Help me on OPtion trading

[FanaticTrader]

Hello Fanatic Trader,

I want to daytrade in nifty options. now the NSE is trading at 5169. I want to know how to make profit daily. Whether to buy put of 5200 or 5100 if I buy put of 5200 the price is 90.50 and put for 5100 price is 48.4 and 117 among the chain. Imagine the nifty is going down like I know from which point it is going down. Can i immediately profit after putting trade if after putting trade nifty start going down ? if yes then which put shall i buy 5200 or 5100 ? what do traders do normally ? I am bearish but only for a single day.

My Dear Frnd,

First of all, If I was in your place, I would not blindly go out and start trading options even if I'm bearish. Options should only be traded after you have had a good look at the chart, identified Support and Resistance for the day/week etc...Once you have all the correct info in place, then you should check your risk appetite i.e. If you are ok with writing naked Call/Put or would want to play safe by hedging or any other strategy. Options look very simple but if it goes against you, your capital can go in for toss.

Any ways coming back to point...

Can i immediately profit after putting trade if after putting trade nifty start going down ?

Yes you can...Say for Example, if you would have put a trade to buy 5200 Put Option at premium of 72 in morning and by afternoon when Nifty lost over 100 points on Index, 5200 Put Option was available at 90.05. If at that point you decided to exit the trade you would have gained profit of 90.05-72=18.05 * Lot Size. Generally there is lot of buzz around calls/puts near ATM strike price.

what do traders do normally

I have no idea what others do, but everyone has a plan and they try and trade as per plan only.

 

[aspardeshi]

Dear Fanatic Trader,

Thank you very much for your quick reply. I have learned a few more things about options like.

1. What the premium value means.
2. How to profit from the same.
3. What is a naked call.

Oops... About naked call I think a single trade is a naked call I suppose without any cover...

Anyway it is a long learning process. I also learned from religare that naked call can be covered by futures. I am very good at technicals and fibonacci levels. But new to options and futures. I can predict very strongly where the nifty will head and from which position. I had been paper trading nifty for past several days and my judgement never went wrong.

Thank you for everything..... :thumb:

 

[FanaticTrader]

Dear Fanatic Trader,

Thank you very much for your quick reply. I have learned a few more things about options like.

1. What the premium value means.
2. How to profit from the same.
3. What is a naked call.

Oops... About naked call I think a single trade is a naked call I suppose without any cover...

Anyway it is a long learning process. I also learned from religare that naked call can be covered by futures. I am very good at technicals and fibonacci levels. But new to options and futures. I can predict very strongly where the nifty will head and from which position. I had been paper trading nifty for past several days and my judgement never went wrong.

Thank you for everything..... :thumb:

You are welcome to discuss any thing under the sun my frnd...

1. What the premium value means.

Premium is the price paid by buyer/seller over the strike price.

At a given strike price, a CALL option and a PUT option will have different premiums

Let's look this by current market stand

Nifty 5300 Call today has a premium of 32. This means that if you are bullish on Nifty and with your analysis feel that Nifty would rally from 5300 onwards and buy 5300 Call, you are willing to pay a 'premium' of Rs 32 to acquire right to buy.

In simpler terms

Strike price : 5300
Premium : 32
Break Even Point : 5300+32 = 5332

Now if Nifty is trading above 5300 (which is your strike price) and since you've paid Rs 32 more as premium your profit on expiry would come into play once Nifty starts trading over 5332. Your are not compelled to wait till expiry of the option bought. Once trade starts moving in your favour the same Strike Price will be available at higher premiums. You can get out of trade and difference in premium * lot size will be what you'll gain.

3. What is a naked call.

Naked call is where there is no opposite position in the underlying. For e.g if I sell 5500 Call and do not cover it by any other means I would have opened up a naked call. As you have mentioned, naked call/put can be covered by futures

 

[vaibhav_10]

Hi,
I was doing some paper trading i came across some confusion ,please guide me to clear it.

suppose Nifty is trading at 5180 and I want to buy May 27 call 5300 for option price 90 Rs.
So total premium I will pay for this call is around 50 * 90 = 4500 + some brokarage.
Now after 2 days nifty is trading at 5250,It shows premium price above 100 Rs.
So My question is that when should I sell this call?
Shall I square off or exercise this one? and when?
Means some what confuse to me is that I read about breakeven point.So i guess that when nifty crosses above 5390 ,I will be in profit.But if suppose nifty is trading at 5275 and option price is 150 then shall i square off that position because option price is greater than my premium paid?
Please explain differnece between squareoff and Exercising option?

 

[FanaticTrader]

Hi,
I was doing some paper trading i came across some confusion ,please guide me to clear it.

suppose Nifty is trading at 5180 and I want to buy May 27 call 5300 for option price 90 Rs.
So total premium I will pay for this call is around 50 * 90 = 4500 + some brokarage.
Now after 2 days nifty is trading at 5250,It shows premium price above 100 Rs.
So My question is that when should I sell this call?
Shall I square off or exercise this one? and when?
Means some what confuse to me is that I read about breakeven point.So i guess that when nifty crosses above 5390 ,I will be in profit.But if suppose nifty is trading at 5275 and option price is 150 then shall i square off that position because option price is greater than my premium paid?
Please explain differnece between squareoff and Exercising option?

I guess you are getting it wrng when it comes to premium....

So total premium I will pay for this call is around 50 * 90 = 4500 + some brokarage.

This is what you ought to lose if Nifty fails to attain BEP of 5390 for May expiry. If on expiry Nifty is trading at 5500, your profit from 5300 call would be

5500-5300-90=110 * 50 (If you have only one Lot) = 5500

In other words higher the trade above your BEP, more is your profit.

Now after 2 days nifty is trading at 5250,It shows premium price above 100 Rs.
So My question is that when should I sell this call?.

You bought 5300 call on X date at 90 and after 2 days same 5300 call is available at 100, so you can sell off your 5300 call and earn value of difference * lot size i.e. 10*50(assuming you have one lot) = 500
The difference between buying and selling is your profit/loss. The process is similar to that of trading in shares.

 

[aspardeshi]

Hello Fanatictrader,

1. If you short a stock then if the stock goes 1 point down you profit immediately. In Options we have to wait for the break even. This is highly risky matter. In my first question after joining this thread, I have asked that can I profit immediately on profiting trade like shorting a stock. I do not want to wait for break even. Is there any way out to achieve my goal this way ? I think in this way options is not suitable for day trading. because if you consider the premium value the break even almost covers our profit target of the day. How do you compare futures with this scenario. does futures allow to profit immediately as compared with option in any trade like "immediate profit for day trade" described above ? I doubt traders make handsome profits in index options in day trading. Maybe I am missing on some strategy.

2.Can you go short and long at the same time in index options or futures with stop loss ?

3. You see various premium values for a single call or put in the options chain... So who creates these premium values.. I mean to say that can i create a premium value myself ? As there must be someone who must be creating the option chain with varied premium values ... Which premium values to use..

4. I have observed the premium values and it change frequently. Almost after doing calculations... What tool to use in this case...

Your help is much appreciated...

 

[FanaticTrader]

Hello Fanatictrader,

1. If you short a stock then if the stock goes 1 point down you profit immediately. In Options we have to wait for the break even. This is highly risky matter. In my first question in this thread, I have asked that can I profit immediately on profiting trade like shorting a stock. I do not want to wait for break even. Is there any way out to achieve my goal this way ? I think in this way options is not suitable for day trading. because if you consider the premium value the break even almost covers our profit target of the day. How do you compare futures with this scenario. does futures allow to profit immediately as compared with option in any trade like "immediate profit for day trade" described above ?

2.Can you go short and long at the same time in index options or futures with stop loss ?

3. You see various premium values for a single call or put in the options chain... So who creates these premium values.. I mean to say that can i create a premium value myself ? As there must be someone who must be creating the option chain with varied premium values ... Which premium values to use..

4. I have observed the premium values and it change frequently. Almost after doing calculations... What tool to use in this case...

Your help is much appreciated...

Lets take your queries one by one...

In Options we have to wait for the break even.I do not want to wait for break even. Is there any way out to achieve my goal this way ?

I guess you are not getting my point...You don't have to wait for BEP to get profit. Only if you wish to hold your trade till expiry then BEP comes into play.
As I mentioned in my posts above as well lets look at an example

Suppose, Today you got 5200 CA at 20 and markets make a strong move and after an hour or so same 5200 CA is trading at say 40. You can sell you 5200 CA and make a profit of = 40-20 = 20 * Lot Size

Futures is another derivative instrument and can fetch you profits same day as well...

2.Can you go short and long at the same time in index options or futures with stop loss ?

Of course you can but not in same trade...Open a trade for long position and another one with short position

So who creates these premium values

The exchanges decide the strike price at which call and put options are
traded.

What tool to use in this case

I guess you can use Black Scholes Calculator

 

[aspardeshi]

Hi Fanatic Trader,

As you say that I can do a call and put with a stop loss. I recently met religare people and they said that you cannot buy a call and short at the same time in options, as it will cancel each other out.

Maybe I would have asked them that can i buy a call and a sell a put :lol: ?

Secondly they told me that i can never put a stop loss in options. Is it true ? as I want to automatically close options on reaching a suitable value for stop loss. There is 1 thing which I want to ask. If I book 5200 call for 20, then the margin I will be paying is 1000 INR. If the nifty goes against me 20 points and again come at 5200 and I close the call then how much I will be loosing ? is it entire 1000 INR ?

Finally first Religare person i met told me that I cannot trade minifty in options at religare, but another senior person told me that I can .

At present I am just watching options oracle. There are very good templates for strategies and it chooses automatically. It looks good currently.