Learn and Earn in Stock Market

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Stock market ke latest trends aur insights ke saath apne investments ko behtar banayein aur samjhein.

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Stock market ke fundamentals samjhein aur apne financial goals ko achieve karne ke liye tayyar ho jayein.

Market Basics

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An option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a particular asset, at a particular price (Strike price / Exercise price) in future. In return for granting the option, the seller collects a payment (the premium) from the buyer. Exchange traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among large number of investors. They provide settlement guarantee by the Clearing Corporation thereby reducing counterparty risk. Options can be used for hedging, taking a view on the future direction of the market, for arbitrage or for implementing strategies which can help in generating income for investors under various market conditions.

1.1 OPTION TERMINOLOGY •

Index options: These options have the index as the underlying. In India, they have a European style settlement. Ex. Nifty options

• Stock options: Stock options are options on individual stocks. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. They have an American style settlement.

• Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller or Option writer.

• Writer / seller of an option: The writer / seller of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him.

• Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price.

• Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price.

• Option price or premium: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.

• Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.

• Strike price: The price specified in the options contract is known as the strike price or the exercise price.

KNOW ABOUT OPTIONS