For example let's take Adani ports to understand this better. let's say based on recent quarterly report or on any other analysis you expect the stock to go up in the near future. Then the most familiar way to benefit from this is to buy its common stock.
Another possible way is to buy its call option.
pic you see below is something which is called as option chain of a stock. You can get this for any stock from NSE India site.
If you observe this pic, in the top right corner you can find the current market price of Adani ports. In the middle vertical column you can see different prices of stock, which is usually called as STRIKE PRICE.
For every strike price you can find information regarding call and put options in respective horizontal columns.
You can see 3.50 under LTP for a strike of rs.340. This is the price for which you can get call option of this stock. This is called as PREMIUM.
Let's say you are bullish on this stock and buy it's call option for a strike price of rs.340 by paying 3.50 as premium. What do you get from this? Well, by buying a call option,you are basically making a agreement to buy the stock at its strike price irrespective of the price it is trading in live market in near future. So,if this stock reaches to a price of rs.360 then you can exercise your option and make rs.16.50 in profit for each option(360–340–3.50=16.50) . What if price of stock falls down to rs.320? Well the only amount you are gonna lose is the amount you paid as premium. So here you are getting unlimited upside with limited downside.
Likewise if you are bearish on this stock you can buy put option for a strike price of rs.330 by paying a premium of rs.6.4 per option. If the stock price moves in your favour and reaches rs.310 you can exercise your option and get rs.13.6 per optionas your profits(330–310–6.4=13.6). If the price moves against you and reaches rs.360 or even rs.400 the only amount you are gonna lose is the premium you paid.
Unlike common stock,options has expiry date. So options are to be exercised within its expiry date.
Call option is the contract which gives right to buy a security at a agreed price(STRIKE PRICE)without any restriction/obligation.
Put option is the contract which gives right to sell a security at a agreed price(STRIKE PRICE) without any restriction/obligation.
If you buy Adani ports stock at rs.340 and sell it at rs.360 you get rs.20(+5.8%).
If you buy call option with a premium of rs3.50 and exercise it at rs.360 you get rs.16.50 (+471%) . This is the reason why options are attractive.
Indian options are European style so they can be exercised only on expiry date.