Option
A contract giving its buyer the right, but not the obligation, to buy or sell an underlying at a set price by a set date.
How it is identified
Test: the holder may exercise or let the contract lapse; the writer must perform if the holder exercises
Unit
qualitative
In depth
The asymmetry is everything: the buyer's loss is capped at the premium paid while the writer's obligation is open-ended, which is why writing options requires margin and buying them does not. That asymmetry is paid for — the premium is the price of optionality, and it decays to zero by expiry if the option finishes worthless. The most common beginner error is treating a cheap out-of-the-money option as a low-risk bet, when the probability of it expiring worthless is exactly why it is cheap. SEBI's studies of individual traders in this segment have consistently found the great majority lose money.
Worked example
A 24,000 call bought at a premium of 300 on a lot of 75 costs 300 x 75 = ₹22,500. If the index expires at 24,000 or below, the entire ₹22,500 is lost — not part of it, all of it.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Option” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.