Part 1 Ride The Big MovesIntroduction to Options
In the world of financial markets, people look for different ways to make money, reduce risk, or take positions on where they think markets are headed. Apart from buying and selling stocks directly, one of the most powerful tools available is options trading.
Options are a type of derivative contract. This means their value is derived from an underlying asset like a stock, index, currency, or commodity. They give traders and investors flexibility because they can be used for speculation (betting on price movements), hedging (protecting against risks), or even for generating steady income.
Unlike stocks where ownership is straightforward (you buy a share, you own part of the company), options are contracts with special terms, conditions, and expiry dates. This makes them more complex but also more versatile.
For example: If you believe a stock price will rise in the next month, you don’t necessarily need to buy the stock. Instead, you can buy a call option, which gives you the right to buy that stock at a certain price later. Similarly, if you think the stock will fall, you can buy a put option, which gives you the right to sell at a certain price.
This flexibility makes options attractive to professional traders, institutions, and even retail traders who want to manage risk or boost returns.
But with power comes responsibility—options can be risky if not understood properly. That’s why it’s important to study them in depth.
Types of Options (Call & Put)
Call Option (Bullish bet):
If you expect the stock price to go up, you buy a call. Example: Reliance stock is ₹2,500. You buy a call option with strike price ₹2,600. If stock rises above ₹2,600, your option gains value.
Put Option (Bearish bet):
If you expect the stock price to fall, you buy a put. Example: Infosys stock is ₹1,500. You buy a put option with strike price ₹1,400. If stock falls below ₹1,400, your option gains value.
Both call and put can be bought or sold (written). Selling options means you take on obligations, which is riskier but gives you upfront premium income.
