F&O Glossary
Trading Terms, Explained Simply
Every term used across the F&O Academy in one place — simple definitions, no jargon left unexplained.
A
Algorithmic TradingUsing predefined rules and technology to execute trading actions automatically — regulated by SEBI in India, covering API usage and order tagging requirements.AMC (Annual Maintenance Charge)A recurring yearly fee some brokers charge to maintain your Demat account, regardless of how much you trade.American-Style OptionAn option that can be exercised any time up to expiry, not just at expiry itself.APIA defined channel that lets one piece of software communicate with another — the mechanism that allows tools like broker platforms to receive automated instructions.ArbitrageSimultaneously buying and selling related instruments to profit from a temporary, unjustified price mismatch between them.AssignmentWhen an Option buyer exercises their right, obligating the seller to fulfil their side of the contract (buy or sell the underlying at the strike price).Assignment RiskThe risk that an Option seller will be obligated to fulfil their contract if the buyer exercises — meaningfully reduced when a position is covered by owned shares.At-The-Money (ATM)An Option strike price that is at, or very close to, the underlying's current market price — the boundary between ITM and OTM.ATR (Average True Range)A volatility indicator measuring the average size of an instrument's price movement over a set number of recent periods, regardless of direction.Audit LogA recorded, reviewable history of exactly which orders were replicated, to which accounts, at what time and price.
B
Bank NiftyA sector-specific NSE index tracking major Indian banking stocks — popular for F&O trading due to its typically higher volatility.Bear Put SpreadBuying a Put at a higher strike and selling a Put at a lower strike (same expiry) — reduces net cost and defines maximum risk for a bearish view.BearishExpecting a price to fall — the market view aligned with buying a Put option or selling a Call option.Bid-Ask SpreadThe gap between the highest current buy offer (bid) and the lowest current sell offer (ask) — a narrower spread generally suggests higher liquidity.Bollinger BandsA volatility indicator: a moving average with upper and lower bands plotted a set number of standard deviations away, widening as volatility changes.Bonus SharesAdditional free shares given to existing shareholders in a fixed ratio — the share price adjusts down proportionally the same day.Breakeven PointThe underlying price at which an Option position neither gains nor loses money overall — for a Call buyer, Strike Price + Premium Paid.Breakeven Win RateThe minimum win rate a given risk-reward ratio requires to avoid a net loss over time — Risk ÷ (Risk + Reward).BrokerageThe fee charged per trade by a broker, varying by segment (delivery, intraday, F&O) — only one of several charge categories worth comparing across brokers.BSE (Bombay Stock Exchange)Asia's oldest stock exchange (est. 1875), located in Mumbai, home to the Sensex index.Bull Call SpreadBuying a Call at a lower strike and selling a Call at a higher strike (same expiry) — reduces net cost and defines maximum risk for a bullish view.BullishExpecting a price to rise — the market view aligned with buying a Call option or selling a Put option.Business Income (F&O Taxation)The tax classification typically applied to F&O trading profit/loss in India — added to total income and taxed at the individual's slab rate, unlike capital gains.
C
Call OptionA contract giving its buyer the right, but not the obligation, to buy the underlying asset at the strike price — a bullish position when bought.CandlestickA chart element summarizing the open, high, low, and close price for a specific time period — bullish (closed higher) or bearish (closed lower).Cash-Secured PutSelling a Put option while setting aside enough cash to fully cover the potential obligation of buying the underlying at the strike price if assigned.Charting PlatformA tool used to research, visualize, and analyze price data — separate from a broker, which handles actual order execution.Child AccountAn account that receives and replicates a master account's trades, typically scaled according to a configured multiplier.Circuit Limit (Circuit Breaker)A price band that, once hit, pauses trading in a stock or the whole market to prevent extreme, panic-driven price swings.Collar StrategyCombining a Protective Put and a Covered Call on the same shares — caps both upside and downside within a defined range, often at reduced net premium cost.Confirmation BiasThe tendency to seek out and favor information that confirms an existing belief or position, while dismissing contradicting information.Contrarian IndicatorA signal interpreted opposite to its face-value reading — extreme sentiment (very bullish or very bearish) is treated as a possible sign of an impending reversal.Cooling-Off PeriodA deliberate pause before making a major trading decision after an emotionally significant event — creates distance between strong emotion and high-stakes action.Copy MultiplierA configured scaling factor that determines how a master account's order quantity is adjusted when replicated into a specific child account.Cost of CarryThe net cost of theoretically holding an underlying asset until a Futures contract's expiry — mainly interest cost, offset by any expected dividends.CounterpartyThe other party on the opposite side of a trade — a buyer's counterparty is the seller, and vice versa.Covered CallSelling a Call option while already owning the underlying shares — meaningfully reduces risk compared to selling an uncovered (naked) Call.
