Options basics
How index options work on the NSE, using the contracts you trade in SWOT TRADER.
What an option is
An option is a contract that gives the buyer a right, not an obligation, to buy or sell something at a fixed price on or before a fixed date. On the NSE, the "something" is an index such as NIFTY 50, the fixed price is the strike, the date is the expiry, and the price you pay for the right is the premium.
Index options in India are European style and cash-settled. Nobody delivers the index. At expiry, any option that is in profit is settled in cash at the difference between the index's closing value and the strike.
Calls and puts
- Call (CE): the right to buy at the strike. It gains value when the index rises.
- Put (PE): the right to sell at the strike. It gains value when the index falls.
Every option has a buyer and a seller (also called a writer). The buyer pays the premium and has limited risk. The seller collects the premium and takes on the obligation, so the seller's risk can be much larger than what they collect.
Contract specs (2026)
You trade options in lots, not single units. A premium of ₹100 on a NIFTY option costs ₹100 × 65 = ₹6,500 per lot.
| Index | Lot size | Strike gap | Expiry |
|---|---|---|---|
| NIFTY 50 | 65 | 50 pts | Weekly, every Tuesday (the last Tuesday of the month is also the monthly) |
| BANKNIFTY | 30 | 100 pts | Monthly, last Tuesday |
| FINNIFTY | 60 | 50 pts | Monthly, last Tuesday |
Lot sizes took effect from January 2026 contracts. NSE revises lot sizes and expiry days from time to time, so always check the exchange circular before trading real money.
In, at or out of the money
"Moneyness" compares the strike with the current index level. Say NIFTY is at 24,000:
| Call (CE) | Put (PE) | |
|---|---|---|
| In the money (ITM) | Strike below the index, e.g. 23,900 CE | Strike above the index, e.g. 24,100 PE |
| At the money (ATM) | Strike nearest the index: 24,000 CE | 24,000 PE |
| Out of the money (OTM) | Strike above the index, e.g. 24,200 CE | Strike below the index, e.g. 23,800 PE |
OTM options are cheap because they need the index to move before they are worth anything at expiry. If the move never comes, they expire at zero.
What the premium is made of
Premium = intrinsic value + time value.
- Intrinsic value is what the option would be worth if it expired right now. For a call: index minus strike, if positive. For a put: strike minus index, if positive.
- Time value is everything else: what buyers pay for the chance of a bigger move before expiry. It shrinks every minute and is exactly zero at expiry.
Your first payoff
You buy one lot of the NIFTY 24,000 CE at ₹120. You pay 120 × 65 = ₹7,800. Your break-even at expiry is strike + premium = 24,120.
| NIFTY at expiry | Option settles at | Your P&L (1 lot, before charges) |
|---|---|---|
| 23,800 | ₹0 | −₹7,800 (the most you can lose) |
| 24,050 | ₹50 | (50 − 120) × 65 = −₹4,550 |
| 24,120 | ₹120 | ₹0 (break-even) |
| 24,300 | ₹300 | (300 − 120) × 65 = +₹11,700 |
Buying vs selling options
- Buyers pay the premium, need the index to move far and fast enough, and can never lose more than the premium.
- Sellers collect the premium, profit if the index stays away from the strike, but can lose many times what they collected if it moves against them. That is why the exchange blocks large margin from sellers, and an extra 2% on expiry day.
Beginners usually start by buying options with small size, or by trading spreads that cap the risk on both sides. Selling naked options is for experienced traders with a plan for big moves.