My Serious option questions - test123, healthraj and other knowledgable option trader

[Help_Mee]

Hi,
test123 i read on thread , you encourage people to ask questions, so they won't be stupid as they were.
And all respected option members, it'll be question that bothers me.
Help me with it.
few people bully me. but i'm gonna asking these questions
bully people please stay away! and few says everything is forum.. yes maybe! but when first guy wrote everything about option , still people do ask same questions
cSoon i'll start it.
THank you all guys

 

[Help_Mee]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

Hi,
If I sell 8300 pe that meant i'm long nifty will be 8300 or upper.

1. I'll lose only when price reach 8299 or lower? or I can lose when price reach to 8350?

2. Let's say if price reached to 8299. I started losing..because i sell puts.. when price reach to put selling level I have to buy stocks.
3. If i bought nifty 8299 , spread usually in nifty future is 1 point. as soon i bought nifty 8299 ,i close my position at 8298.
In this scenario, I lost only 1 point.

Am i right or wrong?

Thank you

 

[test123]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

if question was toward me..

I am not option guru lol . I am against selling option as one has to keep check on margin.

if u have sufficient margin go for it.

Long story short..

If u sell 8300 PE ( it means u expect market to go up Or stay sideways.)

You know what will happen

Case1 :-
You sell 8300 PE happily @ R.s 13.5 that's current price.... U have sufficient margin and u don;t fear . On last day expiry @ 3:20 pm If Nifty doesn;t falls and don;t go below 8300 You get to keep entire premium.

Case 2 :-
You sell 8300 PE and say in coming week nifty starts falling and suppose it goes low to 8200 ... Then your account will be hit as same strike will trade at
R.s 100 ( 8300 -8200) that will be price if nifty goes to 8200

Do u know what that means U will need x11 times money u have currently just to survive..else your account will go bust ZERO.


Above is only example hope it clears your doubt.
I believe in if u expect nifty will go down Buy put
if u think nifty will go up buy call
simple as that EVEn better do the next month strike so u atleast have more time .
In option business Time is money

To be honest it doesn;t makes sense to carry forward 20% loss. if u do trading and at EOD u are in loss
Cutt your loss fight another day that's most hard part .

advance stragy baatie aapni samaj main nahi aati lol

 

[umeshmandal]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

Hi,
If I sell 8300 pe that meant i'm long nifty will be 8300 or upper.
Yes, selling Put means you are Bullish on Nifty. You expect Nifty not to breach 8300 from above!
1. I'll lose only when price reach 8299 or lower? or I can lose when price reach to 8350?
You may not loose even when price comes to 8299, because it all depends at what price you entered and on the time when it breaches 8299! If it does so on derivative closing day, you may be able to cover it at cost.

2. Let's say if price reached to 8299. I started losing..because i sell puts.. when price reach to put selling level I have to buy stocks.
All options in India are settled in cash. No 'delivery' settlement is done, so no question of buy stock, and more so when you have Nifty option, Being and Index you can take position in futures only.
3. If i bought nifty 8299 , spread usually in nifty future is 1 point. as soon i bought nifty 8299 ,i close my position at 8298.
In this scenario, I lost only 1 point.
Here you are not talking about Option? If that be the case , yes, if you buy Nifty at 8299 and sell at 8298 you loose 1 point plus expenses and STT

Am i right or wrong?

Thank you

Trying to reply as a least knowledgeable person on Options! My replies in bold.

A very basic write up , but very old too, when CA & CE were traded not CE & PE! Download if you are interested :
https://dl.dropboxusercontent.com/u/73613258/Step By Step Learning.doc

 

[ashu1234]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

That was a bit complicated explanation though test for starters, but let me give a shot to explain in some easier words..

Example 1.
Nifty 8300 PE sold (Yes you are right that you are long on Nifty, but maximum that you can gain from selling put is the premium that you received from it, which is I'm taking value given by test is 13.5 Rs)
So At expiry if Nifty is 8300 you will gain 13.5
Nifty is 8400, you will still gain 13.5.

Now downside Scenario: Simple formula of what will be value of PE on downside level is Strike Price of PE-Nifty Spot.

a)So at exact 8300 Nifty spot your option value will be
Strike - Spot, (8300-8300) = 0, since you have sold 8300 PE you receive 13.5 rs, and that will be your gain.

b) At 8200 Nifty spot on expiry value will be,(again strike price -spot)
8300-8200 = 100, amount you will loose will be (100-13.5)86.5

Likewise you can calculate loss at different price points, so originally you asked what will be your gain or loss at 8299, answer is simple, value of put will be 1 Rs, so overall gain will be 13.5-1=12.5 Rs gain.

