1. What is Sensex?
- The S&P BSE Sensex (Sensitive Index) is the benchmark index of the Bombay Stock Exchange (BSE).
- It represents 30 of the largest, financially strong, and most actively traded companies across key sectors of the Indian economy.
- It is considered a barometer of India’s stock market performance.
2. What is a Sensex Index Option?
- A Sensex Index Option is a financial derivative contract based on the Sensex.
- It gives the buyer the right, but not the obligation, to buy or sell the Sensex at a pre-decided level (called the strike price) on or before a specific date (called the expiry date).
- Traders don’t need to buy all 30 stocks; they can simply take exposure through options.
3. Key Features
- Underlying asset: S&P BSE Sensex (not individual shares).
- Types of Options:
- Call Option (CE): Right to buy → Profits when Sensex goes up.
- Put Option (PE): Right to sell → Profits when Sensex goes down.
- Expiry: Options have fixed expiry dates (monthly/weekly depending on contract).
- Lot size: Traded in predefined lots (e.g., 10, 15, 25 units — defined by BSE).
- Premium: The price paid by the buyer to the seller for buying the option.
4. Why Trade Sensex Options?
- Hedging: Protect portfolio value if the market falls.
- Speculation: Earn profits by predicting market movement.
- Leverage: Pay only the premium, but control a much larger value of the index.
- Diversification: Exposure to the top 30 companies instead of just one stock.
5. Example (Simple)
- Assume Sensex = 70,000 points.
- You buy a Call Option (CE) with strike price 70,500, expiring in 1 month.
- If Sensex rises to 71,500 before expiry → You make profit.
- If Sensex falls below 70,500 → Option expires worthless, and you lose only the premium paid.
6. Risks
- Limited to the premium paid for buyers.
- Option sellers (writers) can face higher risks if the market moves against their position.
- Market is volatile, so proper knowledge and risk management is important.
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