Part 1 Trading Master Class

Introduction to Options Trading

Imagine you want to buy a house. You like one particular property, but you don’t want to commit right away. Instead, you tell the seller:
"Here’s ₹1 lakh. Keep this house reserved for me for the next 6 months. If I decide to buy, I’ll pay you the agreed price. If not, you can keep this ₹1 lakh."

That ₹1 lakh you gave is called a premium. The deal you made is an option — a contract that gives you the right but not the obligation to buy the house.

This is the core idea of options trading: you pay a small premium to get the right to buy or sell something (like stocks, indexes, commodities, etc.) at a fixed price in the future.

What is an Option?

An option is a contract between two parties:

Buyer of option (the one who pays the premium).

Seller of option (the one who receives the premium).

The buyer has the right (but not obligation) to buy or sell at a certain price. The seller has the obligation to fulfill the deal if the buyer exercises the option.

Key Terms:

Underlying Asset → The thing on which the option is based (stocks like Reliance, Infosys, indexes like Nifty, commodities, etc.).

Strike Price → The pre-decided price at which the buyer can buy or sell.

Premium → The cost of buying the option.

Expiry → The last date till which the option is valid.

Lot Size → Options are traded in fixed quantities, not single shares. Example: Nifty options lot = 50 shares.