D
Defined-Risk StrategyA strategy with a known, calculable maximum loss from the moment it's constructed — often achieved by combining legs to cap what would otherwise be uncapped-style risk.DeltaThe Option Greek measuring how much an option's premium changes for a ₹1 move in the underlying's price.Demand and Supply (Stock Market)The core mechanism that sets stock prices — when buyers (demand) outweigh sellers (supply) at a price, the price rises, and vice versa.Demat AccountAn electronic account that holds the shares you own, replacing old-style paper share certificates.DepositoryAn organization (NSDL or CDSL in India) that electronically holds and records your share ownership, separate from the stock exchange and your broker.Depository Participant (DP)A SEBI-registered intermediary — usually your stockbroker — that connects you to a depository (NSDL or CDSL) so you can open a Demat account.DerivativeA financial contract whose value is entirely derived from the price of another asset (the underlying), such as a stock or index.DividendA portion of company profit distributed to shareholders, entirely at the company's discretion — never guaranteed.DP Charges (Transaction Charges)A small fee charged by the depository/DP each time shares or positions leave your Demat account, such as when you sell.
E
EMA (Exponential Moving Average)A moving average that weights recent prices more heavily than older ones, making it react faster to new price changes than a Simple Moving Average.Equity SharesThe standard type of company share, carrying voting rights and a proportional claim on profits — what "buying a stock" usually means.European-Style OptionAn option that can only be exercised at expiry itself, not before — the standard style for most Indian equity and index options.Exercise (Options)When an Option buyer formally uses their right to transact at the strike price — in India, index options typically settle in cash rather than physical delivery.Expiry DateThe specific future date on which a Futures or Options contract settles and ceases to exist in that series.Exposure MarginAn additional margin charged on top of SPAN margin, acting as an extra buffer for risk beyond the SPAN estimate.
F
F&O Segment (Activation)A separate approval step with your broker, beyond basic equity trading access, required before you can trade Futures and Options.Face ValueA small, fixed accounting value (like ₹1, ₹2, ₹5, or ₹10) set when a company first issues shares — different from the market price.Fibonacci RetracementA drawing tool marking standard percentage levels (like 38.2% or 61.8%) between a swing low and high, used to identify possible pullback zones.FII / DIIForeign Institutional Investors (FII) and Domestic Institutional Investors (DII) — large-volume traders whose activity is closely tracked for market-direction signals.Final Settlement PriceThe specific, defined reference price used to determine an option's ITM/OTM status and settlement value at expiry — not simply the last traded price.Fixed-Percentage-Risk ModelA position sizing approach that risks a consistent percentage of total account capital (commonly 1-2%) on every trade, regardless of confidence level.Free-Float Market CapitalizationA company's market cap calculated using only shares available for public trading, excluding promoter and strategic holdings — the standard weighting method for Nifty 50 and Sensex.Futures ContractAn agreement obligating both buyer and seller to transact an underlying asset at a fixed price on a specific future date.Futures DiscountWhen a Futures contract's price trades below the spot price of its underlying asset.Futures PremiumWhen a Futures contract's price trades above the spot price of its underlying asset.
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H
Hedge RatioThe proportion of an existing holding covered by a hedging position — for a protective put, roughly Shares Owned ÷ Lot Size.HedgerA market participant who uses derivatives to reduce risk from an existing or planned exposure.HedgingTaking a position specifically to reduce risk from an existing exposure — one of the original core purposes of derivatives.Heikin AshiA modified candlestick chart that plots averaged price values instead of literal traded prices, smoothing out noise to make the trend easier to see.Historical VolatilityA backward-looking measure of how much a price actually fluctuated over a past period — distinct from Implied Volatility, which looks forward.
