An Option is a type of derivative contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price before or on the expiry date.
In India, options are commonly traded on NIFTY, BANK NIFTY, and individual stocks.
Two Main Types
1. Call Option (CE)
2. Put Option (PE)
Types
A Call Option gives the buyer the right to *buy* at a specified price.
A Put Option gives the buyer the right to *sell* at a specified price.
Simple Example
* NIFTY = 24,000
* You buy 24,000 CE
* Premium = ₹100
* Lot size = 65
Your premium cost is:
*₹100 × 65 = ₹6,500
If the option’s value rises from ₹100 to ₹150:
*Profit = ₹50 × 65 = ₹3,250
(before charges and taxes)
If the premium falls from ₹100 to ₹0:
*Maximum loss for the option buyer = ₹6,500
(before charges and taxes)
| Strike Price |
| Premium |
| Expiry |
| CE |
| PE |
| Lot Size |
| ATM |
| ITM |
| OTM |
| Strike Price |
| Premium |
| Expiry |
| CE |
| PE |
| Lot Size |
| ATM |
| ITM |
| OTM |
Easy Formula
CE = Expect Up
PE = Expect Down
Options involve leverage and can result in rapid losses. Option buying can lose the entire premium, while option selling can involve substantially larger losses. Understand premium, expiry, intrinsic value, time decay (Theta), and implied volatility (IV) before trading.