F&O

Any adult individual with an active equity Demat/trading account can activate the segment by submitting income proof (bank statement, salary slip, ITR, or net-worth certificate), declaring trading experience, and e-signing a risk disclosure form. Activation usually takes a few hours to 72 working hours. Minors cannot activate F&O under any circumstances.

These describe an option’s “moneyness” relative to the current market price of the underlying:

• ITM (In-The-Money) The option has intrinsic value if exercised right now — a call with a strike below the current price, or a put with a strike above it.
• ATM (At-The-Money) The strike price is at or very near the current market price.
• OTM (Out-of-The-Money)  The option has no intrinsic value — exercising it now would be worthless. A call with a strike above the current price, or a put with a strike below it.This matters most on expiry day, since it determines whether a contract settles with value or expires worthless.

It depends on its moneyness at close:

• OTM and ATM contracts expire worthless — the buyer simply loses the premium paid, with no further action needed.
• ITM contracts are automatically exercised. For index options, this is cash-settled — the difference between the strike price and the index’s closing price is credited or debited to your account, and Securities Transaction Tax (STT) applies on the intrinsic value (charged only on the sell/exercise side, not again separately).
• ITM stock options, however, move to physical settlement — see below.

Unlike index derivatives (always cash-settled), all single-stock futures and ITM stock options in India settle through physical delivery of the actual shares. Key risks and mechanics to know:

• If you’re long a stock future or hold an ITM long option that isn’t closed before expiry, you’ll be required to pay the full contract value and take delivery of the shares — you need funds equal to the entire contract value ready in your account, not just the margin you were trading with.
• If you’re short a future or holding an ITM short option, you must have the shares available for delivery, or the broker may need to source them via auction (at your cost and potential penalty) if you don’t already hold them.
• Margin requirements step up sharply as expiry approaches — brokers typically demand rising delivery margins over the last few days before expiry (e.g., a portion of contract value a few days out, rising toward the full requirement by expiry day).
• If you don’t want physical delivery, you must actively square off (or roll over, for futures) your position before your broker’s cutoff time on expiry day — brokers usually auto-square-off eligible positions around midday if no instruction is given, but relying on this isn’t advisable since exact cutoffs and outcomes vary by broker.
• Because of the sudden capital requirement, physical delivery can catch under-margined traders off guard — this is one of the most common expiry-day risks for stock option buyers who don’t track ITM positions closely.

NSE places a stock’s derivatives into a ban when total open interest across all traders crosses 95% of its Market-Wide Position Limit (MWPL) — a cap designed to prevent excessive speculative buildup in a single stock. During the ban:

• No new F&O positions (long or short) can be opened in that stock.
• You can still square off/reduce existing positions at any time.
• The cash/equity market is unaffected — you can still buy or sell the stock itself, just not its futures/options.
• The ban lifts automatically once open interest falls back below 80% of MWPL, typically within a few sessions.
  Attempting to add fresh exposure in a banned stock can result in order rejection or exchange penalties.

The total upfront margin (called the Initial Margin) you need to open an F&O position is generally made up of:

• SPAN Margin the core, exchange-mandated margin, calculated by a risk system (Standardized Portfolio Analysis of Risk) that estimates the worst-case one-day loss your position could face under various market-movement scenarios. It changes with volatility.
• Exposure Margin an additional buffer charged on top of SPAN to cover risks SPAN might not fully capture, such as sharp overnight gaps; typically a fixed percentage of contract value.
• Premium (for option buyers) if you’re only buying options, you don’t post SPAN/exposure at all; you simply pay the option premium upfront, since your maximum loss is capped at that amount.
• Mark-to-Market (MTM) Margin for futures and short options, positions are revalued daily against the closing price; losses are debited from your account each day (and profits credited), so you must keep enough funds to cover adverse MTM moves.
• Physical Delivery/Additional Margin as covered above, extra margin is levied in the final days before expiry on stock derivatives likely to settle physically.

In short A future is a firm commitment — you must transact. An option gives the buyer flexibility (a right they can choose to use or let lapse), which is exactly why the buyer pays a premium for that flexibility while the seller takes on the open-ended risk in exchange for collecting it.

Option Chain
An option chain is a table listing all available Call and Put option contracts for a given underlying (a stock or index) and expiry date, arranged by strike price. For each strike, it typically shows:

• LTP (Last Traded Price) of the Call and the Put
• Bid/Ask prices
• Volume (contracts traded that day)
• Open Interest (OI) and change in OI
• Implied Volatility (IV)

It’s laid out with Calls on one side, Puts on the other, and strike prices down the middle — letting you compare pricing and activity across strikes at a glance. Traders use it to gauge where the market expects support/resistance, pick strikes to trade, and read overall sentiment.

Open Interest (OI)
OI is the total number of outstanding (not yet squared off or expired) option or futures contracts at a given strike/expiry, at any point in time. It’s important to understand what it does not mean:

• OI does not equal trading volume. Volume counts all trades executed in a day; OI only counts contracts still open.
• OI rises when a new buyer and new seller create a fresh contract (both go long/short for the first time).
• OI falls when an existing buyer and seller both close out their positions.
• OI stays flat if an existing position is simply transferred from one trader to another (one closes, another opens).

Why traders watch it

• High OI at a strike often signals a level the market considers significant — heavy Call OI can act like a resistance zone, heavy Put OI like a support zone, since many traders/writers have capital committed there.
• Rising OI + rising price generally suggests fresh long buildup (bullish conviction); rising OI + falling price suggests fresh short buildup (bearish conviction); falling OI in either direction suggests unwinding of existing positions rather than new conviction.
• The Put-Call Ratio (PCR), calculated from total Put OI vs Call OI, is a commonly used (though imperfect) sentiment gauge — a higher PCR is generally read as more bearish positioning building up, and vice versa, though it’s best used alongside other signals rather than in isolation.