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Implied Volatility (IV)The market's current, forward-looking estimate of expected future price fluctuation, derived from current option premiums.In-The-Money (ITM)An Option strike where exercising it right now would be immediately favorable — below market price for a Call, above market price for a Put.Index (Stock Market Index)A number that tracks the combined, weighted performance of a defined basket of stocks — a summary measure of a market or sector.India VIXA market-wide volatility index derived from Nifty 50 options, reflecting expected near-term volatility — often called the "fear gauge."Intrinsic ValueThe immediate, "already favorable" value an ITM option carries — the amount by which it's in-the-money, before accounting for time value.InvestorA stock market participant who typically buys shares to hold for months or years, aiming for long-term growth.IPO (Initial Public Offering)The process by which a company sells its shares to the public for the very first time, raising money and becoming publicly listed.Iron CondorA four-legged strategy combining a Bear Call Spread and a Bull Put Spread — profits when the underlying stays within a defined range through expiry.ITR (Income Tax Return)The annual return filed with India's Income Tax Department — F&O traders typically require a form designed for business income reporting.
K
Kill SwitchA control that lets an account holder immediately pause or unlink replication for a specific account, at any time, without unnecessary friction.KYC (Know Your Customer)A SEBI-mandated identity verification process required before opening a trading or Demat account, using documents like PAN and Aadhaar.
L
Last Traded Price (LTP)The price at which the most recent actual trade in a contract happened — may sit between, or occasionally outside, the current bid and ask.LegOne individual Option position within a larger, combined strategy — a strategy with two positions is "two-legged," and so on.LeverageControlling a position with a value much larger than the cash directly paid — amplifies both potential gains and potential losses.Limit OrderAn order that only executes at your specified price or better — prioritizes price control over speed of execution.LiquidityHow easily a stock can be bought or sold without significantly moving its price — driven by how many active buyers and sellers exist.Long PositionAgreeing to buy the underlying asset — a position that profits if the price rises.Long StraddleBuying a Call and a Put at the same strike and expiry — betting on a large price move in either direction, rather than a specific direction.Long StrangleBuying an OTM Call and an OTM Put at different strikes — a lower-cost variation of a Straddle that requires a larger move to reach breakeven.Long-UnwindingExisting bullish (long) position holders closing out their positions — can drive a price fall even without fresh bearish conviction, and typically shows as falling OI.Loss AversionThe psychological tendency for losses to feel more painful than equivalent-sized gains feel pleasurable — a major driver of holding losing positions too long.Lot SizeThe fixed, exchange-specified quantity of the underlying asset that one Futures or Options contract represents.
M
MACD (Moving Average Convergence Divergence)A trend and momentum oscillator built from two moving averages, made up of a MACD line, a signal line, and a histogram showing the gap between them.MarginA deposit (collateral) you must maintain with your broker to open and hold certain F&O positions — not a fee, and returned when the position closes.Margin CallA broker's request for additional funds when your available margin falls below the required level — unmet calls can lead to a forced position close.Mark-to-Market (MTM)The daily process of revaluing an open F&O position based on that day's closing price, recognizing profit or loss regularly rather than only at close.Market CapitalizationA company's total market value — current share price multiplied by the total number of outstanding shares.Market OrderAn order that executes immediately at the best currently available price — prioritizes speed over price control.Market SentimentThe overall mood of investors — optimistic or pessimistic — which can move stock prices even without new concrete facts.Master AccountThe trading account whose orders are automatically or manually replicated into one or more linked child accounts.MoneynessThe relationship between an Option's strike price and the underlying's current market price — classified as ITM, ATM, or OTM.Moving AverageAn indicator showing the average price over a specified recent period, continuously updating — smooths short-term noise to reveal a broader trend.
