---
title: "F&O Glossary"
type: "glossary"
topic: "Futures & Options terminology (Indian markets)"
terms: 35
url: "https://learn-derivatives.tapetide.com/glossary"
markdown_url: "https://learn-derivatives.tapetide.com/glossary.md"
source: "DeltaDesk by Tapetide"
---

# F&O Glossary

A plain-English, India-aware reference of 35 Futures & Options terms.

## 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.
- **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.
- **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.
- **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.
- **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.
- **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.
- **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).
- **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.
- **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.
- **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.

## The Greeks

- **Delta (Δ):** Price change per 1-point move in the underlying — your directional exposure. Also a rough probability of finishing ITM.
- **Gamma (Γ):** How fast delta itself changes. Highest at-the-money and near expiry — the source of explosive risk for option sellers.
- **Theta (Θ):** Time decay per calendar day. Negative for buyers (you pay rent on time), positive for sellers (you collect it). Accelerates near expiry.
- **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).
- **Rho (ρ):** Sensitivity to interest rates. A rounding error for the short-dated options most retail traders use.

## 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.
- **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.
- **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.
- **IV crush:** The sharp collapse of IV right after a known event (results, Budget, RBI). Punishes pre-event buyers; harvested by sellers.
- **India VIX:** NSE’s index of expected 30-day NIFTY volatility — the market’s "fear gauge". Spikes around shocks and mean-reverts.
- **Volatility skew:** The pattern of IV across strikes. Index puts typically carry higher IV than calls (crash insurance demand) — a downward "smirk".

## 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.
- **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.
- **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.

## 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.
- **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.
- **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.
- **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.
- **Variance risk premium:** The structural gap by which implied volatility exceeds realised — the compensation option sellers earn for bearing move risk.

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**Full interactive glossary at [DeltaDesk](https://learn-derivatives.tapetide.com/glossary).**

*Educational content only — nothing here is investment advice. Derivatives carry significant risk of loss. Tapetide is not a SEBI-registered research analyst or investment adviser.*