Help me on OPtion trading

#1
Hello everyone,
I am very new to stock Options.I have read some articles about it but still having some confusion.I will be grateful if the senior pros chip in with advises or even some recommendations.

Suppose nifty is trading at 5250 level.And i want to buy a call NIFTY 50 for 5300 strike price and premium price for it is Rs. 80.My query is that

1. Why it showing 5100,5000 and so on levels in strike price drop down?

and suppose if I buy nifty with strike price of 5200 then in which condition I will be in profit means above which nifty price should i sell those call options to get profit?

How should I come to know that I will be in profit or loss?



2.Now consider the second case,nifty is currently trading at 5250 and want to buy nifty call with strike price 5300 at premium 80 Rs. and expiry is April end.

When should I sell those option to be in profit?

Please helps me.
Thanks in advance
Vaibhav
 

prasham

Active Member
#2
IN GENERAL TERMS.

In Calls when price of the underlying increases your profit would increase and similarly in Puts when price of the underlying decreases your profit would increase.

For Example... If you buy a 5000 call and if nifty moves from 5000 to 5100 your call shall be in profit.

Naked Option selling could cause you financial damage. Unless you are fully acquainted with options I wouldn't recommend you of doing so.
 
#4
Hi prasham,
Thanks fo ryour quick reply and advice.I really appreciate.Will you please elaborate any strategy or live example of option trading?:)
 

prasham

Active Member
#5
Sorry pal. But if you wanna study options checkout investopedia . com
 

FanaticTrader

Well-Known Member
#6
Hello everyone,
I am very new to stock Options.I have read some articles about it but still having some confusion.I will be grateful if the senior pros chip in with advises or even some recommendations.

Suppose nifty is trading at 5250 level.And i want to buy a call NIFTY 50 for 5300 strike price and premium price for it is Rs. 80.My query is that

1. Why it showing 5100,5000 and so on levels in strike price drop down?

and suppose if I buy nifty with strike price of 5200 then in which condition I will be in profit means above which nifty price should i sell those call options to get profit?

How should I come to know that I will be in profit or loss?



2.Now consider the second case,nifty is currently trading at 5250 and want to buy nifty call with strike price 5300 at premium 80 Rs. and expiry is April end.

When should I sell those option to be in profit?

Please helps me.
Thanks in advance
Vaibhav
Lets take this one by one...

Firstly, the question is why do want to buy 'CALL' option?
In case you have bullish view on market and Nifty is trading say @ 5250. You can now buy call options of levels which you feel Nifty should hold on/before expiry.

Say, you plan to buy 5300 CE and the option premium is 100. So the option will only be profitable when Nifty trades above 5300. Suppose at expiry Nifty closes at 5450. So the net gain would be

Gain = Market Price - Strike Price - Premium

which turns out to be 5450-5300-100 = 50. Hence your profit per let would be 50 only.

In case this 5300 CE option is not exercised, you are set to lose 100 (which is your premium) per lot.
 
#8
Hi FanaticTrader,

Greetings !

Newbie here once again ! My question is that if the nifty is trading at 5250 then you said go for call of 5300 and when nifty reaches above 5300 then only i will make profit. (Silly question maybe for you) Can I go for call 5200 ? as nifty is already above 5200 ! :confused: I want to day trade with nifty, is it possible. I want to close positions everyday with profit. Is it possible in Nifty Options ? for last 3-4 days I was paper trading with call and put and made atleast 50 points on an average per day per trade with only single trade. can i close position the same day and take profit for those points gained ? Secondly If I know where nifty is going to head for the day, is there any point studying delta, theta, vega, and probability etc ? Your help will be appreciated.

I am also confused about the losses. Some people say that your premium which you pay is your maximum loss irrespective of nifty direction. then why do losses mount up if nifty go against ? Is my biggest worry. Also please let me know whether the call put ratio has any meaning ? I mean whether we can judge the direction of nifty on the basis of just that ratio ?
 
Last edited:

FanaticTrader

Well-Known Member
#9
Hi FanaticTrader,

Greetings !

Newbie here once again ! My question is that if the nifty is trading at 5250 then you said go for call of 5300 and when nifty reaches above 5300 then only i will make profit. (Silly question maybe for you) Can I go for call 5200 ? as nifty is already above 5200 ! :confused: I want to day trade with nifty, is it possible. I want to close positions everyday with profit. Is it possible in Nifty Options ? for last 3-4 days I was paper trading with call and put and made atleast 50 points on an average per day per trade with only single trade. can i close position the same day and take profit for those points gained ? Secondly If I know where nifty is going to head for the day, is there any point studying delta, theta, vega, and probability etc ? Your help will be appreciated.

I am also confused about the losses. Some people say that your premium which you pay is your maximum loss irrespective of nifty direction. then why do losses mount up if nifty go against ? Is my biggest worry. Also please let me know whether the call put ratio has any meaning ? I mean whether we can judge the direction of nifty on the basis of just that ratio ?
Sure, with Nifty @ 5250 you can buy a 5200 call but then you'll have to pay very high premium.

Lets look at current scenario

On Friday, Nifty closed at 5652 and if you have bullish view on Nifty you opt to buy 5200 CA. This would be "In-the-money" option.

So you call would only be profitable once Nifty manages to trade above SP+Premium paid

i.e.

Strike Price = 5200
Premium = 109
BEP = 5309 (5200+109)

So, you would end up with profit only if Nifty manages to close over 5309. The higher Nifty manages to close over 5309 more profit you'll get. But if Nifty closes below BEP i.e 5309 you ought to lose your premium (109*lot size).

For your second point : Yes if trade moves in your favour, you can close your position same day. No issues !!!

Values like Delta, Theta and Vega have their own importance and one can surely benefit from having know the importance on these but then again they are a little complex than normal naked calls.

For losses, for different strategies your losses can be different.

In the above example, if trade goes against we will lose entire premium. But if we had sold 5200 CA my losses would keep on mounting the higher nifty closes over BEP i.e 5309 and that can be unlimited.

With PCR you can't really judge the direction of market (this is my view :) ). I just check PCR only for having to know as how much of option writing activity happened.
 
#10
Hello Fanatic Trader,

I want to daytrade in nifty options. now the NSE is trading at 5169. I want to know how to make profit daily. Whether to buy put of 5200 or 5100 if I buy put of 5200 the price is 90.50 and put for 5100 price is 48.4 and 117 among the chain. Imagine the nifty is going down like I know from which point it is going down. Can i immediately profit after putting trade if after putting trade nifty start going down ? if yes then which put shall i buy 5200 or 5100 ? what do traders do normally ? I am bearish but only for a single day.
 

Similar threads