What are Options ?

Options are derivative contracts that give buyer the right but not the obligation to buy or sell an underlying asset at a specified price (called the strike price) before or on a certain date (known as the expiration date).

There are two types of options :-

Call Option :-

Buyer’s Perspective - A call option gives the buyer right but not the obligation to buy underlying asset at the strike price on or before the expiration date. Seller’s Perspective - The seller of the call option is obligated to sell the asset to the buyer if buyer exercises the option.

Example - If you buy a call option for a stock with a strike price of Rs. 50 and the stock rises to Rs.70, you can exercise your option to buy the stock at Rs. 50, allowing you to profit from the difference.

Put Option :-

Buyer’s Perspective - A put option gives the buyer right but not the obligation to sell underlying asset at the strike price on or before the expiration date. Seller’s Perspective - The seller of the put option is obligated to buy the asset from the buyer if buyer exercises the option.

Example - If you buy a put option with a strike price of Rs. 60 and the stock falls to Rs. 40, you can exercise your option to sell the stock at Rs.60, making a profit.