N
Naked OptionAn Option sold without an offsetting position in the underlying asset — carries theoretically unlimited risk, unlike a covered position.Near Month ContractThe Futures/Options contract with the soonest (current month) expiry — usually the most liquid of the three simultaneously traded monthly contracts.Net CreditNet premium received when establishing a multi-leg strategy — premium collected from sold legs exceeds premium paid for bought legs.Net DebitThe net premium paid to establish a multi-leg strategy — premium paid on the bought leg minus premium received on the sold leg.Nifty 50NSE's flagship index, tracking 50 of the largest, most liquid Indian companies, weighted by free-float market capitalization.Non-Speculative IncomeThe specific statutory tax classification applied to F&O trading profit/loss in India — taxed as business income at the individual's slab rate.NSE (National Stock Exchange)India's largest stock exchange by trading volume, home to the Nifty 50 index and the dominant exchange for Futures & Options trading.
O
Open Interest (OI)The total number of outstanding (not yet closed or settled) Futures or Options contracts for a specific strike and expiry.Option BuyerThe party who pays the premium to acquire the right (not obligation) an Option provides — maximum loss capped at the premium paid.Option ChainA table listing all available strike prices for a given underlying and expiry, with Call (CE) data on one side and Put (PE) data on the other.Option GreeksSensitivity measures (Delta, Theta, Gamma, Vega) that quantify how much an option's premium is expected to change in response to specific factors.Option Seller (Writer)The party who receives the premium and takes on a potential obligation if the buyer exercises the Option — risk is not capped the same way as for the buyer.Option SymbolA standardized code encoding an Options contract's underlying, expiry, strike price, and type (CE/PE) — e.g., "NIFTY 25JAN 24000 CE."Options ContractA contract giving its buyer the right, but not the obligation, to transact an underlying asset at a fixed price by a certain date, in exchange for a premium.Order Flow (in Automation)The step-by-step path an automated signal takes from the moment a chart condition is met to the moment an actual order reaches a broker for execution.Out-of-the-Money (OTM)An Option strike where exercising it right now would not be favorable — still retains time value until expiry.
P
Paper TradingSimulated trading with fake money, priced against real, live market data - practice with no financial risk, separate from any real broker account.Payoff DiagramA chart showing an Option position's profit or loss across a range of underlying prices at expiry — a Call buyer's has a distinctive "hockey stick" shape.Pine ScriptTradingView's own scripting language for building custom indicators and strategies - more approachable than general-purpose programming languages.Position LimitAn exchange-imposed cap on how many contracts of a specific Futures or Options instrument an individual client (or the market) can hold, to prevent excessive risk concentration.Position SizingDetermining how much capital, or how many lots/contracts, to allocate to a single trade — distinct from strategy or direction selection.Premium (Options)The upfront, non-refundable price an Option buyer pays the seller for the right the contract provides.Price AlertA rule on a charting platform that automatically notifies you when a price or indicator condition is met, without watching the chart continuously.Primary MarketThe market where a company sells brand-new shares to the public for the first time (via an IPO), and receives the money raised.Protective PutBuying a Put option on a stock you already own, to hedge against a potential price decline — acts like insurance on the holding.Put OptionA contract giving its buyer the right, but not the obligation, to sell the underlying asset at the strike price — a bearish position when bought.Put-Call Ratio (PCR)Total Put Open Interest divided by total Call Open Interest for a given underlying and expiry — a widely watched sentiment gauge, often read with a contrarian lens.
R
Renko ChartA chart built entirely from price movement rather than time - a new brick is added only once price moves a fixed amount, filtering out minor noise.Revenge TradingImpulsively taking larger or riskier trades specifically to recover a recent loss quickly — often compounding the original loss rather than recovering it.Risk of RuinThe risk that a series of losses (or one oversized loss) depletes trading capital to a point where recovery becomes impractical or impossible.Risk-Reward RatioPotential reward divided by potential risk on a trade — comparing what you stand to gain against what you're risking to lose.RolloverClosing a position in the expiring Futures contract and simultaneously opening an equivalent position in the next month's contract.RSI (Relative Strength Index)A momentum oscillator, scaled 0 to 100, measuring the speed and size of recent price changes to indicate potentially overbought or oversold conditions.
