A futures contract allows you to buy or sell an underlying stock or index at a preset price for delivery on a future date. Options are of two types — call and put. A call option gives a buyer the right to purchase an underlying stock or index at a preset price during a contract’s liquid life — a month or also week in case of Bank Nifty.
A put option lets a buyer sell the share at preset price during the contract life. A call seller has the obligation to give delivery to the buyer at the preset price even if current market price is higher than former. A put seller has the obligation to buy underlier from the buyer at preset price even if CMP of the share is lower. The call and put seller received premia from the buyers. In reality only cash differences are exchanged.
