1. Call is the right to buy the underlying shares at a certain price (strike)
2. Put is the right to sell the underlying asset such as shares at a certain price
3. One pays a premium (cost of put or a call) to buy this right
4. Premium is like a down payment on a house. Like you put 10% down to control an asset ten times more, the same thing with premium
5. This premium is the amount you can loose if your put or call option expires worthless so in that sense, your maximum loss is limited.
6. Puts & Calls come in series usually lasting one month at the end of which it expires & the next series begins
7. Premiums are determined by the amount of time left for the option to expire, the volatility in the underlying asset & how close or far the strike is from the underlying asset price.
8. Original intention of these instruments was to provide a hedge to the underlying asset the investor may hold.
These points shd get you started for follow-up reading.
Kumar
Hi Praveen bhai,
Can u explain me how put n call works...