Part 10 Trading Master Class

1. Introduction – What are Options?

Imagine you want to buy a house, but you are not fully sure. The seller says:
“You can pay me ₹1 lakh today as a token, and within the next 3 months you have the right (not obligation) to buy this house for ₹50 lakh. If you don’t buy, I will keep your ₹1 lakh.”

That token money is exactly like an option premium.

If house prices shoot up to ₹60 lakh, you can buy it at ₹50 lakh (huge profit).

If prices fall to ₹40 lakh, you don’t buy, and you only lose ₹1 lakh.

This is the essence of options trading:

Right but not obligation to buy/sell at a fixed price within a fixed time.

Limited loss (premium paid).

Unlimited potential profit.

In stock markets, instead of houses, you deal with shares, indexes, or commodities.

2. How Options Work

Options are part of the derivatives market (value is derived from something else).

Underlying asset: Could be NIFTY, Bank NIFTY, Reliance stock, Gold, etc.

Strike price: Pre-decided price at which you may buy/sell.

Expiry: Fixed date (weekly/monthly).

Premium: Price you pay to buy the option.

Options are of two main types:

Call Option (CE) → Right to buy at a fixed price.

Put Option (PE) → Right to sell at a fixed price.