What Are
Options?
Start here. Options sound complex but rest on one simple idea: paying a small premium for the right — not the obligation — to buy or sell at a fixed price. Here's the whole foundation in plain English.
The one-line definition
An option is a contract that gives its buyer the right, but not the obligation, to buy or sell an underlying (an index like NIFTY, or a stock) at a fixed strike price up to a set expiry date. The buyer pays a premium for this right; the seller (writer) collects the premium and takes on the obligation.
Calls vs puts
- A call gives the right to buy at the strike — it profits when the underlying rises.
- A put gives the right to sell at the strike — it profits when the underlying falls.
Buyer vs seller
- Buyer (holder): pays the premium, has limited risk (the premium) and large potential upside. Needs a move to profit.
- Seller (writer): receives the premium, profits if the option expires worthless, but takes on larger (sometimes open-ended) risk. Time decay works in their favour.
The key terms
- Strike price — the fixed price the option can be exercised at.
- Premium — the price of the option (intrinsic + time value).
- Expiry — when the contract ends (NIFTY weekly; stocks & commodities monthly).
- Moneyness (ITM/ATM/OTM) — where the strike sits vs spot.
- Lot size — options trade in fixed lots, not single units.
Why traders use options
- Leverage: control a large position for a small premium.
- Hedging: protect a holding (e.g. buy puts as insurance).
- Income: sell options to collect premium and time decay.
- Defined risk: a bought option can't lose more than its premium.
The risks
Bought options lose value to time decay and falling implied volatility, and can expire worthless. Sold options can carry large risk. Options reward understanding — start with the basics here before trading.
See a real option chain
Put these terms to work on TradePulse's live NIFTY option chain — strikes, premiums, OI and more.