Step 6: Futures and Options
Steps 1 to 5 teach you how to form a view: which way price should go, how far, and where you are wrong. This step shows how to express that view with futures and options. A good choice of instrument can lower the money you put at risk, protect a position you already hold, or earn income in a sideways market.
A warning first. Derivatives use leverage. Leverage makes gains bigger, and losses bigger too. A study by India's market regulator, SEBI, found that about 9 in 10 individual traders in equity futures and options lost money in the 2022 financial year. Do not trade derivatives until you can follow the risk rules in Step 1, Lesson 2 without exception.
Contract details change. Lot sizes, expiry days, margins, and tick sizes are set by each exchange and are revised often. The numbers in this step are made up to explain the ideas. Always check the exchange's current contract specifications and expiry calendar before you trade.
Lessons in this step
- Futures and currency
- What a derivative is, and why traders use them
- Equity compared with derivatives
- Futures terms: lot, contract month, expiry, rollover, premium and discount, cost of carry
- Open interest and volume
- Margin, maintenance margin, and mark-to-market
- Risk in futures, hedging, reading open interest, and arbitrage
- Real case: the negative oil price of April 2020
- Currency futures: pairs, lots, ticks, and expiry
- Options and open interest
- Calls, puts, buyers, and writers
- American and European options, and settlement
- Premium: intrinsic value and time value
- What moves the premium, and implied volatility
- In, at, and out of the money
- Break-even points
- The option chain and reading option open interest
- Delta, gamma, theta, and vega
- Choosing a strike
- Naked option buying and selling, with payoffs
- Margin, exits, and rolling
- Strategy chooser and cards
- Choosing a strategy from your view, the trend, and volatility
- One card per strategy, from simple futures trades to iron condors and calendar spreads
- Swing trading and momentum trading with options
- Rules for buying options, and things never to forget
- The futures and options decision worksheet
- Crude oil, natural gas, gold, and silver
- How MCX prices link to global prices and the rupee
- Contracts, the value of one tick, expiry, and delivery
- What moves each market, and when the big US reports land in India time
- How each market behaves, and how the course's setups and strategies fit it
- Real cases: negative crude in April 2020, natural gas in 2022 to 2023, and the July 2024 duty cut on gold and silver
- Sizing across the four markets, and a checklist before any trade
How to use this step
Read Lessons 1 and 2 once, in order. After that, use Lesson 3 as a reference: start from your chart view, go to the chooser, then open the card for the strategy it points to. If you trade MCX commodities, read Lesson 4 before your first trade, and keep its checklist next to the MCX Intraday Breakout Playbook.