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Option Trading Basics in Malayalam | What is call option | How to buy or sell a call option in Upstox

Third video in our future and option series explains about call options. It also explains how to buy call option in upstox. Process is similar in other brokers like zerodha and angel broking.

An Option is a tool for protecting your position and reducing risk.

A buyer of the call option has the right and the seller has an obligation to make delivery. The option is only given to one party in the transaction ( buyer of an option). The option seller is also called the option writer.
At the time of agreement the option buyer pays a certain amount to the option seller, this is called the ‘Premium’ amount. The agreement happens at a pre-specified price, often called the ‘Strike Price’. The option buyer benefits only if the price of the asset increases higher than the strike price
If the asset price stays at or below the strike, the buyer does not benefit, for this reason it always makes sense to buy options when you expect the price to increase. Statistically the option seller has higher odds of winning in an typical option contract. The directional view has to pan out before the expiry date, else the option will expire worthless.

Buying call option

It makes sense to be a buyer of a call option when you expect the underlying price to increase. If the underlying price remains flat or goes down then the buyer of the call option loses money. The money the buyer of the call option would lose is equivalent to the premium (agreement fees) the buyer pays to the seller/writer of the call option. The maximum loss the buyer of a call option experiences is to the extent of the premium paid. The loss is experienced as long as the spot price is below the strike price. The call option buyer has the potential to make unlimited profits provided the spot price moves higher than the strike price. Though the call option is supposed to make a profit when the spot price moves above the strike price, the call option buyer first needs to recover the premium he has paid. The point at which the call option buyer completely recovers the premium he has paid is called the breakeven point. The call option buyer truly starts making a profit only beyond the breakeven point (which naturally is above the strike price).

Selling/Writing a Call Option

You sell a call option when you are bearish on a stock. The call option buyer and the seller have a symmetrically opposite P&L behavior. When you sell a call option you receive a premium. Selling a call option requires you to deposit a margin. When you sell a call option your profit is limited to the extent of the premium you receive and your loss can potentially be unlimited.

Watch video in Malayalam 👇👇👇



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