Options Doubt

[travi]

subhadip ji ... how it gets unlimited loss ?

Don't freak out on the word unlimited loss
It is the potential loss that can be incurred.

When you buy option for inr. 200, worst case it goes to 0.
So you have a limited max loss of inr. 200
on the other hand,

if you sell for inr 200, max gain for you is inr. 200 (option goes to 0)
but if move is against you, and say it goes to inr. 1k, or inr. 2k and so on

but that's in theory for BN to move 10000-20000pt in a day

so even the term unlimited has a finite potential.

 

[okabira]

Bhai, explaining elementary option trading is not easy (for me atleast),because there are may conditions attached to it. So it will be good for you to read and understand basics of option trading.

In a nutshell,
One will earn from stock market only and only if he is on the right side.

Option buyers will profit only if market moves on his side, (event days may sometime prove exception) and subject to IV, time decay, theta, gamma etc. But the loss will be limited to the amount invested and not more. So you know beforehand your maximum loss. Thats why it is said to be "a trade of limited loss and max profit."

Option writer (at maximum) will get the premium, for which he has sell that option and suppose the trade move against it, he will have to bear the loss till his trade is closed. That why it is called "a trade of limited profit and unlimited loss"

In the example you have quoted, if SL hits then your loss is 400 but suppose price jumps your SL then.

--------------------------------
Not writing any more, otherwise a mad dog may enter into the arena and will start barking and biting.

ok thanks ... no problem ...

last query ..
i found this book #1 option volatility and pricing by sheldon natenberg..
and #2 option course by george fontanills .. are the books good ?

recommend me any other book which helped you subhadip ji / bull ji / travi ji .. others .
Thanks for help !

 

[traderniftybull]

ok thanks ... no problem ...

last query ..
i found this book #1 option volatility and pricing by sheldon natenberg..
and #2 option course by george fontanills .. are the books good ?

recommend me any other book which helped you subhadip ji / bull ji / travi ji .. others .
Thanks for help !

IMO
Initially no need to go to read these books.
For basics, read Zerodha versity modules.
There was one module on ICICI website on option trading, dont know its link, you may search on google for it.

 

[Subhadip]

ok thanks ... no problem ...

last query ..
i found this book #1 option volatility and pricing by sheldon natenberg..
and #2 option course by george fontanills .. are the books good ?

recommend me any other book which helped you subhadip ji / bull ji / travi ji .. others .
Thanks for help !

First read up two books of zerodha varsity..Then u can learn anything...Many many books r there

 

[aarna singh]

As per my knowledge options can be defined as derivatives product like futures contracts but different, because in that risk is limited for buyers while they can gain unlimited profit.

 

[mohan.sic]

Do it in a different way.

Like bullish

Buy 21000 CE and sell 23500 CE

Same quantity

Thinking of sideways
Buy. 21000 CE and sell double quantity 23500 CE

Thinking of bearish.

Buy 25000 pe and sell 23500 pe.

He has 10 points stop loss. Where do u have sl if u buy 2k points itm call.
If bank nifty come down, how much do you think 23500 ce sold can hedge the loss in 21000 ce.
Same applies for your side ways ideas.

 

[Subhadip]

He has 10 points stop loss. Where do u have sl if u buy 2k points itm call.
If bank nifty come down, how much do you think 23500 ce sold can hedge the loss in 21000 ce.
Same applies for your side ways ideas.

Please take a free seven days trial of VOLHEDGE of FINIDEAS..

Good software..

also one can have a go in any option calculator...u can easily know the difference on buying only CE or PE..and covering one deep in the money CE buying with slightly in the money CE selling..

Please try it once to see the difference..

 

[Subhadip]

He has 10 points stop loss. Where do u have sl if u buy 2k points itm call.
If bank nifty come down, how much do you think 23500 ce sold can hedge the loss in 21000 ce.
Same applies for your side ways ideas.

One quote of Shiv Khera "Winners do not do different things, they do it differently".

I am telling him to change the APPROACH..

 

[wisp]

Don't freak out on the word unlimited loss
It is the potential loss that can be incurred.

When you buy option for inr. 200, worst case it goes to 0.
So you have a limited max loss of inr. 200
on the other hand,

if you sell for inr 200, max gain for you is inr. 200 (option goes to 0)
but if move is against you, and say it goes to inr. 1k, or inr. 2k and so on

but that's in theory for BN to move 10000-20000pt in a day

so even the term unlimited has a finite potential.

With sell, is there not an an obligation to sell the shares if trade is not closed before expiry and thats why they say unlimited loss?

 

[mohan.sic]

One quote of Shiv Khera "Winners do not do different things, they do it differently".

I am telling him to change the APPROACH..

Then give appropriate example na. he wants to trade with 10 points stop loss. And 2k points deep ITM call will have 20 to 30 points bid ask spread.

suggest him a approach keeping his need and sl in view.