On Wednesday 10 Jun 2026 the Nifty 50 closed at 23,214.95. The June Nifty future, a contract that settles on 30 Jun, settled that day at 23,240.10. One index, two prices, 25.15 points apart. A buyer of that future fixed the June price that afternoon. By Monday 29 Jun, the day before expiry, the future was at 23,972.90. Fixing a price today for a trade later is the oldest idea in markets, and it is all a derivative is. When I explain F&O to a friend I start with one question: who needs the price fixed, and who is happy to carry the risk? This lesson asks it three times, as a forward, a future and an option.
3By the end you can
- Tell the story of a forward, a future and an option as three answers to one question.
- Say what an exchange and a clearing corporation add to a plain promise.
- Read the payoff of a bought future and a bought call from one dated Nifty move.
The idea, plainly
A forward: a promise between two people
Take a mango grower. In March she expects a crop in June and fears prices will fall by then. A fruit trader fears the opposite. They agree a price per crate today, for delivery on a fixed day in June. That is a forward. SEBI's investor page tells the same story with a farmer and a merchant. Both sides have swapped an unknown price for a known one.
Read one more paragraph, 44 words
The weak point is trust. If prices jump, the grower is tempted to sell to someone else. If they fall, the trader is tempted to walk away. And a forward is made to order, so neither side can hand it to a third person.
A future: the same promise with a referee
A future fixes the weak point in three steps. The terms are standard: the same index, the same lot, the same expiry date for everyone. An exchange lists the contract, so buyers and sellers meet on a screen. And a clearing corporation steps in after the trade. NSE Clearing becomes the counterparty to the buyer and to the seller, takes margin from both and settles gains and losses every day. Neither side has to trust the other. A Nifty future needs no mangoes either: at expiry it settles in cash against the index.
Each step adds one thing: first a referee, then a right
An option: the right without the duty
An option changes one more thing. Think of the token amount you pay to hold a flat or a car at today's price. You may walk away and lose only the token. If prices rise, your locked price is worth something. An option works like that token, and the token is called the premium. A call gives the right to buy at a fixed price, the strike. A put gives the right to sell. The seller of the option keeps the premium and takes on the duty if the buyer uses the right. Modules F11 and F12 take calls and puts one at a time.
Why anyone trades them
SEBI names three uses: hedging, speculation and arbitrage. A hedger removes a price risk. A speculator takes a view on direction with less money than the shares need. An arbitrageur trades the gap between cash and futures prices, and SEBI notes those profits are mostly small. The same page adds a fact to carry through every lesson here: derivatives are a zero sum game. Before costs, one party's profit is another's loss.
India came to this late and carefully. A SEBI committee reported in March 1998, Parliament changed the law in December 1999, and the first Nifty future traded on 12 Jun 2000.
From the committee report to the first Nifty future took a little over two years
- Committee reports
SEBI's committee under L. C. Gupta recommends derivatives, starting with index futures.
- Law changed
Parliament amends the securities law so that derivatives count as securities.
- Nifty futures start
NSE lists index futures on the Nifty 50.
- Nifty options start
Index options follow, on the same index.
- Stock options, then stock futures
Contracts on single shares come in the same year.
- Bigger contracts
Larger lots, and one weekly index per exchange, under SEBI's rules of 1 Oct 2024.
2 terms this section turns on
Worked example: one Nifty lot, 10 to 29 Jun 2026
A Nifty lot is 65 units. On 10 Jun 2026 the June future settled at 23,240.10, so one lot was worth Rs 15.11 lakh. Take a buyer of one lot at that settlement price, and a buyer of one lot of the 23,300 call at its premium of Rs 294.60 a unit. Both close on Monday 29 Jun, the day before expiry, at that day's settlement prices. Charges are left out, and a real fill would differ from a settlement price by at least a tick.
| Step | What we read | Value |
|---|---|---|
| 1 | Nifty 50 close, 10 Jun | 23,214.95 |
| 2 | June future, settlement price, 10 Jun | 23,240.10 |
| 3 | Gap between future and index, points | 25.15 |
| 4 | Value of one lot of the future (65 units), Rs | 15.11 lakh |
| 5 | Nifty 50 close, 29 Jun | 23,946.25 |
| 6 | June future, settlement price, 29 Jun | 23,972.90 |
| 7 | Buyer of the future, per lot: (23,972.90 less 23,240.10) x 65 | Rs 47,632 |
| 8 | Seller of the future, per lot, the same amount reversed | −Rs 47,632 |
| 9 | 23,300 call, premium per unit, 10 Jun | 294.60 |
| 10 | Same call, settlement price, 29 Jun | 668.40 |
| 11 | Buyer of the call, per lot: (668.40 less 294.60) x 65 | Rs 24,297 |
A future gains and loses point for point, with no floor
A bought call risks only its premium and gains past the strike plus the premium
Read 3 more paragraphs, 244 words
The index rose 3.2%, or 731.30 points. The future gained 732.80 points, a shade more than the index, because the gap between future and index moved from 25.15 to 26.65 points. The call gained 373.80 a unit on a premium of 294.60, which is the lever people feel when they buy options: a small price, a big percentage swing.
Now run it the other way. Suppose the future had fallen by the same 732.80 points instead. Its buyer would have lost Rs 47,632, the exact mirror, and its seller would have gained it. The buyer of the call would have lost almost all of the premium of Rs 19,149 and never more, because the index would have sat far below the strike with one day left. That is the whole difference in shape: a future pays and costs point for point, while a bought call has a floor on the loss and pays only past the strike plus the premium.
One path proves nothing. A flat month would have left the future near zero and the call worth less than its price. Held to the end, both June contracts would have settled in cash against the index close of 30 Jun 2026, which is the rule for expiries before 7 Dec 2026. Module F04 has the date and the change after it. Module F07 shows how the margin and the daily settlement worked on each day from 10 to 29 Jun.
The common mistake
The belief: The future trades above the index because the market expects the index to rise.
The gap looks like a forecast, so it gets read like one. Test it on this chain. The gap on 10 Jun was 25.15 points. Interest on the index level for 20 days would alone have put the future 65 points above it, and the dividends the index companies are expected to pay take part of that back. The gap is a price for waiting, not a vote on direction. It also shrinks to nothing by expiry, whatever the index does. Module F08 takes it apart.
Key takeaways
- A forward is a private promise. A future is the same promise on an exchange.
- A clearing corporation stands between buyer and seller, so neither has to trust the other.
- A future pays point for point. A bought option risks only its premium.
- Before costs, derivatives are zero sum: one side's gain is the other's loss.
- A future's gap to the index is a price for waiting, not a forecast.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study