1. An option is a derivative which means that it derives its value from something else. One can say that an Index option derives its value from underlying Index value and a stock option derives its value from underlying Stock value.

2. We will now understand the meaning of a Call option which gives the holder the right, not the obligation, to buy underlying Stock at a fixed price and for a fixed period of time.

3. In similar breath one can state a put option as an option which gives the holder the right, not the obligation, to sell underlying Stock for a fixed price and for a fixed period of time.

4. The Four Components to an Option include underlying Stock Value, type of option (put or call),  strike price, and
expiration date. Factors influencing the price of an option is price of the underlying Stock, strike price of the option itself, time remaining until the option expires and volatility component of the underlying Stock. We will be dealing with these aspects in subsequent paragraphs.

5. We will now understand the meaning of At-The-Money option whih means that if the stock is trading at a price of Rs 200, the call option at the strike price of Rs 200 is considered to be trading 'at-the-money'.

6. Similarily In-The-Money option can be defined as an option if the stock is trading above a price of Rs 200, the call option at the strike price of Rs 200 is considered to be trading 'in-the-money'. It is important to understand that When an option is in-the-money, the price difference between the underlying Stock and the option's strike price is the intrinsic value.

7. Last but not least is the Out-Of-The-Money option which means that if the stock is trading below a price of Rs 200, the call option at the strike price of Rs 200 is considered to be trading 'out-of-the-money'.

8. We will now have a look at Time value which has been discussed in para 4 and time value means the amount by which the price of the option exceeds its intrinsic value.  The time value premium of an option declines as the expiration date approaches. Thus one can sum up an option price as a sum of Intrinsic Value  and Time Value.

9. Last terminolgy related to options is the volatility factor which we will be seeing in form of historical volatility and it estimates volatility based on past prices. Thus to explain to a layman we can state that implied volatility starts with the option price as a given and works backward to ascertain the theoretical value of volatility equal to the market price minus any intrinsic value.

10. It is important to note that in India stock Options is of American type and settlement is by cash.

11. Further important to note is that Index Options is of European type and settlement is by cash.