Understanding Trading concepts Part III - Options, Lot size, expiry etc.

The readers of this blog might have gone through our earlier posts and have formed a fair idea of what a Call Option and a Put Option is. But in the earlier posts we have explained the Put and Call Options from the buyer of contract’s perspective and that too from a theoretical point of view. In this section we focus on a few more terms associated with an Option. (Click here to read Part II.)

Each share can have many Call Options or Put Options. 
If a share trades at 100 bucks in the stock exchange then the spot price is said to be 100 bucks. The share trading at 100 bucks can have any number of Call and Put Options around the spot price. 

A share can have Put 500, Put 400, Put 200, Put 150 etc. or a Call 100, Call 50, Call 25, Call 5 etc.

A Put 200 of a share means that the buyer of the Put  200 will sell the underlying share at 200 bucks on the date of settlement. So for any conceivable Put, be it Put 1000, Put 30, Put 5, Put 2 etc.

A Call 50 of a share means that the buyer of the Call will buy the underlying share at 50 bucks on the date of settlement. 
Furthermore, a share can have puts and calls for each month i.e. Call 50 for January 2014, Call 80 for February 2014 Put 200 for March 2014, the month indicating the date of settlement for the Option, the date on which the contract will expire.

Each share has a fixed lot. If the lot of a share consists of 1000 shares then the buyer of Put 200 of the share will sell 1000 shares on the date of settlement at 200 bucks. 

Similarly if the lot of a share is 500 shares then the buyer of Call 125 of the share will sell 500 shares on the date of settlement at 125 bucks.

We hope this series of articles is being helpful to those who are new to the concept of derivative trading and any query in this regard is welcome.
In the next part we will explain how one buys and sells options in the bourses and the concept behind an Option Writer.
(Click here to read part IV of this series)