Knowledge Base

When you trade options, every contract is either a Call or a Put. These are the two basic building blocks of options trading, and understanding what each one does is essential before you start.

Call Option

A Call option gives you the right to buy an asset at a fixed price  called the strike price  before or on the expiry date. You buy a Call when you expect the price of the underlying stock or index to go up.

For example, if Nifty is at 22,000 and you expect it to rise, you buy a Nifty 22,200 Call option by paying a premium of ₹100. If Nifty rises to 22,500, your option gains value and you make a profit. If Nifty stays below 22,200, the option expires worthless and your loss is limited to the ₹100 premium you paid.

Put Option

A Put option gives you the right to sell an asset at a fixed price before or on the expiry date. You buy a Put when you expect the price to go down.

For example, if Nifty is at 22,000 and you expect it to fall, you buy a Nifty 21,800 Put option by paying a premium of ₹80. If Nifty falls to 21,500, your option gains value. If Nifty stays above 21,800, the option expires worthless and your loss is limited to the ₹80 premium.

Buying vs selling options

So far we have looked at buying Calls and Puts. You can also sell them this is called writing an option.

When you sell a Call, you are betting the price will not rise above the strike price. When you sell a Put, you are betting the price will not fall below the strike price. As a seller, you collect the premium upfront but your potential loss is unlimited if the market moves against you.