Basics of Options Trading FAQs

How many types of Options ?

There are two types of options: Call Options, and Place Options.

  • Call Options allow you to purchase an option contract, but not with the obligation.
  • Option Contracts You have the option, but not the obligation to, sell an option contract.

Example of a Call Option

For 100 shares, you can purchase a TCS October call option at Rs 2000 strike price. The premium is Rs 200. You have the right to purchase 100 shares of TCS at Rs2000 anytime between now and October. This right is available by paying a premium of 100 X 200 shares = Rs 20,000. If the option price at expiry is greater than Rs 2100, you can exercise your options to earn profits. Let's say the option price is Rs 2150. You will receive-

 (strike and market price ) Rs 150  X 200 shares = Rs 30,000

Your profits will be Rs. 30,000 to Rs. 20,000 = Rs 10,000

If your option did not perform well during that time and was below Rs 2000, you can opt out. You will lose Rs 20,000 in premium.

Example of a put option

A Put option on TCS is purchased at Rs 2000 strike price. There is a premium Rs 100 for 100 shares. The option is purchased at a premium of Rs 100 X100 = Rs 10000. If the price of the TCS option is below the strike price, you can make profits selling the option. If the stock price is higher than the strike price, you can choose to not exercise the right and only lose the premium.

What is the work of Options ?

What is strike price of option ?

When does Options expire?

What is the process for trading options ?

How futures and Options are different ?

How Nifty can be traded ?

What will happen when an option expires out of money ?

Do I have to pay margin in Options ?

How can the Options contracts be settled ?

What do you mean by Covered Options ?

When do you mean by Naked Options ?

What does American Options refers to ?

What does European option mean? ?

In Options , What is the meaning of At-The-Money , Out-of-the-Money (OTM) and In-The-Money ?

How to take decision on either to buy /sell call Option or put Option ?

Is it possible to trade on option of any stock or index?

How Square off and exercise an Option is different ?

What does intrinsic value of an option mean and how to calculate intrinsic value of an option ?

What does time value of an Option mean ?

In options trading , what does moving averages mean ?