📰 Capital Market Chronicles – Episode 182: OPTIONS CONTRACT (Part I) 🎯
We’ve talked about what options are — now it’s time to understand the options contract itself — the real deal where all the action happens. 🎬📈
💡 What Exactly Is an Options Contract?
Think of an options contract as a VIP pass 🎟️ that lets you decide later whether you want to buy or sell a stock — at a price you locked in today.
You have the choice, not the obligation. That’s right — you can say “Nah, I’ll pass” if the market isn’t playing nice. 😎
These contracts are powerful because they give you flexibility — to manage risks, chase profits, or simply feel like a financial wizard. 🧙♂️✨
There are two main flavours of these magical contracts:
🔥 1️⃣ Call Option – The “I Want to Buy It” Power
A Call Option gives you the right to buy an asset at a specific price (the strike price) before expiry.
When do you use it? When you believe prices will rise. 📈
Example:
You pay ₹6,000 to buy an option for 1,000 Infosys shares at ₹1,000 each.
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If Infosys rockets to ₹1,090 🚀 — you buy at ₹1,000, sell at ₹1,090.
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Profit = ₹90 per share × 1,000 = ₹90,000
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Net profit after premium = ₹84,000. 💰
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If Infosys dips below ₹1,000 😬 — you simply let it go.
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Loss = only your premium ₹6,000.
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👉 Downside: Limited (premium only)
👉 Upside: Sky’s the limit ☁️💸
🧊 2️⃣ Put Option – The “I Want to Sell It” Shield
A Put Option gives you the right to sell an asset at a specific price before expiry.
When do you use it? When you suspect prices will drop. 📉
Example:
You pay ₹6,000 for an option to sell 1,000 Infosys shares at ₹1,000 each.
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If Infosys slides to ₹900 😎 — you sell at ₹1,000 instead of ₹900.
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Profit = ₹100 per share × 1,000 = ₹1,00,000
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Net profit after premium = ₹94,000. 💰
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If Infosys stays above ₹1,000 — you chill and let it expire.
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Loss = only the premium ₹6,000.
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👉 Downside: Limited (premium again!)
👉 Upside: Capped, since prices can’t drop below zero. 😅
⚖️ The Bottom Line:
Options contracts are all about rights without obligations — like having a buffet ticket 🍽️ but only eating what you like!
Whether you’re bullish (Call) or bearish (Put), options let you control big positions with small money, limit your losses, and give yourself room to manoeuvre.
But remember — every right comes with a price tag (the premium), and every decision, a dose of courage. 💪📊
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