Introduction to Bullish Options Trading Strategy

An option is a financial derivative contract that gives the option holder the right, but not the obligation, to sell or purchase an underlying security at a pre-specified expiry date and at a pre-specified strike price. Whereas, the option seller is obligated to honour the contract when the option holder exercises the options. Option writer is compensated by option buyer by receiving a premium for selling the option rights to the option buyer.

The two types of Option are:

1. Call Option
   A Call Option is a contract which gives holder of an option contract the right but not the obligation to buy the underlying asset i.e. stock, commodity, etc. at a pre-specified strike price and at a pre-specified expiry.

2. Put Option
   A Put Option is a contract which gives holder of an option contract the right but not the obligation to sell the underlying asset i.e. stock, commodity, etc. at a pre-specified strike and at a pre-specified expiry.

Duration of an Option:
In the Indian stock markets, options contracts are available for a 3-month period as per the exchange regulations.

1. Near Month
   March (current on-going month)
2. Next Month
   April (next month)
3. Far Month
   May (next to next month)

Moneyness of an Option:
Moneyness tells option holders on comparing the spot price with the strike price at expiry date, whether exercising an option will lead to a profit or not. Moneyness of an option contract is classified under 3 categories:

Also read: Long Call Option Strategy