A futures contract is a standardized contract to buy or sell a specific security at a future date at an agreed price.
An index future, as the name suggests, is a future on the index i.e. the underlying is the index itself. There is no underlying security which is to be delivered to fulfill the obligations as index futures are cash settled. As other derivatives, the contract derives its value from the underlying index. The underlying indices are various eligible indices and as permitted by SEBI.

A stock futures contract is a standardized contract to buy or sell a specific stock at a future date at an agreed price. A stock future, as the name suggests, is a future on a stock i.e. the underlying is a stock. The contract derives its value from the underlying stock. Single stock futures are cash settled.

TOP

Options contract give its holder the right, but not the obligation, to buy or sell something on or before a specified date at a stated price. Generally, index options are European style, being those option contracts that can be exercised only on the expiration date. The underlying indices for index options are the various eligible indices as permitted by SEBI.

SEBI , vide its circular SEBI/DNPD/Cir-34/2008 dated January 11, 2008, had announced the introduction of Index Options with a longer tenure. BSE introduced 'Long Dated Options' on its flagship index - Sensex® -on February 29, 2008, whereby the Members can trade in Sensex (in the normal lot of 15 only and not 'mini' Sensex) Options contracts with an expiry of up to 3 years.

Features of Long Dated Options (LDO)

• Later expiration dates offer an opportunity for long term investors to take a view on prolonged price changes without requiring to use a combination of short term option contracts.
• Premia for long-term options tend to be higher than that of short term options because the increased expiration period means increased possibility of larger movement in the price of the underlying.
• Long-term high net worth investors and institutions need not be burdened with the cost of rolling over the options purchased to protect their portfolios from downside risks.
• LDOs offer a good alternative to a long-term trader to gain exposure to a prolonged period in a given security without having to roll several short term contracts

Following new options series are available for the Sensex (normal lot of 15) Options contracts are:

• Along with the existing 3 monthly rolling contracts, three additional 3 fixed quarterly months of the cycle Mar/Jun/Sep/Dec would be available.
• Further, 5 additional semi-annual months of the cycle Jun/Dec would be available, so that at any point in time there would be options contract with up to 3 years tenure available.

All risk management measures and contract specifications (except for the longer expiries) for normal monthly contracts would also apply to the Long Dated Options contracts.

TOP

Options on individual stocks are options contracts where the underlyings are individual stocks. Based on the eligibility criteria and subject to the approval from SEBI, stocks are selected on which options are introduced. These contracts are cash settled and are American style, being those option contracts that can be exercised on or before the expiration date.

Equity Futures & Options were introduced in India with a maximum life of 3 months. These options expire on the last Thursday of the expiring month. There was a need in the market for options of shorter maturity and accordingly BSE launched weekly options on September 13, 2004 on 4 stocks and on the BSE Sensex.

Weekly options have the same characteristics as that of the Monthly Stock Options (stocks and indices) except that these options settle on Friday of every week. These options are introduced on Monday of every week and have a maturity of 2 weeks, expiring on Friday of the expiring week.