Glossary
Options
Contracts that give you the right, but not the obligation, to buy or sell an asset at a set price.
Simple explanation
Call Option: The right to buy at a fixed price. You profit if the stock goes up.
Put Option: The right to sell at a fixed price. You profit if the stock goes down.
Options expire on specific dates. If you do not exercise them, you lose only the premium you paid.
India has one of the world's most active options markets. On NSE, Nifty 50 options and Bank Nifty options are the most traded instruments, with weekly expiries every Thursday. Stock options are available for about 180 companies and expire on the last Thursday of each month. Weekly options have become extremely popular because they are cheaper (lower premium due to less time to expiry) and allow traders to take short-term directional bets.
When you buy an option, you pay a premium, this is your maximum loss. The premium depends on factors like how far the strike price is from the current price, time to expiry, and market volatility (India VIX). An at-the-money Nifty Call (strike price close to current Nifty) might cost ₹200-300 in premium, while a far out-of-the-money Call might cost just ₹10-20 but has a much lower probability of making money.
Option selling (also called writing) is the other side of the trade. When you sell a Call or Put option, you collect the premium upfront and hope the option expires worthless. Most options on NSE do expire worthless, which is why option selling is popular among experienced Indian traders. However, selling options carries theoretically unlimited risk and requires significant margin. SEBI mandates that option sellers deposit margin equal to SPAN + exposure requirements, which can be ₹1-2 Lakhs per lot for Nifty options.
Be aware of STT (Securities Transaction Tax) on options. If you buy an option and sell it before expiry, STT is only 0.05% of the premium. But if your option is in-the-money and you let it expire (gets exercised), STT is charged on the full contract value, which can be 20-50x higher than the premium. Many Indian traders on Zerodha have been caught off-guard by this and lost their entire profit to STT on expiry day. Always square off profitable options before 3:30 PM on expiry day.
Real-world example
Anita is bullish on Bank Nifty before an RBI policy meeting and buys 1 lot of Bank Nifty 48,000 Call option (lot size 15) for ₹300 premium on Zerodha. Her total cost is ₹300 × 15 = ₹4,500. RBI surprises with a rate cut, and Bank Nifty surges from 47,800 to 48,800. Her Call option is now worth ₹800 (₹800 intrinsic value). She sells before expiry and makes (₹800 - ₹300) × 15 = ₹7,500 profit. Had Bank Nifty stayed flat or fallen, she would have lost only her ₹4,500 premium. Meanwhile, her friend who had bought Bank Nifty futures for the same bullish view would have made more (₹1,000 × 15 = ₹15,000) but also risked losing ₹15,000 or more if Bank Nifty had fallen ₹1,000 instead.
See how PortoAI helps you understand and manage options in your own portfolio.
Try it in PortoAIUnderstand the concept. Now see it in your portfolio.
Connect Zerodha or Groww in 2 minutes. You confirm every order. Get risk checks, position sizing, and portfolio context before every trade.
You confirm every order · 2-minute setup · No card required · Cancel anytime