PocketX Learn / Module 5
Options
Understand calls, puts, strike prices, premiums, expiry, moneyness, Greeks and option risk.
1. What is an Option?
An option is a financial derivative instrument, meaning its value is derived from an underlying asset such as a stock, index, commodity, or currency.
2. What are the Two Main Types of Options?
This lesson will walk a learner through the full concept of Call and Put Options, using real-life analogies, detailed examples, tabular comparisons, and visual understanding—ideal...
3. What is a Call Option?
A Call Option is a type of derivative contract that gives the buyer the right (but not the obligation) to buy a specific asset (like a stock, index, or commodity) at a fixed price...
4. What is a Put Option?
A Put Option is a derivative contract that gives the buyer the right (but not the obligation) to sell a specific quantity of an underlying asset (such as a stock, index, commodity,...
5. What is the Strike Price in Options?
A strike price (also called the exercise price) is one of the most important components of any options contract. Whether you're buying a call or a put, the strike price defines the...
6. What is the Expiry Date in an Options Contract?
The expiry date is the last date on which an option contract is valid. After this date, the contract becomes null and void.
7. What is the Premium in Options Trading?
In the world of options trading, the premium is the price the option buyer pays to the option seller (writer) for acquiring the right (but not the obligation) to buy or sell the un...
8. Who is the Option Buyer?
An option buyer is a trader or investor who purchases an option contract by paying a premium to the option seller (writer). In return, the buyer gets the right, but not the obligat...
9. Who is the Option Seller (Writer)?
An option seller (also called the writer) is a trader or investor who sells an option contract to another party (the option buyer) and receives the premium paid by the buyer. In re...
10. What Does “In the Money (ITM)” Mean in Options Trading?
In the Money (ITM) refers to an options contract that currently has intrinsic value, meaning it would be profitable if exercised immediately.
What is Meant by "At the Money" (ATM) in Options?
In options trading, an option is considered At the Money (ATM) when the strike price of the option is equal to or very close to the current market price (spot price) of the underly...
12. What is 'Out of the Money' in Options?
In options trading, an option is considered Out of the Money (OTM) when it has no intrinsic value. This means that exercising the option at the current market price would not yield...
13. Can I Lose More Than the Premium in Options?
The answer depends entirely on whether you are acting as an option buyer or an option seller. The roles are very different in terms of rights, obligations, and risk exposure.
14. Are Options Available on Stocks and Indices?
Yes, options are available on both individual stocks and market indices. These are standardized contracts traded on stock exchanges such as the National Stock Exchange (NSE) in Ind...
15. What is a Lot Size in Options Trading?
In options trading, a lot size refers to the fixed number of units of the underlying asset that a single options contract represents. You cannot trade options in single units (like...
16. Do All Options Get Exercised?
No, not all options get exercised.
17. What Happens If I Hold an Option Till Expiry?
If you hold an options contract until expiry, one of two things will happen based on the moneyness of the option at that time:
18. Can I Exit an Option Trade Before Expiry?
Yes, you can exit an option trade at any time before expiry, during regular market hours, as long as there is sufficient liquidity in the specific options contract.
19. What Happens If an Option Expires Worthless?
If an option expires worthless, it means the option has no intrinsic value at expiry and would not result in any profit if exercised.
20. What Is Open Interest in Options?
Open Interest (OI) refers to the total number of active, outstanding options contracts that are yet to be closed, exercised, or expired.
21. What Is Implied Volatility in Options?
Implied Volatility (IV) is a measure of the market’s expectations of how much the price of the underlying asset is likely to move in the future.
22. Can I Buy and Sell Options on the Same Day?
Yes, you can buy and sell options within the same trading day.
23. What Is the Role of the Exchange in Options Trading?
The exchange plays a central role in the functioning of the options market.