Part 6 Learn Institutional Trading

Call & Put Options Explained

At the heart of option trading are two instruments: Calls and Puts.

Call Option: Gives the buyer the right (not obligation) to buy the asset at the strike price.

Buyers expect prices to rise.

Sellers (writers) expect prices to stay flat or fall.

Put Option: Gives the buyer the right (not obligation) to sell the asset at the strike price.

Buyers expect prices to fall.

Sellers expect prices to stay flat or rise.

📌 Example:
If Reliance stock trades at ₹2500:

A ₹2600 call may cost ₹50 premium. If the stock rises to ₹2700, profit = (2700-2600-50) = ₹50 per share.

A ₹2400 put may cost ₹40. If stock falls to ₹2200, profit = (2400-2200-40) = ₹160 per share.

Key Concepts

Intrinsic Value: Real profit if exercised immediately.

Time Value: Premium paid for potential future movement.

In-the-Money (ITM): Option already profitable if exercised.

Out-of-the-Money (OTM): Option has no intrinsic value, only time value.

At-the-Money (ATM): Strike = current market price.