What are various types of derivative instruments traded at NSE?

There are two types of derivatives instruments traded on NSE; namely Futures and Options.

Futures

A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. No money changes hands at the time the deal is signed. All the futures contracts are settled in cash at NSE.

Options

An Option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price. While a buyer of an option pays the premium and buys the right to exercise his option, the writer of an option is the one who receives the option premium and therefore obliged to sell/buy the asset if the buyer exercises it on him. Options contracts like futures are also Cash settled at NSE.

Options are of two types – Calls and Puts options

Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date.

Puts give the buyer the right, but not the obligation to sell a given quantity of an underlying asset at a given price on or before a given future date. All the options contracts are settled in cash.

Further, the Options are classified based on the type of exercise. At present, the Exercise style can be European or American.

American Options – American options are options contracts that can be exercised at any time up to the expiration date. Options on individual securities available at NSE are American type of options.

European Options – European options are options that can be exercised only on the expiration date. All index options traded at NSE are European Options.

What is Expiration day in derivatives?

Expiration Day is the last day on which the contracts expire. Futures and Options contracts expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.

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