Part 10 Trading Masterclass With Experts

Types of Options

There are two fundamental types of options:

(a) Call Option

A call option gives the buyer the right to buy the underlying asset at a fixed strike price before or on expiration.

Buyers of calls expect the price to rise.

Sellers of calls expect the price to stay flat or fall.

Example:
Suppose you buy a call option on TCS with a strike price of ₹3,500, expiring in one month. If TCS rises to ₹3,800, you can exercise the option and buy at ₹3,500, making a profit. If TCS stays below ₹3,500, you lose only the premium.

(b) Put Option

A put option gives the buyer the right to sell the underlying asset at the strike price before or on expiration.

Buyers of puts expect the price to fall.

Sellers of puts expect the price to rise or stay stable.

Example:
You buy a put option on Infosys with a strike of ₹1,500. If Infosys drops to ₹1,200, you can sell at ₹1,500 and earn profit. If Infosys stays above ₹1,500, you lose only the premium.

The Four Basic Positions

Every option trade can be boiled down to four core positions:

Long Call – Buying a call (bullish).

Short Call – Selling a call (bearish/neutral).

Long Put – Buying a put (bearish).

Short Put – Selling a put (bullish/neutral).

All advanced strategies are combinations of these four.