What F&O actually is

Most people arrive at F&O through a screenshot. Someone turned ₹8,000 into ₹96,000 on a Thursday, the screenshot went around, and the obvious question formed: how do I do that?

That is the wrong first question. The right one is duller and far more useful: what did that person actually own?

Because in F&O you are almost never buying a company. You are buying a contract about a company, or about an index. Those are different things, and the difference is where nearly all beginner losses come from.

A derivative is a contract, not a holding#

Two consequences follow from that clock, and both cost people money:

1. Being right is not enough. You have to be right before the contract expires.
2. The contract can go to zero while the underlying is perfectly healthy.

Futures: an obligation#

A futures contract is an agreement to buy or sell the underlying at a set price on a set date. Both sides are obliged to honour it.

If you buy one Nifty futures contract, your profit or loss moves roughly one-for-one with Nifty, multiplied by the lot size. Nifty moves 100 points in your favour, and with a lot size of 75 you have made ₹7,500. Against you, and you have lost ₹7,500. Symmetric, simple, and unforgiving.

Options: a right, and the asymmetry that follows#

An option is not an obligation. It is a right — to buy (a call) or sell (a put) at a set strike price, on or before expiry. You pay a premium for that right.

That creates a lopsided payoff for the buyer:

Read the seller column again. Small capped gain, large uncapped risk — the exact opposite shape of what most beginners assume they are doing.

Lot size: the number that decides everything#

You cannot buy one unit of an index derivative. Contracts trade in lots, and the lot size is set by the exchange.

This is where the arithmetic ambushes people. A Nifty option quoted at ₹150 does not cost ₹150. With a lot size of 75, one lot costs:

₹150 × 75 = ₹11,250

And each ₹1 move in that option's price is worth ₹75 to you. A perfectly ordinary ₹40 move in the premium is ₹3,000 — on a position that felt like it cost "₹150".

Lot sizes are not permanent. SEBI and the exchanges revise them — sometimes substantially — to keep contract values inside a target band. Treat every lot size you read anywhere, including here, as an example rather than a fact. Check the current contract specification on the NSE site before you trade.

Expiry: the clock you cannot pause#

Every contract dies. Weekly contracts die weekly; monthly contracts die monthly.

For an option buyer, that clock costs you money every day you hold, even on a day the market does nothing. This is time decay, and it is not a tax you can avoid — it is the price of the right you bought. It accelerates as expiry approaches.

So the option buyer needs three things to line up, not one:

• Direction — the move must go the right way
• Size — it must be big enough to beat the premium you paid
• Timing — it must happen before expiry

Right on direction, wrong on timing, is a losing trade. Most beginners who say "I was right about the market but still lost money" are describing exactly this.

The number you should sit with#

SEBI has studied this repeatedly. Their findings have consistently landed in the same place: roughly nine out of ten individual traders in equity derivatives lose money, and the aggregate losses run into thousands of crores per year.

That statistic is not here to talk you out of learning. It is here to set the frame for everything that follows on this site.

It tells you the edge is not in knowing what a call option is — everyone in that losing 90% knows what a call option is. The edge is in position sizing, in risk control, in knowing which conditions favour which structure, and in not trading when there is nothing to trade. Those are the boring subjects. They are also the ones that decide the outcome.

Check yourself

0 of 4 answered

1. 1.You buy 10 shares of Reliance in the cash segment. It falls 30%. What has changed about what you own?

   You now own fewer sharesNothing — you still own the same 10 shares, and there is no deadline to recoverThe shares expire at the end of the quarterYou owe your broker the difference

2. 2.What is the key difference between a futures contract and buying an option?

   Futures are cheaper to tradeA future obliges both sides; an option gives the buyer a right they can simply walk away fromOptions cannot be sold before expiryFutures have no expiry date

3. 3.A Nifty option is quoted at ₹150 with a lot size of 75. What leaves your account for one lot?

   ₹150₹11,250₹75₹18,00,000

4. 4.You correctly predict Nifty will rise, but it takes nine days and your weekly option expires in three. What happens?

   You profit once the move arrivesThe option expires worthless — being right about direction but wrong about timing is a losing tradeThe contract rolls to the next expiry automaticallyYou receive the intrinsic value at the later date

What to take away

• A derivative is a contract with an expiry, not a holding you can wait out.
• Futures are symmetric obligations with uncapped loss on both sides.
• Option buyers have capped loss and need direction, size and timing.
• Option sellers have capped profit and uncapped risk — the reverse shape.
• Your exposure is the contract value, never the premium alone.
• Lot sizes and expiry rules change. Verify them on the exchange, not from memory.