NIFTY 5022,500125.30(0.56%)
SENSEX74,200412.50(0.56%)
BANK NIFTY48,300210.40(0.43%)
TATA MOTORS780.0012.45(1.62%)
INFOSYS1,520.0018.20(1.18%)
WIPRO475.005.60(1.19%)
RELIANCE2,890.0034.50(1.21%)
TCS3,650.0028.10(0.76%)
HDFC BANK1,580.0015.20(0.97%)
ICICI BANK1,120.008.90(0.80%)
SBI820.005.30(0.64%)
BHARTI AIRTEL1,650.0022.80(1.40%)
HUL2,380.0012.40(0.52%)
ITC445.003.20(0.72%)
KOTAK BANK1,780.0014.60(0.83%)
LT3,420.0045.20(1.30%)
AXIS BANK1,080.009.50(0.89%)
BAJAJ FINANCE7,200.0085.40(1.20%)
MARUTI12,400150.00(1.19%)
ASIAN PAINTS2,850.0018.90(0.67%)
HCLTECH1,420.0016.30(1.14%)
TITAN3,250.0042.60(1.33%)
ADANI PORTS1,380.0022.40(1.60%)
POWER GRID310.004.80(1.57%)
NTPC365.006.20(1.73%)
SUNPHARMA1,680.008.50(0.50%)
NIFTY 5022,500125.30(0.56%)
SENSEX74,200412.50(0.56%)
BANK NIFTY48,300210.40(0.43%)
TATA MOTORS780.0012.45(1.62%)
INFOSYS1,520.0018.20(1.18%)
WIPRO475.005.60(1.19%)
RELIANCE2,890.0034.50(1.21%)
TCS3,650.0028.10(0.76%)
HDFC BANK1,580.0015.20(0.97%)
ICICI BANK1,120.008.90(0.80%)
SBI820.005.30(0.64%)
BHARTI AIRTEL1,650.0022.80(1.40%)
HUL2,380.0012.40(0.52%)
ITC445.003.20(0.72%)
KOTAK BANK1,780.0014.60(0.83%)
LT3,420.0045.20(1.30%)
AXIS BANK1,080.009.50(0.89%)
BAJAJ FINANCE7,200.0085.40(1.20%)
MARUTI12,400150.00(1.19%)
ASIAN PAINTS2,850.0018.90(0.67%)
HCLTECH1,420.0016.30(1.14%)
TITAN3,250.0042.60(1.33%)
ADANI PORTS1,380.0022.40(1.60%)
POWER GRID310.004.80(1.57%)
NTPC365.006.20(1.73%)
SUNPHARMA1,680.008.50(0.50%)
NIFTY 5022,500125.30(0.56%)
SENSEX74,200412.50(0.56%)
BANK NIFTY48,300210.40(0.43%)
TATA MOTORS780.0012.45(1.62%)
INFOSYS1,520.0018.20(1.18%)
WIPRO475.005.60(1.19%)
RELIANCE2,890.0034.50(1.21%)
TCS3,650.0028.10(0.76%)
HDFC BANK1,580.0015.20(0.97%)
ICICI BANK1,120.008.90(0.80%)
SBI820.005.30(0.64%)
BHARTI AIRTEL1,650.0022.80(1.40%)
HUL2,380.0012.40(0.52%)
ITC445.003.20(0.72%)
KOTAK BANK1,780.0014.60(0.83%)
LT3,420.0045.20(1.30%)
AXIS BANK1,080.009.50(0.89%)
BAJAJ FINANCE7,200.0085.40(1.20%)
MARUTI12,400150.00(1.19%)
ASIAN PAINTS2,850.0018.90(0.67%)
HCLTECH1,420.0016.30(1.14%)
TITAN3,250.0042.60(1.33%)
ADANI PORTS1,380.0022.40(1.60%)
POWER GRID310.004.80(1.57%)
NTPC365.006.20(1.73%)
SUNPHARMA1,680.008.50(0.50%)
NIFTY 5022,500125.30(0.56%)
SENSEX74,200412.50(0.56%)
BANK NIFTY48,300210.40(0.43%)
TATA MOTORS780.0012.45(1.62%)
INFOSYS1,520.0018.20(1.18%)
WIPRO475.005.60(1.19%)
RELIANCE2,890.0034.50(1.21%)
TCS3,650.0028.10(0.76%)
HDFC BANK1,580.0015.20(0.97%)
ICICI BANK1,120.008.90(0.80%)
SBI820.005.30(0.64%)
BHARTI AIRTEL1,650.0022.80(1.40%)
HUL2,380.0012.40(0.52%)
ITC445.003.20(0.72%)
KOTAK BANK1,780.0014.60(0.83%)
LT3,420.0045.20(1.30%)
AXIS BANK1,080.009.50(0.89%)
BAJAJ FINANCE7,200.0085.40(1.20%)
MARUTI12,400150.00(1.19%)
ASIAN PAINTS2,850.0018.90(0.67%)
HCLTECH1,420.0016.30(1.14%)
TITAN3,250.0042.60(1.33%)
ADANI PORTS1,380.0022.40(1.60%)
POWER GRID310.004.80(1.57%)
NTPC365.006.20(1.73%)
SUNPHARMA1,680.008.50(0.50%)
NISM VIII — Equity Derivatives ~5 min read

