What a derivative is
A derivative is a contract whose value is derived from something else — an index like NIFTY 50, a stock like RELIANCE, a commodity, a currency. You never own the underlying thing; you own an agreement about its price. In India the two derivatives that matter for a retail trader are futures and options, traded together on the exchange's F&O segment. Futures are obligations; options are choices. That single distinction runs through everything that follows.
Here is the market this course is taught on. These numbers are live — reload in an hour and they will have moved.
Why derivatives exist at all
Derivatives were invented for hedging — transferring risk to someone willing to carry it. A farmer locks in a price for a harvest months away; an exporter fixes the rupees a dollar invoice will fetch; a fund that owns ₹200 crore of NIFTY stocks buys puts before a budget. In every case someone with an exposure pays someone else to absorb the uncertainty.
The person absorbing it is often a speculator — someone with no underlying exposure, trading purely on a view. Speculators are not villains: without them the farmer finds no counterparty. But it is worth being honest about which side you are on. As a retail F&O trader you are almost always the speculator, and you are trading against institutions, market makers and algorithms whose edge is speed, capital and information. That is not a reason not to trade. It is the reason to understand before you trade.
The Indian F&O landscape in a few facts
- Index derivatives dominate. NIFTY 50, BANKNIFTY, FINNIFTY on NSE and SENSEX on BSE account for the overwhelming majority of contracts traded. Index options are cash-settled: no shares ever change hands.
- Stock derivatives exist for roughly 200 large stocks (the “F&O list”). Since 2019 they are physically settled: hold an in-the-money stock option through expiry and you will receive or must deliver actual shares. Chapter 9 covers why that matters.
- You trade in lots, not shares. Every contract has a fixed lot size set by the exchange (below, live, for NIFTY). The lot is the smallest quantity you can trade, and your profit or loss is always premium change × lot.
- Expiries are weekly and monthly. Index options currently expire weekly on a fixed weekday (NSE's NIFTY on Tuesdays and BSE's SENSEX on Thursdays at the time of writing — the terminal always shows the actual dates), stock options monthly.
How Finch is built
Every chapter has two kinds of content. The prose explains a concept the way a good desk mentor would, with worked numbers. The live blocks — the dark panels marked LIVE — are pulled from the same feed and option chains the Finostat terminal runs on. They are not illustrations; they are today's market. When a chapter says “right now the ATM straddle costs ₹X, which implies a move of ±Y%”, X and Y are real and were computed the moment the page loaded.
The chapters build on each other. If you are brand new, read them in order: derivatives → futures → options basics → reading a chain → pricing → Greeks → volatility → expiry → strategies → risk → mistakes. If you already trade, jump to the Greeks or implied volatility; those two chapters are where most self-taught traders have gaps.
What you'll be able to do at the end
- Read an option chain and say, from the numbers alone, what the market expects to happen by expiry.
- Explain why a ₹5 option “doubled” and still lost you money.
- Choose a strategy from a view — direction, magnitude, timing, volatility — rather than from a tip.
- Size a position so a bad week is survivable, which is the whole game.