What is option trading? Call and put options, in plain language

Option trading is buying and selling contracts that give the right, but not the obligation, to buy (a call option) or sell (a put option) an index such as NIFTY at a fixed strike price on a fixed expiry date.

By the EzyOptions Team · Updated 2026-10-07

An option is a contract, not a share

An option gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a fixed price on a fixed date. In Indian markets the underlying is usually an index such as NIFTY or BANKNIFTY, or a listed stock. Every option on NSE and BSE, index or stock, is European style: the right can be exercised only on the expiry day, never before it. Nobody has to wait for expiry to get out, though; most positions are closed by selling the option back. Index options always settle in cash, because an index cannot be delivered; stock options that finish in the money settle by delivery of the shares.

Two numbers define the contract. The strike price is the level the right applies at. The expiry is the date the right ends. Everything an option is worth flows from where the underlying trades relative to that strike, and how much time is left.

Calls and puts

A call is the right to buy at the strike. Its value grows when the underlying rises. Buying a call is the simplest way to express "I think this goes up" with a known, capped cost.

A put is the right to sell at the strike. Its value grows when the underlying falls. Traders buy puts to profit from declines, or to protect holdings the way insurance protects a car.

For every buyer there is a seller (or writer) on the other side, who collects the premium up front and takes on the obligation the buyer holds as a right. Sellers post margin because their loss is not capped the way a buyer's is. That asymmetry, capped risk for buyers and capped reward for sellers, shapes almost every strategy built from options.

The premium: what you actually pay

The price of an option is its premium, quoted per unit and traded in lots. Index lots are fixed by the exchange, so a premium of 120 on a NIFTY option with a lot size of 65 costs 7,800 rupees for one lot.

The premium has exactly two parts:

• Intrinsic value: what the option would be worth if it expired right now. A call with a strike of 24,000 while NIFTY trades at 24,300 has 300 of intrinsic value. An option with no such edge has zero intrinsic value, never a negative one.
• Time value: everything above intrinsic. It is the price of possibility, what the market charges for the chance that the underlying moves further before expiry. Time value melts as expiry approaches, which is the decay that option sellers earn and buyers pay. The Greeks give this melt a name, Theta.

What is the breakeven of a call or a put?

The breakeven is the level the underlying must reach at expiry for a bought option to recover its premium, before charges. For a call it is the strike plus the premium; for a put, the strike minus the premium. A NIFTY 24,000 call bought at 120 breaks even at 24,120; a 24,000 put bought at 120 breaks even at 23,880.

Moneyness: ITM, ATM and OTM

Strikes are described by where they sit relative to the underlying. In the money (ITM) options have intrinsic value: calls below the market, puts above it. At the money (ATM) strikes sit nearest the current price, carry the most time value, and are where most of the trading happens. Out of the money (OTM) options are all time value: cheaper, and more likely to expire worthless.

Expiry in Indian markets

Since 20 November 2024 each exchange may list weekly options on one benchmark index only. On NSE that is NIFTY, whose weekly contracts expire every Tuesday and whose monthly contract expires on the last Tuesday of the month. On BSE it is SENSEX, expiring on Thursdays. The other NSE indices, BANKNIFTY, FINNIFTY and MIDCPNIFTY, list monthly contracts (BANKNIFTY quarterly ones as well), and stock options are monthly. If an expiry day is a trading holiday, the contract expires on the previous trading day.

On expiry day an option either finishes with intrinsic value and settles, or expires worthless. The closer expiry comes, the faster time value drains, and the more an option behaves like a bet on that single day's move.

NIFTY option contract facts (lot size in force from the January 2026 series): one lot is 65 units, weekly contracts expire on Tuesday (the previous trading day if that is a holiday), and index options are European style and settled in cash.

How often individual traders lose money

SEBI's study of individual traders in equity derivatives, published in August 2026, found that 87.7 percent of them made a net loss in FY 2025-26, down from 90.9 percent the year before, and that options trading accounted for 92 percent of individuals' aggregate losses. Learning how options behave before trading them is the point of these guides.

Where to see all of this at once

An option chain lays out every strike for one expiry: calls on one side, puts on the other, with premium, open interest and implied volatility per strike. It is the page this product opens on, and the guide to reading an option chain walks through open interest, PCR and Max Pain. The Greeks guide is the natural next step: it explains the four numbers that say how a premium will move before it does.

Call and put options: common questions

Educational content only: not investment advice. You are responsible for your own trading decisions.