Option Trading Master class Part -6

What is Option Trading?

Definition:
Options are derivative contracts that give the holder the right, but not the obligation, to buy or sell an asset at a pre-decided price within a specific timeframe.

Types of Options:

Call Option: Right to buy

Put Option: Right to sell

Option Participants:

Buyers (Holders): Limited risk, unlimited reward

Sellers (Writers): Limited reward, unlimited risk

How Options Work (With Example)

Imagine Reliance stock is trading at ₹2,500.

Call Buyer: Buys a ₹2,500 Call Option by paying ₹50 premium

Scenario A (Stock goes to ₹2,600):

Intrinsic value = ₹100

Profit = ₹100 – ₹50 = ₹50 per share

Scenario B (Stock goes to ₹2,400):

Option expires worthless

Loss = ₹50 (premium paid)