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Concepts and Terms used in options trading.

Strike price: The strike price denotes the price at which the buyer of the option has a right to purchase or sell the underlying. Five different strike prices will be available at any point of time. The strike price interval will be of 20. If the index is currently at 3410 the strike prices available will be 3370, 3390, 3410, 3430 and 3450. The strike price is also called Exercise price. This price is fixed by the exchange for the entire duration of the option depending on the movement of the underlying stock or index in the cash market.

In-the-Money: A Call option is said to be In-the-money if the strike price is less than the market price of the underlying stock. A put option is In-the-money when the strike price is greater than the market price.

Out-of-the-money: A call option is said to be Out-of-the-money if the strike price is greater than the market price of the stock. A put option is out-of-the-money if the strike price is less than the market price.

At-the-Money: The option with strike price equal to that of the market price of the stock is considered as being At-the-Money or Near-the-money.

If the index is currently at 3410, the strike prices available will be 3370, 3390, 3410, 3430 and 3450. The strike prices for a call option that is greater than the underlying (Nifty and Sensex) are said to be out-of-the-money in this case 3430 and 3450 considering that the underlying is at 3410. Similarly in-the-money strike prices will be 3370 and 3390. which are lower than the underlying of 3410.

At these prices one can take either a positive or negative view on the markets i.e. both call and put options will be available. Therefore, for a single series 10 options (5 calls and 5 puts) will be available and considering that there are three series a total number of 30 options will be available to take positions in.

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