Reference

The F&O Glossary

Every term that trips up a new options trader, in plain English — India-aware, and linked to the lesson or tool where it comes alive. 35 terms and counting.

The basics

Call option CE: The right (not obligation) to BUY the underlying at the strike price. A call buyer profits when the underlying rises above strike + premium. Learn it
Put option PE: The right (not obligation) to SELL the underlying at the strike price. A put buyer profits when the underlying falls below strike − premium. Learn it
Strike price: The fixed price at which an option can be exercised. Options are listed at regular strike intervals (e.g. every 50 points on NIFTY, 100 on BANKNIFTY).
Premium: The price paid by the buyer and received by the seller to open an option. It is the entire cost (and max loss) for a buyer, and the maximum profit for a seller. Learn it
Underlying: The asset an option derives its value from — for index options this is NIFTY, BANKNIFTY, FINNIFTY, etc.; for stock options, the share.
Spot price spot: The current market price of the underlying right now — e.g. NIFTY’s spot is wherever NIFTY is trading at this moment. Every option’s value is measured relative to spot vs its strike.
Lot size: Derivatives trade in fixed quantities (lots), not single units — e.g. one NIFTY lot is dozens of units, not one. The exchange revises lot sizes periodically, so always check the live contract spec before trading. Your P/L scales by lot size. Learn it
Expiry: The date an option ceases to exist. Index options have weekly and monthly expiries; value at expiry is purely intrinsic (no time value remains).
In / At / Out of the money ITM / ATM / OTM: ITM = has intrinsic value (call strike below spot / put strike above spot). ATM = strike ≈ spot. OTM = no intrinsic value, all premium is time value.
Intrinsic & time value: An option’s premium = intrinsic value (the profit if exercised right now: spot − strike for a call, strike − spot for a put, never below zero) + time value (the extra paid for the time left before expiry). Time value decays to zero by expiry.

Payoff & structure

Payoff diagram: A chart of profit/loss across every possible closing price of the underlying at expiry. The core mental model: trade the shape, not the contract. Learn it
Breakeven: The underlying price(s) at which a position makes neither profit nor loss. For a long call: strike + premium. Wider gaps between breakevens = larger safe zone. Learn it
Credit vs debit: A credit position is opened by RECEIVING net premium (you want decay); a debit position is opened by PAYING net premium (you need a move). Learn it
Vertical spread: Buy one option and sell another of the same type at a different strike. Caps both profit and loss — the workhorse of defined-risk directional trading. Learn it
Straddle / Strangle: Straddle = call + put at the SAME strike; strangle = at different OTM strikes. Long = profit from a big move either way; short = profit from stillness + high IV. Learn it
Iron condor: Sell an OTM call spread and an OTM put spread together. Collects premium and profits if the underlying stays in a band, with both wings defined-risk. Learn it

The Greeks

Delta Δ: Price change per 1-point move in the underlying — your directional exposure. Also a rough probability of finishing ITM. Learn it
Gamma Γ: How fast delta itself changes. Highest at-the-money and near expiry — the source of explosive risk for option sellers. Learn it
Theta Θ: Time decay per calendar day. Negative for buyers (you pay rent on time), positive for sellers (you collect it). Accelerates near expiry. Learn it
Vega: Price change per 1% change in implied volatility. Buyers are long vega; sellers short. The reason you can be right on direction and still lose (IV crush). Learn it
Rho ρ: Sensitivity to interest rates. A rounding error for the short-dated options most retail traders use. Learn it

Volatility

Implied volatility IV: The volatility the market is pricing into an option — its forward-looking forecast of movement, backed out of the live price. High IV = expensive options. Learn it
Realised volatility RV: How much the underlying actually moved. The option-selling edge exists because IV usually sits above RV — the market overpays for insurance. Learn it
IV rank / percentile: Context for a raw IV number. Rank places today’s IV between its 1-year low and high (0–100); percentile = fraction of days with lower IV. Learn it
IV crush: The sharp collapse of IV right after a known event (results, Budget, RBI). Punishes pre-event buyers; harvested by sellers. Learn it
India VIX: NSE’s index of expected 30-day NIFTY volatility — the market’s "fear gauge". Spikes around shocks and mean-reverts. Learn it
Volatility skew: The pattern of IV across strikes. Index puts typically carry higher IV than calls (crash insurance demand) — a downward "smirk". Learn it

Option chain & flow

Open interest OI: The number of outstanding (not yet closed) contracts at a strike. Rising OI confirms a trend; large OI at a strike can act as support/resistance. Learn it
Put-call ratio PCR: Total put OI ÷ total call OI. High PCR (>1) is often read as bearish positioning (sometimes contrarian-bullish); low PCR the reverse. Learn it
Max pain: The strike at which the largest total value of options would expire worthless — where option BUYERS feel maximum pain. Often a magnet near expiry. Learn it

Costs, tax & risk

STT Securities Transaction Tax: On options, charged on the SELL side at 0.10% of premium (raised from 0.0625% on 1 Oct 2024). On exercised ITM options it is charged on intrinsic value — an expiry trap. Learn it
SPAN + Exposure margin: The margin the exchange blocks to sell options — its estimate of the worst plausible one-day loss. A single NIFTY short straddle can block ₹1.5–2 lakh. Learn it
Position sizing (1–2% rule): Risk no more than 1–2% of capital on any single trade’s max loss, so no one bad day can cripple the account. Learn it
Tail risk: The rare, severe move (gap, circuit, global shock) that delivers a loss many times the average win. The reason sellers use defined-risk structures and stops. Learn it
Variance risk premium: The structural gap by which implied volatility exceeds realised — the compensation option sellers earn for bearing move risk. Learn it