New to options pls help

#1
What is the difference between out of money put and in the money put?
Suppose nifty trades at 6000 in dec 2010.
then a Out of money put eg will be jan 2011 5100.
and In the money put will be jan 2011 7000.

Now we know that by buying puts we expect to make money from prices falling?So it is understandable to buy nifty jan put 5100,however it is not clear how does one benefit from a higher strike puts like nifty 7000 (when nifty trades at 6000).If one expects the price to go up then one should be buying calls instead of higher strikes put? Please clarify.
 

trader15

Well-Known Member
#2
The value of put option increases when the underlying falls. The buyer of put is essentially stating:" I've the right to sell at 6000, even when the price is at 5100".


The call is opposite of it: Buyer of call is essentially stating": I've the right to buy at 5100, even though the price is at 6000".


Buy put: When price is expected to go down

Buy call: When price is expected to go up

For in/out of money options:
- First of all, stick to same expiry. So if Nifty trades at 6000 today in Dec, stick to optionsin Dec series for talking about out or in the money

- For calls: It's better to play at at the money or out of money which is near to underlying. So if you want to buy out of money when 6000 nifty, you should buy 6100 CA@Dec series

Nifty Jan put 5100: If nifty is at 6000 today, you'll not buy 5100 put, as there's no value buying it. Rather you would be betting on 5900/6000 levels that nifty should go down below it.