This guide explains how stock options work on NSE with a worked example on a model stock: which stocks have options, contract details, how option trading works for a stock from entry to expiry, pricing and the Greeks, results and implied volatility, physical settlement, the F&O ban, liquidity, costs, tax and the common ways traders use them.
Stock options at a glance
| Feature | Stock options on NSE |
|---|---|
| Underlying | About 200 stocks in the F&O segment, chosen by size and liquidity |
| Lot size | Set per stock, so one contract is worth several lakh rupees |
| Expiry | Monthly, on the last Tuesday of the month |
| Style | European: exercised only at expiry |
| Settlement | Physical: in-the-money options at expiry lead to delivery of shares |
| Strike gaps | Set by the stock's price, for example ₹10, ₹20 or ₹50 |
| Weekly options | None on stocks |
| Trading hours | 9:15 am to 3:40 pm; the stocks themselves close by auction from 3:15 pm |
Key takeaways
- Stock options are monthly only and expire on the last Tuesday of the month.
- An in-the-money stock option held to expiry is settled by delivery of shares, which needs the full value of the shares or the shares themselves.
- Implied volatility on stocks is usually two or three times that of Nifty, and rises before results.
- Liquidity is good near the money in large stocks and poor in far strikes and smaller stocks.
- A stock in the F&O ban allows no new positions until its open interest falls.
- Charges, the bid-ask spread and STT matter more on stock options than on index options, because spreads are wider.
Which stocks have options
SEBI sets the criteria for a stock to enter and stay in the derivatives segment, based on its market value, trading volume, delivery value and the number of traders who hold it. NSE reviews the list and adds or removes stocks from time to time, giving notice before a stock leaves. Around 200 stocks have options, mostly large companies in banking, IT, energy, autos, metals and consumer goods.
Lot sizes are set for each stock so that one contract is worth several lakh rupees, and NSE revises them as prices change. Check the current lot size on NSE's contract list before you trade a stock for the first time.
How option trading works for a stock
The steps of how option trading works are the same for a stock as for an index:
- Choose the stock and the view. A call gains if the stock rises above the strike plus the premium; a put gains if it falls below the strike minus the premium.
- Pick the expiry. Stocks have monthly expiries only: the current month and the next two months.
- Pick the strike on the stock's option chain, checking the price, the bid-ask spread and open interest.
- Place the order through your broker, usually as a limit order.
- Manage the position. The option's price changes with the stock, time and implied volatility.
- Exit before expiry, or hold it and accept physical settlement if it ends in the money.
The options trading guide explains calls, puts and premiums in full, and the option chain guide shows how to read a chain column by column.
A model stock option chain
The examples use a model stock at ₹1,400, with a lot of 500 shares, 30 days to expiry, implied volatility of 30% and an interest rate of 6.5%, priced with the Black-Scholes model. Real stock chains show a volatility skew and wider spreads.
| Call delta | Call price | Strike | Put price | Put delta |
|---|---|---|---|---|
| 0.83 | ₹118.05 | 1,300 | ₹11.10 | −0.17 |
| 0.70 | ₹81.05 | 1,350 | ₹23.85 | −0.30 |
| 0.54 | ₹51.70 | 1,400 | ₹44.25 | −0.46 |
| 0.38 | ₹30.50 | 1,450 | ₹72.75 | −0.62 |
| 0.24 | ₹16.60 | 1,500 | ₹108.60 | −0.76 |
One lot of the 1,400 call costs ₹25,850. Its delta of 0.54 means it gains about ₹270 a lot for each ₹1 rise in the stock. It loses about ₹0.92 a share a day to time, ₹460 a lot, and its vega of 1.59 means one point of implied volatility is worth about ₹795 a lot.
Stock options vs index options
| Stock options | Nifty options | |
|---|---|---|
| Expiries | Monthly only | Weekly and monthly |
| Settlement | Physical delivery of shares | Cash, at the index close |
| Typical implied volatility | Often 25% to 45% | Often 11% to 18% |
| Results and news | Large single-day moves on results | Moves spread across 50 stocks |
| Liquidity | Varies widely by stock and strike | Deep near the money |
| Bid-ask spread | Wider, often several rupees away from the money | Often 5 to 10 paise near the money |
| Position limits | F&O ban when open interest nears the market-wide limit | Index position limits for large traders |
Index options are the better choice for trading broad market moves. Stock options suit views on one company, such as its results, a sector event or a takeover, and income strategies on shares you already hold.
Implied volatility and results
Implied volatility on a stock rises in the days before its quarterly results, because the market expects a large move, and usually falls sharply the day after. The size of that fall can decide a trade.
