Divergence SecretsKey Terminologies in Option Trading
Before diving deep, let’s understand some essential terms:
Call Option: A contract that gives the buyer the right (but not the obligation) to buy an asset at the strike price before expiry.
Example: Buying a Reliance ₹2500 Call Option means you can buy Reliance shares at ₹2500 even if the market price rises to ₹2700.
Put Option: A contract that gives the buyer the right (but not the obligation) to sell an asset at the strike price before expiry.
Example: Buying a Nifty 19000 Put Option means you can sell Nifty at 19000 even if the market falls to 18500.
Premium: The price paid to buy the option contract.
Example: If a Nifty 20000 Call is trading at ₹150, that ₹150 is the premium.
Strike Price: The pre-decided price at which the option can be exercised.
Expiry Date: The last date on which the option contract is valid.
In-the-Money (ITM): Option that already has intrinsic value.
Example: Nifty at 20000 → 19500 Call is ITM.
Out-of-the-Money (OTM): Option that has no intrinsic value (only time value).
Example: Nifty at 20000 → 21000 Call is OTM.
At-the-Money (ATM): Option strike price is closest to current market price.
Lot Size: Options are traded in predefined lot sizes, not single shares.
Example: Bank Nifty option lot size = 15 units (as per 2025 rules).
Option Chain: A tabular representation showing available strikes, premiums, open interest, etc. for calls and puts.
