1.1 – Breaking the Ice
The options market makes up for a significant part of the derivative market, particularly India. I will not be exaggerating if I say that nearly 80% of the derivatives traded are options, and the rest is attributable to the futures market.
We will learn more about options in this video.
In the following video, we will learn about some option jargon.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Options are traded in the Indian markets for over 15 years, but the real liquidity was available only since 2006
- An Option is a tool for protecting your position and reducing risk
- A buyer of the call option has the right, and the seller must make delivery
- The Optionhttps://zerodha.com/varsity/chapter/call-option-basics/ is only given to one party in the transaction (the buyer of a vote)
- The option seller is also called the option writer
- At the time of the agreement, the option buyer pays a certain amount to the option seller; this is called the ‘Premium’ amount
- The deal happens at a pre-specified price, often called the ‘Strike Price.’
- The option buyer benefits only if the asset’s cost increases higher than the strike price.
- If the asset price stays at or below the strike, the buyer does not benefit; for this reason, it always makes sense to buy options when you expect the price to increase.
- Statistically, the option seller has a higher odds of winning in a typical option contract.
- The directional view must pan out before the expiry date; otherwise, the Option will expire worthlessly.