Options: calls, puts, strikes and premiums
कल अप्सन र पुट अप्सन के हो? स्ट्राइक, प्रिमियम र एक्सपायरी
An option is the right - not the obligation - to buy or sell at a fixed price before a date. The buyer pays a premium for that right; the seller collects it and takes on the obligation. That asymmetry is the whole story.
हाल नेप्सेमा फ्युचर्स र अप्सन्स कारोबार गर्न पाइँदैन। नियामक निकायले भविष्यमा अनुमति दिएमा यो कोर्स तपाईंका लागि विस्तृत गाइड हुनेछ।
The right, not the obligation
A future binds both sides. An option doesn't: the buyer gets a right they may use or ignore, and pays for it up front. The seller (also called the writer) collects that payment and accepts an obligation - they must honour the deal if the buyer wants it.
| Call option | Put option | |
|---|---|---|
| The buyer gets | The right to buy at the strike | The right to sell at the strike |
| The buyer hopes the price | Rises above the strike | Falls below the strike |
| The seller must | Sell at the strike if asked | Buy at the strike if asked |
| The buyer's worst case | Loses the premium | Loses the premium |
| The seller's worst case | No limit - the price can keep rising | Large - the price can fall towards zero |
Four words you need
- Strike price - the fixed price at which the option lets you buy (call) or sell (put).
- Premium - the price of the option itself, paid by the buyer to the seller. Quoted per share; you pay premium × lot size.
- Expiry - the last day the option exists. After that it's either settled or worth nothing.
- Lot size - how many shares one option contract covers (500 in our illustrative NABIL options).
A NABIL call, step by step
NABIL is Rs 549.20. You think it will rise after the next quarterly results. You buy one NABIL 560 call expiring in a month, at a premium of Rs 9 a share. One contract is 500 shares, so you pay 9 × 500 = Rs 4,500. That's the most you can lose.
NABIL Rs 565: worth Rs 5 a share = Rs 2,500. Minus Rs 4,500: −Rs 2,000 - right about the direction, still a loss.
NABIL Rs 545: nobody wants to buy at 560 when the market price is 545. The option expires worthless: −Rs 4,500.
Notice the middle case: NABIL rose, and you still lost. An option buyer needs the price to move far enough, soon enough - past the strike plus the premium (Rs 569 here) before expiry.
A NABIL put: insurance you can buy
Now suppose you own 500 NABIL shares and worry about a fall. A NABIL 540 put costs about Rs 7.4 a share (Rs 3,700 a lot). If NABIL drops to Rs 480, the put lets you sell at 540 - it's worth Rs 60 a share, Rs 30,000, offsetting most of the fall in your shares. If NABIL rises instead, the put expires worthless and you've paid Rs 3,700 for peace of mind - exactly like an insurance policy you didn't claim on. Lesson 8 goes deeper.
In, at or out of the money
Options are described by where the strike sits against today's price:
| NABIL options, 30 days (illustrative) | Call premium | Call is… | Put premium | Put is… |
|---|---|---|---|---|
| Strike 520 | Rs 34.1 | in the money | Rs 2.4 | out of the money |
| Strike 540 | Rs 19.2 | in the money | Rs 7.4 | out of the money |
| Strike 550 | Rs 13.5 | at the money | Rs 11.6 | at the money |
| Strike 560 | Rs 9.0 | out of the money | Rs 17.1 | in the money |
| Strike 580 | Rs 3.5 | out of the money | Rs 31.4 | in the money |
- In the money (ITM) - using the option today would pay: a call below the share price, a put above it. Expensive.
- At the money (ATM) - strike close to the share price.
- Out of the money (OTM) - using it today would pay nothing. Cheap - because it usually ends worthless.
Premiums worked out with the standard Black-Scholes formula from NABIL's price of 31 Oct 2026, assuming 20% yearly volatility and 6% interest. Real prices would depend on supply, demand and the market's mood - lesson 7.
American or European?
European options can only be used on the expiry date; American options can be used on any day before it. Index options are usually European; many stock options are American. For most traders it matters less than it sounds - they sell the option in the market rather than using it, because an option still carries time value (lesson 7).
See it live on MacroLens NP
Everything in this lesson, worked out on real NEPSE data for every listed company - inside the MacroLens NP desk.
Lesson summary
- A call is the right to BUY at the strike price; a put is the right to SELL at the strike price.
- The buyer pays a premium up front and can lose at most that premium; the seller collects it and carries the risk.
- In the money (ITM): exercising today would pay. At the money (ATM): strike ≈ price. Out of the money (OTM): it wouldn't pay.
- Options expire: an OTM option is worth nothing on expiry day, which is why most cheap options end at zero.
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No card, no payment. 11 more lessons, 118 minutes in all.
Education only, not investment advice: nothing here tells you to buy or sell any share. Investing carries risk - you can lose money. Examples use made-up companies unless a real one is named.