F&O stands for Futures and Options.
Future: When a trader expects the price of a share to move up or move down, he can enter into a Futures Contract. Futures is a contract to buy and sell an underlying asset on a future date at a specified price. The price of the underlying asset is different from the price of the Futures contract of the underlying asset. In the case of a Futures Contract, the buyer’s gain equals the seller’s loss and vice versa.
Options: It is a contract with the right to buy or right to sell an underlying asset at an agreed-upon price today (strike price) on a specified future date. The buyer of an Option receives the ‘Right to Buy’ or ‘Right to Sell’ the underlying asset at a specified future date. The seller of an Option has the ‘Obligation to Buy’ or ‘Obligation to Sell’ the underlying asset at a specified future date. The buyer may or may not exercise the option and thus pays a premium to the seller to attain this right. This is called ‘Option Premium’.
To understand the tax treatment of F&O read our article here.