Part 2 Trading Master Class

Types of Options

There are only two main types of options:

(A) Call Option (Right to Buy)

A call option gives the buyer the right to buy the asset at a fixed price.

👉 Example:

Stock: Reliance is at ₹2,500 today.

You buy a Call Option at strike price ₹2,600, paying a premium of ₹50.

If Reliance goes to ₹2,700, you can buy at ₹2,600 (profit).

If Reliance stays below ₹2,600, your option expires worthless, and you lose the ₹50 premium.

(B) Put Option (Right to Sell)

A put option gives the buyer the right to sell the asset at a fixed price.

👉 Example:

Stock: Infosys is at ₹1,400.

You buy a Put Option at strike ₹1,350, paying premium ₹20.

If Infosys falls to ₹1,300, you can sell at ₹1,350 (profit).

If Infosys stays above ₹1,350, your option expires worthless, and you lose the ₹20 premium.

Why Trade Options?

Options are popular because they provide flexibility, leverage, and hedging.

1. Leverage (Small money, big exposure)

With just a small premium, you control a large quantity of shares.
Example: To buy 50 shares of Nifty (at 20,000), you need ₹10 lakhs. But an option may cost only ₹20,000 for the same exposure.

2. Hedging (Risk Protection)

Investors use options to protect portfolios. Example: If you hold Infosys shares, you can buy a Put Option to protect against price falls (like insurance).

3. Speculation (Profit from movement)

Traders use options to bet on price moves (up, down, or even staying flat).

4. Income (Option Writing)

Professional traders sell options to earn premiums regularly.