Take the model stock with results due tomorrow. Before results, IV is 45% and the at-the-money call costs ₹75.60 and the put ₹68.15. The straddle, ₹143.75, prices a move of about 10% either way. The day after results, IV falls back to 30%.
| Outcome the day after results | 1,400 call | Change on one lot of 500 |
|---|---|---|
| Stock unchanged at ₹1,400, IV 30% | ₹50.80 | −₹12,400 |
| Stock up 5% to ₹1,470, IV 30% | ₹96.40 | +₹10,400 |
A 5% rise in the stock makes the call buyer only ₹10,400, because the fall in IV takes away much of the gain. With no move, the buyer loses nearly a third of the premium in one day. Sellers face the opposite: they collect the high pre-results premium and lose if the move is larger than priced. See implied volatility crush.
Physical settlement
Stock futures and stock options settle by delivery of shares. At expiry:
| Position | Expires in the money | Result |
|---|---|---|
| Long call | Yes | You buy the shares at the strike |
| Short call | Yes | You deliver the shares at the strike |
| Long put | Yes | You deliver the shares at the strike |
| Short put | Yes | You buy the shares at the strike |
| Any | No | The option expires worthless |
A long call on the model stock that ends in the money means paying about ₹7 lakh for 500 shares. Without the money in the account, the broker closes the position before expiry or the delivery fails, with penalties. Brokers raise margins on in-the-money stock options in the last days before expiry and often stop new positions in them; some close them on the day before expiry. Plan to exit stock options before the expiry week unless you want delivery.
The F&O ban
Each stock has a market-wide position limit for its derivatives. When open interest across all traders crosses 95% of that limit, the stock enters the F&O ban. During the ban, traders can only reduce positions: new positions are not allowed, and a trader who increases one pays a penalty. The ban lifts when open interest falls below 80% of the limit. Exchanges publish the list each day; check it before trading a stock's options.
Liquidity
Liquidity decides what a stock option really costs. In large, active stocks, strikes near the money trade continuously with spreads of a few paise to a rupee. In far strikes and in smaller stocks, the spread can be several rupees, a large share of a ₹10 or ₹20 option. Before you trade:
- Check the spread as a share of the price; above 3% to 5%, the cost of entering and exiting can exceed the move you expect.
- Prefer the current month for short trades; next-month strikes are often thinner.
- Use limit orders. A market order in a thin strike can fill far from the last price.
- Check open interest; strikes with very little OI may be hard to exit in a hurry.
Costs and STT
Charges on stock options work as on index options: brokerage per order, STT of 0.15% of the sell premium, exchange transaction charges on premium turnover, the SEBI fee, stamp duty on the buy side and GST. If an option is held to expiry and settled by delivery, the delivery is charged like a share trade, with STT on the delivery value, which is far larger than the premium. The brokerage calculator and the STT tax calculator work out the charges for a trade.
Margin for stock option sellers
Selling a stock option needs SPAN plus exposure margin. For stock derivatives, exposure margin is the higher of 3.5% and 1.5 times the stock's volatility, so volatile stocks need more. A sold at-the-money option on a ₹7 lakh stock contract can need ₹1 lakh or more. Margins rise near expiry for in-the-money positions because of physical settlement. The F&O margin calculator gives an estimate for stock contracts.
Stock options trading in India: common uses
Stock options trading in India is mostly short-term trading by individuals, but the contracts serve several purposes:
| Use | Trade | Example on the model stock |
|---|---|---|
| A view on results | Buy a call or put, or a debit spread, before results | Buy the 1,400 call and sell the 1,450 call for about ₹21.20 net |
| Income on shares you hold | Sell a call above the market against 500 shares | Sell the 1,500 call for ₹16.60, ₹8,300 a lot |
| Protection for shares | Buy a put below the market | Buy the 1,350 put for ₹23.85, ₹11,925 a lot |
| Buying shares lower | Sell a put at a price you would pay | Sell the 1,350 put, with cash to buy 500 shares |
| A sector view | Options on several stocks in the sector | Calls on two or three banks before policy news |
Selling a call against shares you own is the covered call strategy; buying a put against them is the protective put strategy. Both need the full lot of shares to match one contract.
A worked trade before results
You expect the model stock to rise after results but want to limit the cost of the IV fall. With results tomorrow and IV at 45%, you buy the 1,400 call and sell the 1,450 call. Selling the higher strike recovers part of the inflated premium, so the fall in IV costs less on the spread than on a bought call.
| Leg | Before results, IV 45% |
|---|---|
| Buy 1,400 call | Pay about ₹75.60 |
| Sell 1,450 call | Receive about ₹53.90 |
| Net cost | About ₹21.70 a share, ₹10,850 a lot |
| Most the spread can be worth | ₹50 a share, ₹25,000 a lot |
If the stock rises 5% to ₹1,470, both calls are in the money, and the spread is worth close to its ₹50 maximum by expiry. If the stock does not move, the spread loses less than the bought call alone, because the sold call loses value too. Model your own strikes in the option profit calculator, and exit before the expiry week to avoid delivery.
