We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.


Key takeaways from this chapter

  1. Options are traded in the Indian markets for over 15 years, but the real liquidity was available only since 2006
  2. An Option is a tool for protecting your position and reducing risk
  3. A buyer of the call option has the right, and the seller must make delivery
  4. The Optionhttps://zerodha.com/varsity/chapter/call-option-basics/ is only given to one party in the transaction (the buyer of a vote)
  5. The option seller is also called the option writer
  6. At the time of the agreement, the option buyer pays a certain amount to the option seller; this is called the ‘Premium’ amount
  7. The deal happens at a pre-specified price, often called the ‘Strike Price.’
  8. The option buyer benefits only if the asset’s cost increases higher than the strike price.
  9. 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.
  10. Statistically, the option seller has a higher odds of winning in a typical option contract.
  11. The directional view must pan out before the expiry date; otherwise, the Option will expire worthlessly.

103 comments

  1. Tarun Sahni says:

    What a dreaded concept explained so lucidly .Only “The Zerodha” team can make it happen .

  2. Chinav says:

    Hands down the best video I’ve seen on Options. Looking forward to learning more from this series. Kudos to the Zerodha Team!!!

  3. Narendra reddy says:

    Thank you Kathik sir…
    For the wonderful work…
    U really are making a great work..

  4. Anurag says:

    Killing it as always 🙂
    Excited for the next videos…

  5. YASH says:

    Thank u very much Karthik sir for the video lectures.

  6. GJ says:

    Looking fwd to more videos on this series

  7. Fernandez J says:

    Karthik sir and team zerodha ..we can’t thank you enough …keep educating us ..

  8. Ashish S Shah says:

    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

    • Karthik Rangappa says:

      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.

  9. Eghambaram says:

    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

  10. aditya says:

    On tradingview of zerodha when will drag and drop function come ?

  11. MV Rajesh Kumar says:

    Thank you very much sir

  12. chetan dhami says:

    best video so far , please upload other videos soon , waiting keenly .

  13. Selvam Natarajan says:

    Great, I was waiting for this video. Very simple and easily understandable. Basic concept is very clear. Let me explore further.

  14. YASH says:

    sir next video release date?

  15. Jay says:

    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

  16. Rajesh Bhonsle says:

    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

    • Karthik Rangappa says:

      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.

  17. Arabind says:

    Very good explanation

  18. YUGANDHAR says:

    Thank you sir for nice explanation.
    When we will able to get other videos.

  19. Dhiren Gala says:

    Wonderful explanation

  20. Krishna Raviteja Varma says:

    Powerful people makes places more Poweful! #Zerodha

    Wonderful knowledge sharing. Thank you whole team.

  21. Venkatesh says:

    Do the varsity mobile and web apps has the same content ?

  22. Venance Lobo says:

    Explained very well. Makes it easy for a novice like me.

  23. ASHISH JAIN says:

    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

    • Karthik Rangappa says:

      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.

  24. ASHISH JAIN says:

    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.

    • Karthik Rangappa says:

      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.

  25. ASHISH JAIN says:

    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

    • Karthik Rangappa says:

      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.

  26. vikram bhupathi says:

    super

  27. Amit Prajapat says:

    Thank you very much kartik sir your method of explanation really amazing ⚡

  28. Siddhesh Khaitan says:

    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!

  29. Nimmitt says:

    wonderfully explained. thank you so much

  30. Raj says:

    So smooth and easy to understand. Pls release other videos asap

  31. Anil Khare says:

    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..

  32. Kunguma Karthik says:

    Please make more videos on options and options strategies im more than willing to learn and earn…

  33. Raghav Agarwal says:

    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?

  34. Sanjay Gahankar says:

    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.

  35. Anushri says:

    What does it mean when u say the market “rallies” ?

  36. Suneesh says:

    An easy explanatin

  37. Ajay Lakhimale says:

    This is much expensive course, how can someone make it free of cost , but Thanks

  38. Prerna Rawat says:

    I have been looking for such explanation… 🙂

  39. Chaitra says:

    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.

  40. Aniket Bhandakkar says:

    Nice video sir 👍

  41. Rajesh Rout says:

    Nice video, thanks you zerodha team.

  42. Harsha says:

    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.

    • Karthik Rangappa says:

      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.

  43. Sunil says:

    Thank you for explaining this to a novice.

  44. Indrani says:

    Started learning options…..
    Great explanation Kartik sir

  45. Bhavya says:

    After watching tons of videos finally i found the best one

  46. Keshav says:

    Wonderful class

  47. Kuzhikkattil Andrews says:

    I am going through the classes

  48. Prince says:

    Sir hindi m video nhi h

  49. Navnath madhusudan gawali says:

    Yes

  50. PV says:

    Well explained the basics with example.

  51. Archana Kulkarni says:

    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 ?

  52. Keyur says:

    It requires lot of hard work to simplify things and explain in simple language.

    Thank you for this

  53. Vidya says:

    Hi Karthik,
    Have you covered intraday option trading in Varsity? Please confirm

  54. ravindra singh says:

    want to ask that why the option selling is more expensive than the option buying

  55. Darshan says:

    Perfect vedios series for any person to get overview on options

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