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Derivatives Segment Of The Secondary Market. A derivative is a financial instrument that derives its value from the value of an underlying asset.

The underlying asset can be equity, commodities or any other asset. For the purpose of this chapter, we would restrict the scope to Equity derivatives only.

Derivatives were introduced in the Indian stock market to enable investors to hedge their investments against adverse volatile price movements. However they are now commonly being used for taking speculative positions.

Broadly, Futures and Options are the derivative instruments that are traded on the two main exchanges, BSE and the NSE.

3 Easy Steps to trade in F&O (Equity Future Derivatives) at BSE, NSE, MCX

Nifty is trading at the level of You can buy or sell a lot of Nifty Fututres. The lot size of Nifty futures is Why Equities are a Must. The margin money would work out as follows: We took the example of Nifty, which is an index. You can take positions in various stocks which are listed for Futures trade.

On NSE, the last Thursday of every month is the expiry date. In our example, if the Nifty is trading at on the last Thursday of the month and the position is not squared off then the purchaser of the Nifty futures contract at would be a gainer by Rs. Similarly seller of Nifty futures contract would stand to lose Rs.

The option writer or seller is the other party to such a contract who earns the premium. Call Option - Option to buy the stock at a specific price e.

How to Use Options Open Interest Data to Find Trading Range of Nifty Future

A buys a Nifty Call option with a strike price of at a premium of Rs. B, the seller of the option earns this premium of Rs. If at the expiry date, Nifty is trading at , then Mr.

A would exercise his option and earn a net amount of Rs. The strike price of the contract is and at the expiry, the Nifty is at So he stands gainer by Rs.

He however has incurred a premium of Rs. Now, had the Nifty fallen to , then Mr. A would be a loser by only Rs. His Call option would not exercise and Mr. B would be a gainer by Rs. Put Option - Option to sell the stock at a specified price e.

A buys a Nifty Put option with a strike price of at a premium of Rs. Now, had the Nifty risen to , then Mr.

His Put option would not exercise and Mr. Strike Price - Specified Price at which the underlying may be purchased or sold when the option is exercised.

Expiry Date - Last date for exercising the option by buyer Last Thursday of the relevant month on NSE.