The world of Derivatives

A call option gives the holder the right, but not the obligation, to purchase shares of a particular underlying stock at a specified strike price on the option’s expiration date put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.
Premium is decided buy the one who Writes (Sells) the Option.
The buyer and seller agree to make the trade at an agreed priced on a future date that is fixed. Regardless of the actual trading price on the expiry date, the deal gets executed. In a future contract the contract must get executed on the expiry date. Today onion is 30 rs per kg, the farmer wants to harvest his current lot but not sure about the price movement, he gets in to a contract with the buyer for 40 rs per kg 3 months from now. On the date of expiry regardless of the current market price the deal happens at 40 rs per kg. If the CMP is say 50 rs per kg the farmer loses money but if the price is say 30 rs per kg the farmer makes money.