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
Strike priceoption ka tay bhav
The fixed price at which an option's buyer can buy (call) or sell (put) the underlying, chosen from the list the exchange offers for each expiry.
The strike price is the price written into an option contract at which the underlying can be bought, for a call, or sold, for a put. Exchanges list strikes at fixed intervals around the current price; Nifty strikes are 50 points apart, and stock strikes are spaced according to the share price. If SBI trades at ₹800, you might see strikes of ₹780, ₹790, ₹800, ₹810 and ₹820. The ₹800 strike is at the money. For calls, strikes below the price are in the money and above are out of the money; for puts it is reversed. The further out of the money a strike is, the cheaper the premium and the lower the probability that it pays off. Beginners drawn to cheap far strikes for the lottery-like payoff usually see them expire worthless. The strike, the expiry and the premium together define what you are actually betting on.
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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.