Everyone knows that trading in CE and PE options can make a lot of money in the stock market. But they are also very risky if you trade without understanding them well. Here in, we will discuss what are CE and PE options and how they work.
A call gives European buyers the privilege of receiving shares at a specified price before the expiration. Before diving deep into these aspects, we need to learn various basic concepts like expiration, premium as well as the strike price. Let us understand the benefits of the Call Option and Put Option and how they affect the e-trading process.
Basic concepts of PE and CE
Before going deep into these aspects let us understand some basic concepts which will help beginners to understand more about CE and PE in the stock market.
Expiration of CE and PE
When an investor can buy a certain number of stocks at a certain price before a particular date, that date is called the expiration date.
PREMIUM:
Whatever the current market price of the contract is, this is called the option premium.
strike price:
When an investor buys a particular stock under a call option at a particular price, the specified price is called the strike price.
What is CE or Call Option in Stock Market:
CE is called call option and People also call it European. With the help of a call option, the option holder can buy a bond, stock, or product at a predetermined price before expiry.
With the help of a collar option, the investor gets the freedom to buy a selected number of shares at a particular price which is decided before the expiry.
Let us understand the call option with the help of an example:
You can buy Tata Motors’ call option at a strike price of Rs 1950 when the stock price is only Rs 1930.
As the call option is quoted at an amount of Rs 20, the premium would be Rs 20 per share or Rs 5000 i.e. (20*250). Now if the price of Reliance shares goes up to Rs 2000 then you will start making profits.
What is PE or Put option in the stock market?
PE is also called put option; people are also known as put European.
With the help of a put option, a person gets an option, however, not a commitment to sell the shares at a particular price (strike price) within a specified period.
A put option works in the opposite way to a call option. It is imperative to have a specific put options offer as investors cannot buy a call option without a suitable put option. A put option holder makes a profit when share prices fall and it moves below the share price.
Let us understand the put option with the help of an example:
If an investor buys a Rs 20 call and the asset’s price rises to Rs 30, they make a profit of Rs 10, less the premium paid to buy the call. On the other hand, the two investors who sell the covered calls earn the premium and sell the shares with a profit.
Put option advantage:
With the help of the put option, the buyer can sell the shares at the strike price. With the help of a put option, the seller has the privilege of buying shares from the shareholder.
This can be beneficial to both, depending on each other’s mindset.
Example:
If an investor goes for a put option at Rs 20 and the price falls, they can reduce their losses. On the other hand, another investor can profit from it as the returns are higher.
How to do option trading in Upstox?
We have discussed various steps regarding options trading in Upstox: let us have a quick look.
When you open the Stocks app you will come across the search icon in the left top corner.
After this you can search the F&O menu.
Once you are there, you can search for the desired indices of stocks to trade. You can choose it with CE or PE.
After this, two options of Buy or Sell will appear in front of you and you can choose any one of them.
You will now have the option to select 1 lot or more, with the minimum quantity to be traded mentioned. If you are a beginner, it is suggested to choose 1 lot option and start your trading journey. After that select, the Review button.
After going to the Review button which will be available on the next screen you can confirm the order. When you swipe “Swipe to schedule order” the order will be confirmed. If you are interested in options trading, then you can go for options trading on other platforms as well.
CONCLUSION:
While doing business we pay attention to various aspects like CE and PE. Call option and put option are beneficial to the buyers and sellers. We have also explained how to do Upstox trading. Make sure you go through the article and share your worthy review.
