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.
What a dreaded concept explained so lucidly .Only “The Zerodha” team can make it happen .
Happy learning Tarun!
Hands down the best video I’ve seen on Options. Looking forward to learning more from this series. Kudos to the Zerodha Team!!!
Thanks! I hope you continue to like the other videos we will release shortly.
Thank you Kathik sir…
For the wonderful work…
U really are making a great work..
Happy learning 🙂
Killing it as always 🙂
Excited for the next videos…
Glad you liked it, will release the video soon 🙂
Thank u very much Karthik sir for the video lectures.
Happy learning!
Looking fwd to more videos on this series
Next week 🙂
Karthik sir and team zerodha ..we can’t thank you enough …keep educating us ..
Happy learning 🙂
Hi Team, Kindly share the links for all the videos posted so far. also, when will we have continued video for this one?
Regards
AS
Ashish, you can check these videos on youtube (Varsity channel) of in the relevant module page. We have put up nearly 40-45 vidoes. Options, we have put up only 1 so far.
Great work!!! I would really appreciate Karthik & Team.
It entire series was really helpful to learn the stock market options.
I would suggest can you make some series for stock market psychology related series because most of the retailer are not focus on the stock market psychology. But the human phycology place major role in stock market. I hope you will make in future.
Thanks,
Eghambaram
Please check this – https://zerodha.com/varsity/module/innerworth/
On tradingview of zerodha when will drag and drop function come ?
Not sure, Aditya.
Thank you very much sir
Happy learning!
best video so far , please upload other videos soon , waiting keenly .
Will upload the 2nd video sometime this week.
Great, I was waiting for this video. Very simple and easily understandable. Basic concept is very clear. Let me explore further.
Happy learning!
sir next video release date?
Hopefully today or t’row.
Where is the rest of video series, it says unavailable on youtube and on this Varsity portal, I can only see 1st Video of the whole series
We are trying to put up at least 1 video per week. 2nd one went live y’day.
Dear Karthik,
I am in process of upgrading my knowledge/skills set to do my stock trading more professional way,I have been learning from your tutorials VDO,I must appreciate your teaching styles,I am looking forward for the more communication if possible,My WhatsApp number is 9981540667,You may share yours as I looking you as mentor/guide,rgds
Happy learning, Rajesh. I’m available on this forum and will be happy to help you with any queries that you may have. Please don’t hesitate to post that here.
Very good explanation
Thank you sir for nice explanation.
When we will able to get other videos.
3rd video will be up this week I guess.
Wonderful explanation
Happy learning!
Powerful people makes places more Poweful! #Zerodha
Wonderful knowledge sharing. Thank you whole team.
Happy learning!
Do the varsity mobile and web apps has the same content ?
Yes, thats correct.
Explained very well. Makes it easy for a novice like me.
Glad you liked it, happy learning 🙂
I have a question. I will be glad if you could answer that.
As per varsity lectures on OPTIONS, I found 2 things which contradicts each other. Please clarify that if possible.
(Taking CALL OPTION as example)
1. Option buyer will exercise his right only if the price of underlying crosses the strike + premium.
2. Pay off charts (for option sellers) show that premiums keep going down by the amount of IV and will start incurring losses after breakeven.
My question is –
If buyer exercises right only after price crosses strike+ premium, THEN HOW COME OPTION SELLER WOULD LOSE PREMIUM TILL BREAKEVEN???
I hope I am able to frame my query properly.
Kindly solve my query sir.
Thanks & Regards
ASHISH JAIN
Ashish, at breakeven neither buyer or seller makes money as the P&L is 0 for both. By the way, exercising the option is at expiry.
First of all, thank you for the reply. But this was not I wanted to ask. So I will reframe my question with example –
150CE bought for 10 premium
It expires at 155 (ie ABOVE STRIKE BUT BELOW BREAKEVEN).
1. In this case, what will happen at expiry?
2. Pay off chart of seller will show 5 profit. BUT WHY Rs. 5 and not 10?? Because option will be exercised ONLY WHEN PRICE CROSSES OVER BREAKEVEN??? So seller will be having whole 10/- as premium profit
This is my query sir.
1) Technically its ITM, but sometimes these ITM options that are close to strikes (also called CTM) are not worth exercising as the cost involved does not make sense. So if its CTM, the brokers wont exercise the option.
