In stock market F&O represent the future and option market of derivative segment. derivative are the financial instrument whose value is derived from underlying asset . the main purpose of derivative market is to avoid or reduce risk of price uncertainty through hedging and arbitraging.
Option are the contract that gives you a right but not the obligation to buy or sell an underlying asset at fix future date and on specified predecided price.
This are the type of derivative contract whose value is derived from another asset that is called underlying asset. There are two types of option contract are there that is
Call Option : That gives you a right to buy an asset
Put Option : That gives you a right to sell an asset.
The main purpose of option trading is to reduce risk or future price uncertainty through the strategy of of hedging , arbitraging and speculation,
In option we didn’t need to pay full amount of asset while just need to pay a premium or token money as this are the contract between two parties that can be exercised on future date. For Example price of SBI in equity market is 280/- and you have expectation that the price of stock will go high hence we can buy it in equity market where investment would be high while if you purchase 280 call option (right to buy underlying Asset) investment would be very less as compare to Equity market and when the price of underlying asset (Equity Market) will increase the price of call option will also increase.