Part 02: Future and Options

Sr. No Topic Page No

1 Call options 2

2 Option Chain 2

3 Break Even Point 5

*********************

1
 Journey towards Options:
There are two types of options: American Options and European Options. In our country INDIA,
we follow European Options.

CALL Options:
Call Option Buyer has a right to buy a specific asset at a specific price on or before a specific
date.
Call Option Seller has an obligation to deliver the underlying asset at the pre-agreed price.

Let’s have a look at option chain.

In the case of CALL options,

• ATM: At the money: A strike which is closest to spot price called ATM Strike.

2
 • ITM: In the money: in call option, all the strikes which is below the spot price
• OTM: Out of the money: in call option, all the strikes which is above the spot price.

In the case of CALL options

When spot price goes down
• ATM strike goes OTM,
• OTM strike Goes down more deep OTM,
• ITM strikes come down to ATM, then
OTM
When spot price Increase
• ATM strike goes ITM, then deep ITM,
• OTM strike goes up toward ATM, then ITM,
• ITM goes deep ITM.

IF you are Bullish IF you are Bearish

Buy Equity Sell Equity (Only Intraday)
Buy Future Sell Future
Buy Call Option (CE) Sell Call Option (CE)

Option chain has following columns.

1. Premium
2. Strike
3. IV (Implied Volatility)
4. Delta
5. Theta

1. Premium: has two components, A. Intrinsic value, B. Time value. Whereas, Intrinsic Value
= Spot Price – Strike,

3
 *The strike which is above the spot price, has only time value.

3. Implied Volatility (IV):

• Show the volatility of specific underlying asset.

• Higher the IV, higher the premium, lower the IV, lower the premium.

4. Delta:

• Indicates the rate of change in option premium as compared to the change in spot price.

5. Theta:

• Theta indicates the rate of time decay per day. Theta will increase day by day when we go
close to expiry.

4
Break Even Point

In the case of Option Buyer.

In the case of Option Seller.