Options
Options Basics: Calls, Puts and Premium
Understand what you are buying or selling before you trade an option.
7 min read · Kanira
What an option is
An option is a contract that gives the buyer the right — but not the obligation — to buy (call) or sell (put) an underlying asset at a specified price (strike) on or before a specified date (expiry). The buyer pays a premium to the seller for this right.
What moves an option’s premium
Premium is not only about direction. Several factors influence it:
- Price of the underlying relative to the strike (Delta)
- Time remaining to expiry — premium decays as expiry approaches (Theta)
- Implied volatility — expectations of future movement (Vega)
- Interest rates and dividends (smaller effect)
A word of caution
Options are leveraged instruments. Buying options can lose 100% of the premium; selling options can carry losses far larger than the premium received. Regulators in India have repeatedly highlighted that most individual traders in equity derivatives lose money. Learn thoroughly and practise in simulation before trading live.