Part 3 Institutional Trading

How Option Trading Works

Option trading involves two participants — the buyer and the seller (writer).

A buyer pays a premium to gain the right to trade.

A seller receives the premium but must fulfill the obligation if the buyer exercises the option.
For example, if you buy a Call Option for a stock at ₹100 with a premium of ₹5, and the stock rises to ₹120, you can buy it at ₹100 and make a profit (₹15 net after premium). If the stock stays below ₹100, you simply let the option expire, losing only the ₹5 premium.