2) Exercise will happen at the intrinsic value. In this case it is 5, hence the same price is considered for exercising the option.
Ok sir. Got some clarity by your answer.
But IF YOU CONSIDER MY GIVEN EXAMPLE OF 150 CE AT 10 AND EXPIRY AT 155, in this case, Is this option exercisable??
If yes, why??
If not, WHAT WILL BE THE PROFIT FOR SELLER???
Thanks for your valuable time and quick feedback
Technically yes, this is exercisable since it’s 5 Rupee in the money. Your P&L will be 5*lot size * the number of lots you hold.
super
Thank you very much kartik sir your method of explanation really amazing ⚡
Happy learning, AMit!
Wonderfully explained so as to be easily understood! This directional thought process showcased in this one video has convinced me that Zerodha is the place to learn about any of the covered concepts and analyses. Thank you!
Thanks, and I’m really glad you liked the content on Varsity. Happy learning 🙂
wonderfully explained. thank you so much
Happy learning!
So smooth and easy to understand. Pls release other videos asap
We have already put up many videos, Raj. Do check.
This is how we used to deal in property (real estate) in Punjab. The buyer gives a Bayana for buying a property. He generally gets 3 months’ time to complete the deal. If he cannot, the Bayana is forfeited. Only difference is, if he wants to complete the deal, the Bayana is treated as advance payment, adjusted from the total price, agreed on 3 months before..
Interesting to note that, Anil. In this case, it is not adjusted 🙂
Please make more videos on options and options strategies im more than willing to learn and earn…
Will try and put that up. Btw, we have quite a few videos on options, you should check them.
Thank you for the video, it was extremely easy to comprehend, Wanted to know that when can we expect the videos on the option strategy modules?
Will do soon, Raghav.
Until i buy something there can not be a seller.Then does it mean i am producing a seller.Before i exist on the platform how can someone sell it or even exist.please explain this concept.
What does it mean when u say the market “rallies” ?
Price increase or decrease is known as a rally 🙂
An easy explanatin
This is much expensive course, how can someone make it free of cost , but Thanks
This is free of cost; there is no charge to read the content on Varsity.
I have been looking for such explanation… 🙂
I hope you like the content, Prerna. Happy learning 🙂
Hello Sir,
what an explaination sir, understood very clearly.
i simply lost my money by paid to one of the institution.
I would have done this before.
thank you once again sir.
Better late than never, Chaitra. Happy learning 🙂
Nice video sir 👍
Happy learning!
Nice video, thanks you zerodha team.
Happy learning!
I have a confusion on the concept of Premium in Options:
As discussed in the example of the land sale, the buyer gives the non refundable advance of 5 lacs for buying the 50 lac worth land after 6 month.
my question here is after 6 months is the land value is still 50 lacs, the i have to pay 45 lacs as i Have paid already 5 lacs, righ or wrong?
But in option if i buy a call @ a stike price of 100 and pay 2 rupees as preminum, 2 ruppes is added to 100 and it is not considered as 98 is the price that i need to pay to seller at the expiry.
what is the difference between the advance and premium. what is the raional of paying premium.
Harsha, I’ve explained various scenarios under which the price of land changes and therefore its impact on the overall pricing. Also, if the land price is still 50L, then it does not make sense to buy, given that you will have to spend 55L (remember 5L is a non-refundable amount).
About options – I’m not sure if you got the understanding right. I’d suggest you read the subsequent chapters to get some more clarity.
Thank you for explaining this to a novice.
Happy learning, Sunil!
Started learning options…..
Great explanation Kartik sir
Happy leanring 🙂
After watching tons of videos finally i found the best one
Glad you did, happy learning 🙂
Wonderful class
Happy learning!
I am going through the classes
Sure, happy learning 🙂
Sir hindi m video nhi h
Yes
Well explained the basics with example.
Hi, I am new to share market. I have a question.if I want to tread in operation treding how much minimum amount should be in zerodha demate account ?
There is no minimum amount as such, Archana.
It requires lot of hard work to simplify things and explain in simple language.
Thank you for this
Happy learning, Keyur!
Hi Karthik,
Have you covered intraday option trading in Varsity? Please confirm
Not intrday specifically.
want to ask that why the option selling is more expensive than the option buying
Selling requires margins thats why.
Perfect vedios series for any person to get overview on options
Happy learning, Darshan.
Good