Hello everyone,
I have a few questions regarding stock options trading. I am new to it and on learning stage. I tried going through the other threads but could not find what i was looking for. Please help me out.
1.) If i sell call/put options i receive a premium for that. This premium is credited to my account. In case of short options, i am required to maintain a margin. Is this margin there to ensure that wen the option is exercised i am ready for it?
2.) The options in India are american options from what i have learnt. So what happens to the options if someone exercises them before the expiry date? i mean how do they settle these?
In order to make my questions clear i am quoting an example:
Suppose i hold 50 shares of SBI which i purchased at a low price (of say 2400). Current price is 2460. The call option for SBI2500 1 month expiry, is Rs.42. So i sell call options equivalent to 50 shares and get 42x50=Rs. 2100. BAsed on my understanding, if the prices increase more than 2500, (i.e if it is in the money) the buyer will exrcise at 2500 giving me 2500+42=Rs. 2542/share.
3.) Here, is it that the shares in my demat can be transfered directly? or should i sell the existing shares in the market, and pay the difference to the exchange?
Here my motive is not to sell the option at a premium, but to book my profit at a higher rate..
Is my understanding right about it? or am i making a very obvious mistake?
I know its too long and may be the basics. I am a student now and entering into trades. Thanks a lot in advance for any help.
I have a few questions regarding stock options trading. I am new to it and on learning stage. I tried going through the other threads but could not find what i was looking for. Please help me out.
1.) If i sell call/put options i receive a premium for that. This premium is credited to my account. In case of short options, i am required to maintain a margin. Is this margin there to ensure that wen the option is exercised i am ready for it?
2.) The options in India are american options from what i have learnt. So what happens to the options if someone exercises them before the expiry date? i mean how do they settle these?
In order to make my questions clear i am quoting an example:
Suppose i hold 50 shares of SBI which i purchased at a low price (of say 2400). Current price is 2460. The call option for SBI2500 1 month expiry, is Rs.42. So i sell call options equivalent to 50 shares and get 42x50=Rs. 2100. BAsed on my understanding, if the prices increase more than 2500, (i.e if it is in the money) the buyer will exrcise at 2500 giving me 2500+42=Rs. 2542/share.
3.) Here, is it that the shares in my demat can be transfered directly? or should i sell the existing shares in the market, and pay the difference to the exchange?
Here my motive is not to sell the option at a premium, but to book my profit at a higher rate..
Is my understanding right about it? or am i making a very obvious mistake?
I know its too long and may be the basics. I am a student now and entering into trades. Thanks a lot in advance for any help.
