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
Put optionbechne ka haq, farz nahi
A contract that gives the buyer the right, but not the obligation, to sell the underlying at a fixed strike price before or at expiry.
A put option gives the buyer the right to sell the underlying at the strike price on or before expiry. Buyers of puts profit when the underlying falls, so a put is a way to bet on a decline or to protect shares you own. The buyer pays a premium; the seller collects it and takes the obligation to buy at the strike if the option is exercised. Suppose SBI is at ₹800 and you buy the ₹780 put for ₹10 with a lot of 750 shares, paying ₹7,500. If SBI drops to ₹740 by expiry, the put is worth ₹40 and the position gains about ₹22,500. If SBI stays above ₹780, the put expires worthless and the ₹7,500 is gone. Put buyers face the same enemy as call buyers: time decay, which erodes the premium daily even when the price does nothing.
Related terms
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.