When diving into the world of derivatives trading in India, you’ll frequently encounter two crucial terms: call options and put options. If you’ve ever wondered what is call and put in share market, this article breaks it down for you in a simple and practical way.
What Are Options?
Options are financial contracts that give you the right, but not the obligation, to buy or sell an underlying asset—like a stock or index—at a predetermined price before a specific expiry date. In the Indian share market, options are commonly traded on platforms like the NSE and BSE, especially in the F&O (Futures and Options) segment.
What Is a Call Option?
A call option gives the buyer the right to buy an asset at a specified price (called the strike price) within a set timeframe.
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If you expect the price of a stock to rise, you can buy a call option.
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For example, if you buy a Reliance call option with a strike price of ₹2,500 and the stock rises to ₹2,600 before expiry, you can make a profit by exercising the option or selling the contract.
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Your maximum loss is limited to the premium you paid to buy the option.
What Is a Put Option?
A put option gives the buyer the right to sell an asset at the strike price within a specific period.
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If you expect the price of a stock to fall, you can buy a put option.
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Suppose you buy an Infosys put option at ₹1,500 and the price drops to ₹1,400, you can benefit from the price drop.
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Again, the loss is limited to the premium paid.
Key Terms to Know
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Strike Price: The fixed price at which the asset can be bought/sold.
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Premium: The price you pay to purchase the option.
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Expiry: The date by which you must decide to exercise the option.
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In-the-Money (ITM): Option is profitable if exercised.
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Out-of-the-Money (OTM): Option is not profitable at current price.
How Do Traders Use Call and Put Options?
Options are used for:
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Hedging: Protecting your portfolio from potential losses.
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Speculation: Betting on market movement with limited risk.
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Income Generation: Selling options (writing) to earn premiums.
Risks and Rewards
Options can generate high returns with relatively low capital, but they also carry risks. Buying options has limited risk (premium paid), but selling or writing options can expose you to significant losses if not managed carefully.
Final Thoughts
Understanding what is call and put in share market is essential for any investor interested in derivatives. Whether you’re hedging risks or speculating on price movements, call and put options offer flexibility and strategic advantage. However, it’s crucial to learn the basics, start small, and consider using tools like Appreciate to track and manage your investments smartly.
