Before we get into the difference between futures and options, let’s first understand how futures and options work with the example of bikes.
Content:
- What is Future and Options Trading
- What are Futures?
- What are Options?
- Futures vs Options
- Futures and Options Stock List
What is Future and Options Trading?
Firstly, you need to understand that both Futures & Options are contracts / agreements between 2 people. So the value of futures and options is derived from their underlying product/assets on which contract is made. The underlying asset may be a land, gold, share or any product/service. So whenever the price of the underlying rises, the price of futures and options also rises, and whenever the price of the underlying falls, the price of futures and options will also fall.
There are 3 types of futures and options in stock market:
- Equity Futures & Options
- Currency Futures & Options
- Commodity Futures & Options
Confused? Let’s understand Futures and Options in detail below:
Futures
It is a contract between people to buy or sell a particular stock, commodity or any product at a fixed price on a future date.
Let’s look at the example below:
- Dev and Ram are best friends.
- Dev owns a bike showroom.
- Ram entered into a contract with Dev to buy a bike worth 1 Lakh in the next 3 months.
Why does Ram enter into a contract with Dev to buy the bike in 3 months instead of directly buying it right away?
Here’s why: Ram is currently short of funds and thinks the price of the bike will rise in the next 3 months. On the other hand, Dev agrees to enter into a contract as he thinks the bike prices may drop.
In the next 3 months, 1 of the following things may happen:
- The price of the bike might increase to ₹ 1,20,000 and Dev might incur a loss of ₹ 20,000.
- On the other hand, the price of the bike might decrease to ₹ 75,000 and Ram might incur a loss of ₹ 25,000.
- Or the price of the bike might remain the same. (no profit, no loss)
In the Futures Contract, both Dev and Ram cannot pull out of the contract for next 3 months. Doing so will lead to legal implications from either of the parties.
Similarly, in the stock market, investors buy stock futures if they expect the price of the stock to increase in the future and short sell if they expect the price of the stock to decrease in the future. Both profits & losses are unlimited in futures contracts.
Unlike the Dev and Ram scenario, in Stock Market Futures Contract, one can exit anytime they want by booking the profits or losses.
Options
Options contracts are similar to Futures but with some differences. The difference can be better understood if we learn about Options Buying and Options Selling separately.
Option Buying: Unlike Futures Contract, here you will have to pay only the advance amount (premium) to enter into the contract and if the trade goes against you, you will lose the advance amount (premium) only. On the contrary, if the trade goes in your favor, you will make unlimited profits.
Option Selling: Here, you will receive the premium from the option buyer and the profits will be limited to the premium received only. On the contrary, if the trade goes against you, your losses will be unlimited.
Let’s consider the Ram & Dev scenario again: Ram enters into an Options Contract with Dev to buy a bike worth ₹ 1 lakh in the next 3 months, but this time pays an advance of ₹ 10,000 (Premium) to book the bike.
In the next 3 months, 1 of the following things may happen:
- The price of the bike might increase to ₹ 1,20,000 and Dev might incur a loss of ₹ 20,000.
- On the other hand, the price of the bike might decrease to ₹ 75,000 and Ram might incur a loss of ₹ 10,000. (If he pulls out of the agreement)
- Or the price of the bike might remain the same. (no profit, no loss)
Here’s the main difference between a Futures and Options Contract: In Options Contract, if Ram feels that the prices are gonna drop, he can pull out of the contract, and by doing so he will lose only the advance amount i.e. ₹ 10,000 but Dev does not have any such option of pulling out of the contract.
There is one more thing that you need to know about before moving forward. Click here to learn about what is hedging in the stock market.
