Newbie's Question on Options

Smart_trade · #51 28th August 2008, 07:20 PM

[quote=MYACCOUNT;210753]OPTION & MY DOUBT ABOUT OPTION

PLEASE ANSWER THE FOLLOWING QUESTION

CALL OPTION

1) If I Think That A Particular Script Will Go Up , And I Buy A Call Option Of The Script, And If It Goes Up Then

I Will Get Profit Is It Right ( Yes / No ) , But I Also Want To Know Whether The

A) Premium Will Increase
B) Premium + Strike Price Will Increase
C) Only Stick Price Will Increase

PUT OPTION

2) If I Think That A Particular Script Will Go DOWN , And I Buy A PUT Option Of The Script, And If It Goes DOWN Then

I Will Get Profit Is It Right ( Yes / No ) , But I Also Want To Know Whether The

D) Premium Will Increase
E) Premium + Strike Price Will Increase
F) Only Stick Price Will Increase

I Have Heard ( In General ) That After 10th Of Every Month The Premium / Strike Price / Both Will Go Down Is It True[/QUOTE]

PUT OPTION

2) If I Think That A Particular Script Will Go DOWN , And I Buy A PUT Option Of The Script, And If It Goes DOWN Then

I Will Get Profit Is It Right ( Yes / No ) , But I Also Want To Know Whether The

D) Premium Will Increase
E) Premium + Strike Price Will Increase
F) Only Stick Price Will Increase

I Have Heard ( In General ) That After 10th Of Every Month The Premium / Strike Price / Both Will Go Down Is It True[/QUOTE

Hello ,

You require more understanding of option basics.I have marked answers to yr Q in bold. The strike price never increases or decreases ,it remain same one you trade a contract with a particular strike price. It is only the premium that increases or decreases.

Best Wishes,Learn well and trade well !!!!

Smart_trade

vangara_kris · #52 28th August 2008, 11:01 PM

First read basics on options for ur need visit http://www.optionetics.com/education/basic/
All the best
krishna

MYACCOUNT · #53 1st September 2008, 07:21 PM

I reqest you to answer for the following questions

i have purchased a share 2000 including premium using call option

currently the price went upto 2200 , so now i want to sell the share

, i have to use put option to sell the share is it right , if i

sell the share using put option which i have brought using call

option, whether i have to pay any mark to mark,

2) under which conditon a person have to pay mark to mark

give a real time numerical example

thank you

mits2486 · #54 2nd September 2008, 03:00 PM

Like Newbie even i am new to options...Can any one tell me the difference between Squaring off an option, excercising the option, and expiry of the option

AW10 · #55 3rd September 2008, 03:16 AM

All 3 cases are applicable when you have already bought an option.
1) Squaring off - if you have bought the option then you can very well sell it in the market.. So selling back the option in mkt is Squaring off. It is used by traders how have bought the option to make quick profit and close the position.
2) Exercising - As an option holder, you have the right (for call holder, to buy something or to sell something as put holder). So you can exercise your right and buy /sell the underlying security. In India, option exercise is settled in Cash.. so you will get the credit/debit based on the exercise price of the security and your strike price. Very few people buy option with the purpose to exercise them. Used by option buyer, who want to buy the stock at strike price. Or used by people who wants to sell and close the position but don't find the buyers in the market.
3) Expiry - Options have limited life so one fine day, they are going to expire. If you haven't taken action 1 or action 2 above before the expiry, then they are going to expire. At that time, if the option is in the money, then you will get/pay the money. It is decided by the settlement price on the day of expiry with respect to the strike price. It is sort of forced exercise by Exchange.
Out of the money options are expired worthless so no action is required.
80%+ options expire worthless. Used by people to hedge their positions, used for income generating strategies etc.

Happy Trading.

sd_singal · #56 3rd September 2008, 10:22 AM

Quote:

Originally Posted by AW10

All 3 cases are applicable when you have already bought an option.
1) Squaring off - if you have bought the option then you can very well sell it in the market.. So selling back the option in mkt is Squaring off. It is used by traders how have bought the option to make quick profit and close the position.
2) Exercising - As an option holder, you have the right (for call holder, to buy something or to sell something as put holder). So you can exercise your right and buy /sell the underlying security. In India, option exercise is settled in Cash.. so you will get the credit/debit based on the exercise price of the security and your strike price. Very few people buy option with the purpose to exercise them. Used by option buyer, who want to buy the stock at strike price. Or used by people who wants to sell and close the position but don't find the buyers in the market.
3) Expiry - Options have limited life so one fine day, they are going to expire. If you haven't taken action 1 or action 2 above before the expiry, then they are going to expire. At that time, if the option is in the money, then you will get/pay the money. It is decided by the settlement price on the day of expiry with respect to the strike price. It is sort of forced exercise by Exchange.
Out of the money options are expired worthless so no action is required.
80%+ options expire worthless. Used by people to hedge their positions, used for income generating strategies etc.

Happy Trading.

Thank you very much for the clarifications.

Can you please explain how the options can be exercised practically? That is, how the order to be placed for exercising? I am using ODIN from religare. I know how to square off, but not aware how to exercise an option.

Regards

santhosh2008 · #57 3rd September 2008, 10:28 AM

hai ,thank you

shyaamsundarg · #58 3rd September 2008, 12:25 PM

Hey gusy!

You should understand that the margins is calculated by a software called SPAN(standard portfolio Analsys). It calculates margin based on your open open positions and on 16 worst case scenario.

AW10 · #59 4th September 2008, 01:06 AM

Quote:

Originally Posted by sd_singal

Thank you very much for the clarifications.

Can you please explain how the options can be exercised practically? That is, how the order to be placed for exercising? I am using ODIN from religare. I know how to square off, but not aware how to exercise an option.

Regards

It depends from borker to broker. In ICICIDirect, one can directly place the order on their online trading platform to excercise the option. With Sharekhan, we need to call their helpdesk after mkt close (around 3.50 pm) to place the order for excercise.
So, please check this with your borker.

Happy Trading.

sd_singal · #60 4th September 2008, 02:57 PM

Quote:

Originally Posted by AW10

It depends from borker to broker. In ICICIDirect, one can directly place the order on their online trading platform to excercise the option. With Sharekhan, we need to call their helpdesk after mkt close (around 3.50 pm) to place the order for excercise.
So, please check this with your borker.

Happy Trading.

Is there any difference in exercising and square off in terms of STT and brokerage? In sharekhan you told it is to be placed after market close. Then
it will be exercised on the same day or the next day?

Thanks in Advance

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The Following User Says Thank You to AW10 For This Useful Post:
riser3 (9th October 2008)

The Following User Says Thank You to sd_singal For This Useful Post:
santhosh2008 (3rd September 2008)