Option Call and Option Put Call and Put Option- Put option or put call parity trick.

Option Call and Option Put Call and Put Option- Put option or put call parity trick.

Options Trading Basics: Call & Put Options

Options trading involves Call Options and Put Options, which allow traders to bet on the rise or fall of an asset.

1. What is a Call Option?

A Call Option gives the buyer the right (but not the obligation) to buy an asset at a fixed price before expiry.

• Bullish View – You buy a Call when you expect the price to rise.
• Profit Formula = (Market Price – Strike Price – Premium Paid)
• Risk – Limited to the premium paid.
• Unlimited Profit Potential

Example:

• Stock: Reliance (₹2500)
• Buy Call Option (₹2600 Strike) at ₹20
• If Reliance goes to ₹2700, your profit = ₹80 per share

2. What is a Put Option?

A Put Option gives the buyer the right to sell an asset at a fixed price before expiry.

• Bearish View – You buy a Put when you expect the price to fall.
• Profit Formula = (Strike Price – Market Price – Premium Paid)
• Risk – Limited to the premium paid.
• Unlimited Profit if Price Falls Sharply

Example:

• Stock: TCS (₹3400)
• Buy Put Option (₹3300 Strike) at ₹30
• If TCS falls to ₹3200, your profit = ₹70 per share

3. Put-Call Parity (Trick for Understanding Relationship)

Put-Call Parity is a concept that helps in arbitrage trading and pricing options correctly.

Formula:
Call Price – Put Price = Spot Price – Strike Price + Risk-Free Interest

OR

Call Option + Cash = Put Option + Stock

This means:

• If Call is expensive, Put is cheap → Buy Put, Sell Call.
• If Put is expensive, Call is cheap → Buy Call, Sell Put.

Put-Call Parity Arbitrage Trick:

• If an option misprices, traders use this formula to make risk-free profits.
• Works best in low volatility markets.

4. Simple Trick to Trade Using Put-Call Parity

If Call is expensive → Sell Call & Buy Put of the same strike.
If Put is expensive → Sell Put & Buy Call of the same strike.

This helps in identifying mispriced options and making quick profits using arbitrage strategies.

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