Futures require both parties to buy/sell assets, while Options give the right, not the obligation, to buy/sell at a set price & date.
Trader agrees to buy/sell an asset at a fixed price on a future date.
E.g., buying 100 barrels of oil at ₹3000 in 3 months.
Examples of Futures and Options
Futures
Trader has the right, not obligation, to buy/sell at a set price within a time frame.E.g., option to buy 100 shares at ₹2000 in a month.
Options
A binding contract obligating both parties to transact at expiration. Profits/losses arise from price differences. Widely used for hedging and speculation, it has limited flexibility and potentially unlimited risks.
Futures vs Options
Futures
A contract giving the buyer a choice to transact, limiting risk to the premium paid. Profits/losses stem from market vs. strike prices. Used for hedging and leveraging, it offers more flexibility than futures.
Options
Types Of Options
Options are of two types:* Call Options (right to buy an
asset at a set price)
* Put Options (right to sell an
asset at a set price)
Types Of Futures Trading
* Stock (based on stocks)* Index (on Sensex/Nifty )* Currency (for rate hedging)* Commodity (gold, oil)* Interest Rate (on bonds)
Futures in India
Futures And Options Taxation
In 2023, India hiked the Securities Transaction Tax (STT) on F&O trading by 25%. STT for selling options rose to 0.062% from 0.05%, and for futures, it increased from 0.01% to 0.0125%.