An option is a contract that gives its buyer a right, and its seller an obligation, tied to the price of something else: in India, usually an index such as the Nifty 50 or the Sensex. On your broker's app calls are marked CE (call European) and puts PE (put European).
Call (CE) and put (PE)
- A call gains value when the index rises above the strike price. Buyers of calls want the index to go up.
- A put gains value when the index falls below the strike price. Buyers of puts want the index to go down.
- The strike is the level the contract is measured against. The premium is the price of the option, quoted per unit of the index.
You trade lots, not single units
Each contract is one lot. A Nifty 50 lot is currently 65 units, a Sensex lot 20 (25 for contracts expiring from January 2027) and a Bank Nifty lot 30. The exchanges revise lot sizes twice a year, so always check the current size on the option chain.
Worked example (illustrative numbers)
Say a Nifty call trades at a premium of ₹100. One lot costs ₹100 × 65 = ₹6,500, plus charges. That is the most a buyer can lose on this trade. The values are chosen to keep the arithmetic simple; they are not current prices.
Settlement: cash, at expiry
Index options in India are European-style and cash-settled. They cannot be exercised early, and no shares change hands: at expiry an option that is in the money is settled by paying the difference between the index level and the strike, times the lot size. Most traders close the position before that by selling it back on the exchange.
Buyer and seller do not carry the same risk
| Buyer | Seller (writer) | |
|---|---|---|
| Pays or receives | Pays the premium | Receives the premium |
| Most they can lose | The premium paid | Much more than the premium; for a call, without a fixed limit |
| Margin | None beyond the premium | Margin of a very different order, often lakhs per lot |
| Time passing | Works against them | Works for them, if nothing else changes |
Most traders lose
In FY26, 87.7% of individual traders in equity F&O made a net loss, according to SEBI. Options accounted for 92% of the losses.
Examples use illustrative values, not current market data. This is general education, not investment advice.