Options: calls and puts
A right without a duty, bought for a premium: how calls and puts pay out, and what the seller takes on
Rules as on 12 October 2026; SEBI study figures for FY 2025-26
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Say this at the start: Trustner is a mutual fund distributor. We do not distribute or recommend derivative trading. This deck explains the words and the arithmetic so that staff can read a scheme document and answer a client's question with facts. It follows 'Derivatives: what they are' and 'Futures'.
An option gives its buyer a right without a duty. The seller takes on the duty and is paid a premium for it.
In a futures contract both sides are bound. In an option only the seller is bound. The buyer can let the option lapse, and then loses the premium paid.
Trainer notes
The seller of an option is also called the writer. The buyer's choice is what the premium pays for. The two sides are not in equal positions: the buyer's loss is limited to the premium; the seller's is not limited to the premium received.
Four words to know
Call
The right to buy the underlying at a set price. The buyer of a call gains if the price rises above that level.
Put
The right to sell the underlying at a set price. The buyer of a put gains if the price falls below that level.
Strike price
The set price at which the right can be used. An exchange lists many strike prices for each expiry date.
Premium
What the buyer pays the seller for the right. It is paid at the start and is not returned.
Trainer notes
The underlying is the share or index the option is written on. Every option also has an expiry date and a lot size, as a future does. On NSE a call is shown as CE and a put as PE. 'Gains' here is before the premium; the next two slides bring the premium in.
A call option, worked through
THE CALL
An invented index is at 30,000. One lot is 50 units.
A buyer takes a call with a strike of 30,500 and pays a premium of 200 a unit: ₹10,000.
All figures are assumed.
- Index at 31,500 on expiry: the call pays (31,500 − 30,500) × 50 = ₹50,000. After the premium: a gain of ₹40,000.
- Index at 30,600: the call pays 100 × 50 = ₹5,000. After the ₹10,000 premium: a loss of ₹5,000.
- Index at 30,500 or below: the call pays nothing. The loss is the whole premium, ₹10,000.
- Break-even: strike + premium = 30,700. The index must rise 2.33% from 30,000 just to recover the premium.
Result: The buyer's loss stops at ₹10,000. That is also 100% of the money he put in.
Illustration with an invented index and assumed strike, premium and lot size. Costs and taxes ignored.
Trainer notes
The seller of this call has the mirror result: he keeps ₹10,000 if the index ends at or below 30,500, and loses ₹40,000 if it ends at 31,500. His loss grows with every point the index rises. In the second step the buyer was right about direction and still lost money. 700 ÷ 30,000 = 2.33%.
A put option, worked through
THE PUT
The same invented index is at 30,000. One lot is 50 units.
A buyer takes a put with a strike of 29,500 and pays a premium of 150 a unit: ₹7,500.
All figures are assumed.
- Index at 28,500 on expiry: the put pays (29,500 − 28,500) × 50 = ₹50,000. After the premium: a gain of ₹42,500.
- Index at 29,400: the put pays 100 × 50 = ₹5,000. After the ₹7,500 premium: a loss of ₹2,500.
- Index at 29,500 or above: the put pays nothing. The loss is the whole premium, ₹7,500.
- Break-even: strike − premium = 29,350. The index must fall 2.17% from 30,000 just to recover the premium.
Result: A put is the mirror of a call. It pays when the price ends below the strike.
Illustration with an invented index and assumed strike, premium and lot size. Costs and taxes ignored.
Trainer notes
The seller of this put keeps ₹7,500 if the index ends at or above 29,500 and loses ₹42,500 if it ends at 28,500. A person who holds shares can buy a put as protection against a fall; the premium is the cost of that protection whether or not it is used. 650 ÷ 30,000 = 2.17%.
