Options7 min read
Options trading basics: what a call and a put actually are
A call is the right to buy, a put is the right to sell, and a premium is what that right costs. Here is what each side of an option contract is signing up for.
Options and futures
Call optionkharidne ka haq, farz nahi
A contract that gives the buyer the right, but not the obligation, to buy the underlying at a fixed strike price before or at expiry.
A call option gives the buyer the right to buy the underlying asset, such as Nifty or SBI shares, at a set strike price on or before the expiry date. The buyer pays a premium for this right and is never obliged to exercise it. The seller, or writer, collects the premium and takes on the obligation to deliver if the buyer exercises. Suppose SBI trades at ₹800 and you buy an ₹820 call for a premium of ₹10 with a lot size of, say, 750 shares, costing ₹7,500. If SBI rises to ₹850 by expiry, the call is worth ₹30 and the position gains about ₹15,000. If SBI stays below ₹820, the option expires worthless and the full ₹7,500 is lost. Buyers of calls lose their entire premium far more often than beginners expect, because time decay works against them every day.
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Lessons that use this term
Options8 min read
Lot size, expiry and margin: the three things every F&O beginner gets wrong
One Nifty lot is not one unit. Expiry is not just a date. Margin is not the price. Get these three straight before your first F&O order.