Options are the right to buy or sell a stock at a particular price which is called the strike price. Here is what you need to know about options.

· An option buyer has the right but not obligation to buy or sell an asset like an equity stock.

· The right to buy is a call option and the right to sell is a put option.

· The trader can be a buyer of an option or the seller of an option. The Buyer has the right without the obligation for which they pay the premium. The seller of the option has the obligation without a right for which they receive premium.

· When does a person write a call option? Writing (selling) a call option is selling a right to buy. You will sell a call option when you don’t expect the price of a stock to go above a level. So if you don’t expect the price of RIL to go above Rs.1300, then you sell 1300 call on RIL so that the entire premium becomes your income.

· When does a person write a put option? Writing (selling) a put option is selling a right to sell. You will sell a put option when you don’t expect the price of a stock to fall below a certain level. So if you don’t expect the price of Maruti to go below Rs.7000, then you sell 7000 put on Maruti so that the entire premium becomes your income.

· Upside returns are limited to premium for the seller of call and put option but the downside risk is unlimited.