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Option Trading

Options give you the right (but not obligation) to buy or sell an asset at a predetermined price. They are powerful instruments for hedging, income generation and speculation.

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Options Basics

An option contract gives the buyer the RIGHT (not obligation) to buy or sell an underlying asset at a specific price (strike price) on or before a specific date (expiry).
Term Definition Example
Call Option Right to BUY at strike price Buy Nifty 22,000 Call — profit if Nifty goes above 22,000
Put Option Right to SELL at strike price Buy Nifty 22,000 Put — profit if Nifty falls below 22,000
Strike Price Predetermined buy/sell price 22,000 in above example
Premium Cost of the option contract ₹150 per lot = ₹7,500 for 50-unit lot
Expiry Date option expires worthless Weekly (Thursday) or Monthly
ITM In The Money — option has intrinsic value Call: Spot > Strike | Put: Spot < Strike
OTM Out of The Money — no intrinsic value Call: Spot < Strike | Put: Spot > Strike

Option Greeks

  • Delta: how much option price changes per 1 point move in underlying. ATM options have ~0.5 delta. Deep ITM closer to 1.0.
  • Gamma: rate of change of delta. Highest for ATM options near expiry — risk of rapid premium change.
  • Theta: time decay. Every day that passes, the option loses some value (decays). Sellers benefit from this.
  • Vega: sensitivity to implied volatility. Buying options before high-volatility events can be profitable.
  • Rho: sensitivity to interest rate changes — less important for short-term options

Pro Tip: For beginners, focus only on buying simple calls and puts to start. Do not sell naked options until you fully understand the unlimited risk. Use defined-risk strategies like spreads first.

Simple Options Strategies

  • Long Call: buy a call when bullish. Max risk = premium paid. Unlimited upside.
  • Long Put: buy a put when bearish. Max risk = premium paid.
  • Bull Call Spread: buy lower strike call + sell higher strike call. Reduces cost but caps profit.
  • Bear Put Spread: buy higher strike put + sell lower strike put.
  • Iron Condor: sell call spread + sell put spread. Profit from low volatility, time decay.
  • Covered Call: own the stock + sell a call. Generate income from your existing position.

India Options Specifics

  • Nifty 50 options: most liquid, weekly expiry every Thursday
  • Bank Nifty options: high volatility, very popular for intraday
  • Lot size: Nifty = 50 units | Bank Nifty = 15 units
  • STT (Securities Transaction Tax): only on options bought and exercised ITM — sell before expiry if OTM
  • Margin requirements: SEBI implemented SPAN + Exposure margin for option writing
  • Best time: 9:20 AM - 11:00 AM and 1:00 PM - 3:00 PM IST for high liquidity
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Key Takeaways

  • Call option = right to BUY at strike price
  • Put option = right to SELL at strike price
  • Premium = cost of buying the option
  • Options expire worthless if OTM at expiry
  • Theta = time decay, erodes option value daily
  • Delta = sensitivity of option price to underlying
  • Selling options benefits from time decay
  • Bank Nifty and Nifty options most traded in India

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