Futures vs Options
Check out the difference between Futures and Options in the Tabular Form below:
Futures | Options Buying | Options Selling | |
Meaning | It is a contract between people to buy or sell a particular stock/commodity at a fixed price on a future date. | ||
Obligation | Both buyer and seller are obligated to buy & sell at an agreed price. | Option Buyer is not obligated as he takes the risk by paying a premium or advance amount before entering into the contract. | Option Seller is obligated as he receives the premium or advance amount before entering into the contract. |
Advance Payments | No advance payments. | Pays advance payment. | Receives advance payment. |
Money Required | Requires a higher amount of money. | Requires only a premium amount. | Requires a higher amount of money. |
Execution | Any date before the expiry. | Any date before the expiry. | Any date before the expiry. |
Profit | Unlimited profit. | Unlimited profit. | Limited profit. |
Loss | Unlimited loss. | Limited loss. | Unlimited loss. |
Risk | High. | Limited to the premium paid. | High. |
NSE Futures and Options Stock List
Check out the list of all Futures and Options Contracts listed on National Stock Exchange (NSE) below:
UNDERLYING | SYMBOL |
Nifty 50 | NIFTY |
Nifty Bank | BANKNIFTY |
Derivatives on Individual Securities | |
ACC LIMITED | ACC |
ADANI ENTERPRISES LIMITED | ADANIENT |
ADANI PORTS AND SPECIAL ECONOMIC ZONE LIMITED | ADANIPORTS |
AMARA RAJA BATTERIES LIMITED | AMARAJABAT |
AMBUJA CEMENTS LIMITED | AMBUJACEM |
APOLLO HOSPITALS ENTERPRISE LIMITED | APOLLOHOSP |
APOLLO TYRES LIMITED | APOLLOTYRE |
ASHOK LEYLAND LIMITED | ASHOKLEY |
ASIAN PAINTS LIMITED | ASIANPAINT |
AUROBINDO PHARMA LIMITED | AUROPHARMA |
AXIS BANK LIMITED | AXISBANK |
BAJAJ AUTO LIMITED | BAJAJ-AUTO |
BAJAJ FINANCE LIMITED | BAJFINANCE |
BAJAJ FINSERV LIMITED | BAJAJFINSV |
BALKRISHNA INDUSTRIES LIMITED | BALKRISIND |
BANDHAN BANK LIMITED | BANDHANBNK |
BANK OF BARODA | BANKBARODA |
BATA INDIA LIMITED | BATAINDIA |
BERGER PAINTS (I) LIMITED | BERGEPAINT |
BHARAT ELECTRONICS LIMITED | BEL |
BHARAT FORGE LIMITED | BHARATFORG |
BHARAT PETROLEUM CORPORATION LIMITED | BPCL |
BHARTI AIRTEL LIMITED | BHARTIARTL |
BHARTI INFRATEL LIMITED | INFRATEL |
BHARAT HEAVY ELECTRICALS LIMITED | BHEL |
BIOCON LIMITED | BIOCON |
BOSCH LIMITED | BOSCHLTD |
BRITANNIA INDUSTRIES LIMITED | BRITANNIA |
CADILA HEALTHCARE LIMITED | CADILAHC |
CANARA BANK | CANBK |
CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED | CHOLAFIN |
CIPLA LIMITED | CIPLA |
COAL INDIA LIMITED | COALINDIA |
COLGATE PALMOLIVE (INDIA) LIMITED | COLPAL |
CONTAINER CORPORATION OF INDIA LIMITED | CONCOR |
CUMMINS INDIA LIMITED | CUMMINSIND |
DABUR INDIA LIMITED | DABUR |
DIVI’S LABORATORIES LIMITED | DIVISLAB |
DLF LIMITED | DLF |
DR. REDDY’S LABORATORIES LIMITED | DRREDDY |
EICHER MOTORS LIMITED | EICHERMOT |
ESCORTS LIMITED | ESCORTS |
EXIDE INDUSTRIES LIMITED | EXIDEIND |
THE FEDERAL BANK LIMITED | FEDERALBNK |
GAIL (INDIA) LIMITED | GAIL |
GLENMARK PHARMACEUTICALS LIMITED | GLENMARK |
GMR INFRASTRUCTURE LIMITED | GMRINFRA |
GODREJ CONSUMER PRODUCTS LIMITED | GODREJCP |
GODREJ PROPERTIES LIMITED | GODREJPROP |
GRASIM INDUSTRIES LIMITED | GRASIM |
HAVELLS INDIA LIMITED | HAVELLS |
