only at the end, so a shortfall at any moment is penalised.
Settling by delivering or receiving the underlying shares. All stock derivatives in India settle this way.
The maximum open interest a single client or member may hold in a contract. Limits tighten as expiry approaches.
An additional margin added in stages over the final days on stock contracts heading for physical delivery. The most common source of an unexpected shortfall.
What the buyer pays and the writer receives. It is the buyer's maximum loss and the writer's maximum gain.
A contract giving the buyer the right, but not the obligation, to sell the underlying at the strike price on expiry.
The ratio of put open interest or volume to call. Widely quoted as a sentiment measure and widely over-interpreted.
Sensitivity of an option price to interest rates. The least important Greek for the short-dated contracts that dominate trading here.
Closing a position in the expiring contract and opening the same position in the next one, to carry a view past expiry.
The price fixed by the exchange for settling a contract, typically computed over a window near the close rather than being the last trade.
Holding a sold position, whether a written option or a sold future. It carries an obligation rather than a right.
The risk-based component of the initial margin, calculated by simulating how the portfolio would behave under a range of price and volatility shocks.
Any structure combining a bought and a written leg in the same underlying, which reduces both the cost and the margin.
A call and a put at the same strike. Bought, it is a position on movement; written, it is a position on stillness.
A call and a put at different out-of-the-money strikes. Cheaper than a straddle and needs a larger move to pay.
The price at which an option may be exercised. Strikes are listed at intervals set by the exchange.
The value an option loses simply because a day has passed. Negative for a buyer, positive for a writer, and it accelerates near expiry.
The everyday name for theta. It is not linear: most of the remaining time value disappears in the final days.
The index or share from which the derivative takes its value. The contract has no worth of its own.
Sensitivity to implied volatility. A fall in volatility can lose money for an option buyer even when the price moves the right way.
The seller of an option, who receives the premium and carries the obligation. The writer cannot decline if assigned.
Commonly asked about futures and options
What do I need to start trading derivatives?
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Can I lose more than the money in my account?
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What happens if I do nothing at expiry?
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Why did my option lose money when the price moved my way?
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Why has my margin gone up without me doing anything?
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Is writing options a way to earn regular income?
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What is the difference between index and stock derivatives?
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Can I hedge my share portfolio with derivatives?
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Does this page show live option prices?
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Do you tell me which positions to take?
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