understanding "options" again

an option is the bet, the premium, the "black" that a particular level "will come".

just like betting in on a particular team in cricket (though illegal)

e.g. cuurent market price (cmp) for nifty =5278

5200put is available for 28

what this means is people are willing to pay 28 rupees as a bet that 5200 will come.

similarly the bet amount (can also call it premium) for 5100.5000.4900 puts is 13/-, 7/-, 3/- respectively.

also, the 5200 call march series is available for 122/-

but 5200 has already "come"

we are already 78 points above 5200. so 122minus78=44 is the premium people are willing to pay to buy the asset named 5200call. now if, at expiry, market is at 5700, all traders who are holding the "tickets" of 5200 call would be eligible to get 5700minus5200=500points. not bad if you paid just 122 for buying that ticket.

if the expiry were to take place at 5278 itself, the 5200call ticket holder will be entitled to 5278minus5200=78. only the premium, the "black money" paid to buy the ticket will be the loss.

when you buy a call below the cmp, it is called "out of money" as you pay only the premium, the bet, the black

when you buy a call below the cmp, it is called "in the money" as it has already come and you have to pay both the parts = 1. the amount by which it has already crossed the current market price, and, 2.the "black"

reverse is the case with "put".

"call" is the name of the ticket when you bet that market will go up. (call up)

"put" is the name of the ticket when you bet that the market will come down. (put down)

how to remember = "CALL UP and PUT the phone DOWN"