HCL TECHNOLOGIES LIMITED | HCLTECH |
HDFC BANK LIMITED | HDFCBANK |
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED | HDFC |
HDFC LIFE INSURANCE COMPANY LIMITED | HDFCLIFE |
HERO MOTOCORP LIMITED | HEROMOTOCO |
HINDALCO INDUSTRIES LIMITED | HINDALCO |
HINDUSTAN PETROLEUM CORPORATION LIMITED | HINDPETRO |
HINDUSTAN UNILEVER LIMITED | HINDUNILVR |
ICICI BANK LIMITED | ICICIBANK |
ICICI PRUDENTIAL LIFE INSURANCE COMPANY LIMITED | ICICIPRULI |
INFO EDGE (INDIA) LIMITED | NAUKRI |
VODAFONE IDEA LIMITED | IDEA |
IDFC FIRST BANK LIMITED | IDFCFIRSTB |
INDIABULLS HOUSING FINANCE LIMITED | IBULHSGFIN |
INDIAN OIL CORPORATION LIMITED | IOC |
INDRAPRASTHA GAS LIMITED | IGL |
INDUSIND BANK LIMITED | INDUSINDBK |
INFOSYS LIMITED | INFY |
INTERGLOBE AVIATION LIMITED | INDIGO |
ITC LIMITED | ITC |
JINDAL STEEL & POWER LIMITED | JINDALSTEL |
JSW STEEL LIMITED | JSWSTEEL |
JUBILANT FOODWORKS LIMITED | JUBLFOOD |
KOTAK MAHINDRA BANK LIMITED | KOTAKBANK |
L&T FINANCE HOLDINGS LIMITED | L&TFH |
LARSEN & TOUBRO LIMITED | LT |
LIC HOUSING FINANCE LIMITED | LICHSGFIN |
LUPIN LIMITED | LUPIN |
MAHINDRA & MAHINDRA FINANCIAL SERVICES LIMITED | M&MFIN |
MAHANAGAR GAS LIMITED | MGL |
MAHINDRA & MAHINDRA LIMITED | M&M |
MANAPPURAM FINANCE LIMITED | MANAPPURAM |
MARICO LIMITED | MARICO |
MARUTI SUZUKI INDIA LIMITED | MARUTI |
MAX FINANCIAL SERVICES LIMITED | MFSL |
MINDTREE LIMITED | MINDTREE |
MOTHERSON SUMI SYSTEMS LIMITED | MOTHERSUMI |
MRF LIMITED | MRF |
MUTHOOT FINANCE LIMITED | MUTHOOTFIN |
NATIONAL ALUMINIUM COMPANY LIMITED | NATIONALUM |
NESTLE INDIA LIMITED | NESTLEIND |
COFORGE LIMITED | COFORGE |
NMDC LIMITED | NMDC |
NTPC LIMITED | NTPC |
OIL & NATURAL GAS CORPORATION LIMITED | ONGC |
PAGE INDUSTRIES LIMITED | PAGEIND |
PETRONET LNG LIMITED | PETRONET |
PIDILITE INDUSTRIES LIMITED | PIDILITIND |
PIRAMAL ENTERPRISES LIMITED | PEL |
POWER FINANCE CORPORATION LIMITED | PFC |
POWER GRID CORPORATION OF INDIA LIMITED | POWERGRID |
PUNJAB NATIONAL BANK | PNB |
PVR LIMITED | PVR |
RBL BANK LIMITED | RBLBANK |
RELIANCE INDUSTRIES LIMITED | RELIANCE |
REC LIMITED | RECLTD |
SHREE CEMENT LIMITED | SHREECEM |
SHRIRAM TRANSPORT FINANCE COMPANY LIMITED | SRTRANSFIN |
SIEMENS LIMITED | SIEMENS |
SRF LIMITED | SRF |
STATE BANK OF INDIA | SBIN |
SBI LIFE INSURANCE COMPANY LIMITED | SBILIFE |
STEEL AUTHORITY OF INDIA LIMITED | SAIL |
SUN PHARMACEUTICAL INDUSTRIES LIMITED | SUNPHARMA |
SUN TV NETWORK LIMITED | SUNTV |
TATA CHEMICALS LIMITED | TATACHEM |
TATA CONSULTANCY SERVICES LIMITED | TCS |
TATA CONSUMER PRODUCTS LIMITED | TATACONSUM |
TATA MOTORS LIMITED | TATAMOTORS |
TATA POWER COMPANY LIMITED | TATAPOWER |
TATA STEEL LIMITED | TATASTEEL |
TECH MAHINDRA LIMITED | TECHM |
THE RAMCO CEMENTS LIMITED | RAMCOCEM |
TITAN COMPANY LIMITED | TITAN |
TORRENT PHARMACEUTICALS LIMITED | TORNTPHARM |
TORRENT POWER LIMITED | TORNTPOWER |
TVS MOTOR COMPANY LIMITED | TVSMOTOR |
ULTRATECH CEMENT LIMITED | ULTRACEMCO |
UNITED BREWERIES LIMITED | UBL |
UNITED SPIRITS LIMITED | MCDOWELL-N |
UPL LIMITED | UPL |
VEDANTA LIMITED | VEDL |
VOLTAS LIMITED | VOLTAS |
WIPRO LIMITED | WIPRO |
ZEE ENTERTAINMENT ENTERPRISES LIMITED | ZEEL |
ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED | ICICIGI |
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know: