Confused about Profit/loss in option

RiddhiPD

Active Member
#1
Right now feeling thick headed so any help will be much appreciated.

As of Saturday 11th April,2015 -

Nifty SPOT Price is 8780.35

Nifty 30APR2015FUT price is 8805.

Nifty 30APR2015PE STRIKE 8700 trades at 65.65

Nifty 1 lot = 25unit

Imagining my Broker Zerodha(calculating P/L in Zerodha Brokerage Calculator),if I have to buy-1 lot of Nifty 30APR2015 Future my required margin is 17,681 (Normal lot).
Now simultaneously if I buy 1 lot 30APR2015 Put strike 8700,SPAN calculator show my required margin is Rs. 13,695.

Margin benefit 3,986.

Now as I understand Zerodha will deduct this 13,695 from my cash balance.But does it include the Premium???

From my understanding I have to pay 65.65 x25 = 1641 Rs as Premium.But Span calculator Doesn’t show it.Why?I am seriously confused about total amount payable.

Part 2.
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Now as I Suppose I have bought 1 Lot of Nifty Future @CMP and bought 1 lot of Put with strike price 8700.


Scenario 1.

Say,on 28th April, Nifty Spot moves up 100 point,say 8880.

and future price moves to 8905.(example)

Now my Profit from Nifty Future will be 2296 Rs.(from Brokerage calculator)
But as my Put option expired worthless I will loose Rs.1641.
Then my final Payoff is Rs.2421-Rs.1641 = Rs.780 (approx.)

Please correct me if I am wrong.

Scenario 2.

Nifty loose 30 points and end up 8750 and future ends up on 8770.

Loss from Nifty Fut 8805-8770 ,which comes around Rs.953 after brokerage.

And since Put never goes below strike I loose in the option too.

But what is the amount of loss in case of option?? Hypothetically.Can i square of my position at a lower premium rate or I loose my total premium value.?An elaboration will be much appreciated.

Scenario 3.

Nifty SPOT is at 8600. and Future price at say 8625.

Now my loss in future position is around Rs.4578.(8805-8625)(after brokerage)

But Since my option is now in the money ,what will be profit from my option position?

Is it (STRIKE minus SPOT)x25- Total Premium???I am totally confused here,especially with regard to Premium.Can anybody show us a hypothetical calculation showing my Profit from option and loss from future and thereby my ultimate profit or loss??

Last question from Risk-Reward Ration it looks like it is a good strategy in uptrend but not so good when Market goes sideways.Am I correct??
 

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