Options basics
Calls, puts, strikes, premium, expiry and lots, explained with Nifty examples, plus how option buyers and sellers make and lose money.
1. Calls and puts
An option is a contract that gives the buyer a right, not an obligation, to buy or sell an underlying asset at a fixed price (the strike) on expiry.
- A call (CE) gains value when the underlying rises above the strike.
- A put (PE) gains value when the underlying falls below the strike.
- The buyer pays a premium to the seller (writer) for this right.
Nifty and Bank Nifty options are European style and cash settled: they can only be exercised at expiry, and no shares change hands. You receive or pay the difference in cash.
2. Strikes, moneyness and lots
| Term | Call | Put |
|---|---|---|
| In the money (ITM) | Strike below spot | Strike above spot |
| At the money (ATM) | Strike nearest spot | Strike nearest spot |
| Out of the money (OTM) | Strike above spot | Strike below spot |
Options trade in lots. Your profit or loss per point is the lot size. NSE revises lot sizes periodically, so always check the current lot size before trading; ExpertView's expiry calendar shows it.
Nifty strikes are 50 points apart; Bank Nifty strikes are 100 points apart.
3. What a premium is made of
Premium = intrinsic value + time value.
- Intrinsic value is what the option would be worth at expiry if the price stayed where it is. A 25,000 call with Nifty at 25,120 has 120 points of intrinsic value.
- Time value is everything else: the price of the chance that the option becomes more valuable before expiry. It depends on days left and on implied volatility.
- OTM options are pure time value. At expiry, their time value becomes zero.
4. Expiry
Every option has an expiry date. On NSE, Nifty has weekly expiries and Bank Nifty has monthly expiries; the weekday is set by the exchange and moves if it falls on a holiday.
Time value decays faster as expiry approaches. That is why many option buyers see a correct view still lose money: the move came too slowly.
ExpertView's expiry calendar lists upcoming Nifty and Bank Nifty expiries with holiday shifts.
5. Buyers vs sellers: payoffs and risk
| Position | Maximum profit | Maximum loss |
|---|---|---|
| Buy call | Unlimited | Premium paid |
| Buy put | Large (to zero) | Premium paid |
| Sell call | Premium received | Unlimited |
| Sell put | Premium received | Large |
Buyers need a move large enough, and soon enough, to beat the premium. Sellers collect premium but carry large or unlimited risk and must post margin, which is far larger than the premium.
Your breakeven at expiry for a bought call is strike + premium; for a bought put, strike − premium.
SEBI studies found that about 9 in 10 individual F&O traders lost money. Learn with the payoff calculator and paper trading before risking capital.
Key takeaways
- Calls gain when the underlying rises; puts gain when it falls.
- Premium = intrinsic value + time value; time value falls to zero at expiry.
- Index options on NSE are European and cash settled; check lot sizes and expiry days before trading.
- Buyers have limited risk but need a timely move; sellers have limited reward and large risk.
Try it on ExpertView: Draw the payoff of any option position →
From ExpertView's free courses at expertview.in/learn. For study and educational use. Not investment advice. Rules, lot sizes, taxes and timings change; check the latest from NSE, MCX, SEBI and the Income Tax Department.