Glossary · 25 terms
Derivatives
All derivatives terms in the EquitiesIndia.com glossary — plain-English definitions written for Indian retail investors.
At-the-Money(ATM)
An option is at-the-money (ATM) when the strike price is equal or very close to the current market price of the underlying. ATM options on NSE — particularly Nifty and Bank Nifty options — have the highest time value and are typically the most liquid strikes.
Call Option(CE)
A call option grants the buyer the right to acquire the underlying asset at the strike price on or before expiry, while the seller is obligated to deliver if the buyer exercises. Call options on Nifty 50 and individual F&O stocks are actively traded on NSE.
Covered Call
A covered call is an options strategy where a participant who holds shares of a stock writes (sells) a call option on the same stock, collecting the premium as income. In India, this strategy is applicable to F&O-eligible stocks where both the underlying shares and exchange-traded call options are available.
Delta
Delta measures the rate of change of an option's price relative to a one-unit change in the underlying asset's price. A Nifty call option with a delta of 0.50 was expected to gain approximately ₹0.50 for every ₹1 rise in Nifty, all else being equal.
Futures Contract(Futures)
A futures contract is a standardised agreement to exchange an underlying asset at a predetermined price on a specified future date. On NSE, equity futures are available on index underlyings such as Nifty 50 and Bank Nifty, as well as on individual stocks in the F&O segment.
Gamma
Gamma measures the rate of change of an option's delta for a one-unit move in the underlying. High gamma means delta changes rapidly, increasing the cost of maintaining a delta-neutral hedge and amplifying the risk of large moves for option writers.
Historical Volatility(HV)
Historical volatility (HV) measures the actual price fluctuations of an underlying asset over a defined past period, typically calculated as the annualised standard deviation of daily log returns. It is used alongside implied volatility to assess whether current option premiums are elevated or suppressed relative to realised market movement.
Implied Volatility(IV)
Implied volatility (IV) is the market's forward-looking estimate of the magnitude of price fluctuations in an underlying, derived by back-solving an options pricing model from the observed market premium. Higher IV means the market expects larger price swings and results in higher option premiums on NSE.
In-the-Money(ITM)
An option is in-the-money (ITM) when exercising it immediately would generate a positive payoff — meaning the underlying price is above the strike for a call, or below the strike for a put. ITM options on NSE carry both intrinsic value and time value.
Intrinsic Value (Options)(IV (Options))
Intrinsic value of an option is the amount by which the option is currently in-the-money — the immediate economic benefit of exercising it at the current market price. Only in-the-money options carry positive intrinsic value; at-the-money and out-of-the-money options have zero intrinsic value.
Iron Condor
An iron condor is a four-leg options strategy consisting of a short OTM call spread and a short OTM put spread on the same underlying and expiry. It generates maximum profit when the underlying remains within a defined range and is widely used in NSE's weekly Nifty and Bank Nifty options.
Open Interest(OI)
Open interest is the total number of outstanding futures or options contracts that have not been settled, exercised, or closed. NSE publishes daily open interest data for all F&O instruments, and changes in open interest are widely monitored as a proxy for market participation and conviction.
Option Premium(Premium)
Option premium is the price paid by the buyer to the seller for the rights conveyed by an options contract. The premium on NSE-traded Nifty and Bank Nifty options fluctuates continuously during market hours based on changes in the underlying price, time remaining, and implied volatility.
Options Contract(Options)
An options contract gives the buyer the right, but not the obligation, to exchange an underlying asset at a specified strike price before or on expiry. On NSE, index options on Nifty 50 and Bank Nifty were among the most actively traded derivatives globally by contract volume.
Out-of-the-Money(OTM)
An option is out-of-the-money (OTM) when exercising it immediately would produce no positive payoff — the underlying is below the strike for a call, or above the strike for a put. OTM options consist entirely of time value and are the most commonly purchased options on NSE due to their low absolute premium.
Physical Settlement
Physical settlement requires the actual delivery of the underlying shares when an in-the-money stock option or stock futures contract is held to expiry, rather than a cash settlement of the difference. SEBI mandated physical settlement for stock derivatives on NSE from October 2019.
Put Option(PE)
A put option gives the buyer the right to dispose of the underlying asset at the strike price before or on expiry, obligating the seller to accept it. Nifty put options are widely used by institutional participants on NSE to hedge long equity portfolios.
Rho
Rho measures the sensitivity of an option's price to a one-percentage-point change in the risk-free interest rate. In Indian markets, rho is the least impactful of the primary Greeks for short-dated Nifty and Bank Nifty options, but becomes more relevant for longer-dated LEAPS or stock options.
SPAN Margin(Initial Margin)
SPAN (Standard Portfolio Analysis of Risk) margin is the minimum initial margin required for futures and options writing positions on NSE, calculated by estimating the worst-case loss of a portfolio over a single trading day across a range of price and volatility scenarios.
Straddle
A straddle involves simultaneously holding a call and a put option at the same strike price and expiry. A long straddle on Nifty profits from a large move in either direction, while a short straddle profits if the underlying remains near the strike through expiry.
Strangle
A strangle involves holding a call and a put option at different strike prices — both out-of-the-money — on the same underlying and expiry. Compared to a straddle, a strangle costs less to establish but requires a larger move in the underlying to become profitable.
Strike Price(Exercise Price)
The strike price is the predetermined price at which the buyer of an option can exercise the right to exchange the underlying asset. On NSE, Nifty options are available across dozens of strike prices at 50-point intervals, while Bank Nifty options trade at 100-point intervals.
Theta
Theta measures the rate at which an option loses value as time passes, all else being equal. On NSE, theta accelerates in the final week before Nifty and Bank Nifty options expiry, making time decay a central risk for option buyers holding positions through expiry.
Time Value(Extrinsic Value)
Time value is the portion of an option's premium that exceeds its intrinsic value, reflecting the probability that the option could become more valuable before expiry. On NSE, time value erodes most rapidly in the final days before expiry, a phenomenon especially pronounced in weekly Nifty and Bank Nifty options.
Vega
Vega measures the sensitivity of an option's price to a one-percentage-point change in implied volatility. A Nifty option with a vega of 50 would gain or lose approximately ₹50 per unit for every 1% rise or fall in implied volatility, all else being equal.