Understanding F&O

[7at7]

Dear friends,
How is the premium when one sells a put or a call calculated? And are profits (or loss) simply the difference between buy & sell price multiplied by the number of shares in of the option? Could someone please explain this in lucid terms to someone as new as I? Thanks

 

[kaydee1127]

Hi
Premium calculation of options is complicated procedure and is out of scope of we traders.
Very true, profit (or loss) is simply the difference between buy & sell price multiplied by the number of shares in a lot of the option.

 

[7at7]

Thanks. But is the premium when we sell a call/put get credited immediately or when the position is closed or sold off? Sorry for the trouble. Cheers

 

[kaydee1127]

Thanks. But is the premium when we sell a call/put get credited immediately or when the position is closed or sold off? Sorry for the trouble. Cheers

Sorry
I do not know about it as I never wrote (sold) a call.
But IMO, you first have to pay the margin money needed and then the premium will be credited to your account. And it should be credited immediately. But cant say for sure.
Just contact your broker and he will clear your doubts.

 

[comm4300]

Thanks. But is the premium when we sell a call/put get credited immediately or when the position is closed or sold off? Sorry for the trouble. Cheers

writing/selling options requires margin.
once you sell an option, the premium collected would be credited the same day.

 

[7at7]

Thanks all. Okay so far figured out: -
1.When writing a call or a put the premium one receives is No of shares of the lot x price paid at that point. If sold Ambuja cement call at 6 rupees then its 2000 (lot size)x 6 = 12,000.
2.Profit and loss is difference in buy sell prices x no of shares in the lot. However at expiry - its the difference between the stock price and the strike price, plus or minus.
3. Premium credited when option is sold immediately.

Please correct me if I'm wrong still - esp point number two. Its taken me one month to figure this out.
Cheers

 

[comm4300]

Thanks all. Okay so far figured out: -
1.When writing a call or a put the premium one receives is No of shares of the lot x price paid at that point. If sold Ambuja cement call at 6 rupees then its 2000 (lot size)x 6 = 12,000.
2.Profit and loss is difference in buy sell prices x no of shares in the lot. However at expiry - its the difference between the stock price and the strike price, plus or minus.
3. Premium credited when option is sold immediately.

Please correct me if I'm wrong still - esp point number two. Its taken me one month to figure this out.
Cheers

all point correct.