In this video, we will learn about one of the basics of the Derivatives Market i.

In this video, we will learn about one of the basics of the Derivatives Market i.e a Call and Put Option.

Let us first understand what a Derivative is. A derivative is a security that derives its value from the underlying securities. One of the prominent ways to trade in the derivatives market is through Options.

An Option is an instrument that allows its holder the right o buy or sell any underlying security at a fixed rice and at a fixed date in the future. There is no obligation on the holder to exercise the option. The underlying securities are always available in lots and you can’t buy or sell individual securities form the lots. You have to choose from the pre-defined lot sizes that are available.

There are 2 types of Options available in the Market – A call and A Put Option.

A Call Option is a contract which gives the right to buy underlying securities at a fixed price. We should buy a Call Option when we expect the price of the underlying stock to rise in the future.

A Put Option is a contract which gives the right to sell underlying securities at a fixed price. As a buyer, we should use the Put Option when we believe the price of the underlying securities will fall in the future.

In case of a Call or a Put Option, our trades will be successful if the profits we make from exercising the option is more than the premium of the contracts.