Calls and Puts Homework Help

Calls and Puts

A call option is an option to purchase a specified number of shares on before a specified future date at stated strike price. The striking price is the price at which the holder of the option can buy the shares at any time prior to the expiration date of the option. It is set at near the prevailing market price of the shares at the time the option is issued.

put option is an option to sell a given number of shares on before a specified future date at a stated striking price. Like the call option, the striking price of the put is also set close to the market price of the underlying stock at the lime of the deal.

Options transactions are done on futures and options (F&O) segment of the NSE/BSE. The call put option contracts have one month. two months and three months expiry cycles. All contracts expire on the last Thursday of every month. Thus a January expiration contract would expire on the last Thursday of January. On the Friday following the last Thursday, a new contract having a 3 months expiry would be introduced for trading. Thus at any point of time, three contracts would be available for trading with the first contract expiring on the last Thursday of that month. The contract size is 100 or multiples thereof, minimum value being Rs 2,00,000. The minimum tick size for a contract is Rs 0.05. A single move in option trading would imply a rest gain loss of Rs 10 (i.e. Rs 0.05 x 200 units) on an open position of 200 units.

Call options are purchased in the expectation that the market price or the underlying shares will rise while put options are purchased in the expectation that the share price would decline over the life of the option. The logic underlying the purchase or a put is exactly the opposite or that underlying the use or call options.

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