Part 4 Trading Institution

How Options Work
Example of a Call Option
Suppose a stock is trading at ₹100. You buy a call option with a ₹110 strike price, expiring in 1 month, and pay a ₹5 premium.

If the stock rises to ₹120: Your profit is ₹120 - ₹110 = ₹10. Net gain = ₹10 - ₹5 = ₹5.

If the stock stays at ₹100: The option expires worthless. Your loss = ₹5 (premium).

Example of a Put Option
Suppose the same stock is ₹100, and you buy a put option with a ₹90 strike price for ₹5.

If the stock drops to ₹80: Your profit = ₹90 - ₹80 = ₹10. Net gain = ₹10 - ₹5 = ₹5.

If the stock stays above ₹90: The option expires worthless. Your loss = ₹5.