There are many investors who have been investing in the cash segment of market but are still unaware of the term Nifty options and what is meant by the Nifty Call and Put options.
In this article let’s take a detailed look at:
- What are Nifty Options?
- What are the different types of Options?
- What is meant by Nifty Call & Put Option?
- What are weekly and monthly Call and Put options?
- What are In-the-money (ITM) and Out-of-the-money (OTM) call options?
Introduction
There are many investors who have been investing in the cash segment of the market but are still unaware of the term Nifty options and what is meant by the Nifty Call and Put options. In this article, we’ll explore what is Nifty Call and Put option, how they work, their different types, and when they are considered profitable.
We’ll also go through key strategies, terms like open interest and time decay, and how professional traders use these tools to manage risk and maximise returns.
What are Nifty Options?
Options are derivatives based on the value of underlying securities such as an index or stocks.
Depending on the type of \”option\” that a person holds, the contract offers the person the opportunity to buy or sell. Options are used by traders for speculation or hedging.
Before understanding what is Nifty Call and Put option, let’s clarify the basics:
- Call Option: A financial contract that gives the buyer the right to buy the underlying asset (e.g., Nifty index) at a specific price (strike price) within a specified time.
- Put Option: A contract that gives the buyer the right to sell the underlying asset at a predetermined strike price before expiry.
These are the two pillars of options trading, and understanding them is essential for anyone interested in what is Nifty Call Put option or what is Call and Put in Bank Nifty.
Difference Between Call and Put Options
| Parameters | Call Option | Put Option |
| Right to | Buy the underlying asset | Sell the underlying asset |
| Used when | Market is expected to rise | Market is expected to fall |
| Profit when | Market price > Strike price | Market price < Strike price |
| Buyer obligation | No obligation to buy | No obligation to sell |
| Seller obligation | Must sell if buyer exercises the option | Must buy if buyer exercises the option |
| Premium paid | Yes | Yes |
| Maximum Loss | Limited to premium paid | Limited to premium paid |
| Potential Gain | Unlimited | Limited (to strike price) |
What are the different types of Options?
There are two types of Options known as Call options and Put options. While Call options simply means the right to buy, Put options means the right to sell an underlying asset (stock or index options) at a price agreed upon with an expiry date for that particular contract.
By choosing a Call option the buyer gets an option to “BUY” the underlying asset at a price agreed upon with an expiry date for that particular contract. In such a case the buyer is confident that price of the underlying asset will increase.
Similarly, a Put option gives the buyer an option to “SELL” the underlying asset at a price agreed upon with an expiry date for that particular contract. In this case the person who purchases the Put option is confident that the price of the underlying asset is likely to fall and hence is betting on the same.
Let’s understand the above with the help of some real examples:
Below is the Call option snapshot of Reliance Industries Ltd. for a contract expiring on 27th May 2021. The current market price of the stock is Rs. 1946.
As you can see from the above image, for a strike price of Rs. 2100, the buyer of a Call option would have to pay Rs. 25.90 x 250 shares (Lot size of RIL) = Rs.6475. Basically, what this means is the buyer of this particular Call option is confident that the stock price of Reliance Industries will increase in the month of May.
Similarly, in the above image one can see that for a strike price of Rs. 2200 the buyer of call option would have to pay Rs. 12.75 x 250 share (Lot size of RIL) = Rs. 3187.50. In this case the buyer of this particular Call option is positive that the stock of Reliance Industries will go up to Rs. 2200.
Now, let’s take a look at the Put option snapshot of Reliance Industries Ltd. for a contract expiring on 27th May 2021.
For a strike price of Rs. 1900, the buyer of a Put option would have to pay Rs. 99.50 x 250 shares (lot size of RIL) = 24875. In this case the buyer of this particular Put option is positive that the stock price of Reliance Industries Ltd. will fall to Rs. 1900.
Similarly, in the above image one can see that for a strike price of Rs. 1800 the buyer of Put option would have to pay Rs. 170 x 250 share (Lot size of RIL) = Rs.42500. In this case the buyer of this particular Call option is positive that the stock of Reliance Industries Ltd. will decrease further to Rs. 1800.
In both the above cases, as and when the stock price starts moving towards the strike price, the buyers of Call or Put option start making profits.
What are weekly and monthly Call and Put options?
Weekly options refer to those Call and Put options which expire every week while monthly options refer to those Call and Put options that expire on the last Thursday of the month.
Real-World Example of Call Option
If Nifty is currently at 18,500 and you buy a Call Option with a strike price of 18,700 for ₹50, and the index rises to 18,900 before expiry:
Profit = (18,900 – 18,700) – ₹50 premium = ₹150 net gain (excluding taxes and brokerage).
The more the index moves in your favour, the higher your returns.
Real-world Example of Put Option
Suppose Nifty is at 18,500. You buy a Put Option at a strike price of 18,400 for a premium of ₹40. If the index falls to 18,200:
Profit = (18,400 – 18,200) – ₹40 = ₹160 net gain (excluding costs).
Put options are especially useful for hedging during bear markets.
What are In-the-money (ITM) and Out-of-the-money (OTM) call options?
In-the-money (ITM) call options refer to those call options where the market price is more than the strike price. The Out of the money (OTM) call options refer to those call options where the market price is less than the strike price.
Key Takeaways
- Call and Put options are financial contracts that give the holder rights to buy and sell respectively, an underlying asset at a strike price on a future date.
- When the price of the underlying asset increases in the market, a call option becomes premium.
- The market price of the call option (premium) is determined on the basis of the difference between the spot and strike price of the underlying asset and the duration until the option expires.
Key Option Trading Concepts
Open Interest
Open interest refers to the total number of outstanding option contracts. It reflects market activity and liquidity.
Time Decay (Theta)
The value of options erodes with time. Weekly options experience faster time decay than monthly options.
Implied Volatility (IV)
Higher IV means higher option premiums. It reflects expected market movement.
Break-even Point
- Call Option: Strike price + Premium paid
- Put Option: Strike price – Premium paid
Closing thoughts
Traders use both put and call options as a part of their trading/ hedging strategies. While a call option gives a person the right to buy an underlying asset at a strike price on a future date the put option gives the trader the right to sell an underlying asset at a strike price on a future date.
However, in reality very few traders are able to consistently able to generate profits. Besides, it is practically very difficult to create sustainable wealth over the long term.
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Key Takeaways from Nifty Call and Put Options
Understanding what is Nifty Call and Put option is essential for traders looking to make short- or medium-term bets on market direction. While call options are bullish in nature, put options help benefit from falling markets. With weekly and monthly variants available, and classifications like ITM and OTM, traders can choose contracts based on time horizon, risk tolerance, and market view.
Options, when used wisely, can serve as powerful tools for hedging and speculation. However, they require deep understanding and practice. Start with paper trading before moving to real capital.
Read more: About Research and Ranking.
FAQ
What is the difference between a Call and Put option?
Call gives the right to buy, while Put gives the right to sell the underlying asset.
How do I calculate the profit from Call and Put options?
Profit = (Difference between Strike Price and Spot Price) − Premium paid.
What are In-the-money and Out-of-the-money options?
ITM options have intrinsic value; OTM options do not. For call options, ITM is when spot price > strike price; for puts, ITM is when strike price > spot price.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
