cover calls-regular income from the stock market?

aca_trader · #21 7th July 2006, 11:30 AM

Quote:

Originally Posted by swagat86

and simultaneously go long and short in the cash market @ 800.

Nope, you can't go both long & short into the cash market simultaneously. It will square-off the position.

However, there is a way out. Use two demat accounts. Go long into one and short into another.

Best Regards,
--Ashish

vince · #22 7th July 2006, 11:51 AM

Quote:

Originally Posted by Agilent

Can u elaborate ? If you mean what I think you mean (see red) , that's incorrect.

Am I right , Vince ?

AGILENT

No Agilent, difference between strike and closing spot is payable in case of excercise of options.

vince · #23 7th July 2006, 12:32 PM

Quote:

Originally Posted by swagat86

I meant intraday. as i said before im not an expert. but cant we sell call n puts intraday? and simultaneously go long and short in the cash market @ 800. As per i know the difference between Strike price and the spot price is payable. Now in the above xample if the stock closes below the Rs 800 the gains from the shorts in the cash market will take care of the amt payable on puts sold. Premium is urs. And the longs in the cash market would be mitigated with the double premium. that could act as a SL. This strategy would work best with stocks with low volatility. Is this possible vince? thanks for0 replyin.

What you are trying to do is to hedge your positions. Pls remember that the lesser the risk the lesser the reward.Even if you have 2 demats as Aca has said, What you are attempting is not feasible because what you would gain on one position you would loose on the other in both the option and cash trades. Since being intraday trades you would have to square up at the end of the day and buy back the short options if not exercised which they rarely are.(Give back the Premium) If I have missed something pls let me know.

swagat86 · #24 7th July 2006, 12:47 PM

i meant that if a contract is in the money that is spot price is less than the strike price in case of put and vice versa for calls then tthat is the amt payable. resaon being that im the seller of the contract. this is what i read at the icicidirect.com>customer service>quick lessons. isnt that correct?

swagat86 · #25 7th July 2006, 12:54 PM

im sorry vince i didnt get u. In icicidirect.com u can go long and short simultaneouly. which iv done before. but i didnt get this part if an option contract is not exercised intraday i hav to pay back the premium? i never new abt this? then there is no point of this trade.

Agilent · #26 7th July 2006, 06:49 PM

Quote:

Originally Posted by swagat86

im sorry vince i didnt get u. In icicidirect.com u can go long and short simultaneouly. which iv done before. but i didnt get this part if an option contract is not exercised intraday i hav to pay back the premium? i never new abt this? then there is no point of this trade.

Swagat

What he means is : since your strategy is intraday by choice , i.e. no carry forward,you need to square off both options, hence pay respective market premium as quoted EOD

Am I right Vince

By the way, have u considered brokerages and (more important : the wide bid/offer spreads which are typical of Indian markets). These costs could severely dent your profits !

As for being long and short simultaneously, you can get over this simply by using yr spouse /partner's acct (heheh), like Aca said (so this is not a constraint at all)

AGILENT

swagat86 · #27 7th July 2006, 10:18 PM

hi Agilent, i said selling a call and a put simultaneously, right? this means im supposed to get premium right? second of all dont 4get that ur selling 2 calls, which will imply double premium. but profits would be sure shot. im still not very clear on what vincesaid "Since being intraday trades you would have to square up at the end of the day and buy back the short options if not exercised which they rarely are.(Give back the Premium). im still a novice do hlp me. and make hing clear. pls.

Agilent · #28 8th July 2006, 12:43 AM

Quote:

Originally Posted by swagat86

hi Agilent, i said selling a call and a put simultaneously, right? this means im supposed to get premium right? second of all dont 4get that ur selling 2 calls, which will imply double premium. but profits would be sure shot. im still not very clear on what vincesaid "Since being intraday trades you would have to square up at the end of the day and buy back the short options if not exercised which they rarely are.(Give back the Premium). im still a novice do hlp me. and make hing clear. pls.

Swagat
Listen , it will make things more clear for all of us if you give a concrete example with mock trades, costs, sale proceeds, profits etc . Take today's opening and closing rates as the guide, and use the most liquid counter e.g. TiSCO or SBI

So let's get it : u go long AND short simultaneously in say 675 TISCO (to tally with minimum trading lot for the options) at today's opening 555. You square off both positions at today's closing of 517 (Marginal Net Loss of ... ?)

U also sell an ATM (July 560 strilke) call and a put each and pocket premia totalling Rs 45 (approx) and square off each at EOD (total outlay Rs 68 ?)

Can u pl work out yr profit or loss, and share yr working with all of us ?.

Mind u , factor in the brokerage AND do take cognizance of the bid /offer spreads in each quote

Eager to hear from u

AGILENT

swagat86 · #29 8th July 2006, 09:18 AM

il work this out right away but can u explain the term bid offer spreads? did u mean the difference between the bid and the ask price?

vince · #30 8th July 2006, 09:37 AM

Swagat,

Please clear your basics on options before taking on any trade, go thru an option primer if necessary . Take your time, the markets are not going anywhere.

Get this, if you are selling / writing options the premium is yours without any obligation only on expiry of the contract. If you want to close out your position any time before that you got to buy back the short option by paying the CMP (premium) prevalent at that time.

Since you are selling a straddle ie a call and put of the same strike only intraday, the deltas being identical one would gain as much as much as the other would loose unless the IV of one is so much more than the other( highly unlikely )so as to offer any profit opportunities at all.

Your effect of simultaneous long and short positions would be similar.

I hope that mock trade Agilient has suggested would make things even clearer.

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