some query regarding options

[durgalove0]

Hi,
iam really new to opion trade,my question is the confusion between current price and strike price
1.If i purchased Nifty 2900 call at current price 170 ,shall i sell it if current price reaches 190,and can i take profit (190-170)*50(one lot).or
if i square off current nifty value*50 get as profit/loss?
2.Is i need to wait till nifty reaches 3000?
3.can i square off before expiry?

 

[bandlab2]

you can square off at any time, you dont need to wait for expiry. if current price is 190, then you get 1000 rs per lot as profit.

do some paper trades before jumping to actal trades. and also try mini nifty (lot size 20) before regular nifty

 

[durgalove0]

Thanks lot,But i means that ican sell at 190 rs right?Then can u please explain what is need for strike price?If nifty falls 2800 it will expired or call is active till expiry?If nifty falls 2800 then if price reaches to 190 ,ican sell right?please correct is iam wrong

 

[AW10]

Strike price of option is the price at which option owner has rights to buy the underlying.
i.e. 2900 NIFTY CALL gives you the right to buy NIFTY at 2900.
You always trade the market on the current price.. This current price reflect the premium that market is asking at a particular moment. This premium depends on many factors So please read on option pricing concepts. One of the component of the premium is differnece between Strike price and Current spot price of NIFTY.

So if you are paying premium (i.e Curremt price) of 170.. then you can sell at anytime before expiry on whatever is the current price in market at that moment. If it is above 170, you make money, if it is below, you loose.

If nifty falls then CALL option premium will fall.. so your call is goint to loose value. If nifty rises then CALL premium is going to go up...
Besides this, premium is also affected by Volatility, remaining life of option etc.. So spend time in understanding the option pricing.

Happy Trading.

 

[durgalove0]

thanks boss,very nice reply,can u plese tell what happen in put option?When i will loose money in the above situation,if i pu option for nifty at 3200 at current price 120,now nifty moves above 3300 current price reaches 110 right? or current price reaches 130 i lose money?

 

[kumark]

Hi

Plz go thru the Below links...Also there are lot of information available in OPTIONS segment...

http://www.traderji.com/options/23709-books-magazines-options.html

http://www.888options.com/basics/whatis/default.jsp

http://www.traderji.com/options/11830-giant-thread-options-13.html

http://www.traderji.com/options/16318-difference-between-exercise-square-off.html

http://www.traderji.com/options/16794-option-buy-recomendations.html (Trading System for Options)


Regards

Kumar

thanks boss,very nice reply,can u plese tell what happen in put option?When i will loose money in the above situation,if i pu option for nifty at 3200 at current price 120,now nifty moves above 3300 current price reaches 110 right? or current price reaches 130 i lose money?

 

[AW10]

thanks boss,very nice reply,can u plese tell what happen in put option?When i will loose money in the above situation,if i pu option for nifty at 3200 at current price 120,now nifty moves above 3300 current price reaches 110 right? or current price reaches 130 i lose money?

For Put option, the premium goes up, when price of underlying falls. and premium drops as underlying moves higher. So if you have paid 120 for PUT option, and market starts going up, then PUT premium will drop.. and you will start loosing money.
For put to be profitable, market needs to go down...

Again, this is only partial picture... Please understand the option pricing. Visit the links given in previous post...

What I have mentioned is based on "General Condition". In reality, even if market falls, there are times when your PUT will still loose money. Once again, there are times when even if market goes in the direction in which u want it to go, your option can still loose money..
Confused ? Thats where Volatility, time decay, option Delta etc starts coming into picture.. I am not trying to scare you.. but just trying to point out the danger of risking your money without understanding the rules of the game.

Happy Trading.

 

[durgalove0]

Thanks for reply, now my doubts clear ...AS i conclusion i explain following
1.in call option If i purchased Nifty 2900 call at current price 170 ,if price reaches 190 or mkt will move up or current price go higher i will make profit
2.In put option for 2900 purchased at 170, if mkt go down or current price reaches less than 170 i will make profit right?
correct my thoght?

 

[durgalove0]

Hi
Thanks for nice explanation,Now my doubts are clear ,for just conclusion iwill what i understand
1.In Call option for NIFTY3200,purchased at 170,if price reaches more han 190 or sensex go up more than 3200 i will make up
2.in pu option for Nifty 3200,purchased at 110,if price reaches less than 110,or mkt go down less than 3200,iwill make profit .Am i right boss?

 

[AW10]

Hi
Thanks for nice explanation,Now my doubts are clear ,for just conclusion iwill what i understand
1.In Call option for NIFTY3200,purchased at 170,if price reaches more han 190 or sensex go up more than 3200 i will make up
2.in pu option for Nifty 3200,purchased at 110,if price reaches less than 110,or mkt go down less than 3200,iwill make profit .Am i right boss?

You are wrong for put related interpratation. Let me summarise it below

For Call - Mkt price paid to purchase 170, to make profit, you have to sell it when mkt price is > 170. Fullstop.
For PUT - Mkt price paid to purchase 110, to make profit, you have to sell it when mkt price is > 110. Fullstop.

Now, Lets understand Mkt price behaviour of CALLs and PUTs wrt NIFTY movement

For CALL, - If NIFTY goes up, the CALL option premium will increase
- If NIFTY goes down, the CALL option premium will decrease

For PUT, - If NIFTY goes up, the PUT option premium will decrease
- If NIFTY goes down, the PUT option premium will increase



Hope it is clear now. If not,
1) plz make a table with following three columns
Nifty SPOT, Nifty 3000 Call, Nifty 3000 PUT

2) Record atleast 5 to 10 values from realtime mkt values when NIFTY is at diffrent levels (do it on the same day.. so that timedecay/ volatility etc will have minimum impact of price).
3) See it yourself and observe the price behaviour
4) To learn more, make this table for next day..and observe how prices are changing.

Sometimes, Reading and Learning is not sufficient thats why we had practicles in school.

Happy Trading.