Index Options

prams_aryan · #1 29th April 2008, 04:31 PM

i am pramod from hyderabad.Please clarify my doubt regaring index options.

On 28th april 2008 i have buyed put option of strike price 5100 at 147 rs/- of 50 lot size. on the same day Nifty closed at 5089 and the price was 162 rs/- so here i am in-the-money i.e am in profit.

but am really confused how to calculate profit provided with above data.

1)is it (162-147)*50= 750 rs/-
or
2)is it (5100-5089)*(162-147)*50=8250 rs/-

i couldnt understand how to calculate.

even though the Nifty index is not below put option 5100 the price is above 147rs/- few times so can i sell at this time also for less profit?

PLease am really in need to get clarified by this...Thanq.

leo_3455 · #2 29th April 2008, 05:26 PM

Hi:

Consider this: You buy a Call/put option with strike price 5100. Today it is at X price and say tomorrow Y.

The profit or loss is (Y-X)*50

Say you bought at 147 (X) and you sell at 162 (Y); your profit is

(162-147)*50 = 15 * 50 = Rs. 750

prams_aryan · #3 29th April 2008, 05:34 PM

Quote:

Originally Posted by leo_3455

Hi:

Consider this: You buy a Call/put option with strike price 5100. Today it is at X price and say tomorrow Y.

The profit or loss is (Y-X)*50

Say you bought at 147 (X) and you sell at 162 (Y); your profit is

(162-147)*50 = 15 * 50 = Rs. 750

But what if nifty goes below 5100 like i said 5089
is it like

(5100-5089)*(162-147)*50=8250rs/- ?

I have seen this above calculations in many sites?

if this is wrong then why do people say index options are having higher profits than any other considering my investing 7500rs invest ment and gaining 750.

THETRADER · #4 10th June 2008, 06:43 PM

That 'in the money' of Rs.11 is the intrinsic value of the option, and, balance is the time value. Time value will go down to zero on expiry. That is if Nifty closes at 5100 on expiry, you will get nothing. If Nifty closes at 5089, you will get Rs.11. However, you can choose to sell the option earlier.

About your other question, if Nifty comes down to 4800, Your 5100 Put would trade above 300 (intrinsic value), how much above depends on how long away is expiry. Let us say, it is around 345, and, you sell it off, you gain 200 pts, ie., Rs.10000, and, is more than 100% return.

I suggest you reading up some material on Options. You can search this forum for this.

abhinkoi · #5 11th June 2008, 07:59 PM

It works like this -
If you buy a PUT option of 5100 strike at 147 then you will always gain if Nifty expires below 5100 whereas the 5100 PUT option writer will gain if Nifty expires at 5100 or above.

Let me explain for both buyer and seller -

You bot at 147 and paid 147 to writer/seller of 5100 PUT. People gain in PUT only if price falls so the PUT buyer will gain if price falls and the more price falls below 5100 the more gain PUT buyer will have and vice versa for PUT writer. The more Nifty goes above 5100 the PUT writer will gain.

Lets say Nifty closes at 5200 on expiry so as a PUT writer he will keep all the premium of 147 whereas you will lose everything as the Intrinsic value will be 0. On the other hand if Nifty expires below 5100 then you will gain 50 rs for every single point. For example if Nifty expires below 5100 at 5050 so you will gain 50 x 50 = 2500. It doesnt matter how much the premium value is on expiry. You will always gain based on the SPOT value of Nifty.

Hope this helps. Let me know if you need more clarification.
Add my ***** id abhinav_1978@********** for any further info on Options trading.

Cheers
Abhinav