Basics of Options Trading FAQs

In Options trading ,What is selling \ writing or shorting means ?

Most traders purchase Call and Put options. When they anticipate the market will rise, they buy Call options and then buy Put options when the market falls. There is a riskier trade that is only a few traders make. This is called Shorting, Writing or Selling Options.

In Options trading selling \ writing or selling means , you sell a Call or Put option hoping that its price will go down and be resulting in profits for you. The likelihood of losing or making less money is higher for Options traders who buy options. If a majority loses, then who is winning? The traders on the other side, i.e. Sellers

Time value works for sellers, but it doesn't work against buyers. If the market does not move or fall, the seller is increasing. As we all know, premium = intrinsic value + time value. If the intrinsic value is static, then the seller has an advantage since the premium price drops with each passing day.

Option buyers have a limited loss and unlimited risk potential, while sellers can make a greater profit or lose less.  For an  example -

Nifty 50 Spot price


Nifty 50 Short-Term Call Strike Price


Lot Size


Dividends eligible for premium

Rs. 154

Break Even Point (Strike price + Premium)


Maximal Profit

Rs. 154 X 75 = Rs 11.550

Max Loss


Let's now see how payoffs change depending on the expiration date and closing price for the Nifty 50.

NIFTY 50 Closing price (CP)

Net Payoff (BEP CP)*75. Max Profit = 4500
















The table above shows that you can make a greater profit by selling Options, but there are also higher risks if the market moves against you.

Option shorting has significantly higher margins than buying Option. The margins are marked to market, which means that you must maintain margin based on your loss each day.



What is the work of Options ?

How many types 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 ?