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Options are derivatives of an underlying financial instrument such as stocks, indices, commodities, and currencies. A good analogy is curd, which is a derivative of milk. Just as a rise or fall in the price of milk increases or decreases the price of curd, fluctuations in the price of the underlying asset also affect the price of options.

Options are traded on the MSE, MCX, etc. exchanges, just like stocks and commodities. Each option contract specifies the strike price, premium, lot size, and expiration date.

  • Strike price: The price that the buyer and seller of an option agree to pay to enter into the option contract.
  • Premium: The payment that the buyer makes to the seller to acquire his right to an option contract.
  • Expiry date: The last day on which the option holder can exercise his right.
  • Lot size: The specified number of units of the underlying asset that are part of a single option contract.

As with any other business transaction, there are buyers and sellers in options trading. The buyers of options have rights or a choice and the sellers have obligations. Buyers have the choice to exercise their right to buy/sell an option before expiration or to exit and let the option expire.

There are two types of options: Calls and Puts. A call option gives you the right to buy the option, while a put option gives you the right to sell the option.

The expiry date of options in India

In India, four types of options can be traded, which expire on different dates.

  1. Stock options: Stock options have monthly contracts and expire on the last Thursday of every month.
  2. Index options: For index options, there are monthly and weekly contracts. Monthly contracts expire on the last Thursday of each month. Weekly contracts expire on Thursdays.
  3. Commodity options: Commodity options expire three business days prior to the tender period of the underlying commodity futures.
  4. Currency options: Currency options expire two business days prior to the last business day (i.e., the last trading day) of the expiration month.

Option Settlement

When options are settled, either the cash amount is paid or the underlying asset is delivered after the trade has been executed.

  1. Stock options: Stock options are settled either in cash or physically. Stock options are settled two days after the execution date, i.e. T+2.
  2. Index options: Index options are settled in cash. Index options are settled one day after the execution date (T+1).
  3. Commodity options: Commodity options are settled either in cash or physically. All ITM commodity option contracts are converted into the corresponding futures contract of the current month on the expiration date. ITM contracts held until the expiration date require a margin payment equal to the futures contract, which is transferred on the next trading day.
  4. Currency options: Currency options are settled by cash settlement.


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More Options Trading Basics Questions...

  1. How do options work?
  2. What are the different types of options?
  3. What is the strike price of an option?
  4. What is the Expiration Day of Options?
  5. How do I trade options?
  6. What is the difference between futures and options?
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  13. What is an American Option?
  14. What is an European Option?
  15. What is In-The-Money (ITM), At-the-money-option (ATM) and Out-of-the-money-option (OTM) in Options?
  16. How to decide on whether should I buy or sell Call or Put options?
  17. Can I trade on options of any stock or Index?
  18. What is the difference between square off and exercise an Option?
  19. What is intrinsic value of the option? How to calculate intrinsic value of an option?
  20. What is time value of an Option?
  21. What are moving averages in options trading?
  22. What is Assignment in Options?
  23. How are options different from futures?
  24. What are the factors that affect the value of the premium of an Option?
  25. What are different pricing models for options?
  26. How the premium paid on options is calculated?
  27. What are Option Greeks and its use in Option trading?
  28. What is shorting/writing/selling in Options trading?
  29. I have bought an option & paid the premium for it, how to settle it?
  30. Do Option buyers have the same rights that as stock buyers?
  31. What is the contract cycle for Options in India?
  32. How does the probability of price movement affects the price of an option?
  33. What is the difference between trading stocks versus options?
  34. What is open interest and volume in options?
  35. What is the options market?
  36. What is nifty futures and options?
  37. What is an option trade?
  38. Is binary options trading legal in India?
  39. What are different types of exotic options?
  40. How to trade nifty Options intraday?
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  43. What is NSE option expiry time?
  44. Can I buy/sell Options in pre-market trading session?
  45. What is call & put option in bank nifty?
  46. What is the difference between selling a call option and buying a put option?
  47. What is NSE F&O lot size?
  48. What are options trading advantages?
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  50. What are options trading charges?
  51. What are options trading exchanges in India?
  52. What is the difference between options trading and Forex trading?
  53. What is the difference between options trading and stocks trading?
  54. What is the minimum amount required for Options trading?
  55. What are Index Options?
  56. What are weekly Options?
  57. What are Long Dated Options?
  58. How to identify if a particular option contract is American or European style?
  59. What are Option contract adjustments?
  60. Why The Intrinsic Value Of Options Contracts Can Never Be Negative?

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