This are the type of derivative contract whose value is derived from another asset that is called underlying asset. There are two types of option contract are there that is
Call Option : That gives you a right to buy an asset
Put Option : That gives you a right to sell an asset.
In Option contract buyer always have right to exercise the contract while seller have an obligation to exercise the contract For Example There MR. X And Mr. Y
And stock ABC Ltd Whose CMP is INR 145 /- A buy call option of Strike price 150 from B through paying a premium of INR 10/- And the market lot of ABC Ltd Stock is 1000 here total invest would be 10*1000 that would be INR 10,000/-
If the premium increase upto INR 12/- here profit would be of INR 2/- and lot size (Quantiy or No. of share) is 1000 then 2*1000 = INR 2000/- profit would be