🇮🇳F&O India · 12 terms

F&O India

The rules that are particular to trading derivatives in India — the ones that don't transfer from anything you read about other markets.

Contracts and the size of them

Indian derivatives trade in fixed lot sizes, so exposure comes in indivisible steps. The exchange revises them periodically to keep contract value inside a mandated band, and those revisions have consequences: a lot size increase raises the minimum capital required to hold any position at all, which is why each one is followed by complaints from smaller traders. It is also the first constraint on position sizing — you cannot take a half-lot position because your risk calculation asked for one.

NIFTY 50 and BANK NIFTY are the two dominant underlyings, and BANK NIFTY is the more volatile of the pair by a wide margin. Both trade weekly and monthly expiries, and the weekly contracts carry most of the volume — which is what makes theta decay and gamma the defining forces in this market rather than a technicality.

Futures are an obligation rather than a right: both sides are committed, the payoff is linear, and there is no premium and no decay. Rollover is moving a position from the expiring contract to the next one, and the aggregate rollover percentage near monthly expiry is watched as a sentiment reading — high rollovers mean positions are being carried forward rather than closed.

Margin, MTM and the way accounts actually blow up

Margin is the capital the exchange requires you to post. It is not the cost of the position; it is collateral against it. This is the single most consequential idea in this list, because margin creates leverage and leverage is what turns a manageable adverse move into a solvency problem.

Mark-to-market settles that adverse move daily. Losses are debited from the account at the end of each day, not at the end of the trade. A position that is ultimately profitable can therefore require cash along the way, and a trader who is right about the eventual outcome but has not planned for the interim can be forced out before it arrives. Almost every retail derivatives disaster has this shape.

STT — the securities transaction tax — has one specific trap worth knowing. On options exercised at expiry, STT has historically been levied on the full contract value rather than the premium, which can exceed the entire gain on a barely in-the-money option. The lesson is unglamorous and expensive: square off rather than letting things expire in the money.

Physical settlement applies to stock derivatives at expiry — an in-the-money stock option becomes an obligation to deliver or take delivery of the shares, with the full cash requirement that implies. Index options remain cash-settled, which is one reason index contracts dominate retail volume.

The two sentiment readings

FII and DII figures are the daily record of what foreign and domestic institutions bought and sold. The cash-market numbers are provisional and get revised; the participant-wise open interest report is the more informative of the two, because the FII index-futures long/short balance is a direct statement of institutional directional positioning rather than an inference from it.

India VIX is the market's expected volatility over the next 30 days, computed from NIFTY option prices. It rises when protection gets expensive, which is to say when people are nervous, which is why it spikes on declines rather than rallies. As a level it means little; as a change it is one of the better fear readings available, and an elevated VIX makes every option on the board expensive at once.

Delivery percentage belongs to the cash market but is read alongside these: it is the share of traded volume actually taken to delivery rather than squared off intraday. A rising price on high delivery is accumulation; a rising price on low delivery is speculation that has to be unwound.

All 12 terms in F&O India

Alphabetical, each with a worked example. Every one of these is searchable from the glossary index.

BANK NIFTY

An NSE index of the largest banking stocks. Highly volatile and a favourite for option traders because of its big intraday swings.

e.g. BANKNIFTY often swings 400–600 points in a day vs NIFTY's ~150 — bigger moves, bigger risk.

Delivery Percentage

The share of traded volume actually taken into demat accounts (not squared off intraday). High delivery % signals genuine investor conviction, not just day-trading churn.

e.g. A stock rises 4% with delivery jumping from 40% to 70% → buyers are taking delivery, a conviction signal.

FII / DII

Foreign and Domestic Institutional Investors. Their daily net buying/selling in cash and F&O is a closely-watched gauge of big-money sentiment.

e.g. 'FIIs sold ₹2,500 cr, DIIs bought ₹2,200 cr' → foreign money exiting while domestic funds absorb the selling.

Futures

A contract to buy/sell an asset at a set price on a future date. Leveraged and obligatory (unlike options). Used to hedge or speculate on direction.

e.g. Buy 1 NIFTY future at 24000; a 100-point rise = 100 × 75 = ₹7,500 profit (on a fraction of the notional as margin).

India VIX

NSE's volatility index — the market's expected 30-day NIFTY volatility from option prices. Often called the 'fear gauge': it spikes when markets panic.

e.g. India VIX jumps from 12 to 22 on election-result day → traders are pricing in big swings; option premiums balloon.

Lot Size

F&O contracts trade in fixed bundles, not single units. The lot size is the number of underlying units per contract (e.g. NIFTY = 75). Your real exposure = price × lot size.

e.g. NIFTY lot = 75. A 24000 CE at ₹120 costs 120 × 75 = ₹9,000 for one lot.

Margin

The upfront capital the exchange requires to hold a leveraged (futures/short-option) position — SPAN + Exposure margin. A margin call demands more funds if it runs short.

e.g. One NIFTY futures lot (~₹18L notional) may need ~₹1.2L of SPAN+Exposure margin to hold.

MTM (Mark-to-Market)

Daily revaluation of open positions to the closing price, with profit/loss settled into your account each day rather than only at exit.

e.g. Long a NIFTY future; it closes 60 points down today → ₹60 × 75 = ₹4,500 is debited from your account tonight as MTM.

NIFTY 50

The National Stock Exchange's flagship index of 50 large Indian companies — the most-traded underlying for index options in India.

e.g. 'NIFTY is at 24,000, up 0.8%' means the 50-stock large-cap basket rose ~0.8% today.

Physical Settlement

For stock F&O held to expiry, ITM positions settle by actual delivery of shares (and full cash), not just cash difference — so square off before expiry to avoid it.

e.g. Hold 1 ITM SBIN call lot to expiry → you must take delivery of the full lot of shares and pay the full value.

Rollover

Closing a near-month F&O position and reopening it in the next expiry to carry the view forward. High rollover % signals continued trader interest.

e.g. On expiry day you close the June future and buy the July future to keep the position alive → a rollover.

STT (Securities Transaction Tax)

A tax levied on Indian securities trades. It spikes on exercised/ITM options at expiry, which is a key reason traders square off rather than let options expire ITM.

e.g. Letting a deep-ITM option expire can trigger STT on the full contract value — often far more than squaring off early.

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