Part 2 Ride The Big Moves

Basics of Options

Before jumping into strategies, let’s revisit some fundamentals:

Call Option: Gives the buyer the right to buy the asset at a specific strike price.

Put Option: Gives the buyer the right to sell the asset at a specific strike price.

Option Premium: The price paid to buy an option.

Strike Price: The price at which the underlying can be bought/sold.

Expiry Date: The last date the option can be exercised.

ITM (In-the-Money): Option has intrinsic value (profitable if exercised).

OTM (Out-of-the-Money): Option has no intrinsic value (not profitable if exercised).

ATM (At-the-Money): Strike price is very close to current market price.

💡 Quick Example:
Nifty is at 22,000. You buy a 22,000 Call Option for ₹200 premium. If Nifty rises to 22,500, your option has value (ITM). If Nifty stays flat or goes down, you may lose the premium.

Now, depending on whether you buy or sell Calls/Puts, you can build hundreds of strategies.

Why Traders Use Options

Options are powerful because they can serve three main purposes:

Hedging – Protecting an existing portfolio from adverse price moves.

Example: A long-term investor holding Infosys shares may buy a Put option to protect against a fall.

Speculation – Betting on market direction with limited capital.

Example: Buying a Call if you expect bullish momentum.

Income Generation – Selling options to collect premium regularly.

Example: Writing Covered Calls on stocks you own.

The same instrument (options) can be used very differently by traders with different goals. That’s why strategies matter.