Now some technical parts and catches in selling Call or put, you need to maintain full value of Nifty future to sell a call or put, which I think is very high with increased margin, might be around 50k, but i dont know coz i left trading Nifty long ago, but its equal to 1 lot of Nifty Futures. second you must buy the option on the expiry to square off position else you'll be charged a lot of money for holding option at expiry. and third downside risk in selling option is unlimited so be careful while selling option.
Hope above info helps.

 

[Dax Devil]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

That was a bit complicated explanation though test for starters, but let me give a shot to explain in some easier words..

Example 1.
Nifty 8300 PE sold (Yes you are right that you are long on Nifty, but maximum that you can gain from selling put is the premium that you received from it, which is I'm taking value given by test is 13.5 Rs)
So At expiry if Nifty is 8300 you will gain 13.5
Nifty is 8400, you will still gain 13.5.

Now downside Scenario: Simple formula of what will be value of PE on downside level is Strike Price of PE-Nifty Spot.

a)So at exact 8300 Nifty spot your option value will be
Strike - Spot, (8300-8300) = 0, since you have sold 8300 PE you receive 13.5 rs, and that will be your gain.

b) At 8200 Nifty spot on expiry value will be,(again strike price -spot)
8300-8200 = 100, amount you will loose will be (100-13.5)86.5

Likewise you can calculate loss at different price points, so originally you asked what will be your gain or loss at 8299, answer is simple, value of put will be 1 Rs, so overall gain will be 13.5-1=12.5 Rs gain.

Now some technical parts and catches in selling Call or put, you need to maintain full value of Nifty future to sell a call or put, which I think is very high with increased margin, might be around 50k, but i dont know coz i left trading Nifty long ago, but its equal to 1 lot of Nifty Futures. second you must buy the option on the expiry to square off position else you'll be charged a lot of money for holding option at expiry...

Wrong. If you have sold option, you have already paid STT (STT is never on buying) therefore, squaring off is not required. But if you have bought option, and is ITM or carries considerble value on expiry, and you don't sell it then it will be considered as excercised option and STT charged on an excercised option will make you weep.

...and third downside risk in selling option is unlimited so be careful while selling option...

Again wrong. The myth of Unlimited risk is scarecrow designed to protect option writing business. Never heard of a option writer going in coma just after writing an option, therefore it is as good as playing futures with SL. Indeed, everything being equal, option writing has more safe SL than futures, and far less tiring. Statistically proven bottomline: an option written even a bit carelessly has more chances to bring in profits than one bought even after careful combing of option chain and greeks. Option buying is profitable only in scalping with multiple lots, 10x onwards.

....Hope above info helps.

.......................

 

[test123]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

ashu1234 explanation was best and easier to understand and point 2 point ...

see lol no shortage of Angels :xD
One tip u want help really fast made a id called seema /sita8722 or any female sounding id and ask and see how fast help comes from legendary Knowledgeable trader ^^ hehe

 

[ashu1234]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

.......................

Yes about the stt part i was biased, so closing of the sold option is not required - thnx that's some info to me. I havent traded option in years, but will keep this in mind.

About second part I will like to stick to my point, that when you sell an option downside is unlimited. Now you might get wrong ideas, i didnt said anything about trading, but its implication was for calculation of profit and loss. Real trading conditions can change anytime without actually alarming us.
just for example if anything happens to the Nifty or stock that you have written, and god forbids you have sold PE, if nifty gaps down 300 points, your account will be debited with the same amount, and condition will get worse, if you have written a stock option you might get called or even worse you won't find a buyer to buy them back(comment based on actual trading which I've seen earlier on our own exchange), so for the time being when everything is good, its safe for you to say that its a scarecrow, but option writing has unlimited downside risk, applies both to PE and CE, now dont tell me I'm wrong again....lol.

 

[ashu1234]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

ashu1234 explanation was best and easier to understand and point 2 point ...

see lol no shortage of Angels :xD
One tip u want help really fast made a id called seema /sita8722 or any female sounding id and ask and see how fast help comes from legendary Knowledgeable trader ^^ hehe

Ha ha, test, point noted, but I'm past that stage of seeking help and now would like to contribute. I wonder if your hypothesis will help me in anyway at this stage....lol

 

[niftybreakout]

Re: My Serious option questions - test123, healthraj and other knowledgable option tr

One tip u want help really fast made a id called seema /sita8722 or any female sounding id and ask and see how fast help comes from legendary Knowledgeable trader ^^ hehe

Ha ha ha
Very true indeed