Futures and options are the two primary types of stock derivatives that are traded on an exchange. These are contracts establishing a futures exchange of stock assets at a specified price between two parties.By fixing the price in advance, these contracts attempt to mitigate the market risks associated with stock market trading.   Table of Contents • What are Options? • Types of Futures and Options • What are Futures? • Basic Terms in F&O • Derivatives: Uses • What is the difference between Futures and Options? • Who Should Make Futures and Options Investments? • Information to know about F&O before trading • Conclusion In the stock market, futures and options are contracts whose prices are based on underlying assets, such as shares, stock market indices, commodities, ETFs, and more. By utilizing pre-established pricing, the principles of futures and options enable investors to reduce their future risk.The direction of price movements, however, cannot be foreseen, so if a market prediction is off, it could result in significant gains or losses.     What are Options? Options are based on the value of an underlying stock, index futures, or commodity.The right to buy or sell the underlying asset at a preset price for the length of the contract belongs to the investor who acquires an options contract. Investors are not allowed to execute their options.   Financial derivatives include options. Option holders do not own the underlying shares or have access to shareholder rights until they execute an option to purchase stock. Stock options typically give the option holder the ability to buy or sell 100 shares of the underlying stock at the selected strike price before the option contract expires. The option premium is the name given to the cost of the option.     Types of Futures and Options Contrary to futures contracts, which have uniform regulations for both buyers and sellers, options derivatives come in two different varieties. A put option contract can be signed by those who want to enter an options contract to sell a specific asset at a pre-asserted price at a later date. Similarly, to this, people who want to buy a specific asset in the futures might buy a call option to fix the price for a futures exchange. Futures follow the same set of fundamentally identical rules for “buyers and sellers” alike. However, there are two categories into which options can be subdivided: Call Option: It provides you the option to purchase the underlying asset at a predetermined price and date. Put Option: It gives you the option to sell the asset at a predetermined price on a specific date. Let’s look at an example of each, beginning with a call option. An investor buys a call option that entitles them to $50 worth of the stock XYZ at some point in the next three months. The stock is trading at $49 right now. If the stock rises to $60, the call buyer can execute their option to buy the stock at $50.The buyer can then sell the shares for $60 and make a profit of $10 per share. The exchange is optional in both situations. You can decide not to use your call or Put Option if the prices are not favorable at that point.     What are Futures? An agreement to buy or sell an item at a specific price in the future is known as a futures contract.Futures contracts can best be understood by thinking about them in terms of commodities like maize or oil. They are a true hedge investment. For instance, a farmer would desire to lock in a fair crop price in the event that market prices fall before the produce can be delivered. The customer also wants to lock in a price to protect themselves against future price hikes. Examples: Let’s use an example to illustrate. Suppose two traders reach an understanding on a $7 per bushel price for a corn futures contract.If the price of maize rises to $9, the contract buyer earns $2 per bushel. On the other side, the seller misses out on a better offer. In addition to corn and oil, the futures market has expanded significantly. Futures can be purchased on both individual stocks and indices like the S&P 500 in some jurisdictions. Since 2020, single-stock futures have not been offered in the US. The buyer of a futures contract is not required to pay the entire value up front.Instead, they offer a first margin that is a percentage of the price. A contract for oil futures, for instance, includes 1,000 barrels of oil. A $100 oil futures transaction entails a $100,000 risk for the buyer. A deposit of several thousand dollars can be required, and if oil prices later decline, the buyer might need to increase their investment.     Basic Terms in F&O With some helpful fundamental words related to futures and options, let’s get to know them better. Underlying Security-The derivatives contract’s value is derived from the underlying security, which is an important component of futures and options contracts. Futures and Options are based on a variety of factors, including bonds, stocks, currencies, and interest rates. Premium –As defined in the options agreement, is the price or fee that the options buyer is now paying the seller. The premium rises in proportion to the underlying asset’s volatility. Strike price –At this price, the owner of an options contract agrees to buy or sell the underlying asset upon contract exercise. Expiry Date –The date on which a futures or options contract expires is known as the expiry date.     Derivatives: Uses The primary goal of employing derivatives is to protect against changes in the underlying assets’ prices. In derivatives, the contract expires on a specific date. If a sizable profit is imminent, an investor may close the trade before it expires; otherwise, the investment may be held until the expiration date. The SEBI (Securities and Exchange Board of India) regulates these contracts, which are traded on