PCR Trading

How Option Trading Works

Let’s simplify with an example:

Stock Price: ₹1000

Call Option Strike: ₹1050

Premium: ₹20

Lot Size: 100 shares

If you buy the call option:

Break-even = Strike Price + Premium = ₹1070

If stock goes to ₹1100 → Profit = (1100-1050-20) × 100 = ₹3000

If stock stays below ₹1050 → You lose only the premium = ₹2000

If you sell (write) the call option:

You collect ₹2000 premium upfront.

If stock stays below 1050, you keep the entire premium as profit.

But if stock goes to ₹1100, you face unlimited loss: (1100-1050-20) × 100 = -₹3000.

👉 This shows: Option buyers have limited risk but unlimited profit potential, while sellers have limited profit but unlimited risk.