Options give you the right (not obligation) to buy or sell an asset at a predetermined price within a specific time.
| Term | Definition |
|---|
| Call Option (CE) | Right to BUY at strike price |
| Put Option (PE) | Right to SELL at strike price |
| Strike Price | The predetermined price |
| Premium | Price paid for the option |
| Expiry | Date the option expires |
| Lot Size | Minimum quantity (Nifty = 25) |
- ITM (In The Money): Has intrinsic value
- Call: Spot > Strike | Put: Spot < Strike
- ATM (At The Money): Strike โ Spot price
- OTM (Out of The Money): No intrinsic value
- Call: Spot < Strike | Put: Spot > Strike
Option Premium = Intrinsic Value + Time Value
Intrinsic Value = |Spot - Strike| (if ITM, else 0)
Time Value = Premium - Intrinsic Value
| Greek | Measures | Impact |
|---|
| Delta (ฮ) | Price sensitivity | How much premium moves per โน1 spot move |
| Theta (ฮ) | Time decay | Premium lost per day (enemy of buyers) |
| Vega (ฮฝ) | Volatility sensitivity | Premium change per 1% IV change |
| Gamma (ฮ) | Rate of delta change | How fast delta changes |
- Long Call: Buy CE when bullish (limited risk = premium paid)
- Long Put: Buy PE when bearish (limited risk = premium paid)
- Covered Call: Own stock + Sell OTM CE (income strategy)
- Nifty/BankNifty options expire weekly (Thursday)
- Stock options expire monthly (last Thursday)
- Margin required for selling options (SPAN + Exposure)
- Options become 0 if OTM at expiry โ max loss = premium paid (for buyers)