WHAT IS CALL OPTION & PUT OPTION ?

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OPTION:- Call option and Put option are the two main types of options available in the derivatives market. A Call option is used when you expect the prices to increase/rise. A Put option is used when you expect the prices to decrease/fall. Options are derivative contracts which have no value of their own and derive their value from the value of the underlying asset. The underlying asset can be shares, currencies, commodities etc. An options contract gives the buyer the right but not the obligation to buy or sell the underlying asset within a specified date (known as the expiration date) and at a specific price (known as the strike price). In options, the buyer of the option has the right of exercising the option or cancelling it. The loss for the option buyer is limited to the premium paid. 

TYPE OF OPTION
1- CALL OPTION
2- PUT OPTION

CALL OPTION-A call option gives the buyer the right but not the obligation to buy the underlying asset at a particular price (strike price) on or before the expiration date. 

PUT OPTION - A put option gives the buyer the right but not the obligation to sell the underlying asset at a particular price (strike price) on or before the expiration date. 

Basic terms relating to call and put options👇

1.       Strike Price: Strike price is the price at which buyers and sellers decide to buy or sell the underlying asset after a specified period. 

2.   Spot Price: Spot price is the current price of the underlying asset in the stock market.  

3.   Option Expiry: Options contracts expire on the last Thursday of the month. 

4.   Option Premium: Option premium is the non-refundable amount paid upfront by the option buyer to the option seller (also known as option writer). 

5.   Settlement: Option contracts are cash settled in India.

What is the Difference Between Call Option & Put Option?

Parameters Call Option Put Option Meaning Call option gives the buyer the right but not the obligation to Buy Put option gives the buyer the right but not the obligation to sell Investor’s expectation A call option buyer believes the stock prices will rise / increase A put option buyer believes the stock prices will fall / decrease Gains  For a call option buyer, the gains are unlimited.  For a put option buyer, the gains are limited as the stock prices will not become zero.  Loss For a call option buyer, the loss is limited to the premium paid.  For a put option seller,  maximum loss is strike price minus premium Reaction to dividend Calls lose value as the dividend date nears.  Puts increase in value close to the dividend dates.