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| Discuss F & O use to buy and sell a share at the Derivatives within the Traderji.com - Discussion forum for Stocks Commodities & Forex; Originally Posted by tushars82 Tushar, Hello everybody! Happy INDEPENDENCE DAY! I am very new to ... |
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#11
15th August 2006, 05:48 PM
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Re: F & o queries
Quote:
Since most of your queries are already answered by Vince, I am just quoting a few para from "Come into my trading-room" by Alexander Elder. They are self-explainatory. And there is much more in the same book on option-writing, in general. I have heard a book by Indian Writer "Ashwin Mehta" titled "How to make money trading derivatives" is also a very good. I am sure you will do your home-work before considering options-writing. My friendly suggestion to you is to go for options buying first, see how good you are at predicting the "option moves". This is especially so because options market is very volatile, unlike stocks (especially Nifty) and there is a crucial element called "time value" which is not present in stocks. Your loss here will be restricted (although it can be as high as 100% of premium  ). Once succeed in option-buying, you can consider option-writing. ------- Excerpts from "Come into my trading room - Alexander Elder" There are two types of option writers. Covered writers buy a stock and write an option against it. Naked writers write calls and puts on stocks they don’t own, backing their writes with cash in their accounts. Writing naked options feels like taking money out of thin air, but a violent move can put you out of business. Writing options is a serious game, suitable only for disciplined and well-capitalized traders. Large funds tend to use computerized models to buy stocks and write covered calls against them. If a stock stays below the strike price, they pocket the premium and write a new call with a new expiration date. If a stock rises high enough to be called, they deliver it, collect the money, invest in another stock, and write calls against it. Covered writing is a mathematically demanding, capital-intensive business. Most serious players spread their costs, including staff and equipment, across a large capital base. A small trader doesn’t have much of an edge in this expensive enterprise. We must not forget that an option is a hope, and it is better to sell empty hopes which are unlikely to be fulfilled. Take three steps before writing a call or a put. First, analyze the underlying security, decide which way it’s moving, and estimate its price target. Second, decide whether to write a put or a call. Third, choose the strike price and the expiration date for the option you’ll write. If any one of these steps seems unclear, stand aside, do not force a decision, and look for another opportunity. Option writers get hurt in one of three ways. Beginners overtrade and write too many options, breaking money management rules. Intermediate level traders get hurt when they fail to run fast enough when their options move against them. Experienced traders can get blown out if they do not have a reserve against a major adverse move. The longer you trade, the greater your risk of a catastrophic event. Having an insurance account confirms your position as a professional option writer. ------ Regards, Abhay (AAD) 
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#12
16th August 2006, 03:00 AM
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Re: F & O use to buy and sell a share
Hello,
I am new at TRADERJI someone pls guide me on writing calls and puts, Pls solve the condition bellow: If buy 300 reliance ind shares @ 1030.00, And write call of strike price 1060 @ 15.00, Suppose on expiry price of reliance ind will close @ 1050.00 How much I earn???? Like to see the reply earlier.... Thanx.
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#13
16th August 2006, 07:00 AM
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Re: F & O use to buy and sell a share
Hello Shadabshaik,
You keep the premium of Rs 15 and if you decide to sell the shares on expiry you get the Rs 20/share. Go figure. 
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#14
16th August 2006, 10:00 AM
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Re: F & O use to buy and sell a share
Thanks Vince........
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#17
18th August 2006, 08:48 AM
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Re: F & O use to buy and sell a share
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thanks in advance...
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#18
18th August 2006, 09:41 AM
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Re: F & O use to buy and sell a share
No jigs080806, The query I have answered was about a covered call. Options in India are cash settled.
Please do not confuse yourself. Reread the query pls.
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#19
27th August 2006, 01:20 PM
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Re: F & O use to buy and sell a share
Hello Members,
First thanks to VINCE and other members, Now my other query regarding buying puts & calls, Solve this condition, I have bought 400 ranbaxy shares @ 389.00 Also bought 1 lot(400) of ranbaxy put strike price of 400 @ 13.00 What happen if ranbaxy close on expiry @ 396.00 And which price i start making profit... I think it is lowest risk strategy but guide me through anyway.. waiting for your reply. SHAHDAB SHAIKH
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#20
27th August 2006, 06:10 PM
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Re: F & O use to buy and sell a share
Quote:
Your outflow on the put is 5200 If ranbaxy closes at 396 on expiry you make 7*400(shares) + 4*400(put) = 4400 So you still lose 800. I have said it earlier the lower the risk the lower the reward and there is no holy grail, if there is any it is discipline and trade management. Trade well
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