Queries regarding F & O basic terminology

[ravikvr]

Hi All,

I am new to option and derivative trading. I have been struggling understanding and interpreting the terminology. Can someone answer to my questions

1. how to interprete the market trend depending on the open interest data changes for futures , call and put options

2. how to interprete the market trend depending on the volume and price changes for futures , call and put options

3.What are put call ratio, PCR OI (I think put call ratio open interest) and PCR Volume? And how to interprete based on the data for those values

4. What is basis ? and how does the change of basis help in predicting the market

5. What is position limit and rollover

Please help me with these , if someone change point to the documents with these details it I would be very greatfull to them.

thanks in advance.
Ravi

 

[beginner_av]

ha ha...u should vote in my thread to start my derivatives education site...kidding...see this... http://www.sharekhan.com/SSKICMT/Upload/Drv_Upload/DerivativesDigest.pdf

read this and tell me...i'll send more if reqd. DO NOT TRADE TILL UR CONCEPTS ARE CLEAR

 

[ravikvr]

Hi beginner_av,

Thanks for the link. I got cleared most of the questions.

I have done the following recently , can you let me know your comments on these.
FOR SEPT28
Brought TISCO call option 490.00 for 32
Sold TISCO call option 520 for 14

trying to implement the Bull call spread.
1. After TISCO crosses 520 , there is no point for me to hold these options, am I right.
2.I am using icici , for suppose I do what to exit before expire, do I need to square off both of them as seperate transactions or do we have something to do it as a whole.

thanks,
Ravi

 

[Czar]

i have a query if i may use your thread...

say i have certain futures & options of this month, now on settlement do i need to cover/sell the same or do they get settled with the last price of the month?

 

[ivanboesky]

If you have bought futures, you can either square off your position before expiry. On expiry day, the final settlement price will be used for marking to market, and your position will be closed.

If you have bought/ sold options, you can square off before expiry. On settlement day, first a check will be made if the option is in the money or not. If you have bought an option and it is in the money, the amount by which it is in the money will be credited to you. The last settlement price is used for this purpose. If you have sold an option and it is in the money, the amount by which it is in the money will be debited from you.
For stock options, instead of squaring off, you can also exercise before expiry.

 

[Czar]

ok thanks a lot, so what if I dont square off a future on expiry day ?

 

[deepanshu]

thanx for the link , Pal

 

[vince]

ok thanks a lot, so what if I dont square off a future on expiry day ?

Hi Czar,

As mentioned by Ivan , It would be marked to market using closing spot of that day, so you pay or receive compared to previous days closing.

Hey , you save on brokerage too.

 

[Gandhi710]

Frnd,

There were no buyers in Tisco 490 call last two days. I do not know whether you closed your positions.

When we enter into illiquid options it is very difficult to come out of it. May be we need to exercise our option if we are making a profit.

What I feel is you should have bought Tisco Futures and sold the 520 call for 14 to hedge it so that you can go for a stop loss of Rs 10 in futures. That way by now you should have made good profits.

I do not what seniors say on this.

Regards

 

[beginner_av]

Hey,

sorry for delayed reply...u r partially right...but practically its not that simple... when tisco is at 520, the 520 call will still have time valof left depending on the day of the month, and so will the 490 one, althogh much lesser. So you will not get the max spread value which is Rs 30.

Your initial position is as follows
debit 32 (buy 490CA)
credit 14 (sell 520CA)

total = 18debit (-18)

Now either u have to wait more for the spread to shrink and become closer to 30 (as of market value not of theoretical value, e.g 490Ca at 36 and 520 Ca at 12, spread becomes 24, which is higher than your initial debit of 18, and u make a profit of Rs 6 * 675 (lot size of Tisco)). Or you have to wait till expiry. If TISCO closes above 508 you make a profit.

BE CAREFUL
All brokerages do not exercise ur options automatically and give the money to u. You may have to specify the same. So check out by mailing them.

Hope that makes it clear