Why should you trade in Options?

Buying options can be compared to buying insurance. For example to cover the risk of burglary, fire, etc. you buy insurance and pay premium. In the event of any untoward happening, the insurance cover compensates you for the losses. Otherwise, the insurance cover expires after the specific period of time. The insurance premium is the cost for the cover.

Similarly, in the case of options, the right to buy or sell the underlying is acquired by payment of a premium.

This affords protection against a general fall in market and thus can be attractive to various investors including mutual funds, who may like to bundle Nifty funds with Nifty options. The option could be exercised in the event of adverse market movement. Otherwise, the option will expire after the specific period. The cost of the option, i.e. the premium, is paid at the time of purchase. There is no further loss that is generated by the option for the buyer. This feature of option makes it attractive for the market participants.

How Nifty options are settled?

Like Nifty Futures, Nifty options is also cash settled.

What is an Option ?

An option is a contract which gives the right, but not the obligation, to buy or sell the underlying at a stated date and at a stated price. A call option gives the right to buy and a put option gives the right to sell.

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