What Are Options?
CE, PE, premium, expiry, strike — explained in plain English.
Options in one sentence
An option gives you the right — but not the obligation — to buy or sell something at a fixed price on or before a specific date.
Two types of options
Call Option (CE)
A Call gives you the right to buy at the strike price. If NIFTY is at 22,000 and you buy a 22,000 CE, you're betting it will rise above 22,000.
Put Option (PE)
A Put gives you the right to sell at the strike price. If NIFTY is at 22,000 and you buy a 22,000 PE, you're betting it will fall below 22,000.
Key terms
| Term | What it means |
|---|---|
| Strike price | The fixed price in the contract (e.g., 22,000) |
| Expiry | Date the contract expires. NIFTY weekly = every Tuesday in India (post-2024 SEBI reform) |
| Premium | The price you PAY to buy the option. Your maximum loss if you're a buyer. |
| Lot size | You buy/sell options in lots. NIFTY = 75 units per lot. |
| ATM | At-the-money: strike ≈ current price. Highest activity. |
| ITM | In-the-money: already has intrinsic value. |
| OTM | Out-of-the-money: needs to move further to have value. |
ITM / ATM / OTM — where the strike sits relative to current price
A concrete historical example
NIFTY was around 21,500. You bought the 21,500 CE expiring that Thursday for a premium of ₹120. One lot = 50 units (the lot size was 50 at that time). Your cost = ₹120 × 50 = ₹6,000.
Over the next 2 days, NIFTY rallied to 21,900. The CE premium rose to ₹420. Your profit = (420 − 120) × 50 = ₹15,000 on a ₹6,000 investment.
But if NIFTY had fallen to 21,200, the CE would expire worthless. Your maximum loss was the ₹6,000 premium you paid — no more, no less. That's the defined-risk feature of buying options.
Buyer vs Seller — very different risk profiles
Seller (short option): Collect premium upfront. Max gain = premium. Potentially large loss if market moves against. Theta works FOR you.
- Call (CE) = right to buy. Put (PE) = right to sell.
- You buy options when you expect a big move. You sell options to collect premium.
- Premium = the price of the option. Buyer's max loss. Seller's max gain.
- Theta = time decay. Every day closer to expiry, an option loses some value.
- Lot size × premium = your actual rupee cost (NIFTY lot = 75 units post-2024).