How to settle Options?

loosingstreak · #31 15th October 2007, 01:28 PM

Quote:

Originally Posted by ranj_2k

Options are not like stocks where you buy them and hold them. Decay will continually erode your position and a change in trend can evaporate your profits quickly. It is important to set a specific target price for the option when you initiate the position. When you reach your target, you sell and take our profits. Beware that greed can be a strong motivator and make you want to increase your price target as it is rising. However, doing that can sometimes turn a winning position into a losing position.
There is no clear cut principle to know when time decay will start. But when expiry date started approaching near decay will start fast and will try to match the strike price and spot price. Premium will start evporating.

The theta will tell you exactly how much the option decays everyday. Use the B/s to derive theta.

humble.student.trader · #32 16th October 2007, 06:38 AM

Dear Experts,

Please help me get an answer to the following related question related to how do I take position and close poistion in covered call?
1. I have ICICI direct account. Do I need to pay margin even for writing covered call.
2. Do I need to carry out 2 separate transaction for covered call:a) buy share b) sell call
3. Lets say if the stock price crosses strike price, I reach my maximum profit, How do I close the position? Do I need to buy the call and sell shares to close out any open position? Is there a possibility of takng care of price fluctuations between these transactions?
Please suggest a method.

Thanks a lot

ranj_2k · #33 16th October 2007, 12:28 PM

1. I have ICICI direct account. Do I need to pay margin even for writing covered call.
Yes. You can not use Shares as Margin for option trading.
2. Do I need to carry out 2 separate transaction for covered call:a) buy share b) sell call.
No. All F&O transactions are settled in cash in India on expiry.
3. Lets say if the stock price crosses strike price, I reach my maximum profit, How do I close the position? Do I need to buy the call and sell shares to close out any open position? Is there a possibility of takng care of price fluctuations between these transactions?
Please suggest a method.
There is no link of strike price in calculating profit or less in option. Your sell price should be higher than buy price and difference is profit after considering brokerage and taxes.
Thanks a lot

loosingstreak · #34 16th October 2007, 01:05 PM

Quote:

Originally Posted by humble.student.trader

Dear Experts,

Please help me get an answer to the following related question related to how do I take position and close poistion in covered call?
1. I have ICICI direct account. Do I need to pay margin even for writing covered call.
2. Do I need to carry out 2 separate transaction for covered call:a) buy share b) sell call
3. Lets say if the stock price crosses strike price, I reach my maximum profit, How do I close the position? Do I need to buy the call and sell shares to close out any open position? Is there a possibility of takng care of price fluctuations between these transactions?
Please suggest a method.

Thanks a lot

Hello,

Most brokers allow a percentage of the stock u hold to be used as margin, I do not know about icici. You will have to check with them.

Yes , you will have to execute 2 transactions as mentioned by u for covered call.

You are right again about closing out the position. I dont think the price fluctuation would be to great to worry about.

Cheers.

ghosh_ak34 · #35 16th October 2007, 11:35 PM

In options volumes matters a lot. Underlying should cross your strike price with good volume for a profitable option. To keep it simple 1% rise/fall in underlying is 10% (approx.) rise/fall in options. By good volume I mean 40-50% or more volume

Hope this helps.

Regards

rkkarnani · #36 17th October 2007, 09:07 AM

Quote:

Originally Posted by ghosh_ak34

In options volumes matters a lot. Underlying should cross your strike price with good volume for a profitable option. To keep it simple 1% rise/fall in underlying is 10% (approx.) rise/fall in options. By good volume I mean 40-50% or more volume

Hope this helps.

Regards

With certain options volumes being just in single figure or even less, I feel in India we are still a bit away from considering volumes in Options. One must look for liquid options only if one has to trade.
In illliquid options the 'spread' is tooooooo big for comfort.

blitzkreig · #37 20th October 2007, 01:03 PM

Hi All,
I'm new to option markets. Can u pls clear my doubt.
suppose i bought a call option @ 10 rs premium and sold for 20 rs. Do i have to pay anything if the premium goes to 30 rs and buyer (who bought the option frm me) is excersising the call option ???

rkkarnani · #38 20th October 2007, 04:36 PM

Quote:

Originally Posted by blitzkreig

Hi All,
I'm new to option markets. Can u pls clear my doubt.
suppose i bought a call option @ 10 rs premium and sold for 20 rs. Do i have to pay anything if the premium goes to 30 rs and buyer (who bought the option frm me) is excersising the call option ???

Once u have squared your position, i.e. sold what you bought, you have no obligation left. The exchange randomly selects anyone to fulfil the 'exercise' and it cannot be you as you have no pending position.

humble.student.trader · #39 26th October 2007, 10:24 PM

1. Today I chose shares as margin option in ICICI direct and allocated some of my shares. I didn't trade anything yet. But just want to know whether they charge anything for such transaction? Do I need to be watchful about something here?

2. Is there any place where I can see how many contracts are traded at various strike prices on a given day for various underlying in a consolidated fashion?

sanjugalande · #40 1st November 2007, 02:19 AM

hi friends
if somebody doing option in kotaksecurities i have 1query
i have ntpc ca200 at 10rs primium

at current
ntpc is 240in cash market with primium 20rs

at situation how can i gain/book my profit
should i sell call or o excercise specially in kotak online web-basae software
plzz help
what would be gain in excercise and if i sell
is it diff of primium * lot size
or diff of strike priceand spot price*lot size
thanks
sanju!!