An option is like a bet that you make with someone else about what you think will happen to a particular stock in the future.
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Trading in Shares
When we talk about the stock market, we are talking about companies that sell small pieces of themselves called “shares.” When you buy a share, you own a tiny part of that company. And if the company does well, the value of your share goes up, and you can sell it for more money than you bought it for!
But there’s another way to make money in the stock market, and that’s through something called “options.” An option is like a bet that you make with someone else about what you think will happen to a particular stock in the future.
Options buying
Here’s an example: let’s say you think that the shares of a particular company are going to go up in the next one month. Options buying gives you the right to buy shares of that company at a certain price (let’s say Rs. 1000) at a later date.
This one month time period is called expiry period and the Rs.1000 price at which you have the right to buy the shares of the company is called Strike price.
Read more: Expiry period and strike price with examples
Now, let’s say that the shares of that company do indeed go up, and are now trading at Rs. 1200. Because you have the option to buy shares at Rs. 1000, you can “exercise” your option and buy the shares at that lower price, and then sell them for the higher price of Rs. 1200, making a profit thru options buying!
Of course, options can be a bit tricky and can involve a lot of risk, so it’s important to do your research and understand what you’re getting into before you start buying options in the stock market. But in general, options give investors more flexibility and potential for profit in the stock market.
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