Options — Call, Put, Buyer, Writer

An option is a contract that gives the buyer the right — but NOT the obligation — to buy (Call) or sell (Put) the underlying at a predetermined strike price on ...

Definition

Option Contract — Rights vs Obligations

An option is a contract that gives the buyer the right — but NOT the obligation — to buy (Call) or sell (Put) the underlying at a predetermined strike price on or before a stated date. The buyer pays a premium to the seller (also called writer) upfront in exchange for this right.

In Simple Words
💡

Options break the symmetric obligation of futures. The buyer has only RIGHTS — she pays a premium today, then can walk away if the trade goes wrong (max loss = premium). The seller (writer) collects the premium but has only OBLIGATIONS — if the buyer exercises, the writer must deliver. This asymmetry is the entire beauty and hazard of options. Two types: a Call gives the right to BUY at strike (useful when bullish); a Put gives the right to SELL at strike (useful when bearish or for insurance). In India, all equity options are European-style — exercise only on expiry day — and almost all are physically settled except index options which are cash-settled.

🎟️
Movie Ticket

You paid ₹200 for a ticket — you can use it or skip; you never owe more

🛡️
Insurance

Put option = insurance for your stock portfolio — pay premium for protection

🎯
Call vs Put

Call = right to buy; Put = right to sell — directional differs

🤝
Writer's Burden

Writer keeps premium but is on the hook if buyer exercises

Real-Life Scenario

A Practical Example

⚖️
Buyer vs Writer
Rights, obligations and P&L profile
RolePays / ReceivesRight or Obligation?Max ProfitMax Loss
Call BuyerPays premiumRIGHT to buy at strikeUnlimitedPremium paid
Call WriterReceives premiumOBLIGATION to sell at strikePremium receivedUnlimited
Put BuyerPays premiumRIGHT to sell at strikeStrike − 0 = StrikePremium paid
Put WriterReceives premiumOBLIGATION to buy at strikePremium receivedStrike − 0 = Strike
Key Points to Remember

What Makes This Important

💰
Buyer = RIGHT (not obligation); Writer = OBLIGATION (not right)
🤖
Call = right to BUY; Put = right to SELL
🪙
Buyer pays premium upfront to writer
⚖️
Max loss for buyer = premium; max profit for writer = premium
🎯
Option premium = Intrinsic Value + Time Value
🧠
Indian equity options are European-style (exercise only on expiry)
⏸️
Index options are cash-settled; stock options are physically settled
FAQs

Frequently Asked Questions

No. The maximum loss for a call or put buyer is the total premium paid. This is the crucial difference from futures, where losses are unlimited.

Test Your Knowledge

🧠 Quick Quiz

3 questions to check your understanding

3
Questions
Question 1 of 3

The buyer of a call option has _____.

Summary Notes

Key Takeaways

Buyer has RIGHT, Writer has OBLIGATION
Call = buy at strike; Put = sell at strike
Buyer max loss = premium; Writer max profit = premium
Indian equity options = European (expiry-day exercise only)
Previous Topic
Futures Pricing — Cost of Carry Model
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