Futures & options
What is Options (call and put)?
Also called: Call option, Put option, CE, PE
Hinglish mein padhein: Options (call aur put) kya hote hain?
An option gives the buyer the right, but not the obligation, to buy (call) or sell (put) at a strike price before expiry. The seller takes the obligation.
Buyers pay a premium and can lose at most that premium. Sellers collect the premium but face large potential losses and must post margin.
Option prices depend on the underlying price, strike, time to expiry and implied volatility.
Related terms
- Strike priceThe strike price is the fixed price at which an option can be exercised. Options are in, at or out of the money depending on where the market is.
- Option premiumThe premium is the price of an option. It is made of intrinsic value (how much it is in the money) plus time value.
- Implied volatility (IV)Implied volatility is the market's expectation of future volatility, backed out from option prices. High IV means expensive options.
- ExpiryExpiry is the last day an F&O contract trades. After that, open contracts are settled and cease to exist.
- Open interestOpen interest is the number of outstanding F&O contracts not yet closed. Rising OI with rising prices suggests fresh long positions.