Put and Call are the term used in Option trading. Option trading is the buying and selling of stock options of a company.
Options trading is trading of option contracts of underlying stock or index. An option contract gives the trader the right (not obligation) to buy or sell a stock or index at a specific price on or before a specific date.
After the specified date, this contract will not exist.
Put Option
Put Option is a type of contract which allows a trader the right to sell a stock or index at a particular price also known as the Strike Price on or before the expiry date.
Buying a Put Option
A put option is bought when the trader is expecting a fall in the stock price.
Call Option
Call Option is a type of contract which allows a trader the right to buy a stock or index at a particular price also known as the Strike Price on or before the expiry date.
Buying a Call Option
A Call option is bought when the trader is expecting a rise in the stock price.
Option Trading Example :
Lets say that the value of Nifty is 4500
If a trader feels that the Nifty may go up to 4800. He may buy the "Call Option" with strike price of 4600 at a value of Rs. 30/- for one. Currently the lot size of Nifty is 50, so the buyer has to buy a contract of 50 numbers. Means, he has to spend Rs 30 x 50 = Rs. 1,500/- for this contract.
If the market moves as anticipated and Nifty has a value of 4900 on the expiry date.
This contract gives him a profit of Rs. 300 per share.
The whole contract gives him profit of : Rs. 300 x 50 shares = Rs. 15,000
So his final profit value will be : Rs. 15,000 - Rs. 1,500 = Rs. 13,500/-
In the above example this trader risked Rs. 1,500 and made Rs. 13,500/-
Now if the market falls and the value of Nifty is Rs. 4300 on expiry date. Then he will only loose the contract value only (Rs. 1,500).
Caution : Proper knowledge about Options trading is must before you actually start to trade options. The risk of loosing money is very high in derivatives trading.
Options trading is trading of option contracts of underlying stock or index. An option contract gives the trader the right (not obligation) to buy or sell a stock or index at a specific price on or before a specific date.
After the specified date, this contract will not exist.
Put Option
Put Option is a type of contract which allows a trader the right to sell a stock or index at a particular price also known as the Strike Price on or before the expiry date.
Buying a Put Option
A put option is bought when the trader is expecting a fall in the stock price.
Call Option
Call Option is a type of contract which allows a trader the right to buy a stock or index at a particular price also known as the Strike Price on or before the expiry date.
Buying a Call Option
A Call option is bought when the trader is expecting a rise in the stock price.
Option Trading Example :
Lets say that the value of Nifty is 4500
If a trader feels that the Nifty may go up to 4800. He may buy the "Call Option" with strike price of 4600 at a value of Rs. 30/- for one. Currently the lot size of Nifty is 50, so the buyer has to buy a contract of 50 numbers. Means, he has to spend Rs 30 x 50 = Rs. 1,500/- for this contract.
If the market moves as anticipated and Nifty has a value of 4900 on the expiry date.
This contract gives him a profit of Rs. 300 per share.
The whole contract gives him profit of : Rs. 300 x 50 shares = Rs. 15,000
So his final profit value will be : Rs. 15,000 - Rs. 1,500 = Rs. 13,500/-
In the above example this trader risked Rs. 1,500 and made Rs. 13,500/-
Now if the market falls and the value of Nifty is Rs. 4300 on expiry date. Then he will only loose the contract value only (Rs. 1,500).
Caution : Proper knowledge about Options trading is must before you actually start to trade options. The risk of loosing money is very high in derivatives trading.
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