Options gives you the right but not the obligation to buy/sell the underlying at a specific price (strike price). Options are popular because all you need to have a stake in the contract is to pay a premium amount. Premium is paid to reserve your write to buy/sell the underlying at the strike price of your choosing.
If you want to BUY the underlying (say Nifty Index) you need to buy a CALL Option.
If you want to SELL the underlying, you need to buy a PUT Option.
Suppose you are expecting Nifty to rally from 7800 levels, you will need to buy a CALL Option. To buy this, a premium needs to be paid which is relatively much cheaper than equity or futures.
If Nifty rallies as you had predicted, the premium amount you had paid will increase, reflecting the movement of the underlying.
Eg: You bought a CALL Option for Nifty at 7800 for Rs. 100, the next day Nifty rallies to 7900.. the increase is reflected in the price of premium, it may now amount to Rs. 200. An exit of such a trade would give you a 100% return.
In theory you paid Rs. 100 to get the right to buy Nifty at 7800, hence when the value of Nifty increased to 7900, you are 'in the money' as you have the option to buy Nifty for 7800 instead of 7900.. and the person who sold you the contract (remember for any derivative contract there has to be 2 parties with the opposite view. So if bought a CALL option, someone had to sell that CALL Option. Selling a Call/ Option is called Option Writing). Hence this person is obligated to sell to you at 7800, even though the current price of Nifty is 7900. Which will be a profit for the Option Buyer and a Loss for the Option Writer.
For more on options and trading strategies check out: http://zerodha.com/varsity/module/option-theory/