Part 2 Master Candle Pattern

Key Terms in Options Trading

Strike Price: The price at which you can buy/sell the underlying.

Premium: The cost paid to buy the option.

Expiry Date: Last day the option is valid (weekly/monthly in India).

Lot Size: Minimum tradable quantity (e.g., Nifty options = 25 units per lot).

ITM (In the Money): Option has intrinsic value.

ATM (At the Money): Strike price = underlying price.

OTM (Out of the Money): Option has no intrinsic value.

How Options Work (Indian Example)

Let’s take an example with Nifty 50 trading at ₹22,000:

Suppose you buy a Nifty 22,200 Call Option for a premium of ₹100 (lot size = 25).

Total cost = 100 × 25 = ₹2,500.

Case 1: Nifty goes up to 22,400

Intrinsic value = 22,400 – 22,200 = ₹200

Profit per lot = (200 – 100) × 25 = ₹2,500

Case 2: Nifty stays at 22,000 or falls

Option expires worthless.

Loss = Premium paid = ₹2,500

This asymmetry—limited risk, unlimited reward—is what attracts many retail traders to options.