The premium payable is a small amount that is also market driven. This is because the writer of the option assumes the risk that the market price will rise beyond your strike price on or before the expiry date of your contract and he will be obliged to sell you shares at the strike price, although it means making a loss of money. The former gives you the right to buy shares or an index whereas the latter gives you the right to sell them, with no obligation. On the basis of whether you want the option to buy shares or sell them at a specific price in the future, there are two types of options available in the derivatives markets. However, you are reluctant to purchase Reliance in the cash market as it involves too large an investment and you would rather not purchase it in the futures market as futures leave you open to an unlimited risk, in case the market goes against you. In the Indian market, Options cannot be sold or purchased on any and every stock. Depending on what is available in the Options market, you may be able to buy a Call Option of Reliance at a strike price of 970, although the spot price is Rs 950 at present, by paying a premium of Rs 10 per share. Yet you do not want to lose the opportunity to benefit from this rise in price due to the announcement and you are ready to stake a small sum of money to rid yourself of the uncertainty. An Option is ideal for you. These stocks are chosen from amongst the top 500 stocks in terms of average daily market capitalisation and average daily traded value in the previous six months on a rolling basis, amongst other technical criteria.
Reliance consists of 600 shares. If the AGM does not result in any spectacular announcements and the share price remains static at Rs 950 or drifts lower to Rs 930 because market players are disappointed, you could allow the Call Option on Reliance to lapse. Suppose the AGM of RIL is due to be held shortly and you believe that an important announcement will be made at the AGM. SEBI has permitted Options trading on only certain stocks that meet its stringent criteria. How to activate an account? How to convert your MF holdings to Online format? How to Place OTB Order? How to place an order for an IPO? How to Transfer Money into your trading account?
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