Basic question related to Option selling

G

gsap

New Member
#1
#1
I have never traded Options before and I am quite new to stock markets. I was checking some Option prices today on a site and I want to ask a silly question to the experts.

It seems to me that NIFTY won't be touching 4800 anytime soon. Today if I sold 20 lot NIFTY 4800 Call Option @ Rs. 7/- (for Rs. 7000/-) and then NIFTY doesn't go above 4800 before 30 July, does it mean that I simply pocket the sum of Rs. 7000/- ? Is it this simple?
 
sub2501

sub2501

Active Member
#2
#2
hi,
1st of all confirm what is the margin for Put sell (20,000/- margin as i know per lot and the M2M ) and if the mkt stays at this point maximum profit u receive is Rs 7/- per share(gross) and the loss in put sell is unlimited, well decesion is urs but i wud ask u to buy instead of sell, where in u can expect unlimited profit & limited loss.

for more infor:- www.optiontradingtips.com/strategies/index.html
 
A

AW10

Well-Known Member
#3
#3
gsap, in practical trading there is nothing called UNLIMITED RISK or UNLIMITED PROFIT.
There is always a limit to what stock can rise in till expiry.. or on the downside it can't go below 0 (which is still a limit). So instead of Unlimited, read that is HIGH to VERY HIGH.

What u have mentioned is correct that if nifty doesn't above 4800 then u can keep who 7 rs of premium. This looks very tempting and seems like easy money but Selling option has Very high risk attached to it. So until unless u understand the nitty gritty of option trading, please stay away from such high risk approach.

Happy Trading
 
TFL

TFL

Well-Known Member
#4
#4
gsap said:
I have never traded Options before and I am quite new to stock markets. I was checking some Option prices today on a site and I want to ask a silly question to the experts.

It seems to me that NIFTY won't be touching 4800 anytime soon. Today if I sold 20 lot NIFTY 4800 Call Option @ Rs. 7/- (for Rs. 7000/-) and then NIFTY doesn't go above 4800 before 30 July, does it mean that I simply pocket the sum of Rs. 7000/- ? Is it this simple?
Click to expand...
First, you should consider the brokerage for this Rs:7 premium profit.

Secondly, you cannot just say NIFTY will not touch 4800 this month, around 16 trading sessions pending.

If the move is against you and reach 4800 then be ready to loose heavenly.
 
G

gsap

New Member
#5
#5
sub2501 said:
hi,
1st of all confirm what is the margin for Put sell (20,000/- margin as i know per lot and the M2M ) and if the mkt stays at this point maximum profit u receive is Rs 7/- per share(gross) and the loss in put sell is unlimited, well decesion is urs but i wud ask u to buy instead of sell, where in u can expect unlimited profit & limited loss.

for more infor:- www.optiontradingtips.com/strategies/index.html
Click to expand...

Thanks for the information. The margin required would be too large. This thing is not for me.
However if someone has a good amount of money and a fair amount of risk apetite it seems he can go for this kind of a simple strategy if he is confident about the direction of market.
 
G

gsap

New Member
#6
#6
AW10 said:
gsap, in practical trading there is nothing called UNLIMITED RISK or UNLIMITED PROFIT.
There is always a limit to what stock can rise in till expiry.. or on the downside it can't go below 0 (which is still a limit). So instead of Unlimited, read that is HIGH to VERY HIGH.

What u have mentioned is correct that if nifty doesn't above 4800 then u can keep who 7 rs of premium. This looks very tempting and seems like easy money but Selling option has Very high risk attached to it. So until unless u understand the nitty gritty of option trading, please stay away from such high risk approach.

Happy Trading
Click to expand...
Thanks AW10, I do get the picture. I will stick to your advice.

Now I need some more guidance from you. :)
Today the NIFTY closed at 4003 after a sharp fall. If there is a short rally upwards at the start of next week (say to 4050), I want to buy a Bear Put Spread (for 30 July) 4000-3800. Is this a decent strategy in your judgement for the present market situation for a newbie like me? I also want to know if one always has to wait for expiry date if one buys such a spread to make any profit? Is it possible to collect profit through premiums when one buys a Spread? Would be waiting for your reply.
 
G

gsap

New Member
#7
#7
TFL said:
First, you should consider the brokerage for this Rs:7 premium profit.

Secondly, you cannot just say NIFTY will not touch 4800 this month, around 16 trading sessions pending.

If the move is against you and reach 4800 then be ready to loose heavenly.
Click to expand...
Thanks TFL. Ok I understand.
I just thought PE was too high for the market even at 4400 given the world scenario and now that budget is also over. I read an article on historical PE of market which said crossing PE of 21 by large margin is tough at this moment. So it seemed very unlikely to me that the market can break 4800 on the upside in coming 20 days. However, I do get your point about the risk involved.
 
G

gsap

New Member
#9
#9
AW10, I really appreciate this effort on your part. I am already reading that thread. It is very useful to people like me who are starting out. :thumb:
 
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