S
SEBI (Securities and Exchange Board of India)India's stock market regulator — it makes and enforces the rules for exchanges, brokers, and listed companies, but never trades or sets prices itself.Secondary MarketThe everyday stock market, where investors buy and sell already-listed shares among themselves — not with the company.Semi-Automated TradingA system that prepares or flags a potential trade based on predefined rules, but still requires a human to manually review and approve before execution.SensexBSE's flagship index, tracking 30 large, well-established Indian companies, weighted by free-float market capitalization.SettlementHow a Futures or Options contract is finalized at expiry — either cash-settled (a rupee difference is paid) or physically-settled (actual delivery).SharesSmall, equal units of ownership in a company — also called "stock." Owning a share makes you a proportional part-owner of that business.Short PositionAgreeing to sell the underlying asset — a position that profits if the price falls.Short-CoveringExisting short sellers buying back their positions to close them — can drive a price rise even without fresh bullish conviction, and typically shows as falling OI.SlippageThe gap between an order's intended trigger/execution price and the actual price at which it fills, common in fast-moving or illiquid markets.SMA (Simple Moving Average)A moving average calculated by simply averaging the closing prices of a fixed number of recent periods, with every period weighted equally.SPAN MarginMargin calculated using a standardized risk model that estimates the worst-case potential loss on a position over a single trading day.SpeculationDeliberately taking on risk, based on a view of future price movement, with the goal of profiting from that movement.Speculative IncomeA statutory tax classification generally covering intraday equity trading without delivery — distinct from F&O, which is classified as non-speculative business income.SpeculatorA market participant who takes on new risk, based on a view of future price movement, aiming to profit from it.Spot PriceThe current market price of an asset for immediate delivery/transaction — as opposed to its Futures price for a later date.Stock ExchangeA regulated venue (like NSE or BSE) that matches buyers and sellers of shares — it does not set prices itself.Stock MarketA regulated marketplace where ownership shares of publicly listed companies are bought and sold.Stock SplitWhen a company divides each existing share into multiple shares at a proportionally lower price — total holding value stays the same.Stop-LossA predefined instruction to automatically exit a position once the price reaches a specified unfavorable level, limiting further loss.Strike PriceThe fixed price at which an Option's buyer has the right to buy (Call) or sell (Put) the underlying asset.SuperTrendA trend-following overlay indicator that plots a single line above or below price, flipping sides to signal a possible change in trend direction.Support and ResistancePrice zones where a falling price has historically tended to stop and bounce (support), or a rising price has tended to stop and reverse (resistance).
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Tax AuditA formal review of financial accounts, required under specific Income Tax Act provisions once certain turnover or profit-related thresholds are met.ThetaThe Option Greek measuring time decay — how much value an option loses each day simply because less time remains until expiry.Time ValueThe portion of an option's premium beyond intrinsic value — reflecting the market's assessment of the chance the option becomes more favorable before expiry.TimeframeHow much real time a single candle or bar on a chart represents — from one minute to a full week or more, chosen to match your trading style.TraderA stock market participant who buys and sells over shorter time frames — days, weeks, or months — aiming to profit from price movements.Trading AccountThe account you use to place buy and sell orders on a stock exchange — separate from the Demat account that holds your shares.Trading JournalA consistent record of every trade — entry reasoning, planned risk-reward, position size, actual outcome, and emotional state — reviewed periodically for patterns.Trading PlanA written, predetermined set of rules for a trade — entry criteria, position size, stop-loss, profit target, and a deviation plan — created before emotions engage.Trailing StopA stop-loss that automatically adjusts as a position moves favorably, locking in some profit while still allowing room for further favorable movement.Trend LineA line drawn by connecting two or more swing points on a chart, used to visualize the general direction (and possible support/resistance) of a price move.Turnover (F&O Trading)A measure of F&O trading activity calculated using the absolute value of profits and losses across all trades — distinct from, and often larger than, net profit.
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V
VegaThe Option Greek measuring how much an option's premium changes when volatility changes, independent of the underlying's price movement.Volume (Trading Volume)The number of contracts (or shares) traded today for a specific strike or stock — distinct from Open Interest, which counts total outstanding contracts.VWAP (Volume Weighted Average Price)An intraday indicator showing the average price an instrument has traded at so far today, weighted by volume at each price level.
W
WatchlistA customizable list of instruments (stocks, indices, F&O contracts) a user wants to monitor conveniently in one place.WebhookAn automated message one system sends to another when a specific, predefined event occurs — a digital notification without a human manually sending it.Win RateThe percentage of trades that are profitable — misleading on its own, since it ignores the relative size of wins versus losses.