What are Options?

Options are derivative contracts that give the buyer the right (but not the obligation) to buy or sell an underlying asset at a predetermined agreed price before a certain date. The seller, however, is obligated to fulfil the contract if the buyer chooses to exercise it. Options are traded on exchanges like stocks.

Key Elements of an Option:

• Strike Price- The price at which the asset can be bought or sold
• Premium- The price paid by the buyer to acquire the option
• Expiration Day- The last date till the option can be exercised.
• Lot Size: The standardized quantity of the underlying asset covered by the option.

Note: Buyers don’t own the asset. They pay a premium and exercise the option only if it’s profitable.

Types of Options:

Call Option: A contract that gives the buyer the right (but not the obligation) to buy an underlying asset at a specific price (strike price) within a specific time period. The buyer expects the asset’s price to rise.

Put Option: A contract that gives the buyer the right (but not the obligation) to sell an underlying asset at a specific price within a specific time period. The buyer expects the asset’s price to fall.

Stock Options: These are options contracts based on individual stocks. They give traders the right to buy or sell a particular stock at a specific price before the expiration date.

Index Options: Options based on market indices, like the Nifty or Sensex. These work similarly to stock options but are based on the performance of the entire index rather than an individual stock.

Currency Options: These are options based on currency pairs, like USD/INR. Traders can buy or sell the right to exchange one currency for another at a specific rate.

Commodity Options: These options are based on commodities like gold, silver, or oil. You can buy or sell the right to trade a commodity at a certain price within a specific timeframe.

At Share India, we offer a comprehensive range of Futures and Options (F&O) to help you diversify and optimise your trading strategy. Simply open a FREE Demat account with us and begin your F&O trading journey at affordable prices.

If you need any support, you can contact the Share India support team via email at support@shareindia.com or by phone at 1800 203 0303.