What it means
Options are powerful and complex: their price depends on the underlying price, time and volatility. Entrix Academy only touches on them.
In practice
Buying a call is a way to profit from a rise, and buying a put from a fall, with the loss limited to the price paid for the option. Investors also buy puts as insurance on shares they own and sell calls to earn income on them.
Even traders who never touch options watch them, because very large options positions can affect how the underlying index behaves around certain prices and on expiry days.
What to watch for
An option loses value every day that passes, so you can be right about direction and still lose money if the move comes too late or is too small. Selling options has the opposite problem: small steady gains with the risk of a very large loss.
Related terms
4 terms- Futures contractA standardised agreement to buy or sell something at a set price on a future date, traded on an exchange.
- LeverageControlling a position larger than your cash; it magnifies gains and losses equally.
- Option chainA table of every available option on one asset for one expiry, with calls on one side, puts on the other and strike prices down the middle.
- CE and PEThe labels for call options (CE) and put options (PE) on Indian exchanges; the E stands for European.