Sun. Aug 9th, 2020

Options Funda

All about options and its strategies

What is Call and Put options?

2 min read

Call options are those options in which a buyer has the right but not the obligation to buy the underlying asset like stocks, commodities, currency, etc at a pre-specific price (strike price) and at a pre-specified date (expiry date)

In simple words, if a trader wants to buy a call option of an index say BankNifty, he/she is simply looking for an uptrend or bullish trend in banknifty for that specific duration of time i.e. till the expiry date of that option.

Put Option are those options in which a buyer has the right but not the obligation to sell the underlying asset like stock, commodity, currency, etc. at a pre-specific price (strike price) and at a pre-specified date (expiry date).

In simple words, if a trader wants to buy a put option of Banknifty index, he/she is simply looking for downtrend or bearish trend in banknifty for that specific duration of time i.e. till the expiry date of that option.

For example, Banknifty spot price is 29500 and the price of a call option for the strike price 30000 is 112 and the price of a put option for the strike price 29000 is 139. So if a trader has a bullish view in banknifty he will buy a call option at 112 for 30000 strike price. Now breakeven for the trader will be 30112 as spot price of banknifty on expiry day of that option. Suppose banknifty expired at 30200, so profit for the trader will be of 88.

88 * 20(1 lot of banknifty) = 1760

Similarly, if a trader buys put option of 29000 strike price at 139 thus having a bearish view on banknifty. Now breakeven for the trader will be 28861 as the spot price of banknifty on the expiry day of that option. Suppose banknifty expired at 28800, so profit for the trader will be of 61.

61 * 20(1 lot of banknifty) = 1220

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