Buyer and seller: who can lose what
| Position | Right or duty | Most it can gain | Most it can lose |
|---|---|---|---|
| Buy a call | A right to buy at the strike price. | No fixed limit | The premium paid |
| Sell a call | A duty to sell at the strike price if the buyer exercises. | The premium received | No fixed limit |
| Buy a put | A right to sell at the strike price. | Strike price minus premium | The premium paid |
| Sell a put | A duty to buy at the strike price if the buyer exercises. | The premium received | Strike price minus premium |
Per unit, at expiry, before costs and taxes. A price cannot fall below zero, which caps the put.
Trainer notes
This is the slide to dwell on. The seller's gain is capped at the premium; the seller's loss is not capped at anything close to it. That is why the seller, not the buyer, deposits margin. A covered call, sold against shares already held, is a different position: the shares cover the duty to deliver, though they can still fall in value and their gain is capped. Mutual fund schemes may write only covered calls, within limits.
In, at and out of the money
In the money
Exercising today would pay something. A call whose strike is below the current price; a put whose strike is above it.
At the money
The strike price is equal to, or the closest one to, the current price of the underlying.
Out of the money
Exercising today would pay nothing. A call whose strike is above the current price; a put whose strike is below it.
Take-away: Premium = intrinsic value (what exercise would pay today) + time value. Time value is zero at expiry.
Trainer notes
In the two examples both options were out of the money when bought, so the whole premium was time value. Time value reflects how long is left and how much the price is expected to move. It shrinks as expiry approaches, so an option can lose value even when the price of the underlying does not move.
How options work on exchanges in India
| Feature | The rule now | Source |
|---|---|---|
| Exercise | European style: an option can be exercised only at expiry. In-the-money options are exercised automatically on that day. | NSE Clearing |
| Premium | The buyer pays the full premium. Brokers have had to collect it upfront since 10 February 2025. | SEBI 2024; NSE Clearing 2025 |
| Weekly expiry | Each exchange may offer weekly options on only one benchmark index. On NSE that index is the Nifty 50. | SEBI, 2024; NSE |
| Seller's margin | The seller deposits margin, as in futures. An extra 2% is charged on options sold that expire the same day. | SEBI circular, 1 Oct 2024 |
| Transaction tax | Securities transaction tax on the sale of an option is 0.15% of the premium from 1 April 2026. It was 0.10%. | Finance Act, 2026 |
Sources: NSE Clearing, NSE specifications (12 Oct 2026); SEBI, 1 Oct 2024; NSE Clearing, 9 Jan 2025; NSE/FATAX/73524 (Finance Act, 2026).
Trainer notes
An option can be sold in the market before expiry at the premium then ruling; 'exercise' means using the right itself. Index options are settled in cash at the index's closing value on the last trading day. NSE options expire on a Tuesday for expiries from 1 September 2025. SEBI's circular set 1 February 2025 for upfront premium; NSE Clearing deferred it to 10 February 2025. When an option is exercised, STT is 0.15% of the intrinsic value (0.125% before). Lot sizes and the ₹15 lakh contract value are in the Futures deck.
Where things stand
SEBI's study of individual traders and of options turnover.
- TRADERS IN LOSS
- 87.7%Of individual options traders made a net loss in FY 2025-26.
- SHARE OF LOSSES
- 92%Of individuals' net losses in equity derivatives came from options.
- ON EXPIRY DAY
- 59%Of index options turnover, NSE and BSE, was on expiry day in FY26 (70% in FY25).
- TRADED OPTIONS
- 99.3%Of individuals in equity derivatives over FY25 and FY26 traded options.
Source: SEBI, 'Profitability of Individual Traders in the Equity Derivatives Segment (FY25-FY26)', August 2026. Sample: top 15 brokers, about 90% of individual traders.
Trainer notes
Losses are net, after transaction costs. The 92% is for FY 2025-26; over FY25 and FY26 together it was 91.6%. By product in FY26: 87% of index options traders and 76% of stock options traders made a net loss. About 66% of futures traders did. SEBI says the fall in loss-makers from 90.9% in FY25 needs caution, because the number of active traders also fell. Trustner does not distribute or recommend derivative trading.
If you learnt this from older material
What older decks say
- Several index options expire every week.
- No explicit rule that the premium be collected upfront.