Choosing a stock for options
Not every F&O stock suits options. Before trading one:
- Liquidity. Check that the strikes near the money trade throughout the day with tight spreads, and that open interest runs into thousands of contracts.
- Implied volatility. Compare the current IV with its range over the past months. A buyer prefers IV near the low end; a seller near the high end.
- The event calendar. Results dates, policy meetings for banks, and sector news set when IV will rise and fall.
- Lot value. A lot worth ₹7 lakh moves ₹7,000 for each 1% move in the stock. Make sure the size fits your account.
- The ban list. Avoid stocks close to the F&O ban, where you may not be able to add or adjust positions.
The expiry month of a stock option
Stock options are listed for the current month and the next two months, and all expire on the last Tuesday. Most trading is in the current month until the expiry week, when it moves to the next month. In the last four trading days before expiry, exchanges add delivery margins on in-the-money positions and on positions that could lead to delivery, rising each day towards the margin needed for the full delivery. Brokers set their own cut-offs, often closing in-the-money positions a day or two before expiry. A trade meant to last a few weeks is usually opened in the next month's contract to stay clear of these rules.
Results trades: three structures
With the model stock's straddle at ₹143.75 before results, the market prices a move of about 10% either way. Three ways to trade a view on that move:
| View | Structure | Why |
|---|---|---|
| The stock will rise more than the market expects | A call debit spread | Cheaper than a bought call, and less hurt by the fall in IV |
| The move will be larger than priced, direction unknown | A long straddle or strangle | Gains from a large move either way, but loses if the move is smaller than priced |
| The move will be smaller than priced | An iron condor around the price | Collects the high premium, with the loss capped by the wings |
Each needs the exit planned for the day after results, because most of the IV change happens in the first hour of trading.
Stock options and the index
A large stock is part of Nifty, but its options move with the company, not only with the index. A trader who holds a stock and wants protection against the market can buy Nifty puts; one who wants protection against company news needs options on the stock itself. Stock options also allow a view on one company relative to the market: a call on one bank and a put on Bank Nifty, for example, gains if the bank does better than the index.
Checks before a stock option trade
- Is the stock in or near the F&O ban?
- When are results or other company events?
- Is IV high or low against its own history?
- How wide is the spread at the strikes you want?
- Will the trade be closed before the expiry week, or can you fund delivery?
- What is the most the trade can lose, and does it fit your risk per trade?
Six strategies on one stock
On the model stock at ₹1,400, with 30 days left, IV of 30% and a lot of 500:
| Strategy | Net cost or credit a lot | Best case | Worst case |
|---|---|---|---|
| Buy the 1,400 call | ₹25,850 paid | No cap | ₹25,850 |
| Bull call spread, 1,400 and 1,450 | ₹10,600 paid | ₹14,400 | ₹10,600 |
| Covered call: own 500 shares, sell the 1,500 call | ₹8,300 received | Gain capped at ₹1,500 a share plus the premium | The fall in the shares, less ₹8,300 |
| Protective put: own 500 shares, buy the 1,350 put | ₹11,925 paid | The rise in the shares, less ₹11,925 | ₹36,925: the ₹50 a share to the strike plus the premium |
| Cash-secured put: sell the 1,350 put | ₹11,925 received | ₹11,925 | Buying 500 shares at ₹1,350 less the premium, if the stock falls |
| Long straddle at 1,400 | ₹47,975 paid | No cap | ₹47,975; break-evens at about ₹1,304 and ₹1,496 |
The bought call and the straddle depend most on a move happening before expiry. The covered call and the cash-secured put depend on the stock staying in a range, and both require holding or buying the full lot of shares.
Stock options for investors
Investors who hold a full lot of a stock use its options for income or protection. Selling the 1,500 call each month against 500 shares bought at ₹1,400 brings in about ₹16.60 a share, 1.2% of the price, but caps the gain at ₹1,500 plus the premium if the stock rises sharply. Buying the 1,350 put protects the shares below ₹1,350 for a month at a cost of about 1.7% of the price. Both are cheaper on calmer stocks, whose IV is lower, and dearer before results.
The Greeks on a stock option
On the model 1,400 call, one lot of 500 has a delta of about 0.54, or ₹270 for each ₹1 move in the stock; theta of about ₹460 a day; and vega of about ₹795 for each point of IV. Because stock IV is higher than Nifty's, the same percentage move in the stock and the same change in IV move the option more. A 10-point fall in IV after results, which is common, costs this call about ₹7,950 a lot before any move in the stock.
