Basic Concepts of Options Trading

What Are Options?

An option is a financial derivative contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset—such as a stock, index, or commodity—at a predetermined price (called the strike price) on or before a specified date (the expiry date).

Options are of two main types:

Call Option: Gives the holder the right to buy the underlying asset at the strike price.

Put Option: Gives the holder the right to sell the underlying asset at the strike price.

Each option contract typically represents 100 shares of the underlying stock in many markets (such as the U.S.), but in the Indian derivatives market (NSE/BSE), the lot size varies for different stocks and indices.