- NSE options expire on a Thursday.
- STT on an option sale is 0.10% of the premium.
What holds now
- One weekly index option per exchange, from 20 November 2024.
- Brokers must collect it upfront, from 10 February 2025.
- Tuesday, for NSE contracts expiring from 1 September 2025.
- 0.15% of the premium, from 1 April 2026.
Sources: SEBI circular, 1 Oct 2024; NSE Clearing circular, 9 Jan 2025; NSE/FAOP/68747, 25 Jun 2025; NSE/FATAX/73524 (Finance Act, 2026).
Trainer notes
Older material also explains options with a private agreement between two people over a crop, where one side pays a small sum to walk away. That captures the idea of a right without a duty, but not the exchange: standard strikes and lots, a clearing corporation between the two sides, margin from the seller, and an option that can be sold on before expiry.
Four things people get wrong
Misconception'An option buyer risks very little.'
What is trueThe whole premium is lost if the option ends out of the money. In FY 2025-26, 87.7% of individual options traders made a net loss.
Misconception'Selling options is steady income.'
What is trueThe seller keeps the premium only if the option ends worthless. If it does not, the loss can be many times the premium.
Misconception'Right on direction means a gain.'
What is trueThe price must end past break-even at expiry: strike plus premium for a call. Passing it earlier earns nothing.
Misconception'A put is only a bet on a fall.'
What is trueA holder of shares can buy a put as protection. It sets a floor under the value for a time, at the cost of the premium.
Take-away: Trustner does not distribute or recommend derivative trading. This deck explains; it does not coach.
Source: SEBI, 'Profitability of Individual Traders in the Equity Derivatives Segment (FY25-FY26)', August 2026.
Trainer notes
If a client asks about options: say that Trustner is a mutual fund distributor and does not distribute or recommend derivative trading; show the break-even arithmetic; give SEBI's figures with the year and the source. Do not suggest strategies, strikes, tips, brokers or position sizes.
Check yourself
Question 1: An invented index is at 20,000; one lot is 40 units. A call with a strike of 20,000 costs 100 a unit. What does the buyer pay, and what is the break-even level at expiry?
Answer: Premium: 100 × 40 = ₹4,000. Break-even: strike + premium = 20,100. At 20,400 on expiry the call pays 400 × 40 = ₹16,000, a gain of ₹12,000 after the premium.Question 2: On the same index a put with a strike of 19,800 costs 80 a unit. The index ends at 19,750 on expiry. What is the buyer's result?
Answer: Premium paid: 80 × 40 = ₹3,200. The put pays (19,800 − 19,750) × 40 = ₹2,000. Result: a loss of ₹1,200. The index fell, but not past the break-even of 19,720.Question 3: Who deposits margin on an option, the buyer or the seller, and why?
Answer: The seller. The buyer's loss is limited to the premium, which is paid upfront. The seller's loss is not limited to the premium received, so margin is held against it.
Sources and disclaimer
Sources for the figures in this explainer
- Exercise style and settlement: NSE Clearing, equity derivatives settlement mechanism and settlement price pages; NSE contract specifications. Read 12 Oct 2026.
- Upfront premium, weekly expiry and expiry-day margin: SEBI circular SEBI/HO/MRD/TPD-1/P/CIR/2024/132 (1 Oct 2024); NSE Clearing circular NCL/CMPT/66046 (9 Jan 2025).
- Expiry day on NSE: NSE circular NSE/FAOP/68747 (25 Jun 2025), following SEBI circular SEBI/HO/MRD/MRD-TPD-1/P/CIR/2025/76 (26 May 2025).
- Traders' results: SEBI, 'Profitability of Individual Traders in the Equity Derivatives Segment (FY25-FY26)', August 2026.
- Securities transaction tax: Finance Act, 2026, as recorded in NSE circular NSE/FATAX/73524 (31 Mar 2026).
- The index, the buyers and sellers, and every strike, premium and lot size in the examples and quiz are invented for the arithmetic only.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).