Corporate actions
When a company issues bonus shares, splits its shares, or pays a large special dividend, the exchange adjusts the strikes and lot sizes of its options so that positions keep their value. Ordinary dividends do not lead to an adjustment, but the stock falls by about the dividend on the ex-date, which lowers call prices and raises put prices beforehand. Mergers and demergers can lead to special adjustments or early expiry of contracts. Check NSE's circulars when a company you trade announces a corporate action.
Monthly expiry and time decay
With only monthly expiries, a stock option's time decay follows the month. With 30 days left, the at-the-money call loses about ₹0.92 a share a day; with 5 days left, about ₹2.08, more than twice as fast, and the option is worth only ₹20.25 against ₹51.70 at the start of the month. Buyers who want time for a view usually buy the next month's contract early in the current month. Sellers who want fast decay sell in the last two weeks, but face the delivery margins and broker cut-offs of the expiry week.
Options on stocks in the news
News moves single stocks far more than the index: a large order win, a management change, a regulatory action or a block deal can move a stock several percent in minutes. Option prices react at once, and spreads widen as market makers pull back. Bought options limit the damage of a move against you; sold options on a stock in the news can lose many times their premium. Traders who sell stock options often avoid stocks with pending news and keep position sizes smaller than on index options.
Stock option terms
| Term | Meaning |
|---|---|
| Market-wide position limit | The most open interest allowed across all traders in a stock's derivatives |
| Delivery margin | Extra margin in the expiry week on positions that could lead to delivery |
| Physical settlement | Settlement by delivery of shares rather than cash |
| Exercise | Turning an in-the-money option into a trade in the shares at expiry |
| Strike gap | The distance between strikes, set by the stock's price |
| IV crush | The fall in implied volatility after an event such as results |
Where stock options fit in a trading plan
Stock options suit a small part of most traders' activity: trades around company events, income on shares already held, and protection for a concentrated holding. Broad market views are cheaper and more liquid in index options. Keeping stock option trades to a fixed share of the account, and closing every position before the expiry week, keeps their two main risks, event gaps and delivery, under control. Review those trades separately from index trades, so their results are not hidden in the total.
Tax on stock options
Profit from stock options is non-speculative business income, like other F&O profit, taxed at your slab rate with charges deductible. If an option leads to delivery, the shares you receive start a new holding: their later sale is a capital gain or loss, with the cost based on the strike price paid.
Common mistakes in stock options trading
- Holding in-the-money options into expiry week without the money for delivery.
- Buying options just before results without allowing for the fall in implied volatility.
- Trading far strikes in thin stocks, where the spread takes most of the expected gain.
- Ignoring the F&O ban list, which can trap a position you wanted to add to.
- Sizing by the premium, when a single results-day move can be 10% or more.
- Selling naked options on volatile stocks, where gaps on news can be several times the premium.
Trading stock options with QuantPower
QuantPower shows stock option chains with prices, IV, Greeks and open interest, builds spreads and hedged positions with their payoff and margin, and runs strategies with stops and a daily MTM limit through your connected broker. Rules can include a time exit before expiry week, so positions close before physical settlement.
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Frequently asked questions
How do stock options differ from index options?
Stock options expire monthly, settle by delivery of shares, are usually more volatile and less liquid, and react strongly to company news and results. Index options settle in cash and include Nifty weekly expiries.
What happens if I hold a stock option to expiry?
If it expires in the money, it is settled by delivery: a long call buys the shares at the strike and a long put sells them. Out-of-the-money options expire worthless.
Why does my broker close stock options before expiry?
To avoid delivery that the account cannot fund. Brokers raise margins on in-the-money positions near expiry and may close them a day or two early.
When do stock options expire?
On the last Tuesday of the month, or the trading day before if that Tuesday is a holiday.
Why is implied volatility high before results?
The market expects a large move on the results day and prices it into the options. After the announcement, IV usually falls, which lowers option prices even if the stock moves.
Can I trade options on any stock?
No. Only stocks that meet SEBI's criteria for the derivatives segment, about 200 on NSE, have options.
Is the premium the most I can lose on a bought stock option?
Yes, plus charges, as long as you exit before expiry or the option expires out of the money. If it ends in the money, you also take on the delivery of shares.
Related guides
- Options trading: calls, puts and contracts explained
- Option chain: reading a chain column by column
- Covered call strategy and protective put strategy: options on shares you hold
- Implied volatility crush: why options fall after events
- Fo ban meaning and physical settlement meaning
Sources
- SEBI: criteria for stocks in the equity derivatives segment, and the framework for physical settlement of stock derivatives
- NSE: contract specifications for stock options, expiry on the last Tuesday of the month from September 2025, and the market-wide position limit and ban rules
- Finance Act, 2026: STT on options from 1 April 2026
- Model prices: Black-Scholes, stock at ₹1,400, lot of 500, 30 days, IV 30% (45% before results), interest rate 6.5%